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U.S. Department of State

Diplomacy in Action

2009 Investment Climate Statement - Austria


2009 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
February 2009
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Introduction

Major structural conditions and the decisive parameters for foreign investors remain unchanged and favorable, despite the global economic downturn. As a small, open and highly internationalized economy, Austria is swayed by world developments including the current downturn: 2009 will be the first full-year recession in Austria since 1981. As of late January, the Austrian economy is projected to contract by 0.5-1.2% in 2009 -- not as deep as in Germany or in the European Union as a whole, due to Austria’s close ties with growing Central, Eastern and Southeastern European (CESEE) economies. The Austrian government is implementing an economic stimulus package to support the labor market, stimulate investment, and finance infrastructure. These measures and the shrinking economy will drive the public sector deficit above the 3% Maastricht deficit limit, but economists regard this as justified by the current downturn. For 2010, modest recovery of 0.6-1.3% is expected.

With the European Union’s (EU) enlargements in May 2004 and January 2007, Austria solidified its central position in the EU. As an investment location, however, Austria, and Vienna in particular, faces growing competition from its Eastern neighbors, all of which are EU members. Budapest, Prague and Bratislava are competing directly with Vienna for foreign investors. Austria has improved road and rail transportation links, e.g. to Bratislava, but many transport links to Central, Eastern, and Southeastern European (CESEE) neighbors are still inadequate. The Austrian government will continue to address and close these infrastructure gaps. The sale of troubled national carrier Austrian Airlines (AUA) to German Lufthansa may mean a lesser hub role for Vienna International Airport over the long term. In December 2007, the EU’s Schengen area expanded to include the Czech Republic, Hungary, Slovakia, and Slovenia (Switzerland in December 2008), removing border controls between these countries and Austria. Austria’s 2005 corporate tax cut has kept Austria competitive with newer EU member states and induced firms to open regional headquarters in Vienna. Some 340 U.S. companies have invested in Austria; most have expanded their original investment over time.

Austria continues to offer advantages for foreign investors, but it also presents challenges.

Openness to Foreign Investment

Government attitude towards foreign private investment: Observers do not expect Austria’s basic policies and openness to foreign direct investment to change under the renegotiated coalition government between the center-left Social Democratic Party (SPO) and the center-right People’s Party (OVP) which took office in December 2008 for a five-year term. The coalition program includes commitments to promote foreign investment and to further strengthen Austria’s attractiveness as a location for investment and headquarters for international firms. Like the grand coalition government itself, Austria’s government program is broad-based and the government is unlikely to reverse structural and economic reforms implemented after 1990. Reforms will continue at a slower pace and with an emphasis on social policy rather than deregulation, liberalization, or privatization.

The new Austrian government will profit from extensive structural reforms implemented in recent years, which helped streamline government, create a more competitive business environment, and strengthen Austria’s attractiveness as a location for investment. Relative to most other EU member states, Austria made a major policy shift in 2000 to 2006 by pursuing liberal market reforms, a largely balanced budget, pension reform, privatizations, reorganizing financial market supervision and competition policy, and implementing a corporate tax cut in 2005. The reforms have improved the Austrian economy’s long-term growth potential, but Austria remains in transition from a highly regulated economy with a large government sector to a flexible social market economy.

However, in 2007 and early 2008, the reform agenda came to a standstill: with the prospect of new elections in September 2008, parties engaged in a spending spree by instituting a thirteenth monthly family allowance and a higher nursing care allowance, abolishing university student fees, extending the possibility for early retirement without cuts in pension payments, and cutting the VAT on pharmaceuticals from 20% to 10%. These pre-crisis measures bolstered private consumption but will increase the deficit. The new government has acted decisively to avert a credit crisis, stimulate the domestic economy, and avert mass layoffs. Its other economic priorities include: an income tax cut in 2009; balancing the budget once growth returns; increasing economy-wide spending on R&D to 3% of GDP by 2010 and 4% by 2020, improving R&D policy and infrastructure; improving education and training; streamlining administration; furthering reform of public health insurance; securing the pension system over the long-term; and ensuring adequate, affordable long-term care for Austria’s aging population.

In addition, many economists believe that to remain competitive in the medium-term, the government should also implement strategic measures to transform Austria from a technology consumer to a supplier of high-tech products.

Austria has been virtually strike-free since spring 2003.

Liberalization and deregulation in the energy and telecom sectors have lowered business costs. However, remaining barriers to entry and competition have resulted in only partial liberalization. There are few incentives for customers to switch from incumbent electricity and gas providers, and pricing is not completely transparent.

