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Country Commercial Guides
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CHAPTER VII. INVESTMENT CLIMATEA. Host Country Policies and Practices
A.1. Openness to Foreign Investment
Government attitude toward foreign private investment:
The Government of Austria generally welcomes all foreign direct investment, particularly those investments that create new jobs in high technology, promote capital intensive industries, are linked with research activities, improve productivity, replace imports, increase exports, and do not have a negative impact on the environment. In some regions, Austria also offers special facilities and services ("cluster" packages) to foreign investors, for example, for manufacturers of semiconductor chips, silicon and high-tech products or for automotive producers. Austria's basic policies toward foreign direct investment are not expected to change in coming years. A large number of foreign firms, including more than 370 U.S. companies, have invested in Austria and most have expanded their original investment over time.
The Austrian government has made a major effort to improve the investment climate, seeking to further liberalize and deregulate its economy. However, the failure of the Economic Ministry's "one-stop shop" plan, designed to reduce regulatory red tape by allowing investors to obtain all necessary permits in one location, has raised questions over the government's commitment to deregulation.
The OECD's review of the Austrian economy in March 1999 noted that while entrepreneurial activity has increased in recent years, conditions for promoting entrepreneurship and investment need further strengthening.
A 1999 comparison of business costs in Austria and the G-7 countries by international consultant KPMG ranked Austria in the middle. Overall costs in Austria were similar to that of France and Italy, lower than in Germany and Japan, but higher than in the U.S., Canada and the U.K. The study designated Austria as the most attractive investment location in terms of low corporate tax rates. A 1998 survey of U.S. Investor Confidence conducted by the American Chamber of Commerce in Austria and the U.S. Embassy showed that U.S. investors were generally satisfied with Austria as an investment location. However, both studies found that high electricity and telecom costs serve as disincentives to investment. These costs have started to come down substantially in response to liberalization and competition. For example, since February 1999, large energy users are now free to contract with foreign suppliers for their electricity needs. Firms have also been able to significantly reduce their telecom bills by selecting from among a great number of private telecom suppliers. These suppliers have been hindered, however, by insufficient access to Austria Telekom's lines, making the greater choice somewhat problematic. Strong productivity growth in combination with moderate wage increases have also resulted in lower costs for international investors.
There are no formal sectional or geographic restrictions on foreign investment, although investment in sectors with excess capacity, such as steel, textiles, and paper, is not encouraged. Financial and tax incentives within EU parameters are offered to firms undertaking projects in economically depressed areas and underdeveloped districts on Austria's eastern borders. Some of these geographic areas are also eligible for subsidies under EU programs. The only instances of local opposition to investment in the manufacturing sector have arisen out of environmental concerns. Potential U.S. investors need to factor into their decision-making process Austria's strict environmental laws. Additionally, Austria has tight restrictions on the introduction of biotechnology products, together with strict liability regulations for research, production, and distribution of genetically modified organisms (GMOs).
Acquisitions, mergers, takeovers, cartels
International acquisitions and takeovers of domestic enterprises are permitted in Austria. As of January 1, 2000, investors will confront stricter cartel regulations. International cartels are not prohibited, but are subject to oversight by the cartel court to prevent the abuse of market power. The consent of the cartel court must be obtained, requiring that the applicant refrain from market behavior that would limit or impede competition. Selling below the cost price is now considered one possible abuse of a dominant market position. The cartel court must be notified of mergers and acquisitions if combined world wide sales are in excess of AS 4.2 billion (US$ 339 million), if domestic sales exceed AS 210 million (US$ 17 million), or if two of the firms involved each have world wide sales exceeding AS 28 million (US$ 2.3 million).
A new takeover law aims at providing investors better protection, improved financial information and protection against insider trading. It applies to both friendly and unsolicited takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. Any shareholder obtaining a controlling stake in a corporation (30% or more of all shares) is required to offer to buy out smaller shareholders at a defined "fair market" price. An independent takeover commission at the Vienna Stock Exchange will oversee compliance.
