INVESTMENT GUIDE: AUSTRIA

Transcription

1 INVESTMENT GUIDE: AUSTRIA An introduction to buying commercial property in Austria

2 Investment Guide: AUSTRIA HOW TO INVEST IN AUSTRIA? VIENNA AS LOCATION Due to its position at the intersection of important traffic arteries, Vienna conveniently located at the centre of Europe offers optimal access to the markets of Central and Eastern Europe. Its function as a gateway to these regions as well as favourable general economic conditions make Austria s capital particularly attractive to national and international enterprises. In addition, Vienna enjoys a good reputation as a services centre with excellent Eastern Europe know-how in diverse fields. This position will be strengthened further once investors and enterprises gradually return to the growth markets of Eastern Europe after the global economic crisis. In addition, Vienna is a trans-european motorway junction while the easily accessible Vienna International Airport at Schwechat provides connections to the European and intercontinental flight networks. Vienna is an attractive location for many international organisations and major companies. The federal capital is one of the four headquarters of the United Nations as well as seat of the OSCE, OPEC, IAEA and UNIDO. Furthermore Vienna is becoming more and more popular for companies in the field of research and development as the number of companies in this sector has increased by approx. 300% over the last 15 years. PROPERTY MARKET STABILITY Vienna is one of the most stable office markets in Europe. The current prime yield is at 4.75%. In individual cases, exceptional city-centre properties are also transacted below 4.75%. Nonetheless, Vienna is considered favourable compared to cities such as Munich, Frankfurt or Zurich, in which prime yields lie

3 clearly below 4.75%. By European comparison, Vienna is viewed as an attractive location due to its stable rental profile as well as the economic, social and political conditions. PROPERTY MARKET LIQUIDITY Thanks to several large transactions, commercial property investment volumes in 2014 reached Euro 2.8bn. Austrian investors were the largest group of buyers, with private buyers, especially private foundations, increasingly pushing into the commercial market as a result of high residential property prices. In particular, demand in the core segment has continued to be strong into 2015, albeit there is a scarce supply of prime assets. VIENNA MOST LIVEABLE CITY IN THE WORLD Vienna offers international location advantages especially with regard to security and infrastructure: in Mercer s Worldwide Quality of Living Survey of March 2015, out of more than 200 cities worldwide the federal capital took the top spot ahead of Zurich for the sixth time. In Mercer s Personal Safety Ranking of 2012, which assesses stability but also crime rate and criminal prosecution, Vienna can also be found among the top five cities. In the international Liveability Ranking 2013 by The Economist Intelligence Unit, Vienna ranks second behind Melbourne, with the perennial winner Vancouver coming in third place. This result stresses the high status of the Danube metropolis in Europe. Austria in numbers latest avalilable data as at January 2015 Population 8,504,850 Population in Vienna 1,765,649 GDP in billion per capita GDP in Euro (2013) 38,050 Inflation rate - forecast for % Unemployment rate 5 % Number of employees 3,620,200 Number of businesses in Austria (2012) 314,855 Rate of newly founded enterprises (2012) +5.9% Overnight stays of national/ international tourists (2013) 132,600,000 Source: Statistik Austria

4 Investment Guide: AUSTRIA Vienna: 2 nd largest German Speaking city ~2.8bn Euro transaction volume in % rate of newly founded enterprises in 2012 Office Locations Rents in Euro / m2 / Month Vienna: 12.7m overnight stays in 2013 (+3.7% over 2012) 1 Central Vienna / CBD 2 Lassallestrasse 3 Muthgasse / Heiligenstädter Lände 4 Dresdner Strasse / Handelskai 5 Donau-City 6 Erdberg / St. Marx / Gasometer 7 Vienna South / Wienerberg 8 Vienna West 9 Prater 10 Main Station Vienna: ~8,600 people per hour footfall in "Golden U" (city centre) as per May 2014 Retail Locations I City locations II Mariahilfer Strasse III Landstrasser Hauptstrasse IV Favoritenstrasse V Meidlinger Hauptstrasse VI Thaliastrasse VII Hietzinger Hauptstrasse VIII Rudolfsplatz and surrounding IX Neubaugasse and surrounding Rents in Euro / m2 / Month Logistics Locations Rents in Euro / m2 / Month +30% increase in annual expenditure in online sales between 2010 and 2013 A B C Nord Süd-Ost West

