Guide to buying property in Austria A Vienna Focus
Austria Austria Contents Procedure for Purchasing Property Property and Usage Rights 2 3 Acquisition of Real Estate in Austria by Non-EU Citizens 4 Acquisition of Real Estate in Austria by Legal Entities Financing Taxes Due Diligence Income Taxation Protection of the Buyer Protection for the Seller Attorney, Notary, Transaction Land Registry Court Real Estate Agent Lease Contracts Contacts 5 7 8 10 10 12 12 13 14 15 15 15 16 2 Guide to buying property in Austria Procedure for Purchasing Property* The guide refers specifically to buying property in Vienna, for other provinces please seek alternative advice. We would always recommend that you engage the services of a reputable agent who can assist with understanding the tax and legal structure, finding a suitable financial institution and eventually managing your property investment. This document has been compiled as a guide for potential purchasers of property in Vienna. It does not seek to provide or replace legal advice which you should obtain, nor is it intended to have any contractual effect. *As of January 2016
Austria Property and usage rights Are individuals allowed to acquire Can various sections of a building Apart from real estate ownership, ownership of real estate? have different owners? Generally yes. However, acquisition Yes. There are two ways for different what other interests and usage rights are commonly created in real estate? of farmland is restricted in most of owners to acquire various sections Apart from real estate ownership, other Austria’s nine provinces. Some provinces of a building: a) The co-ownership without exclusive ownership of an exact part of the building b) Exclusive ownership as a condominium (Wohnungseigentum) of a defined part of the building (Bundesländer) prohibit the purchase of real estate in certain zones when the property will not serve as the owner’s permanent residence. Do restrictions exist for foreigners in the acquisition and use of property or other real estate rights? Citizens of EU member states are entitled to acquire property without restrictions. Certain corporate structures may allow for acquisition without the need for special permission. *Aquisition by non-EU Citizens - see page 4 arrangements are common, such as simple tenancy agreements and property leasing, legal concepts for dividing the property into land and built property (Superädifikat), as well as building leases (Baurecht). Furthermore, servitudes (easements) can be created in real estate. A distinction needs to be made between land and personal servitudes. Guide to buying property in Austria 3
Austria ACQUISITION OF REAL ESTATE IN AUSTRIA BY NON-EU CITIZENS Are non-EU citizens allowed to acquire can be proven only in special situations, real estate in Austria? Generally, non-EU citizens are allowed to acquire real estate if they apply for a special permit at the Land Transfer Authorities beforehand. The requirements for obtaining a special permit can be found in the nine provincial land transfer laws. *Establishing a company - see page 5 the term “social interest” is interpreted broadly by the land transfer authorities. For example, according to the Vienna and Lower Austrian land transfer laws, the provincial government always has a social interest in the acquisition of real estate by non-EU citizens, if the persons have residence permits in Austria. However, the interpretation of the term “social interest” can vary from province to province. What are the requirements for a special permit? Are there any different rules in the case of non-EU citizens who have residence According to all nine provincial land transfer permits in an EU or EEA member state? laws, non-EU citizens, being non-EC member states’ citizens, are entitled to acquire real estate in Austria when the province where the real estate is located has (i) social, (ii) economic or (iii) cultural interest in the acquisition of real estate by a non-EU citizen. While the economic (e.g. establishment or take-over of a big company, creation of jobs) or cultural interest (e.g. famous singers, artists etc.) Non-EU citizens who are legal residents in an EU or EEA member state and transfer the purchase price for the real estate from the country of their residence do not have to establish the social interest, but will automatically be granted a special permit for the acquisition. 4 Guide to buying property in Austria
Austria Guide to buying property in Austria 5 ACQUISITION OF REAL ESTATE IN AUSTRIA BY LEGAL ENTITIES Can an Austrian legal entity, the majority of whose shares are held by non-EU citizens, acquire real estate in Austria? In general, Austrian legal entities can acquire real estate in Austria. However, if the majority (more than 50%) of the legal entity’s shares are held by non-EU citizens, the legal entity qualifies as a foreign company and must apply for a special permit in order to be able to acquire real estate in Austria. Exceptions apply for a so called “two-tiered structure”. In some provinces (Bundesländer) of Austria (e.g. Vienna), an Austrian legal entity (LE1), which is fully held by another Austrian legal entity (LE2), is not qualified as a foreign company, even if the LE2 is 100% held by non-EU citizens. In this case, the LE1 does not have to obtain a special permit for the acquisition of real estate in Austria. Are there any exceptions for legal entities registered in the EU or EEA? Legal entities registered in the EU or EEA are not qualified as foreign companies and can acquire real estate in Austria. The shareholder structure of these legal entities has no relevance.
