Austria: Legal form of a company

The entry into force of the fiscal reform 2009 on 1 January 2010 has changed the fiscal conditions. For this reason some thoughts about the legal form to choose for the performance of one’s activity might be interesting.
As of 2010 sole proprietorships and partnerships enjoy the benefit of the allowance on profits granted with a rate of 13%. A basic allowance on profits is granted up to 30,000 euro while for sums exceeding this limit the allowance on profits is accorded only for investments into fixed assets or preferential securities. The tax allowance is limited to 100,000 euro per person and taxable period.
Also partnerships are eligible for this double limit applied to the company and the single partners. Reliefs are granted also to managing partners of limited liability companies who can claim at least the basic allowance on profits. In this way a more or less equal treatment in the taxation of the income of sole proprietors/partnerships and limited liability companies distributing profits is achieved. The extension of the application of the allowance on profits is counterbalanced by the annulment of the special treatment of not withdrawn profits of companies providing for balance sheets.
The advantages of the new income tax rates are particularly felt by proprietorships and partnerships. In the case of a limited liability company it is only partly possible to benefit from the tax rates through the salary paid to managers. However, one should remember that in case of accumulating profits in a limited liability company the favourable 25% corporate income tax rate is applied.
The rule according to which in certain cases, in fiscal terms, personal services have to be attributed not to the company but to the person who rendered them, is a negative aspect. The incomes of managing partners are also increasingly subject to additional costs such as local tax, employers’ contributions to social insurance etc. In a case the Administrative Court ruled that renouncing a salary as managing partners is to be considered abusive behaviour.
From a fiscal point of view the choice of the legal form to adopt depends on certain facts. In principle it is fair to assume that the legal form of a limited private partnership is more convenient when there is high income and little distribution of profits while for proprietorships and partnerships the opposite is true

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