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Branch versus subsidiary

Doing business in Austria
A comparison of the limited liability company and branch office


Non-Austrian companies planning on doing business in Austria must decide which legal form to use for their activities in the country. Among others, Austria’s corporate law offers the option of forming a corporation (subsidiary) or branch office.

There are two kinds of corporations in Austria: the joint stock company (AG) and limited liability company (GmbH). Both are independent legal entities. In practice, the AG is mainly chosen by companies that are listed on stock exchanges and must therefore use this legal form. The GmbH’s flexible structure and easier management and formation often make non-Austrian investors view it as the appropriate form for conducting business in the country. An alterative is the registered branch office.

In actual business practice, most non-Austrian investors choose the legal form of a GmbH or – to a much lesser extent – the branch office for their business activities in Austria.

The key practical differences between the two corporate forms are discussed below.

Corporate law

Limited liability company:

A limited liability company (GmbH) is a legal entity that must be founded and managed in accordance with the provisions of the Austrian Limited Liability Company Act (GmbH Gesetz). Shareholders may be natural persons or legal entities, and can be either Austrian or non-Austrian. The GmbH can also be founded as a one-person company. The GmbH is an independent legal entity, and can therefore act, authorise and undertake obligations on its own behalf.

The minimum amount of share capital is € 35,000. Half of this amount (€ 17,500) must be contributed in cash at the time of formation.

Newly formed GmbH’s can apply for a special privilege (Gründungsprivileg). Although the nominal share capital is € 35,000, the articles of association can limit the privileged contribution to €10,000, with half of this amount, at least € 5,000, required in cash at the time of formation. In-kind contributions are not permitted. This special privilege exists for a maximum of 10 years from the date the company is registered in the commercial register.

There is also the option of formation with a contribution in kind instead of a cash contribution. Formation in this manner, however, is subject to strict examination requirements that are aimed at guaranteeing the value of the assets contributed. Due to these strict rules, formation with in-kind contributions is not used very often in Austria.

A GmbH must be established by means of a notarial deed recorded by a notary public. As a rule, the process of establishment – from conclusion of the articles of association to registration of the new company in the commercial register – takes one to four weeks.

As of January 1st 2018 a GmbH can be founded also online using the USP-platform in a simplified procedure. Such a GmbH founded online is only applicable for a small GmbH with e.g. only one shareholder who must be management director at the same time.

Branch office:

A branch office can be defined as the local office of a non-Austrian corporation. The associated legal provisions are found in the Austrian Commercial Code (Unternehmensgesetzbuch) and Austrian Limited Liability Company Act (GmbH Gesetzt). A branch office is not an independent legal entity. It is instead part of the non-Austrian company. As is the case for a GmbH, a branch office must be registered in the commercial register. Certain documents for the non-Austrian parent company, such as the articles of association, excerpt from the commercial register, specimen signatures for non-Austrian managing directors, etc., must be submitted for this purpose.

Although the branch office does not have its own share capital, its parent company normally provides it with so-called “branch office capital”. Unlike the GmbH, provision of branch office capital does not require payment of capital duty. The costs of establishing a branch office are similar to those for a GmbH.

Management and representation:

The managing director of a branch office has to reside in Austria, unless the parent company of the branch office is headquartered in the EU. The managing director of a GmbH is not required to be resident in Austria.

There are no key differences between the GmbH and branch office with respect to the managing director’s representation of the company vis-à-vis the outside world.

Reporting, accounting and disclosure:

The provisions concerning the reporting, accounting and disclosure requirements for a GmbH are in the Austrian Commercial Code. These largely follow the corresponding EU standards and directives. As a rule, the accounts for an Austrian-based GmbH are maintained in the country. Under certain circumstances, it is also possible to maintain the accounts outside Austria.

There are special aspects associated with the branch office. On a conceptual level, the accounting for an Austrian branch office is always a part of the accounting for the company as a whole. These accounts can be “independently” maintained in Austria prior to being integrated into the accounts of the company as a whole. The second option is to perform accounting for the branch office as a “permanent establishment” within the overall accounting performed outside Austria. In such cases, the tax rules applying to “accounting outside Austria” must be observed. These are laid down in the Austrian Federal Fiscal Code. In both options, the Austrian branch office is responsible for determining profit or loss.

The branch office does not have to prepare annual financial statements (balance sheet, income statement, notes to the financial statements) under Austrian commercial law. The annual financial statements of the company as a whole (= non-Austrian parent company) must be submitted – in German – to the commercial register no later than 9 months after the balance sheet date. The “balance sheet” used for tax returns is prepared based on the accounts maintained by the branch office. These are adjusted for tax purposes to show the items required by Austrian tax law, for which there are divergent rules.

Tax aspects:

Value-added tax:

In the area of value-added tax, there are no differences between the GmbH and the branch office in cases where the transactions are with independent third parties. Both are “entrepreneurs” as defined in the Austrian Value-Added Tax Act and are subject to the provisions of the act.

Differences arise from transactions with the non-Austrian parent company. Transactions between the Austrian GmbH (subsidiary) and the non-Austrian corporation (parent company) are governed by the provisions on arm’s length transactions between independent third parties. From a value-added tax point of view, transactions between a branch office and parent company are not independent transactions, but non-taxable internal transactions.

Corporate income tax:

  • Limited liability company:

An Austrian GmbH is subject to unlimited corporate income tax liability. Profits are taxed at a 25% rate. A company reporting a loss generally has to pay a minimum corporate income tax of € 1,750 per year.

The minimum corporate income tax for newly established companies is € 500 for years 1 to 5, € 1,000 for years 6 to 10 and € 1,750 starting in year 11. This minimum corporate income tax is treated as a tax prepayment, and can be offset against profits in following years.

Dividends paid to the non-Austrian parent company are tax-exempt under certain conditions, i.e. not subject to withholding tax, if the parent company is headquartered in the EU. If the parent company is headquartered in a third country, dividends are subject to a withholding tax of between 5% and 25%, depending on the applicable double taxation agreement.

Licensing payments, interest payments and similar payments arising from agreements with the parent company are recognized as operating expenses if they satisfy the arm’s length test.

  • Branch office

A branch office is subject to limited tax liability in Austria. This means that the profits that are unambiguously attributable to Austria are subject to a 25% corporate income tax. Unlike the GmbH, a branch office is not subject to the minimum corporate income tax.

Profits earned by the Austrian branch office and transferred to the parent company are never subject to withholding tax, since the Austrian profits are only part of the overall profits of the company. Interest and licensing payments are not deductible when calculating the profits earned in Austria. This is because they are also internal transactions and have no effect on profit or loss for tax purposes.

Special provisions must be observed for branch office loss carryforwards. Only losses arising from the determination of profits for an Austrian branch office may be offset against profits generated by this branch office in following years. However, before being offset against profits generated in Austria, the loss carried forward must first be offset against the (positive) global income earned by the non-Austrian parent company. Only the amount remaining after this can be offset against the Austrian profits.


A comparison of the branch office and GmbH reveals few differences in terms of Austrian taxes.

The GmbH has disadvantages with respect to the mandatory capital contribution (minimum share capital of a GmbH) and the minimum corporate income tax.

The branch office brings no advantages or simplification in the areas of formation, accounting or liquidation. Instead, the clear separation between the GmbH and its non-Austrian parent company yields significant advantages in practice.

In addition, publication requirements for the non-Austrian annual financial statements in the German language, registration requirements for changes to the articles of association and management of the non-Austrian company, and application of liquidation rules of the non-Austrian company make a branch office much more expensive.

Vienna, September 2021

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