Dr. Wolf-Georg Scharf, lawyer in Vienna;
Dr. Roland Rief, tax lawyer in Vienna,
100630.2506@compuserve.com
The possibility of establishing a family trust in an EEC country with the same advantages as a private trust under the laws of Switzerland or Liechtenstein.
1) Introduction
Austria's parliament enacted the Privatstiftungsgesetz (trusts act) in 1993, at the same time amending the Austrian Körperschaftssteuergesetz (corporation tax act), Einkommensteuergesetz (income tax act), Erbschaftssteuergesetz (inheritance and gift tax act). The only trusts previously permitted under Austrian law were charitable trusts whose purposes were limited. They were government-monitored. Parliament's primary objective was to inhibit the outflow of capital to Switzerland and Liechtenstein. At the same time, it wanted to encourage foreign investors to set up a trust for their family wealth in Austria to prevent its expropriation by giving them a safe haven Private trusts in Austria are entities without owners, so they do not have members.2) Setting up a trust
There are two ways of setting up a trust in Austria. It can be established under the terms of the founder's will or by donation In the former case, the founder m ust be a private individual, regardless of whether he or she is an Austrian citizen or a foreigner. In the latter, the founder can also be a legal entity; The founder can act as a Trustee for the actual donors.The founder donates property to the trust, at the same time defining the trust's purpose and the deed. The Deed can specify that the founder, who has to be a private individual, can under certain circumstances dissolve or wind up the trust at any time. Once the trust has been set up, the founder has an unconstrained right to amend its terms and conditions. Moreover, this right is not restricted to the founder; it can also be exercised, if so specified, by the Trustees, third parties or beneficiaries.
A trust must have capital of at least AS 1,000,000 in the form of cash or assets. If the founder donates assets, it must be audited by a certified public accountant when it is set up.
3) Terms and conditions, ancillary conditions
A trust's terms and conditions are its constitution. They must define its assets and capital, its objectives, its beneficiaries, its name and registered address and the period for which it is being set up. They can also lay down rules governing the appointment and organisation of the Trustees and the appointment of an auditor and other bodies (e.g. supervisory board), as well as reserving the founder's right of dissolution and additional specifications regarding the raising of capital. The founder must draft the terms and conditions in the form of a notarial deed This must be filed in the commercial register of the competent commercial court. The register is public , which means that the public have unlimited access to the documents registered there. However, the law also allows the founder to add ancillary conditions to the Deed that need not be published in the commercial register. The Deed must make reference to such ancillary conditions. They too must be contained in a notarial deed.A trust can have any purpose, such as the support and welfare of one or more families or of a legal charity. The trust may not carry on any trade or business for its own account.
4) Organisation
The Trustees are the trust's most important body The founder appoints the first Trustees. The Deed should lay down rules for future appointments. If it does not do so, the competent court will appoint Trustees as necessary. The founder can also be a Trustee.There must be at least three Trustees. They must be private individuals, and none may be related to any beneficiary. At least two Trustees must be resident in Austria. In certain cases, the competent court can replace a Trustee.
The Trustees manage the trust and represents it in all its affairs. They are held responsible for their actions. They are obliged to carry out their duties with due diligence and care and must act in good faith and in the trust's interests .
The trust Deed can also provide for a supervisory board with at least three members. Its duties are to supervise the Trustees and the trust's performance and approve certain transactions. In some cases a trust must have a supervisory board. This is the case if it employs more than 300 employees or controls Austrian companies that have more than 300 employees. To circumvent this requirement, it is possible to set up a holding company to control such companies. A trust's beneficiaries can also be members of the supervisory board, but they cannot form the majority .
As we have already mentioned, a trust can also have other bodies, such as an advisory board. The law restricts the delegation of legal or statuary power to such bodies by the Trustees or the supervisory board , but in practice they have a substantial informal influence on the bodies that are endowed with legal power.
The trust must prepare annual financial statements. They need not be published. A certified public accountant must approve annual financial statements and certify whether the trust's purposes and objectives have been fulfilled during an accounting period.
5) Beneficiaries' rights
A trust's beneficiaries are the legal entities or individuals who benefit from its funds . They can be Austrian residents or foreigners. The beneficiaries can be specified in the Deed's terms and conditions and in ancillary conditions or by one of the trust's bodies as empowered by the Deed.Beneficiaries can be granted an actionable right to receive benefits or funds from the trust.
6) Dissolution
A trust can be dissolved by law, by a unanimous Trustees' resolution or by an order issued by a competent Austrian court.Ex lege dissolution can occur if the trust becomes insolvent or if its term as laid down in the Deed has expired. A trust can also be dissolved by unanimous resolution on the part of the Trustees; however, this power of dissolution is limited to specific instances that are not dealt with in detail here. It can also be dissolved if the competent court judges a trust to be unlawful or carrying on a trade or business, and if the Trustees are held to have failed to comply with a prior injunction issued by the court ordering them to abstain from such activities within a certain period.
A trust's creditors must all be notified of its the dissolution. When they have been paid out, the remaining funds and assets can be distributed to final the beneficiaries.
7) Fiscal situation
Austrian trusts are very favourably taxed to encourage their foundation. The act of setting up a trust is only subject to 2.5% gift or inheritance tax. Additional donations by the original founder are also favourably taxed. If another person donates capital to the trust, gift tax of between 2% and 60% will be payable, depending on the amount of the donation. When Austrian real estate is donated, an additional fee of 2% is imposed. This is calculated on the basis of the so-called Einheitswert (unit value). The unit value is assessed by law at a value that is at the moment significantly lower than an asset's market value.Trusts are treated as legal entities for the purposes of corporation tax. Their income is subject to the corporation tax at 34%. Dividends received from Austrian or foreign companies are exempt, as income on specific investments in Austria. .
Beneficiaries who are Austrian residents do not have to pay gift tax on income distributed by a trust, but a withholding tax of 22% is levied on payments (dividends) paid to beneficiaries, as final taxation on their value. Beneficiaries do not have to file tax returns or pay income tax on such gifts. If they are non-resident, the rate of withholding tax will be lower if double tax agreements are in place.
