The Austria to United States tax treaty, for a founder

An American founding an Austrian GmbH is inside two systems at once, because the United States taxes its citizens wherever they live. Two bilateral instruments split that problem, and they were negotiated five years apart.

A third instrument turns up in the same search results and answers a different question again: Austria and the United States also have a convention on estate, inheritance and gift taxes and generation-skipping transfers, BGBl. Nr. 269/1983, in force from 1 July 1983. Separate treaty, separate gazette number, not discussed here.

Signed at Vienna on 31 May 1996 in two originals, German and English, both equally authentic, and approved with an exchange of notes and a memorandum of understanding. Ratifications were exchanged on 19 December 1997, and Art. 28 Abs. 2 brought the treaty into force on the first day of the second month after that, 1 February 1998, displacing the 1956 convention and two related instruments the register records as repealed on 31 January 1998.

Article 2 is shorter than people expect, and that is where the disappointment lives. Art. 2 Abs. 2 covers the Austrian income tax and corporate income tax, and the United States federal income taxes with social security contributions taken out by name; Abs. 3 extends it to substantially similar taxes introduced later. Nothing else is in, so Austrian municipal tax, the employer contribution to the family burdens fund, the chamber levies and value added tax all belong to the corporate tax guide rather than here.

Art. 29 keeps the treaty running until a state ends it, which either may do after five years from entry into force on at least six months' written notice through diplomatic channels. Read on 18 September 2026, all 32 documents of the consolidated text carry the single gazette reference BGBl. III Nr. 6/1998, none carries an amending gazette and none carries an expiry date.

The right-hand column is a ceiling on the state the income comes from. It is a ceiling only: it does not oblige that state to collect less on the day it pays.

One absence is worth naming, because a reader hunting for it will assume they missed it: this treaty has no separate article for a company director's remuneration. Many Austrian treaties carry one, so the pay of a Geschäftsführer who is also the owner is classified here under whichever article fits what the money is for. What Austrian domestic law charges on a share disposal is on the capital gains tax guide.

Art. 1 Abs. 4 is what makes this treaty different for an American from what it is for a German owner of the same company. Subject only to Abs. 5, and notwithstanding every other provision, each state may tax its residents, and its citizens by reason of their citizenship, as if the treaty had never entered into force. The same paragraph extends the word citizen to a former citizen whose loss of citizenship was principally for the avoidance of tax, for ten years after the loss.

Abs. 5 lists what survives, and the graphic below sets it out in full: the correlative adjustment in Art. 9 Abs. 2, Art. 13 Abs. 4, the social security and alimony limbs of Art. 18, the elimination article, the non-discrimination article and the mutual agreement procedure, with Art. 19, 20 and 26 for individuals who are neither citizens of that state nor, for the United States, immigrants. The dividend, interest, royalty, business profits and employment articles are not on that list, which is why a founder who reads Article 10 alone reaches the wrong conclusion.

Almost every allocating rule begins "a resident of a Contracting State", so everything runs off Article 4. Abs. 1 takes each state's own definition and narrows it four ways, of which one is specific to this pair: lit. c brings in a United States citizen or green card holder who is not otherwise resident in Austria, but only where that person has a substantial presence, a permanent home or a habitual abode in the United States. Austria's own domestic test, a dwelling at your disposal or a habitual abode, is a different question and is on the income tax guide. Article 4 decides only who wins when both domestic tests say yes, and the ladder it uses is below.

Two readings in the memorandum of understanding gazetted with the treaty matter more to a founder than the ladder itself. On the centre of vital interests, it is agreed that the test cannot be determined from the circumstances of a single year and that a longer period may have to be considered. On transparent entities, it is agreed that income derived or paid by a fiscally transparent entity such as a limited liability company is a resident's income only so far as it is taxed in that state in the hands of the beneficial owner, with residence then determined as it would be for a partnership. An American holding an Austrian company through an LLC is inside that paragraph whether they know it or not.

Art. 5 Abs. 1 defines a permanent establishment as a fixed place of business through which the business is wholly or partly carried on, and Abs. 2 names a place of management, a branch, an office, a factory and a workshop. A building site or installation counts only after twelve months (Abs. 3), and Abs. 4 takes storage, delivery, purchasing, information gathering and other preparatory or auxiliary activity back out. Abs. 5 catches a dependent agent habitually concluding contracts in the enterprise's name; Abs. 7 says control of one company by another does not by itself make either a permanent establishment of the other, which is the line between the subsidiary guide and branch office austria.

Article 7 then decides how much. Abs. 1 gives business profits to the residence state alone unless there is a permanent establishment, and then only what is attributable to it, computed under Abs. 2 as though it were a distinct and separate enterprise and after the Abs. 3 deduction of expenses incurred for it, wherever those arose. Two paragraphs are easy to miss. Abs. 8 extends the article to the income of a silent partner in an Austrian stille Gesellschaft. Abs. 9 keeps the attribution alive after the establishment has gone: income earned through it while it existed is taxed where it stood, even where the money arrives once it has ceased to exist.

Allocating the income is half the work. Article 22 is the machinery, and it runs differently in each direction. Abs. 1 requires the United States to credit the Austrian income tax against its own, in accordance with and subject to the limitations of United States law, with an indirect credit in lit. b for a United States company owning at least 10 percent of the voting shares of the Austrian company paying the dividend. Abs. 3 lit. a requires Austria to credit the United States tax on income the treaty lets the United States tax, capped at the Austrian tax on that income, and carves out in terms the tax charged solely by reason of citizenship under Art. 1 Abs. 4. Lit. b preserves exemption with progression: income Austria has to exempt may still be counted when fixing the rate on the rest.

