Foreign buyers acquiring an Austrian company: investment control, form and taxes

For buyers from third countries an investment control under the Investment Control Act may come into play. The scope covers in particular acquisitions in security-sensitive industries such as critical infrastructure, defence, healthcare and energy supply. The exact thresholds and scope should be checked in the individual case as the scope of the regime has been broadened in recent years.

In addition EU rules on the coordination of national investment controls and sector-specific special laws apply, for example in telecommunications, financial services or certain raw materials. Which obligations actually apply depends on the industry, the size of the stake and the origin of the buyer.

An early clarification of the approval situation is important because it shapes the timetable of the transaction. Approvals lengthen the way to closing and should be anchored as a condition to closing in the purchase contract. How such conditions are built is shown in the post on closing conditions.

A well-known particularity of Austrian law is the notarial deed for the transfer of GmbH shares. The transfer requires an Austrian notarial deed; corresponding powers of attorney of foreign parties must likewise be in a notarised or consularly certified form. Whoever underestimates these formal requirements risks the ineffectiveness of the transfer. The concept of share transfer is explored in the glossary entry on transfer of shares.

Language-wise, transaction documents are often run bilingually or in English only. In relation to Austrian authorities, the company register and the notary, however, German versions or certified translations are common. A clear language clause in the contract, for example which language prevails in a dispute, prevents later disagreements.

The forum and the applicable law should also be governed clearly. Often Austrian law and an Austrian forum are agreed, which eases the enforcement of decisions in relation to the target company. Alternatives are arbitration or certain other agreements where legally permitted.

On tax the origin of the buyer influences the choice of structure. Double taxation treaties between Austria and many countries allocate taxing rights and may limit a withholding tax on dividends. Which treaty applies in the individual case and which conditions must be met for its application should be clarified before the structural decision.

Often foreign buyers acquire the target company via an Austrian acquisition vehicle. This structure can bring tax advantages, for example for the financing of the purchase price through intra-group loans, and at the same time creates a familiar interface to Austrian law. It is not a silver bullet, however; abusive structures are risky in practice and should be aligned with tax advice.

On the contract level the structure affects the designation of the buyer, the warranty givers and the question of securities. How the purchase price can be reflected in the contract is addressed in the post on the purchase price adjustment. An overview of vendor financing is provided by the glossary entry on the vendor loan.

In the process foreign buyers benefit from early engagement of legal advice in Austria. It brings the knowledge of local practices, helps in selecting a notary, tax advice and trust services and ensures the compatibility of the negotiation language with the notarial form requirements.

A frequent stumbling block is the delay of the necessary certifications and translations. Apostille or consular certification can take several weeks depending on the country of origin. Whoever runs the formal preparation in parallel to the due diligence stays on schedule. An overview of review topics is provided by the post on the due diligence checklist.

Finally a look at the post-closing phase is worthwhile. How the operational integration after closing can be shaped is addressed in the post on post-closing integration.