Austria: Dividend distribution exempt from capital gains tax

As is generally known, dividends distributed by a corporation to private investors are subject to a capital gains tax of 25%. However, if the distribution is not made by resorting to the profits realized in a year but, based on the company’s statute, to the contributions made by stakeholders, the distribution is deemed to be a “repayment of contributions” which is tax neutral and therefore not subject to the 25% tax rate.

The repayment of contributions is possible provided the company prepares a so-called “evidence account” registering the development of the single items composing the equity capital in the balance sheet. This evidence account must show if the balance sheet profit to be distributed consists of profits realized or of previously made equity contributions.

If a corporation decides to distribute a dividend, the board of directors may decide independently to register this dividend in the evidence account for fiscal purposes against the balance sheet profit or against the contributions by stakeholders.

If the dividend is distributed by using the balance sheet profit, it is subject to taxation under the general rules. If in an evidence account it is assigned to the contributions made by stakeholders, a repayment of contributions has taken place which is tax neutral. The board of directors’ decision is applied to all stakeholders receiving dividend payments.

Apart from the tax exemption with regard to the capital gains tax of 25%, a second fiscal effect is achieved. The repayment of contributions causes a reduction of the cost incurred for the acquisition of shares or participations in private limited companies.

As of 1 April 2012 also rate gains are subject to the 25% capital gains tax. Since the rate gains liable to taxation are calculated as difference between the proceeds from the sale and the purchase cost, the purchase cost reducing effect of the repayment of contributions may lead to a higher gain when a stake or participation is sold, which then will be subject to the 25% tax rate.

Thus the repayment of contributions has only the effect of deferring the payment because 25% capital gain tax has not to be paid at the moment of the distribution of the profits, but will be due when a participation is sold.

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