5 A5 S1 A Hub Eibesbrunn S1 A S2 5 2 A22 C A1 VII 8 VI V IX II 1 VIII I III Hub Prater (SCHEDULED) S1 7 IV A23 A4 Port Vienna (2017) Hub Schwechat A23 A4 S1 S1 A21 A2 Hub Vösendorf B Airport Schwechat Office Locations Retail Locations Logistics Locations

6 Investment Guide: AUSTRIA PROPERTY OWNERSHIP WHO CAN OWN PROPERTY IN AUSTRIA Property can be owned by any individuals or legal entities with legal capacity. The land transfer acts of the nine Austrian Federal States set out different restrictions for the acquisition of land, secondary homes or agricultural and forestry land by foreigners. Therefore, prior to acquiring a property it needs to be verified whether any approval is required. In principle, however, EU citizens (both legal entities and natural persons) may acquire land in Austria under the same conditions as Austrian citizens. LAND REGISTER The Austrian land register ( Grundbuch ) is a public electronic register listing all properties: for each piece of land a separate folio with a specific registration number is set up. The land register shows the owner of the property and rights and obligations related to it. Information contained in the land register enjoys specific protection if the purchaser has in good faith relied on the correctness of the information given. FORMS OF OWNERSHIP Property rights in Austria can be held through either common (freehold) ownership, condominium ownership or limited rights in rem. The main forms of property ownership are: FREEHOLD OWNERSHIP ( EIGENTUM ) The owner of the freehold title owns both the land and the building on it for unlimited time. Only in specific cases is ownership of the building separated from ownership of the land. Ownership can take the following forms: Sole ownership ( Alleineigentum ): There is a single owner with the sole right to control and dispose of the land. Co-ownership ( Miteigentum ): There is more than one owner, each of whom owns an undivided share of the land. Each co-owner has the right to dispose of his share. Condominium ownership ( Wohnungseigentum ): This form of ownership usually relates to residential apartments but can also apply to part-ownership of commercial premises, e.g. a shopping centre or a hotel as part of a building. The condominium owner has the right in rem to the exclusive use of a specific unit within a larger property, such as an apartment or an office, and has co-ownership of communal areas. BUILDING RIGHT ( BAURECHT ) Ownership of a building is granted for a fixed long-term period along with the right to use but not own the related land. Building rights may be granted for periods of 10 to 100 years. These rights are entered into the land register and can be sold or inherited and the holder is entitled to construct buildings on the land and to encumber the building right. An annual ground rent ( Baurechtszins ) is payable to the land owner. Upon expiry of the building right all ownership in the building automatically passes on to the land owner; if no agreement on compensation for the value of the building has been made, land owner shall pay 25% of the current building value. Similar to a building right, a superstructure ( Superädifikat ) also is a building that can be owned by an entity different from the land owner.