Austria 6 Guide to buying property in Austria
Austria Financing Is it possible to mortgage the real estate Banks and other lenders usually offer for financing the purchase? Yes, especially as the Austrian real estate market has proven very stable over the last six decades, with low volatility and constant growth rates; banks are interested in financing real estate acquisitions. In order to become legally enforceable, mortgages on real estate as well as on buildings on third-party land and building leases may be registered in the land register on the basis of a written and notarised mortgage deed. Real estate transactions are usually handled by an attorney or a notary public. The financing bank will provide the fiduciary with the purchase sum upon signature of the mortgage deed. The attorney/notary will disburse the money upon receipt of the long-term loans: ww 20+ years for residential properties ww 12+ years for commercial properties Do banks impose special financing conditions for non-resident investors? The financing conditions for non-resident investors depend on their general rating and creditworthiness. In general, conditions will be the same as for resident investors. What are the costs of entering into and registering a mortgage loan? ww Bank fee of approx. 1% of the loan amount, subject to negotiation with the bank ww Court registration fee 1.2% of documents needed to register the mortgage loan amount and the buyer’s ownership. ww Notary fee between €100 and €500 Are banks and other lenders prepared to finance the purchase of any type of acquired right? What percentage of the purchase price is usually regarded as the maximum that may be financed? What are the major terms and other conditions? In general, banks and lenders accept mortgages as collateral. Banks will, in addition to the purchase of real estate, also finance the acquisition of property rights in buildings on third-party land or in building leases. The percentage of financing varies with the type of property: ww For residential properties, banks will finance up to 80% ww For commercial properties, banks will finance up to 60% Guide to buying property in Austria 7
Austria TAXes Are purchases subject to taxation? Is the tax also applicable where a real Do foreign investors have to pay taxes What is the tax rate? estate company is purchased, instead of a on rental income in Austria? VAT: Real estate purchases are generally not real estate right? Yes, the investor must pay income tax (or subject to VAT, especially if the property is There is no RETT or land register fee corporate tax if a company) and file a tax the buyer’s main private residence. if shares in a real estate company are form on a yearly basis. Double taxation Under certain circumstances the buyer may opt for VAT, for example if the buyer wishes to rent out the property. In this case, the VAT is fully refundable. Capital gains: Since 2012, the sale of real estate has been subject to a new tax on capital gains from real estate transactions (Immobilienertragsteuer). The sale of real estate is subject to taxation, whereby a 30% tax rate on the profit is generally applicable. Several exemptions from this tax exist, for example, if the owner used the property as a main residence (Hauptwohnsitz) for at least two consecutive years, any capital gains would be tax exempt. Real Estate Transfer Tax (RETT): Each transfer of real estate is subject to 3.5% RETT (Grunderwerbsteuer) on the purchase price (if parties are spouses, registered partners, siblings, children, grandchildren or descendants): 0.5% on the first €250,000, 2% on the next €150,000 and 3.5% on the excess. Land registration fee: The fee for the registration in the land register is 1.1% of the purchase price. transferred or acquired, as long as not all treaties apply. of the company shares are owned by one shareholder. Therefore any share deal where there is more than one shareholder is not subject to RETT. In case of a property sale by foreign investors, is the profit subject to tax? The profit derived from a real estate transaction by an individual person is subject to 30% taxation. The profit derived from a real estate transaction by a foreign legal entity is taxed on the basis of the corporate income tax In general, the effective taxation of rental income is very low, as only the profit of the rental income is taxed. For example: An investor may expect from a residential property a 3% yield on an investment of €1million. This would result in a yearly net rental income of €30,000 p.a. From this income, the investor may deduct a depreciation of at least 1.5% of the building’s value as well as the interest paid on the mortgage (let us assume another 1%). Sample calculation: rate of 30% (exceptions may apply). This, Income however, only applies if Austria has tax Tax free amount jurisdiction, which has to be determined Bank Interest paid according to the circumstances of the case = Taxable profit and the relevant double taxation treaties. 25% Tax €30,000 €15,000 €10,000 €5,000 €1,250 For example, profits derived from the sale of shares can be fully exempt from tax, depending on the seat of the foreign entity. As seen in the example above, the possibilities of reducing the taxable profit and the respective income tax from rental revenue may result in a tax burden of less than 5% of the income. Is the ownership or usage of real estate subject to local property taxes? Yes, a local land tax applies depending on the kind of property; it is based on an assessed tax value (Einheitswert). These taxes and fees are approximately 0.1% per annum of the market value. 8 Guide to buying property in Austria
Austria Guide to buying property in Austria 9
Austria Due Diligence INCOME TAXATION Can prospective buyers inspect the In general, there are two kinds of tax Applicability of controlled foreign relevant documents at the land registry liability in Austria: limited tax liability and company rules (CFCR) and DTAA in order to check the property title and unlimited tax liability. The main difference in respect to Austrian companies. According to a DTAA, the profit of a company based in Austria may only be taxed in Austria, unless the company is running a business in a non-EU country through a permanent establishment. The fixed corporate tax rate in Austria amounts to 25%. Please note: in Austria more or less all costs in connection with the holding and managing of the property are deductible (e.g. loan interest, depreciation etc). Therefore the effective tax on profits deriving from Austrian real estate is very low (in most cases less than 10%). According to the CFCR, tax-residents of a non-EU country also have to pay income tax on the retained profit of the foreign company under their control. However, the income tax to be paid in the non-EU country, according to the CFCR, shall be reduced by the capital gains tax paid in Austria. any encumbrances? Yes, the land registry is open to the public; the current status of the register and historic entries are available. Furthermore, each