Screening mechanisms
Only those foreign investments with government financial assistance are subject to government overview. Screening is intended only to ensure compliance with EU regulations which limit such assistance to disadvantaged geographic areas.
Privatization
In the ongoing privatization of public enterprises, foreign and domestic investors are, in principle, treated equally. Privatizations involving banks or basic industries adhere to a stated policy of "maintaining the Austrian interest." However, with no specific regulations on how this goal is to be achieved, foreign investors have been successful in obtaining shares in important Austrian industry sectors, for example the telecom and energy sectors.
Treatment of foreign investors
There is no discrimination against foreign investors. However, foreign investors are required to meet a number of regulations. Although participation by Austrian citizens in ownership or management is not required, at least one manager must meet residence and other legal qualifications. Non-residents must appoint a representative in Austria. Expatriates are allowed to deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned income.
Investment incentives
Forty-one percent of Austria's land area is eligible for support under various EU structural fund programs. The Austrian federal, provincial, and local governments also provide financial incentives within EU parameters to promote investments in Austria. Incentives under these programs are equally available to domestic and foreign investors and range from tax incentives to preferential loans, guarantees and grants. Most of these incentives are available only if the planned investment meets specified criteria (e.g., implementation of new technology, reducing unemployment, etc.).
A.2. Conversion and Transfer Policies
There are no restrictions on converting or transferring funds associated with foreign investment. The Austrian National Bank (ANB) has fully liberalized all cross-border capital transactions for non-residents and residents, including the acquisition of Austrian securities, debt service, and the repatriation of profits, interest payments, dividends, and proceeds from the sale of an investment.
The Austrian schilling is a freely convertible currency. On January 1, 1999, Austria became one of the eleven members of the Economic and Monetary Union (EMU) and adopted the common Euro currency, which will fully replace the schilling for all transactions, including cash, at the beginning of 2002. Effective July 1, 2002, the Austrian schilling will no longer be an official payment instrument. On December 31, 1998, the exchange rate for Euro 1.00 was irrevocably fixed at Austrian schillings 13.7603. Investors will therefore be shielded from any exchange rate risk of the schilling against the ten other participating currencies during the transition to the Euro in 2002.
With the start of the EMU on January 1, 1999, the Austrian National Bank transferred its monetary policy responsibilities to the European Central Bank (ECB), in which the Austrian National Bank has one seat and one vote on the Governing Council that sets monetary policy in the EMU area. This transfer did not represent a policy change because the ECB's declared goal of stability continues Austria's previous successful "hard schilling policy," in which the schilling was pegged to the German mark.
A.3. Expropriation and Compensation
Expropriation of private property in Austria is rare and may proceed only on the basis of special legal authorization. It can be instigated only when no other alternative for satisfying the public interest exists; when the action is exclusively in the public interest; and when the owner receives just compensation. The expropriation process is fully transparent and non-discriminatory towards foreign firms.
A.4. Dispute Settlement
The Austrian legal system provides an effective means for protecting property and contractual rights of nationals and foreigners. Additionally, Austria is a member of the International Center for the Settlement of Investment Disputes. There have been no recent reports of bilateral investment disputes.
A.5. Performance Requirements/Incentives
Although not required in order to gain access to tax incentives, performance requirements may be imposed when foreign investors seek financial or other assistance from the Austrian government. There is no requirement, however, that nationals hold shares in foreign investments, that the share of foreign equity be reduced over time, or that technology be transferred.
The U.S. and Austria are signatories to a 1931 Treaty of Friendship, Commerce, and Consular Rights. A new immigration law went into effect in Austria in 1998 which brought critical improvements in visa requirements concerning the American business community in Austria. While the new law cut down on the overall number of immigration slots, other categories, such as key managers, intra-company transferees and management trainers -- and their families -- have benefited from a newly created category of temporary visas with no numerical limitations. Recruitment of long-term overseas specialists or those with managerial duties is under quota-controls.