7 PURCHASING AND OWNING PROPERTY Property Acquisition process: A property purchase requires a sale and purchase agreement, with signatures to be certified by a notary, and registration of ownership of the purchaser in the land register. FEES PAYABLE ON PROPERTY PURCHASES Property transfer tax: The purchase of a property is subject to property transfer tax ( Grunderwerbsteuer ) in the amount of 3.5%. In certain family transfers or transfers without arm s length consideration special rules apply to both tax rate (2.0%) and tax base. The tax base is the consideration paid or, in specific cases, a multiple of the tax value of the property. Land registration fees: The registration of the purchase in the land register, which is necessary for completing the acquisition process, involves a registration fee of 1.1%. Agents fees: Real estate agents fees for commercial property transactions are usually below 3.0% of the purchase price, plus VAT. Agents fees can legally accrue on both seller and purchaser side. Lawyers fees: Lawyers fees typically range from 0.5% to 1.5% of the purchase price, plus VAT, and may sometimes be higher for residential property or smaller investment volumes. Notaries fees: The legalization of signatures is necessary for documents entered into the land register. Legalization fees are set by the Austrian Notaries Tariff and generally amount to a few hundred Euros depending on the value of the property. In share deals a notarial deed might be required, triggering fees of some 1,000 Euros. Asset deal vs. share deal: In general, the purchase of a property can be structured as asset or share deal. The share deal comprises two types of entities owning the property: corporation and partnership. In an asset deal the purchase is subject to both a property transfer tax of 3.5% and a land registration fee of 1.1% of the purchase price. In certain family transfers or transfers without arm s length consideration special rules apply to both tax rate (2.0%) and tax base. On the other hand, a share deal will only trigger property transfer tax in rare cases where all shares in the property-holding company (being a corporation) are united in one hand. However, this tax position can usually be avoided by proper structuring. A share deal using a partnership structure will usually involve neither property transfer tax nor land registration fees. From a VAT perspective, neither does the share deal impact the VAT position of the property nor will the acquisition of the shares itself be subject to VAT. By contrast, the asset deal can be treated as a VAT-exempt sale or (optionally) as subject to VAT at the regular rate of 20%. The VAT treatment of the purchase significantly impacts the VAT position during the holding period and the sale (for more details see below). VAT charged on the purchase price increases the tax base for property transfer tax and land registration fee. Agent fees in a share deal will usually be VAT-exempt as the service relates to a transfer of shares. In an asset deal the agent fees will usually be subject to VAT at the regular rate regardless of the VAT position of the landlord and/ or tenants (for details see below). Different provisions may apply for the VAT treatment of agent fees if the property (or property holding company) is located abroad. In a share deal the buyer sometimes has to inject fresh capital. Capital transfers to corporations and corporate partnerships are subject to a 1% capital transfer tax for capital transfers until 31 December After that date the capital transfer regime will be discontinued. Please note: The tax rules presented herein primarily refer to investments made from 2015 onwards. Investments before 2015 might follow other rules or could be subject to certain transitional provisions not fully covered in this brochure.

8 Investment Guide: AUSTRIA VAT on sale (asset deal): The sale of a property can be treated as VAT-exempt or (optionally) as subject to VAT at the regular rate of 20%. With VAT exemption the seller has to adjust any input VAT recovered on the purchase, construction costs and extraordinary maintenance during the adjustment period. The adjustment period is 20 years for property used for the first time after 31 March 2012 (otherwise 10 years). The adjustment follows a pro rata logic, i.e. roughly 5% of the total input recovered per year of subjectto-vat use of the property are safe. The total adjustment amount has to be accounted for in the year of the sale. Tax on capital gains: For corporations capital gains from the sale of a property are taxed at the flat CIT rate of 25%. Basically, the tax base is calculated as the balance of proceeds from sale less net book value less costs of sale. CIT is levied through an assessment procedure comprising all sorts of income generated by the legal entity within one fiscal year. Quarterly prepayments based on historic tax results are set off against the final tax bill upon assessment. Losses from the sale can be set off against profits from other sources without any restrictions. For individuals the taxation of capital gains is different. First, the tax is levied upon sale by withholding a 25% tax on the gain ( Immobilienertragsteuer ). Together with the withholding, a simple tax return (tax calculation) has to be filed, which is usually done by the lawyer or notary public involved. In general, the capital gain is treated as a separate

