What is an Austrian silent partnership?
If someone provides cash or contributes know-how or a patent or any other tangible or intangible asset to an Austrian company and, in consideration for providing such an asset, is entitled to participate in the profit and loss of that company, then a silent partnership exists according to Austrian law.
According to Austrian Civil Law, which is the legal basis for such a silent partnership, the silent partner can be excluded from suffering losses but may not be excluded from participating in the profit. The parties to that contract, which are the Austrian principal and the silent partner, can determine without any restrictions how to allocate the profit and loss to the partners of this partnership.
The name of the silent partner is not registered in any Public Register and therefore such a silent partnership offers privacy for the client. In other words, the name of the silent partner is unknown to the public. The customers and suppliers buy and trade with a normal Austrian company (the principal) and don’t know anything about the silent partner. Typically, the silent partner is a company incorporated in a low-tax jurisdiction such as the UAE, Singapore, Malaysia, Hong Kong, Panama, etc.
An Austrian silent partnership is an excellent solution for entrepreneurs who want to receive most of the profits in a low-tax environment (silent partner) but want to use a trustworthy Austrian company to do business and interact with suppliers and customers.
VAT identification number
Traditionally, an Austrian company faces an unlimited tax liability on its worldwide income. The Austrian company (principal) will have a taxpayer’s identification number, will be a granted a VAT identification number by the tax administration and will receive a certificate of residence from the Austrian tax administration instantly after registration of the company.
Especially the VAT identification number is an essential tool in case of international trade or international income, especially within the European Union.
An Austrian company has a silent partner (a company from a low-tax jurisdiction) who contributed the right to utilise a certain patent, a know-how, a software or any other intangible.
For being entitled to utilise these rights the Austrian company entitles the low-tax company, by virtue of a silent partnership contract, to participate in its profits for 80%. In other words, 80% of the profit before taxes realised by the Austrian company has to be paid to the low-tax company (silent partner).
The profit share of the silent partner is a fully tax deductible business expense for the Austrian company (the principal). Additionally, Austria doesn’t levy any withholding tax when the silent partner is from the UAE, Hong Kong, Singapore, Malaysia, etc.
One can conclude that the total effective tax burden of an Austrian silent partnership is only 5%. 80% of the profit before taxes flows to a low-tax jurisdiction and Austrian corporate income tax of 25% is due on the remaining 20% of the profit.
Do not hesitate to contact us for more information about Austria’s biggest tax planning secret.