Erich Baier outlines recent changes to Austrian legislation allowing for limited liability companies to be established with reduced paid in share capital.

After many years of negotiations and discussions, amendments to the Austrian GmbH Act have now been written into law and came into force on July 1, 2013. An Austrian GmbH is a company with limited liability. The amendments mean that it is now possible to establish a so-called GmbH “light” and the major amendments of the GmbH Act are as follows.  

Minimum share capital  

The statutory minimum share capital has been reduced from €35,000 to €10,000.

What has not changed is the possibility to establish an Austrian GmbH with a paid in share capital of 50% of the statutory minimum share capital. This was €17,500 before the reforms and now stands at €5,000.

Tax consequences  

The reform of the Austrian GmbH Act was accompanied by wider amendments to tax law.  

The Austrian Corporate Income Tax Act governs that a GmbH or an AG (stock corporation) have to pay a minimum corporate income tax which can be carried forward for an indefinite period of time and which is credited against later corporate income taxes coming due from the ordinary business of such a corporate entity. 

The minimum corporate income tax a GmbH has to pay amounts to 5% of the statutory minimum share capital. The previous statutory minimum share capital led to a minimum corporate income tax of 5% of €35,000, resulting in a charge of €1,750 per year. The reforms mean that the charge to tax is now only €500 per year (5% of the new statutory minimum share capital of €10,000).

Retroactive reorganizations of companies  

The Austrian Reorganization Tax Act states that the reorganization of companies can be carried out up to nine months retroactively for tax purposes. 

One of the most popular reorganisation forms is the contribution of sole proprietorship or partnership shares in exchange for shares in a corporate entity. 

Provided that such a reorganisation is carried out in August 2013 with retroactive effect as per January 1, 2013 and, as part of this reorganization, a new GmbH is established to which the sole proprietorship or the partnership shares are contributed in exchange for shares, then already the new regulations regarding the GmbH “light” are applicable.

This is even if for tax purposes it is deemed that the new company was already in existence on January 1, 2013. This is of course true for any other which falls in the period of nine months back.  

Reduction of the share capital of existing GmbH’s 

From July 1, 2013 onwards the Austrian GmbH Act foresees a statutory share capital of only €10,000. Therefore the shareholders of an Austrian GmbH which has been established before July 1, 2013 now have the possibility to reduce the share capital of their company. 

This is also possible for those GmbH’s where the shareholders only paid in 50% of the share capital, meaning that the paid in share capital is only €17,500.

This amendment of the GmbH Act also gives way to achieving a fully paid in share capital very easily. This is either in the form of a shareholder’s resolution that the already paid in €17,500 shall be considered as fully paid in share capital or, the shareholders agree that the initial statutory minimum share capital of €35,000 is reduced to the new statutory minimum share capital of €10,000.

The difference between the initially paid in share capital and the amount of share capital the shareholders have foreseen in their resolution (which has to be a minimum of €10,000) is considered as a tax-free redemption of the initially paid in share capital.  

Reduced establishment cost  

The amendments in the Austrian GmbH Act create a minor reduction in the costs which become due when a limited liability company is established. It is no longer obligatory that the establishment of such a company is published in the Official Austrian Gazette, which leads to a reduction in costs of approximately €100 to €150. 

Other new regulations laid down in the GmbH Act 

Apart from the most significant amendment of the GmbH Act outline above, namely the reduction of the statutory minimum share capital, the other amendments in the GmbH Act increase the potential risk of shareholders and managing directors of such a GmbH of becoming personally liable. 

The obligation that the shareholders assembly has to be called in, provided that more than 50% of the share capital has been consumed by losses, stays unchanged.  

What is new, is that the managing directors (and under certain circumstances also the shareholders assembly) are obliged to constantly calculate certain indicators. 

These indicators are laid down in the Austrian Enterprise Reorganization Act. The indicators laid down in this Act foresee that if the percentage of equity is below 8% and the deemed period of debt redemption is more than 15 years, the enterprise requires a reorganisation and the managing director is obliged to initialize such a reorganisation. 

Until now these indicators were only calculated after the annual accounts were set up. The amendment in the GmbH Act means that this has also to be done during the business year. 

Unfortunately the Act does not define when and how often these indicators have to be calculated, therefore it is recommended to do it at least once per quarter to avoid any personal liabilities.   

Summary 

The government has tried to meet the wishes and requests of the business community for a cheaper way to establish a company with limited liability and now offers the possibility to establish a GmbH “light” with a statutory minimum share capital of €10,000 of which at least 50% has to be paid in in cash.  

What is as yet unclear is to what extent a corporate entity with a paid in share capital of €5,000 is accepted as a business partner by others.