While the American Chamber of Commerce's 1997 Investor Confidence Survey found that a majority of U.S. subsidiaries in Austria consider visa and work permit requirements to be overly bureaucratic, the situation has improved since then. Although immigration reform cut overall numbers of immigration slots, the temporary admission of intra-company transferees in management positions is no longer subject to numerical limitations. The follow-up survey done in 1998 showed that investors were generally satisfied in getting key non-Austrian staff into the country. Companies still express some concern about availability of visas for non-managerial staff, especially for long-term trainee positions for third-country nationals.
A.6. Right to Private Ownership and Establishment
Foreign and domestic private enterprises are free to establish, acquire, and dispose of interests in business enterprises, with the exception of television, railroads, some utilities, and state monopolies. As the government continues to pursue privatization, some of these industries are gradually being opened up to private investment as well. For example, legal changes were implemented in 1997 to allow private radio on a limited number of licenses. The postal monopoly for wire-transmitted voice telephony and infrastructure was dismantled in 1998 and the Austrian electricity market was liberalized in February 1999.
In most business activities, 100% foreign ownership is permitted. Foreign direct investment is restricted only when competing with state-owned companies, monopolies, and utilities. License requirements, such as in the banking and insurance sectors, equally apply to domestic and foreign investors. The latter, however, is dependent on reciprocity. Specific regulations on requirements for joint ventures do not exist.
A.7. Protection of Property Rights
The Austrian legal system protects secured interests in property, both chattel and real. Mortgages are recognized, if the underlying contracts are valid, and are on file with the land register. The land register provides a reliable system for recording interests in property. For any agreement pertaining to real estate to be effective, the agreement must be entered with the land register. This requires approval of the land transfer commission or the office of the provincial governor. Any interested party has access to the land register.
Austria has laws to protect intellectual property rights, including patent and trademark laws, a law protecting industrial designs and models, and a copyright law, all of which offer the holder protection. Legislation also protects three-dimensional semiconductor chip layout design.
Austria is a party to the World Intellectual Property Organization and several international property conventions, including the European Patent Convention, the Patent Cooperation Treaty, the Madrid Trademark Agreement, the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Procedure, the Universal Copyright Convention, the Brussels Convention Relating to the Distribution of Program-carrying Signals Transmitted by Satellite, and the Geneva Treaty on the International Registration of Audiovisual Works. In compliance with the World Trade Organization Treaty on Intellectual Property (WTO TRIPS) agreement obligations, Austria extended patent terms so that patents on inventions are valid up to 20 years after application. Since both the United States and Austria are members of the "Paris Union" International Convention for the Protection of Industrial Property, American investors are entitled to the same kind of protection under Austrian patent legislation as are Austrian nationals. In accordance with the Madrid Agreement, Austria's protection period for trademarks is ten years, with the option to extend for another ten years, if registration is renewed before expiration.
Trade secrets are protected by various regulations. For example the right to privacy, data protection regulations, and the federal statistics law prevent publication of production data, provided there are four producers or less.
Austrian copyright law grants the author the exclusive right to publish, distribute, copy, adapt, translate, and broadcast his work. Infringement proceedings, however, can be time consuming and complicated. Austria's copyright law is in conformity with the EU directives on intellectual property rights.
A.8. Transparency of the Regulatory System
The 1997 U.S. Investor Confidence Survey showed that the current regulatory environment with its cumbersome permit and paperwork requirements was unnecessarily complex, time consuming and a disincentive for foreign investors. The 1998 follow-up report gave the government credit for its efforts to remove these problems, to privatize, liberalize and deregulate the economy, but still noted room for improvement. The government has attempted to streamline the regulatory process. Some of these efforts are reflected in the Business Code of 1997, which provides for simplified and faster administrative procedures to obtain business permits and considerably reduces the number of business categories. The Economics Minister's plan for a "one-stop shop" for business has little chance of implementation within the 1999 legislative period, but recent reports indicate that the existing permit procedures have been streamlined to no more than 120 days.