9 schedule for income tax purposes and not part of the assessed income tax on other income (with the progressive tax rate going up to 50%). In some cases (with a purchase date before 2002) the effective tax rate could go down to 3.5%. The tax base for individuals is higher than for corporations as limitations apply on deductible costs of sale. Individuals face certain restrictions for setting off and carrying forward losses from the sale of a property. For both individual and corporate sellers a reduction of the tax base is granted for long holding periods ( Inflationsabschlag ): after 10 years the capital gain is reduced by 2% per annum with a maximum reduction of 50% after 35 years of holding. It is important to note that individuals who invest in property on a commercial basis, e.g. developers or traders, are subject to a different set of rules for the capital gain. In particular, the reduced 25% income tax rate is not available for this type of investor. Hence, corporate structures would be preferred vehicles for such types of investments. TAXES ASSOCIATED WITH OWNERSHIP OF PROPERTY Real estate tax: An annual real estate tax ( Grundsteuer ) is payable on all property in Austria. It is assessed by the local tax office. Property owners will often shift the cost of real estate tax to the tenant. Income Tax: Rental income from property located in Austria is subject to ordinary Austrian income taxation regardless of whether the owner is an Austrian or non-austrian resident. Rental income is subject to a flat tax rate of 25% (corporate income tax, CIT) for corporations and a progressive income tax rate of up to 50% for individuals. The tax code imposes maximum rates for depreciation of buildings between 1.5% (individuals) and 2% to 3% (corporations) depending on the use of the building by the tenant. Expert evidence may provide for more favourable rates overruling the rates by law. Particularly qualified costs for (re)construction, renovation or refurbishment can be depreciated over a 10- to 15-year period. Interest and other expenses relating to the property basically are fully deductible with only minor restrictions. In regard to debt financing it is worth noting that Austria does not apply any particular thin capitalisation rules. Family transfers / inheritance: Austria abolished gift and inheritance tax in However, the transfer of property to close family members without arm s length consideration, be it inter vivos or by reason of death, is subject to property transfer tax with the tax value of the property (or multiples thereof) as the relevant tax basis. In general, these types of transfer will trigger only rather small tax amounts due to low rates (down to 2% for close family members) and reduced tax basis (the tax value of a property usually undercuts fair market value by far). From an income tax perspective the successor basically continues the tax position of the legal predecessor with regard to depreciation, determination of holding period, special allowances for accelerated depreciation, etc.

10 Investment Guide: AUSTRIA COMMERCIAL LEASE STRUCTURES General: Lease agreements for commercial purposes are governed by the non-mandatory provisions of the Austrian Civil Code ( Allgemeines Bürgerliches Gesetzbuch, ABGB ). The majority of commercial lease agreements are also governed by the mandatory provisions of the Austrian Rent Act ( Mietrechtsgesetz, MRG ), which depending on the type of real estate may be applicable in full, in part or not at all. The Austrian Rent Act is restrictive and mainly intends to protect tenants interests (e.g. restrictions on early termination for leases concluded for an indefinite term, maximum rent, prohibition of key money, etc.). Rent: The rent is usually paid monthly in advance. Rent is usually adjusted annually according to CPI change. Where the Austrian Rent Act only applies in part or not at all, the amount of rent may be freely negotiated. Where the Austrian Rent Act is fully applicable, statutory maximum rents may apply. The law does not provide for rent revisions. Only within the full applicability of the Austrian Rent Act may a landlord be entitled to increase the rent of a business to market level in case of change of control or sale of the business operated on the premises. Duration and termination: The duration of commercial leases may be freely negotiated (no minimum or maximum term); usual terms are 5 to 15 years (often including an option for renewal), or an indefinite term is agreed. In commercial leases for an indefinite term, a waiver of notice by the tenant is common. Leases for a definite term will end at the termination date and cannot be terminated early unless a break clause for early termination is agreed. Agreements for an indefinite term will end by notice of termination from either side with the notice period agreed. However, the landlord may only terminate the lease agreement for specific reasons listed exhaustively in the Austrian Rent Act (such as default of rent payment, adverse use of the premises and certain cases of subletting). Due to this strict regulation of termination, many commercial leases are concluded only for a definite term. Operating costs/repairs: Where the Austrian Rent Act is only partly or not applicable at all, operating costs can be freely negotiated. Usually the tenant is obligated to pay for management, operation, maintenance work and repairs except for substantial structural repair or renewal work and serious damage, which are borne by the landlord. The tenant will usually be responsible for internal repairs and redecoration. Within the full applicability of the