Austria welcomes foreign direct investment that does not have a negative impact on the environment. Austrian authorities particularly welcome investments that create new jobs in high technology fields, promote capital-intensive industries, and have links to R&D activities, for which special tax incentives are available. Austria remains a high-tax country overall, but due to a 25% corporate tax rate, has become increasingly attractive as a headquarters location. Because of tax base adjustments, experts estimate the effective corporate tax burden at no more than 22%. Austria also offers a highly favorable framework for group taxation, unique in Europe, which allows business to offset profits and losses of group operations (requiring direct or indirect participation of more than 50%, but no other financial, economic or organizational integration) in Austria and abroad. This group taxation system offers interesting opportunities for U.S. investors, in particular joint-venture structures, M&A transactions, headquarter companies and simple holding companies without active business, which can also benefit from group taxation. Austria’s corporate tax rate and group taxation rules make it competitive vis-a-vis its EU neighbors.

Under certain conditions, limited amounts of the business profits of non-corporations are assessed at half the income tax rate to which they would regularly be subject. Austria has no wealth or net worth tax and no trade tax, unlike neighboring Germany. As of August 1, 2008, the government abolished the inheritance and gift taxes, but introduced a reporting requirement for large donations and gifts.

There are no sectoral or geographic restrictions on foreign investment. In some regions, Austria offers special facilities and services (“cluster packages”) to foreign investors. For example, these can include automotive producers or manufacturers of integrated circuits, silicon, and high-tech products. Austria offers financial and tax incentives within EU parameters to firms undertaking projects in economically depressed and underdeveloped areas on Austria’s eastern and southern borders. In most of these areas, eligibility for co-financing subsidies under EU regional and cross-border programs will decline under the EU’s 2007-2013 financial framework from EUR 2 billion to EUR 1.3 billion.

Resistance to investment in the industrial sector may arise from environmental concerns. Potential U.S. investors need to factor Austria’s strict environmental laws into their decision-making process. While import bans have had to be lifted, Austrian ordinances still ban the planting of all EU approved biotechnology crops. For new varieties, EU legislation on the release of genetically modified organisms (GMOs) and on traceability and labeling requires Austria to allow GMO seeds in fields and in stores. However, strict liability regulations for research, production, and distribution of GMOs still apply. Many industries also fall under greenhouse-gas Emissions Trading System, the EU’s implementation of the Kyoto Protocol.

In investor surveys and international rankings, Austria consistently earns high marks for political stability, personal security, quality of life, rule of law, skill and motivation of labor, productivity and quality, social factors and health infrastructure. However, Austria receives lower marks for economic growth, tax burden, high cost of living, lack of risk capital financing, low innovation dynamics, restrictive immigration laws, size of the public sector, and regulatory red tape. With the 2005 corporate tax cut, the government addressed one major investment disincentive and introduced a highly competitive corporate tax system, while the personal income tax burden remains heavy.

Surveys show that Austria faces stiffer competition from countries in Central, Eastern, and Southeastern European (CESEE) markets, as well as from the twelve new EU members, especially the four that border Austria and particularly in sectors where wage costs are decisive.

The International Institute for Management Development’s (IMD) 2008 World Competitiveness Scoreboard ranks Austria fourteenth, down from the eleventh position in 2007; A.T.Kearney’s 2007 Globalization Index, which measures variables such as economic integration, technological connectivity or political engagement, ranks Austria number fourteen (by comparison, the U.S. was seventh, the UK twelfth, and Germany twenty-second); and A.T.Kearney’s 2007 FDI Confidence Index ranks Austria eleven (by comparison, the U.S. was number three, the UK four, and Germany ten). The 2009 Index of Economic Freedom of The Heritage Foundation/Wall Street Journal ranks Austria number twenty-three worldwide and eleven among the 43 European countries. In A.T.Kearney’s 2008 Global Cities Index, Vienna ranks number eighteen among the world’s most globalized cities (just behind Berlin).

Acquisitions, mergers, takeovers, cartels: Austria’s 2005 Anti-Trust Act, in effect since January 1, 2006, harmonizes Austrian anti-trust regulations with EU competition law. The independent Federal Competition Authority (FCA) and the Federal Cartel Prosecutor (FCP) are responsible for administering anti-trust laws. The FCA has not been particularly pro-active, reportedly due to limited personnel.