Despite bureaucratic problems, tax and labor laws, as well as health and safety standards, are applied uniformly and do not influence the sectoral allocation of investments. The Austrian investment climate has become conducive for business enterprises since Austria became a member of the EU. The adoption of regulations to foster competition, including more liberal shopping hours and flexible worktime have provided benefits for employers, employees and consumers alike.
A.9. Efficient Capital Markets and Portfolio Investment
A broad variety of credit and portfolio investment instruments are traded in an open capital market. Foreign firms have access to this local market without restrictions and are free to use foreign credit markets as well. The Vienna Stock Exchange, established as a private corporation in 1997, underwent major reform in 1998 intended to facilitate investment. A cooperative agreement signed with the Frankfurt Stock Exchange has facilitated trading through quotations in the new Euro currency, a transparent fee system, and a new electronic trading system. All listed companies are required to publish quarterly reports. Criminal penalties for insider trading are in place. The "Austrian Securities Authority" (an Austrian version of the U.S. Securities and Exchange Commission), established in 1998, is working hard to police irregularities on the stock exchange, but suffers from limited staff and budget. The government has prepared a bill expanding the current very limited possibilities for firms to buy back their own shares. Pending parliamentary approval, the planned buy-back regulations should bring Austria's regulations into conformance with international standard.
The legal, regulatory, and accounting systems are transparent and consistent with international norms. New Austrian regulations governing accounting standards will provide U.S. investors with improved and internationally standardized financial information. Since 1998, Austrian-based companies, including subsidiaries of U.S. parent companies, are required to present their consolidated financial statements in accordance with International Accounting Standards (IAS) or Generally Accepted Accounting Principles (US-GAAP). Statements complying with the Austrian Commercial Code are no longer required. Companies which previously prepared two sets of statements to meet both Austrian and international standards should save administrative work and cost.
Austria has a highly developed and sound banking system with worldwide correspondent relationships, as well as representative offices and branches in the United States and other major financial centers. Total assets of Austria's five largest banks amounted to AS 2,300 billion (US$ 186 billion) in 1998.
A.10. Political Violence There have been no incidents of politically motivated damage to foreign businesses. Civil disturbances are extremely rare.
A.11. Corruption
The Austrian penal code contains penalties for bribery, which include a fine of up to US$ 363 per day for up to 360 days or up to two years imprisonment for the briber and up to five years imprisonment for the bribee. Under the penal code, any person who bribes a civil servant, a foreign official or a manager of an Austrian public enterprise is subject to criminal penalties. Austria completed ratification of the OECD Anti-Bribery Convention on May 19, 1999. Corresponding penal code legislation has been in place since summer 1998.
Prior to the implementation of the OECD Convention, the tax deductibility of bribes and any gray market payments (regardless of their title as operating, income-related or other expenses) was abolished. The non-deductibility covers all payments and other material grants, the granting or accepting of which is subject to legal penalties.
The Federal Ministry of Justice has the primary responsibility for prosecuting acts of corruption, but in the case of public tenders, the Federal Chancellery may also become involved. Due to the short period the revised anti-bribery regulations have been in place, we are not yet able to assess the degree of enforcement. The U.S. Embassy in Vienna has never received any reports from U.S. firms about corruption as an obstacle to either doing business or investing in Austria.
