All questions
Transactions
i Legal frameworks and deal structures
In Austria, real estate transactions are governed by various legal frameworks and there are several possible deal structures that are commonly used. The choice of deal structure depends on factors such as the nature of the transaction, the parties involved and their objectives.
Depending on the specifics of the real estate transaction several different laws and regulations must be observed. The most relevant and common are: the Austrian General Civil Code and the Austrian Commercial Code, as well as the Limited Liability Companies Act and/or Stock Corporations Act in relation to share deals. Furthermore, the Land Register Act, the Real Estate Transfer Tax Act, the regional Building Regulations and several other special laws are to be considered, to name the most crucial ones.
In Austria, several legal forms are commonly used as property holding companies and acquisition vehicles. The choice of legal form depends on factors such as the nature of the transaction, the number of participants, liability considerations, tax implications and the desired level of flexibility.
Generally speaking, the most common company form in real estate transactions is the limited partnership (Kommanditgesellschaft). This is a partnership structure consisting of at least one general partner with unlimited liability and one or more limited partners with limited liability. Limited partnerships are often used in connection with real estate investment funds or joint ventures where the investor wishes to mitigate the risk by participating in the real estate holding company as a limited partner. Furthermore, this usually makes the acquisition process less complicated and bears some tax advantages in particular compared to asset deals.
The limited liability company (Gesellschaft mit beschränkter Haftung) is overall the most popular legal form used in Austria. It offers liability protection to its shareholders and allows flexibility in management and ownership structure. Limited liability companies are mostly used for medium to large real estate investments.
The public limited company (Aktiengesellschaft) is another form of limited liability company intended for a larger (often public) circle of shareholders. In real estate it is generally only suitable for larger investments and if an initial public offering is planned in the future.
Real estate transactions are predominantly structured as asset deals or share deals. Alternative deal structures (e.g., building rights, long-term leases, development agreements and joint ventures) are also possible, but not very common and therefore not discussed in detail here. In asset deals, the purchaser acquires the real property as such, including the land, buildings and any fixtures and fittings. Following the signing of a purchase agreement, the transfer of ownership and title has to be registered in the Austrian land register.
In a share deal, the purchaser acquires shares in a company that owns the real property. By acquiring a controlling interest (often 100 per cent) in the company, the purchaser indirectly acquires ownership and control of the real property. The purchaser may then also utilise the existing corporate structure for accounting, tax or liability reasons. The main benefit of a share deal structure, however, is the tax advantages resulting from it. While asset deals are subject to 3.5 per cent real estate transfer tax, the corresponding tax rate in a share deal is only 0.5 per cent. Moreover, the real estate transfer tax may even be avoided completely if the share deal is structured in the right way, (since up to 94.9 per cent of the shares in a real estate holding company may be transferred without incurring the transfer tax at all). Despite all that, a share deal is only useful if the real property is held by a special purpose vehicle (SPV), which does not hold any other assets than the real property for sale.
ii Acquisition agreement terms
When negotiating a purchase agreement for a real estate transaction in Austria, there are several key terms and provisions that should be considered.
As in every transaction and jurisdiction, the determination of the purchase price is an integral part of the commercial negotiations and, as a result, the acquisition agreement. The purchase price may be individually agreed upon between the parties and there are basically no statutory provisions regulating the matter between non-related parties. The starting point for the price negotiations is usually the agreed asset value, which normally correlates to the estimated market value of the asset for sale (often based on the Austrian real estate price index or individual expert valuations). In a share deal transaction, the purchase price is also based on the agreed asset value, but typically subject to adjustments taking into account the cash and debt positions of the real estate holding company. Thus, the final purchase price usually corresponds to the agreed asset value on a debt-free/cash-free basis according to the company accounts as per closing.
In Austria, warranty, damages and compensation are regulated by law. If a contract is not properly fulfilled, the purchaser is first entitled to restoration or replacement under the warranty regulations. In a second stage, and if neither of the first two remedies is successful, the purchaser is entitled to a reduction in price or to rescind from the contract. The period for this is three years for immovable property. If the seller is at fault, the statutory rules on compensation additionally apply. However, the parties to a transaction typically introduce contractual warranty and indemnity provisions to supplant the aforementioned statutory rules to the widest extent permitted by law. Purchase contracts usually seek to limit the scope of the seller’s warranties and to impose shorter claims periods as well as caps, floors and baskets. Such provisions are individually negotiated between the parties and hence reflect the respective bargaining power of the seller and purchaser. In most cases, we see such provisions to be in line with international standards. While the parties usually agree to completely replace statutory damages provisions by the contractually agreed terms, there are certain mandatory rules that cannot be excluded. These particularly relate to cases of deceit or collusion. Depending on the negotiation power of the parties there might also be certain indemnity clauses in the agreement, in particular concerning tax matters and risks identified within a previously conducted due diligence of the property holding company or the real estate itself.
The most common, and often essential, conditions precedent to closing concern the requirement of public approvals, such as merger control clearance and approval by the regional land authorities in cases of non-EU/EWR purchasers or the purchase of agricultural land. In particular when it comes to development projects, the requirement of a valid and binding building permit for the planned project is often also a prerequisite. Quite frequently, conditions precedent also include the waiver of change of control clauses.