11 Austrian Rent Act the law states an exhaustive and restrictive catalogue of operating costs (service charges, waste disposal, insurance, etc.) that can be passed on to the tenant (however, no maintenance or repair costs may be passed on to the tenant; all such costs must be borne by the landlord). Subletting: In practice subletting is not permitted unless agreed in the specific lease. Stamp duty: Lease agreements are subject to a stamp duty of 1% of the total rent (including turnover rent) plus costs. The tax base for leases with indefinite term is triple the annual rent, for leases with a definite term the rent for the whole term with a maximum of 18 years. VAT on rent: Renting out property for commercial (as opposed to residential) use is standard VAT-exempt. As a consequence, the landlord is not eligible to deduct input VAT on any costs incurred. However, the landlord may opt for subject-to-vat treatment of the rent applying the regular rate of 20% provided that the tenant is a subject-to-vat business eligible for input VAT recovery on 95% of its sales. The subject-to-vat treatment of the rent allows for input VAT recovery on supplies of goods and services received. This provision applies to tenancies beginning after 31 August According to the tax authorities any change in person on either the landlord s or the tenant s side initiates a new tenancy in this regard. If the construction of the building started prior to 1 September 2012, the restriction on opting for VAT on the rent will not apply to the landlord who built the property. Hence, working around this restriction can be achieved through a share deal. Consequently, depending on the VAT status of the tenant any tenant change could result in a significant impact on VAT position as the adjustment logic for input VAT works in both directions (increase and decrease of input VAT). In contrast to the tax-exempt sale (with a final adjustment due all at once), a change in the mix of tenants will result in adjustments in any consecutive period depending on whether the ratio of taxable tenants has increased or decreased compared to the year in which the input VAT (on the purchase, the construction, etc.) was recovered. KEY FINDINGS Austria is a very attractive target market for real estate investments due to the fact that its capital Vienna is the 2 nd largest German speaking city, located in the middle of Europe. Vienna is one of the most stable office markets in Europe with a comparatively low vacancy rate. the real estate market meets demand of investors who are interested in both modern and traditional buildings. it has one of the lowest unemployment rates in the European Union. the number of newly founded businesses is continuously growing. besides various corporate headquarters also international organisations like the UNO, OSCE, OPEC, IAEA and UNIDO chose Vienna as location for their head offices.

12 VIENNA OTTO IMMOBILIEN Martina Cerny, Capital Markets and Research m.cerny@otto.at Lene Kern, Capital Markets and Research l.kern@otto.at Martin Weinbrenner, Head of Commercial RE Division and Capital Markets m.weinbrenner@otto.at Dr Eugen Otto, Managing Director eugen@otto.at EUROPEAN RESEARCH Darren Yates, Partner Head of Global Capital Markets Research darren.yates@knightfrank.com Matthew Colbourne, Associate International Research matthew.colbourne@knightfrank.com Joachim von Radecke, Partner European Capital Markets joachim.radecke@knightfrank.com Detailed research reports on the Vienna market are available from OTTO Immobilien. For further details, please contact investment@otto.at or see RECENT MARKET-LEADING RESEARCH PUBLICATIONS Kindly supported by: Otto Immobilien GmbH 2015 All data have been taken from reliable sources and carefully researched. Accuracy and completeness cannot be guaranteed. Use without approval, even of excerpts only, is not permitted without written consent. Office Market Report Spring 2015 Retail Market Report 2014 Vienna Office Market Outlook 2014 Global Cities Report 2015 Research Reports are available at and