document on which an entry is based, may be obtained. Courts, law firms and notaries have electronic access to the land register and the associated document archives. Can prospective buyers ask the relevant planning and building authorities for permission to inspect the documents showing if, and under between these two kinds of tax liability is that under the unlimited tax liability system, persons are liable for tax on their worldwide income. In the case of limited tax liability, persons only have to pay tax on income created in Austria. However, in both cases a double taxation avoidance agreement (DTAA) needs to be considered. Please take into account that tax questions can vary depending on the person’s individual situation. Therefore professional tax advice is recommended. which conditions, a building permit When are non-EU citizens subject to was granted? unlimited taxation in Austria? It is possible to access the relevant If they either have their main registration planning and building regulations. in Austria and are more than 90 days The supervising or regulatory authority physically present in Austria, or if they do is the municipality where the real estate not have their main registration in Austria in question is located. but live in Austria for more than 180 days To receive the required information, per year. however, prospective purchasers need Please note: Residence permits or the current owner’s permission in writing. registration in Austria are not relevant criteria, they are only indicators. Are there any other issues or conditions related to a property that Are there any exceptions to this should be analysed and where can general rule? these be checked? According to the provisions of a DTAA, It is important, especially for foreign an Austrian resident, for instance, may investors, to evaluate the applicable not have to pay Austrian taxes on income regulations regarding real estate earned in non-EU countries. acquisitions by foreigners and the purchase of farmland in general. The district authorities are knowledgeable in these matters. For example: Mr. A is a non-EU citizen and tax resident in Austria. He has to pay taxes on his worldwide income in Austria. Mr. A has an apartment in a Furthermore, the applicable designations non-EU country which yields a rent there. in the zoning plan (Flächenwidmungsplan) According to the provisions of the DTAA, should be reviewed at the respective Mr. A would pay taxes on his rental income municipality. in the non-EU country, because the apartment is located there. Austrian tax authorities are not allowed to levy income tax on this kind of income. 10 Guide to buying property in Austria
Austria Guide to buying property in Austria 11
Austria Protection of the buyer Protection OF the Seller What legal formalities have to be How can the rights to the property be How can sellers safeguard their real fulfilled for the transfer of title in fully protected against third estate rights before full payment of the real estate rights or in hereditary party intervention? purchase price is received? Any right in rem regarding real estate has to be granted by the owner of the property and registered with the land Usually, a notary or an attorney is appointed as fiduciary to handle the transaction. Property ownership for the registry, which is only possible with a purchaser will be registered with the land registry only when the payment has been transferred to the fiduciary. To what extent can sellers protect themselves from being held liable for deficiencies in the sold property? Usually, the seller warrants for the property to be free of liens and encumbrances, but is not liable for any of its special conditions or characteristics. The seller’s liability may be waived in the purchase agreement to the extent permissible under mandatory law. This, however, depends on the circumstances of the case, and whether or not one or both parties to the purchase agreement are entrepreneurs. building rights? The transfer of a property requires two steps – disposition and execution. The title may be either a notarised purchase contract or an official document, for example, a court order in the case of inheritance. The necessary procedure is the registration with the land registry. notarised document. The registered owner has to be informed of changes in the register and will, in case of unlawful activities, be entitled to appeal the decision of the court forming the basis Is it possible for buyers to ensure of the entry. the acquisition at an early stage Furthermore, the owners may take (e.g. by entering into a provisional legal action to defend their property contract before a due diligence against unlawful third party intervention report is prepared)? (e.g. intrusion). Yes, this is possible by signing a provisional contract and registering a priority notice (Rangordnungsbeschluss) with the land registry. Generally speaking, for a period of one year after issuance of the order, only the holder of this order is entitled to register changes with the land registry. 12 Guide to buying property in Austria
Austria Attorney, Notary, Transaction Is a notary required for a real estate Who processes the transaction? What are the costs of a transaction? transaction? In Austria the entire transaction of The fees depend on the purchase price When doing business in Austria, foreign transferring property ownership - and on the services provided by the buyers should always be aware, that from preparing a due diligence report, attorney/notary in connection with the real although purchase agreements for real drafting the contract, issuing transfer estate transaction. Those services range estate may be concluded orally, a written tax declarations, to handling the escrow from notarisation of the signatures and/ and notarised document has to be filed account including fiduciary services for with the land registry at the respective the banks involved, and registering the court in order to duly register the contract. property - is done either by an attorney or or drawing up of the contract, to acting as fiduciary. Notary/attorney fees are prescribed by law, but are negotiable - a notary. In Vienna, both professions are usually being 2-3% of the purchase price highly regulated; regarding the safety of plus 20% VAT for drawing up of the contract. Who pays the costs of the transaction? The parties to the contract need to agree on this. In most cases, however, the buyer pays the applicable costs, fees and taxes. Guide to buying property in Austria 13 However, the role of the notary (who can be chosen freely) may be limited to the notarisation of the signatures. The transaction itself can be handled by an escrow amounts, both professions have mandatory insurance. attorney or a notary. For attorneys-at-law, the transaction has to be executed according to the escrow statute of the Viennese Bar Association (“Elektronisch Anwaltliches Treuhandbuches der Rechtsanwaltskammer Wien”) where the escrow amount is insured against fraud.