Limitations with regard to the conduct of business and certain information obligations of the seller regarding the development of the business are commonly agreed upon in a catalogue of covenants between signing and closing. In most cases, these rules are kept to a minimum and have to be drafted carefully to avoid the consequences (e.g., invalidity of the term or penalties) of a breach of the prohibition of prior implementation should any of the aforementioned public approvals be required.
iii Hostile transactions
To our knowledge, hostile takeovers of public real estate companies in Austria have not yet occurred.
iv Financing considerations
Generally, real estate transactions are financed via bank loans. Alternative financing options include the issuing of bonds, mezzanine capital and crowdfunding (in the case of smaller transactions). However, the granting of loans (and financings in general) on a commercial basis is restrictively regulated by Austrian banking supervision law.
Typically, mortgages serve as collateral for real estate financings. To create a valid and enforceable mortgage, the pledgor and pledgee must execute a mortgage agreement in writing. Furthermore, the signature of the pledgee must be notarised and the mortgage has to be registered with the land register, which triggers a registration fee. Austrian law provides for fixed amount mortgages (over a specific amount) and maximum amount mortgages (which can be recurrently used within a specific legal relationship).
In the case of share deals, pledges over the shares of the borrower, pledges over certain receivables, pledges over bank accounts or the assignment of receivables and rights under major contracts are typically seen as additional collateral to mortgages.
v Tax considerations
The change in the ownership of Austrian real estate (e.g., sale or acquisition of real estate in Austria), might be subject to certain taxes in Austria. In this respect, the following taxes have to be taken into consideration.
Real estate transfer tax
The following transactions are subject to real estate transfer tax in Austria:
- the acquisition of real estate located in Austria;
- the consolidation of at least 95 per cent of the shares of a corporation owning real estate in Austria in the hand of a single shareholder in a company; and
- the transfer of at least 95 per cent of the shares in a real estate owning partnership to new shareholders within a period of five years.
The tax base for the real estate transfer tax is the value of the consideration, thus, generally the purchase price or at least the property value. If the fair market value of the Austrian real estate is lower than the property value, the taxable base for the real estate transfer tax is considered to be the fair market value. This has to be proven towards the competent tax office by the taxpayer.
Real estate transfer tax generally amounts to:
- 3.5 per cent in the case of an asset deal;
- 0.5 per cent in the case of a consolidation of shares of at least 95 per cent of the shares in a company or partnership; and
- 0.5 per cent in the case of transfers under the Austrian Reorganisation Tax Act.
Further, transfers without any consideration, such as donations between family or non-family members, are subject to real estate transfer tax at a progressive tax rate ranging from 0.5 per cent to 3.5 per cent of the property value.
Capital gains tax
The capital gains realised from the sale of real estate are subject to a capital gains tax, which is generally subject to a flat tax of 30 per cent. The effective capital gains tax rate might be reduced to 4.2 per cent of the sale price, if the property qualifies as ‘old’ (e.g., properties without redesignation or properties redesignated before 1 January 1988, or 18 per cent if the property was acquired as of 31 December 1987 and redesignated from a land site to a building
General corporate income tax
Any capital gains realised from corporations from the sale of Austrian real estate are subject to general corporate income tax at a flat rate of 24 per cent as from the year 2023 and 23 per cent as from the year 2024.
Registration fee
Upon incorporation of the ownership change in the Austrian land register a registration fee amounting to 1.1 per cent is assessed on the basis of the market value of the property. A special tax base for the registration fee applies in the case of family transactions or reorganisations under the Austrian Reorganisation Tax Act.
Any mortgages that need to be registered in the Austrian land register are subject to an additional fee in the amount of 1.2 per cent of the mortgage amount.
Stamp duty
Generally, no Austrian stamp duty will be triggered in case of the execution of a purchase agreement and the contemplated acquisition of real estate.
VAT
Real estate transactions are generally exempt from VAT in Austria. However, under certain circumstances the seller of Austrian real estate may opt to treat the sale of the Austrian real estate as a VAT-able transaction subject to 20 per cent VAT. Sellers typically take this option into consideration if they have reclaimed input VAT regarding the real estate (which would otherwise have to be refunded to the competent tax office) within the past 20 years.
vi Cross-border complications and solutions
The transfer of property rights and in particular the acquisition of property located in Austria by non-Austrian investors may require approval under the applicable Austrian land transfer laws. In this respect, each Austrian federal state has enacted separate legislation. As a result, the acquisition of Austrian property by non-Austrian investors may be subject to different requirements depending on the federal state in which the respective property is located. While in some federal states a property transaction is merely subject to an approval and examination procedure, other federal states have established administrative procedures in this respect. In certain federal states, the creation of an Austrian holding structure is sufficient for fulfilling the requirements of the applicable land transfer laws.
However, nationals (persons and corporate bodies) of EU Member States or treaty states of the European Economic Area are equated with Austrian nationals in connection with the Austrian land transfer laws.
It is of utmost importance to obtain the necessary approval, since it is a condition to the registration of a transfer of ownership to a non-Austrian investor with the Austrian land register. Otherwise, the contemplated transaction cannot be carried out as ownership in Austrian property is generally obtained only via such registration of the new owner with the Austrian land register.