B. Bilateral Investment Agreements
Austria has bilateral investment agreements in force with Albania, Argentina, Bulgaria, Cape Verde, China, Czech Republic, Estonia, Hong Kong, Hungary, Kuwait, Latvia, Lithuania, Malaysia, Morocco, Poland, Romania, South Africa, South Korea, former Soviet Union, Tunisia, Turkey, Ukraine, Vietnam, and former Socialist Federal Republic of Yugoslavia (SFRY). The agreement with former Czechoslovakia currently applies to both the Czech Republic and Slovakia and the agreement with the former SFRY applies to Croatia and Slovenia. Agreements with Bolivia, Chile, Croatia, Mexico and Paraguay have been signed, but are not yet in effect. Additional agreements with Algeria, Armenia, Belarus, Cuba, Georgia, Kyrgyzstan, Mongolia, Philippines, Uzbekistan and the Federal Republic of Yugoslavia (FRY) have been initialed. Under these agreements, investment disputes that cannot be settled amicably may be submitted to the International Center for Settlement of Investment Disputes or an arbitration court according to the UNCITRAL arbitration regulations.
The U.S. and Austria are parties to a bilateral double taxation treaty covering income and corporate taxes, which went into effect on February 1, 1998. Another bilateral double taxation treaty covering estates, inheritances, gifts and generation-skipping transfers has been in effect since 1982.
C. OPIC and Other Investment Insurance Programs
OPIC programs are not available for Austria. OPIC has a cooperation agreement with Austria's Finance Guarantee Company, enabling U.S. firms to secure joint-venture investments with Austrian partners in Central and Eastern Europe. Since May 1997 Austria has been a member of the Multilateral Investment Guarantee Agency (MIGA).
D. Labor
Austria has a highly educated labor force of 3.7 million people. Depending on labor demand, government policies limit the number of foreign workers to between 8 and 10% of the salaried workforce. In 1998, the number of "guest workers" averaged 298,000. While demographic trends indicate little growth in the labor force over the next few years, other factors, such as productivity gains, industrial restructuring, federal employment incentives for women, and measures to raise the retirement age serve to offset the demographics. Shortages of highly specialized labor are more likely to occur.
Compared to other EU countries, Austria had a relatively low unemployment rate of 4.5% in 1998, according to EU calculations. Predictions for 1999 see a downward trend toward 4.3%. Legislation enacted in early 1996 and again in 1999 is designed to counteract the rising unemployment of older workers. It provides financial bonuses for companies hiring workers age 50 and above, and envisions penalties for businesses laying off workers within this age group.
Like other EU members, Austria submitted a national employment plan in April 1998. Its stated aim is to create 100,000 new jobs over a 5-year period, and to reduce unemployment from 4.5 to 3.4%. The plan does not focus on any single employment strategy, but contains a policy mix of federal employment programs and work incentives, particularly for young workers and women.
Terms of employment are closely regulated by law in Austria. Working hours, minimum vacation time, holidays, maternity leave, juvenile work allowances, statutory separation notice, protection against dismissal, and the right to severance payment are all secured by law. However, EU membership has increased work flexibility. For example, the night shift ban for women will be completely phased out by 2001 in line with pertinent EU regulations.
Austrian social insurance is compulsory and comprises health insurance, old-age pension insurance, unemployment insurance, and accident insurance. Social insurance contributions are a percentage of total monthly earnings and are shared by employers and employees.
High non-wage payroll costs (70% of direct wage costs) are frequently cited as a reason for Austria's relatively high labor costs and were highlighted by the results of the U.S. Investor Confidence Survey. The government is committed to freezing these costs, despite challenges from organized labor.
About 50% of the work force is unionized. Shop stewards must be consulted on various issues. Co-determination rights of employees are regulated by law. At least one-third of the members of a corporation's board of directors must come from the firm's staff. Labor-management relations are generally harmonious and strikes are rare. Despite the government's decision to cut several social benefits as part of the 1996/97 budget austerity plan, there were practically no strikes in either 1997 or 1998. Austria generally adheres to the International Labor Organization (ILO) conventions protecting workers rights and supports, in principle, the U.S.-led drive for core labor standards within the WTO.
