An agency company is an entity that has entered into an agreement with an offshore company (the principal) to act as an agent. The agency company itself does not conduct business activity in Austria, but receives income from the agency commission.
A GmbH (Gesellschaft mit beschränkter Haftung), a company with limited liability, is the most popular option for founding a business in Austria, both for domestic and international purposes. The following information describes the process of establishing this kind of company:
- Statutory share capital
- The statutory share capital of an Austrian GmbH is €35,000, of which at least €17,500 must be paid in cash.
- Directors & shareholders
- The company can be established with just one shareholder, no matter whether the shareholder is a domestic or foreign individual or a legal entity. The director of the GmbH is the only one legally authorised to represent the GmbH, and is personally responsible for liabilities resulting from legal transactions carried out on behalf of the GmbH and for any unpaid taxes.
- Corporate income tax
- The corporate income tax rate in Austria is 25%. There is also a minimum amount of tax that must be paid by Austrian companies, which is currently €1,750 per year, divided into four quarterly payments. These payments are due on 15 February, 17 May, 16 August and 15 November each year.
Agency structure basics
At all stages, the agency company conducts business on behalf of the customer, who may be a company located in a tax haven, under the terms of the agency agreement. Business transactions are conducted through the Austrian company (which may trade, with VAT, with EU and non-EU companies) and the revenue is received into its bank account. After deducting a commission, the capital amount is transferred to the account of the real seller (e.g. the EU company). The agency commission can be set at 2%, 5% or even higher, and is usually paid annually. The Austrian company will declare the commission received as taxable income in Austria.
If you have any further questions, take a look at our F.A.Q. section or contact us now.
Conditions, fees and commissions
The Austrian company must conclude an agency contract with an offshore principal. The parties to that contract are free to agree between themselves how commissions and payments are to be allocated and distributed, without any restrictions.
It is therefore possible to agree a provision stipulating that the Austrian agent is entitled to, for example, a fixed commission of 5% of the overall sales turnover for its services.
Commissions retained by the Austrian agent under this agreement are tax deductible for the agent. Assuming that the Austrian company makes a turnover of €1 million and the arrangement entitles the agent to 5% and the principal to 95%, the amount of €950,000 (95% of €1 million) is regarded as a business expense for Austrian tax purposes.
Using an offshore principal company in an agency structure
Austria is not hostile towards low-tax territories overall, nor does it impose strict restrictions on conducting business with tax havens. However, jurisdictions that have signed double tax treaties with Austria are preferable for agency structures. For example, an arrangement between a UAE company and an Austrian agent is covered by Austria’s tax treaty with the UAE (even though the UAE company itself would not be obligated to pay any taxes on its profit share in the UAE).
In the diagram above, you can see what this kind of payment structure looks like. An Austrian company has an offshore principal, on whose behalf it conducts all business, issues invoices, signs sales agreements and accepts orders from suppliers. By virtue of the agency contract, the Austrian company is entitled to 5% of the overall sales turnover in commission for its services. This means that 95% of the Austrian company’s turnover is paid to the offshore principal company. The remaining 5% (the commission) is subject to corporate income tax of 25% in Austria.
A Hong Kong limited company or Singapore Pte are also good options for such structures, as are a number of other company types in jurisdictions that are not pure tax havens. In any case, all agency structures must be covered by a thorough and detailed agency agreement. Ask Confidus for advice.
Benefits of the Austrian GmbH in an agency structure
Because the Austrian company has unlimited tax liability, it will receive a taxpayer’s identification number, a VAT number and a statement of residence from the Austrian tax office as soon as its incorporation is finalised. A VAT identification number is important for international trade or receiving international income, especially within the European Union.