Post by Sapphire Capital on Oct 29, 2008 20:11:14 GMT 4
Austria: Proposal for new corporate and tax regime for private equity
In an attempt to strengthen the Austrian private equity and venture capital market the Austrian Ministry of Finance has published a draft bill for a new legislative framework for Austrian private equity and venture capital funds. The draft bill introduces special corporate and tax provisions for a new type of fund, the so called investment companies (Investmentgesellschaften).
Investment companies
According to the draft bill (Investment Company Act – Investmentgesellschaftengesetz) an investment company may be established in the legal form of an:
Austrian joint stock company (Aktiengesellschaft – AG) with its corporate seat and place of management in Austria: or an
Austrian limited partnership (Kommanditgesellschaft – KG) being transparent for corporate tax purposes. All limited partners have to be corporate entities resident in the EU or the European Economic Area (EEA) or certain qualified financial investors. The minimum investment for a limited partner is €50,000 ($70,800).
An investment company must have a minimum capital of at least EUR 2 million ($2.8 million) in cash. It may be managed by (at least two) individual managers or a EU/EEA resident management company. There are detailed qualification requirements for the management.
The business of an investment company is limited to start-up, expansion and pre-IPO financing; buyout financing is not allowed. There are, however, no limitations as to the size or the business or the target companies except that the target company must not be a pure holding company and not be acquired from a major shareholder of the investment company. Debt and mezzanine financing is possible (annex financing) but more than 50% of the financing provided by the investment company to its target companies must be equity financing.
The investment company must not invest more than 25% of its equity for a participation in a single target. However, up to 100% of a target company may be acquired. Each participation has to be held for at least one year and not longer than ten years.
An Austrian depositary bank has to be mandated with safe custody and account management services for the investment company. The investment company must provide its investors with a detailed information memorandum which has to be updated every quarter or whenever new shares are issued by the investment company. Investment companies qualifying under the Austrian Investment Companies Act will be registered in a public register.
Taxation of investment companies
Capital gains realised by investment companies from a sale or other disposal of its participations are exempt from corporate tax. Losses and write-downs are not deductible for tax purposes (tax neutrality of participation in target companies). Such tax neutrality is supposed to be the most important incentive for the new investment companies since under the general Austrian corporate tax regime capital gains arising from the sale of participations in Austrian target companies are taxable.
In addition, also interest income derived by investment companies from mezzanine and debt financing is tax exempt to the extent that the ratio of the equity financing and the debt financing provided by the investment company to its targets does not exceed the investment company's own debt to equity ratio. On the other side, interest paid by the investment company is not deductible.
Investment companies cannot form, or be a member of, a tax group. The existing finance companies for small and medium-sized enterprises (Mittelstandsfinanzierungs-gesellschaften) can be converted into an investment company. The conversion does not trigger any capital gain provided that the requirements for investment companies are met until the end of the second year following the conversion.
The proposal seems to be a step into the right direction but needs further improvements in order to achieve the goal of strengthening the Austrian private equity and venture capital market. Further, given that the legislative procedure has been stopped because of the Austrian parliamentary elections on September 28 2008 it remains to be seen whether and when the draft legislation will enter into force.
Source: ITR:
Clemens Hasenauer (clemens.hasenauer@chsh.at)
Johannes Prinz (johannes.prinz@chsh.at),
Cerha Hempel Spiegelfeld Hlawati, Vienna
Telephone
+43 1 514 35 471
www.chsh.at/
In an attempt to strengthen the Austrian private equity and venture capital market the Austrian Ministry of Finance has published a draft bill for a new legislative framework for Austrian private equity and venture capital funds. The draft bill introduces special corporate and tax provisions for a new type of fund, the so called investment companies (Investmentgesellschaften).
Investment companies
According to the draft bill (Investment Company Act – Investmentgesellschaftengesetz) an investment company may be established in the legal form of an:
Austrian joint stock company (Aktiengesellschaft – AG) with its corporate seat and place of management in Austria: or an
Austrian limited partnership (Kommanditgesellschaft – KG) being transparent for corporate tax purposes. All limited partners have to be corporate entities resident in the EU or the European Economic Area (EEA) or certain qualified financial investors. The minimum investment for a limited partner is €50,000 ($70,800).
An investment company must have a minimum capital of at least EUR 2 million ($2.8 million) in cash. It may be managed by (at least two) individual managers or a EU/EEA resident management company. There are detailed qualification requirements for the management.
The business of an investment company is limited to start-up, expansion and pre-IPO financing; buyout financing is not allowed. There are, however, no limitations as to the size or the business or the target companies except that the target company must not be a pure holding company and not be acquired from a major shareholder of the investment company. Debt and mezzanine financing is possible (annex financing) but more than 50% of the financing provided by the investment company to its target companies must be equity financing.
The investment company must not invest more than 25% of its equity for a participation in a single target. However, up to 100% of a target company may be acquired. Each participation has to be held for at least one year and not longer than ten years.
An Austrian depositary bank has to be mandated with safe custody and account management services for the investment company. The investment company must provide its investors with a detailed information memorandum which has to be updated every quarter or whenever new shares are issued by the investment company. Investment companies qualifying under the Austrian Investment Companies Act will be registered in a public register.
Taxation of investment companies
Capital gains realised by investment companies from a sale or other disposal of its participations are exempt from corporate tax. Losses and write-downs are not deductible for tax purposes (tax neutrality of participation in target companies). Such tax neutrality is supposed to be the most important incentive for the new investment companies since under the general Austrian corporate tax regime capital gains arising from the sale of participations in Austrian target companies are taxable.
In addition, also interest income derived by investment companies from mezzanine and debt financing is tax exempt to the extent that the ratio of the equity financing and the debt financing provided by the investment company to its targets does not exceed the investment company's own debt to equity ratio. On the other side, interest paid by the investment company is not deductible.
Investment companies cannot form, or be a member of, a tax group. The existing finance companies for small and medium-sized enterprises (Mittelstandsfinanzierungs-gesellschaften) can be converted into an investment company. The conversion does not trigger any capital gain provided that the requirements for investment companies are met until the end of the second year following the conversion.
The proposal seems to be a step into the right direction but needs further improvements in order to achieve the goal of strengthening the Austrian private equity and venture capital market. Further, given that the legislative procedure has been stopped because of the Austrian parliamentary elections on September 28 2008 it remains to be seen whether and when the draft legislation will enter into force.
Source: ITR:
Clemens Hasenauer (clemens.hasenauer@chsh.at)
Johannes Prinz (johannes.prinz@chsh.at),
Cerha Hempel Spiegelfeld Hlawati, Vienna
Telephone
+43 1 514 35 471
www.chsh.at/