Abs. 2 is the step only a citizen needs, and it is how the saving clause is made workable rather than left to bite. Where income would have been exempt or reduced in the hands of an Austrian resident who was not a citizen, Austria credits only the tax the United States could have charged under the treaty, ignoring the citizenship tax; the United States then credits the Austrian tax paid after that first credit; and lit. c re-sources the income to Austria so far as necessary to make the second credit work.

Article 16 then decides who may use any of it. Abs. 1 qualifies eight categories, among them an individual, a person actively carrying on a trade or business in its own state where the income is connected with it and the business is substantial, a company passing the ownership and base erosion test in lit. d, and a publicly traded company. An individual therefore never fails Article 16; a holding vehicle can. Abs. 2 lets the competent authority of the source state grant the benefits anyway, and the memorandum of understanding records that the active trade or business test is self-executing, so a taxpayer relying on it needs no advance decision and carries the risk that the authorities read it differently on audit. Abs. 3 lit. b names the Vienna Stock Exchange as a recognised exchange alongside NASDAQ.

Article 25 is wider than a founder expects in four ways, each of them in the text rather than in commentary. The exchange runs spontaneously as well as on request, and the authorities may agree a routine exchange (Abs. 1). It is not limited by Article 1, so it reaches information about people resident in neither state. It expressly includes fiscal criminal investigations relating to the taxes it covers. And by Abs. 6 the exchange paragraphs apply to taxes of every kind levied by a contracting state, not only the income taxes the rest of the treaty covers. Abs. 3 allows a state to be asked for sworn depositions and authenticated copies of unedited originals, and Abs. 7 obliges each state to help collect the other's tax so far as needed to stop relief reaching people not entitled to it.

The limits are in Abs. 2, and three readings in the memorandum of understanding narrow them again. Bank secrecy provisions are agreed not to be a professional secret. Collection assistance covers interest but not fines or penalty additions. And because the exchange article allocates no taxing rights, it is agreed not to be confined to taxes levied, or information arising, after the treaty's own commencement date.

The income tax convention takes social security contributions out of its own scope by name in Art. 2 Abs. 2 lit. a. What governs them is the agreement between Austria and the United States in the field of social security, BGBl. Nr. 511/1991, in force from 1 November 1991 under its Art. 27 Abs. 1, amended by BGBl. Nr. 779/1996 from 1 January 1997. Four of its provisions decide where a founder pays.

• The place of work decides. Art. 6 subjects a person employed or self-employed in one state exclusively to that state's legislation for that activity, even where the person's residence, or the employer's seat, is in the other state.
• A posting keeps the sending state, for five years. Art. 7 Abs. 1, in the version in force from 1 January 1997, keeps a person ordinarily employed in one state and temporarily sent there by an employer seated in the first state under that state's legislation, provided the employment abroad is not expected to exceed five years.
• Self-employment follows ordinary residence. Art. 7 Abs. 2 gives a self-employed person who would otherwise be compulsorily insured under both states' rules exclusively to the state of ordinary residence.
• And there is a discretion. Art. 9 lets both competent authorities agree exceptions to Articles 6 to 8 on the joint application of employee and employer, or on a self-employed person's application, having regard to the nature of the activity.

Its scope is narrower than the phrase suggests: Art. 2 Abs. 1 lit. a reaches the Austrian pension insurance legislation, excluding the notaries' scheme, and reaches health and accident insurance only for the coverage rules in Section II. What an Austrian managing director or a self-employed founder owes on the Austrian side is on the SVS guide.

The taxation of a United States social security payment is back in the tax treaty rather than here. Art. 18 Abs. 1 lit. b gives payments under the statutory social insurance and other public pensions made by one state to an individual resident in the other, or to a United States citizen, to the paying state alone, and the memorandum of understanding records that this reaches every kind of social insurance benefit and not only old-age pensions. It is also one of the provisions Art. 1 Abs. 5 lit. a preserves against the saving clause, which is why that answer does not collapse for a citizen.

Read on 18 September 2026 at the Bundeskanzleramt's open data. Each document number was checked against the article label and the gazette reference printed in that document.

• Income tax convention, BGBl. III Nr. 6/1998: instrument NOR11005179 · Art. 1 NOR12056489 · Art. 2 NOR12056490 · Art. 4 NOR12056493 · Art. 5 NOR12056494 · Art. 7 NOR12056496 · Art. 10 NOR12056499 · Art. 11 NOR12056500 · Art. 12 NOR12056501 · Art. 13 NOR12056502 · Art. 16 NOR12056505 · Art. 18 NOR12056507 · Art. 22 NOR12056511 · Art. 25 NOR12056514 · Art. 27 NOR12056516 · Art. 28 NOR12056517 · Art. 29 NOR12056518 · Anlage 2 NOR12056520
• Social security agreement, BGBl. Nr. 511/1991: instrument NOR11008923 · Art. 2 NOR12105650 · Art. 6 NOR12105654 · Art. 7 NOR12111322 · Art. 9 NOR12111323

Company Registration Austria: Withholding Tax in Austria (KESt) What Austria deducts on a dividend and on a payment to a non-resident, who is liable for it, and the three procedures through which a treaty reduction is actually claimed.

Company Registration Austria: Corporate Tax in Austria What an Austrian company pays on its profit, what falls due when it makes none, and the levies that sit alongside corporate tax and outside the reach of any treaty.