Land Register What is contained in the land register? The land register, which is an official electronic database, contains three sections for each real estate listed: Section A: Register of real estate lots and registration numbers; Section B: Register of owners of these real estate lots; Section C: Register of mortgages and other encumbrances; Section A describes the property, its covered area and the permitted use under public law, as well as the postal address. It also states restrictions under public law and rights in rem the owner of the property has towards the owners of other lots. Section B holds information on the owner(s) of the real estate. Section C contains information on mortgages and other encumbrances inherent to the respective real estate. In addition to these three sections, all documents, on which a registration was based, are collected by the land registry and open to the public. Can buyers rely on the contents in the land register? Yes, the land register entries are deemed to be legally correct. Austria 14 Guide to buying property in Austria
Austria Court Lease contracts Is the court involved in the acquisition Is it legally possible to conclude Can lease agreements be registered of real estate rights? long-term lease contracts securing a with the land registry and thereby be Yes. The land register is maintained return of investment (e.g. 15 years)? protected from third party intervention? by the district court with jurisdiction over Yes, this is possible. Long-term lease Yes – the following types of lease the property in question. Transactions contracts are common in Austria. in real estate property can only be implemented through application to the respective district court. If yes, what would the court fee be? Are long-term lease contracts safe? Under what conditions may the lessee terminate a long-term lease contract? The conditions under which the lessee may The applicable court fee amounts to 1.1% terminate a long-term lease contract (such as of the purchase price. In addition, a flat fee notice period, termination date and/or waiver agreement may be registered: agreements for a fixed period, lifetime lease agreements and lease agreements for an indefinite period (where the right to termination is waived). Do lessees have any pre-emptive purchase rights when a property is sold? of €45 is to be paid for each application. of termination right), should be stipulated in Lessees have no pre-emptive rights when Real Estate Agent What is the function of an agent in a real estate transaction? the lease contract. Otherwise, the following a property is sold. legal stipulations apply: ww For office and commercial leases, three months’ notice period with a termination date at the end of the quarter ww For residential leases, three months’ Is it possible to agree on such preemptive rights by contract? Yes, for example, pre-emption rights may be agreed upon and registered notice period with a termination date at with the land registry. The function of an Austrian agent is to the end of the month How long does it take to evict a lessee if they default on the rent? Depending on the contract, it generally takes between six months and a year to evict a lessee. establish contact between the seller and the (prospective) buyer and to mediate between them. The agent supports the negotiations and provides the buyer with the necessary information on the property and conditions of the purchase. What is the usual commission rate for real estate agents? What must be observed before the commission becomes due? The usual commission fees are: ww Seller - up to 3% of the purchase price plus 20% VAT ww Buyer - 3% of the purchase price plus 20% VAT In special cases (e.g. non-performance, or if the leased property is destroyed or essentially damaged) the contract may be terminated immediately. For residential leases, special rules protecting tenants generally apply. Are there any specific formal requirements that have to be observed for long-term lease contracts, to make them enforceable (e.g. by registration)? There are no specific formal requirements. Long-term lease contracts do not have to be registered with the land registry. By purchase of a real estate The commission fee is generally due upon property, does the buyer accede signing of the purchase agreement. to the seller´s existing lease contract(s) of said property? Yes, lease agreements are not terminated through change in the ownership of a property. Guide to buying property in Austria 15