Austria: Real Estate transfer tax - new rules on the tax basis
25 June 2014
Posted by: Author: Michaela Petritz-Klar
Authors: Michaela Petritz-Klar and Mario Johannes Perl (Schoenherr Attorneys at Law)
The transfer of Austrian real estate triggers a 3.5% (2% in case of intra-family transfers) Austrian real estate transfer tax. In 2012, the Austrian Constitutional Court ruled that the provisions in the Austrian Real Estate Transfer Tax on the tax basis are not in conformity with the country's constitutional law. Shortly prior to the expiry of the transition period, new provisions for determining the tax base for Austrian real estate transfer tax purposes entered into force as of 1 June 2014.
Consideration – fair market value of real estate
As a general rule, the consideration for the transfer of real estate serves as the tax basis for Austrian real estate transfer tax purposes. However, in case there is no consideration (eg in case of a transfer mortis causa), if the consideration cannot be determined or if such consideration is lower than the real estate's fair market value, then the prevailing fair market value of the property will be the basis for the Austrian real estate transfer tax, thereby serving as some kind of minimum tax basis.
As a result, transfers of Austrian property effected without any compensation to a non-family member will trigger an increased real estate transfer tax burden. This inter alia applies to the contribution of real estate by a shareholder to its subsidiary without effecting a capital increase.
In case of a mere intra-family transfer, the threefold of the special tax value (Einheitswert) of the real estate concerned forms the tax basis for the 2% Austrian real estate transfer tax. The special tax value (even if multiplied by three) is in general substantially lower than the prevailing fair market value of the property concerned. Such reduced tax basis applies irrespective of whether the intra-family transfer is effected with or without any consideration. In case of the transfer of agricultural or forestry real estate, the tax basis amounts to the simple special tax value (without being tripled).
The term "family" in particular includes spouses, registered partners, children, grandchildren, and (under specific circumstances) life partners.
Such reduced tax basis also applies in case of an indirect acquisition of real estate by acquiring or consolidating all shares in a company owning Austrian real estate on the level of one acquirer (or within the hands of companies forming a VAT tax group).
Transfer of real estate in the course of reorganizations
Generally, the amendments of the tax basis for the transfer of Austrian real estate will not have an impact on reorganizations within the scope of the Austrian Reorganization Tax Act (Umgründungssteuergesetz) in the course of which Austrian real estate is transferred. Unless such reorganization leads to a consolidation of all shares in a company owning Austrian real estate on the level of one party involved, the tax basis for such real estate transfer will still amount to twice the special tax value of the property concerned. If an agricultural or forestry property is transferred in the course of a reorganization within the scope of the Austrian Reorganization Tax Act, the simple tax value will apply.
In case of a compensation-free transfer of real estate by a donor to a private foundation (Privatstiftung), the tax basis amounts to the fair market value of the real estate transferred, thereby making contributions to a private foundation more expensive. The applicable real estate transfer tax rate in this scenario amounts to 6%. Furthermore, the distribution of real estate by a private foundation to a beneficiary triggers a 3.5% real estate transfer tax that is also based on the fair market value of the real estate transferred.
The new rules on determining the tax basis are applicable on transfers occurring after 31 May 2014. Specific transitional provisions may provide relief. The new tax basis for transfers of agricultural or forestry real estate will enter into force as of the expiry of the existing regime on 31 December 2014. Whether the new rules are in conformity with Austrian constitutional law remains a contentious issue.
This article first appeared on mondaq.com.