Collective bargaining revolves mainly around wage adjustments, fringe benefits, and reduction of the work week. While the law still provides for a maximum of 40 hours per week, collective bargaining agreements provide for a work week of 38 or 38.5 hours per week for more than half of all employees. A legal framework for flexible working hours was introduced several years ago, and in those sectors where it has been implemented, it has proven very popular. Legislation for more flexible work hours has been in place since 1997. Labor continues to push for a minimum wage of AS 168,000 (US$ 13,570) per year (including Christmas and vacation bonuses), but growing competition among job seekers is expected to exert downward pressure on most wage scales. Austrian labor is skeptical about adopting the "Dutch labor market model" which relies on a disproportionately high number of part-time workers.
E. Foreign-trade Zones/Free Ports
Austria has four foreign trade zones. In Vienna, Linz, Graz, and Solbad Hall are zones where products of foreign origin may be stored, displayed, sampled, mixed, sorted, repacked or re-exported without the obligation to pay duty. Their impact has been limited, and foreign investors have shown little interest.
F. Major Foreign Investors
More than 380 U.S. firms hold investments in Austria, which range from simple sales offices to major production facilities. The following is a short list of U.S. firms holding major investments in Austria.
American Express Bank Ltd.
Baxter International Inc.
Chrysler International Corp.
Cincinnati Milacron Inc.
Citibank Overseas Investment Corp.
The Coca-Cola Company
Eastman Kodak Company
Exxon Corporation
General Electric Capital Corporation
General Motors Corp.
Harman International Industries Inc.
Hercules Inc.
Honeywell Inc.
IBM World Trade Corp.
Johnson and Johnson Int.
McDonald's Corporation
Mars Inc.
Merrill Lynch and Co., Inc.
Mobil Oil Corporation
Nalco Chemical Company
Otis Elevator Co.
Philip Morris Companies Inc.
Pioneer Overseas Corp.
Starwood Hotels and Resorts Worldwide, Inc. (Sheraton Hotels)Following is a brief list of firms headquartered in third countries holding major investments in Austria.
AEG AG, Germany
Alcatel, France
Allianz AG, Germany
Amer, Finland
Asea Brown Boveri, Switzerland and Sweden
Assicurazioni Generali, Italy
Axel Springer Verlag, Germany
BASF, Germany
Bayer AG, Germany
Bayerische Landesbank, Germany
Bayerische Motorenwerke (BMW), Germany
Bayerische Vereinsbank AG, Germany
Bombardier, Canada
Robert Bosch AG, Germany
Continental Gummiwerke AG, Germany
Deutsche Bank, Germany
Deutsche Telekom, Germany
Electricite de France, France
Electrolux, Sweden
Hafslund Nycomed, Norway
Henkel, Germany
Hipp, Germany
Hoechst AG, Germany
Interhoerbiger, Switzerland
Kone Oy, Finland
Koramic, Belgium
Liebherr, Germany
Magna, Canada
MAN, Germany
Mannesmann AG, Germany
Mazda Corp., Japan
Nestle S.A., Switzerland
Novartis, Switzerland
NV Koninklijke KNP Paper Company, Netherlands
Papierwerke Waldhof Aschaffenburg, Germany
Philips Gloeilampenfabrieken, Netherlands
Rewe, Germany
Rhone-Poulenc, France
Riunione Adriatica Di Sicurta (RAS), Italy
Rothenberger, Germany
Russian Central Bank, CIS
Shell Petroleum N.V., Netherlands
Siemens, Germany
Smurfit Group, Ireland
Solvay Et Cie, Belgium
Sony, Japan
Sueddeutscher Verlag, Germany
Svenska Cellulosa Ab, Sweden
Telecom Italia, Italy
Unilever N.V., Netherlands
Voith, Germany
Westdeutsche Allgemeine Zeitung (WAZ), Germany
Westdeutsche Landesbank, Germany
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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