The Austrian Anti-Trust Act prohibits cartels, any competitive restrictions, and abuse of a dominant market position. Companies must inform the FCA about mergers and acquisitions (M&A) concerning domestic enterprises, if combined worldwide sales exceed EUR 300 million ($441 million at the 2008 average exchange rate of $1.00 / EUR 0.68), domestic sales exceed EUR 30 million ($44.1 million), or if two of the firms involved each have worldwide sales exceeding EUR 5.0 million ($7.4 million). Special M&A regulations apply to media enterprises. The cartel court is competent to decide on any M&A notification from the FCA or the FCP. For violations of anti-trust regulations, the cartel court can impose fines of up to the equivalent of 10% of a company’s annual worldwide sales. An independent energy regulatory authority separately examines antitrust concerns in the energy sector, but also has to submit any cases to the cartel court.

European Community anti-trust regulations apply and take precedence over national regulations in cases between Austria and other EU member states.

Austria’s 1999 Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. It protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30% or more in direct or indirect control of a company’s voting shares) must offer to buy out smaller shareholders at a defined “fair market” price. The law also includes provisions for shareholders who passively obtain a controlling stake in a company, i.e., not by buying additional shares, but because another large shareholder has reduced his/her shareholding. A 2006 amendment to the law implementing the EU’s Takeover Directive prohibits defensive action to frustrate bids. The law did not implement the directive’s breakthrough regulations, but allows individual companies to address these in company bylaws. The Shareholder Exclusion Act of 2006 allows a primary shareholder, with at least 90% of capital stock, to “squeeze out” minority shareholders. An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws.

Screening mechanisms: Only those foreign investments with financial assistance from the Austrian government are subject to government overview. Screening ensures compliance with EU regulations, which limit such assistance to disadvantaged geographic areas.

Privatizations: After many successful privatizations in previous years, the government did not privatize any public enterprises in 2007 or 2008 except Austrian Airlines (AUA), which it sold to Lufthansa in December 2008. The AUA sale was not a typical privatization, but rather a crisis sale to a strategic partner for a symbolic price, in order to resolve AUA’s cash crunch and avert a shutdown. The government program does not identify any public enterprises for privatization, so no major privatizations are expected in 2009 or 2010. The larger party in the new coalition government, the Social Democratic Party, has announced its opposition to further privatization, including of the federal railroads and the postal service. Moreover, the weak economy, the situation on stock and capital markets, and Austrians’ increasingly skeptical attitude towards privatizations also seem to rule out privatization tenders in the near future. In past privatizations, foreign and domestic investors received equal treatment. Despite Austrian authorities’ historical preference for having domestic shareholders keep a blocking minority, foreign investors have successfully gained control of enterprises in strategic sectors of the Austrian economy, including telecoms, banking, steel production, power generation and infrastructure. For example, in early 2007, the U.S. investment fund Cerberus Capital Management bought about 90% of BAWAG P.S.K. Bank, Austria’s fourth largest banking group, from its previous owner, the Austrian Trade Union Federation.

Treatment of foreign investors: There is no discrimination against foreign investors, but they are required to follow numerous regulations. Although there is no requirement for participation by Austrian citizens in ownership or management, at least one manager must meet residence and other legal requirements. 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. The Austrian immigration law requires permanent legal residents to take German language and civics courses. A 2005 amendment to the Austrian immigration law exempts applicants for residence permits from the German language course requirement, if they hold a university degree.

Investment incentives: Since 2007, Austria has had less access to funds from various EU structural and cohesion programs, primarily regional competitiveness and employment programs. The Austrian federal, state, and local governments also provide financial incentives within EU guidelines 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 investment meets specified criteria (e.g., implementation of new technology, reducing unemployment, etc.). Tax allowances for advanced employee training and R&D expenditures are also available. Austria Wirtschaftsservice is the government’s “one-stop shop” institution providing financial incentives. Further information, in the German language only, is available from http://www.awsg.at/portal/).

Conversion and Transfer Policies

Austria has no restrictions on cross-border capital transactions, including the repatriation of profits and proceeds from the sale of an investment, for non-residents and residents. The Euro, a freely convertible currency and the only legal tender in Austria and fifteen other Euro-zone member countries, shields investors from exchange rate risks in the entire Euro-zone.

Expropriation and Compensation

Expropriation of private property in Austria is rare and may proceed only on the basis of special legal authorization. The government can initiate it only in the absence of any other alternative to satisfy the public interest; 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 toward foreign firms.

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. The 1958 New York Convention also grants enforcement of foreign arbitration awards in Austria. The U.S. Embassy is aware of a U.S. investor who faced unfair bureaucratic delays and added costs when it attempted to introduce competition to a market entirely dominated by a large local employer.

Performance Requirements/Incentives

Austria is in compliance with the World Trade Organization’s Trade Related Investment Measures (TRIMS) agreement. There are virtually no restrictions on foreign investment in Austria and foreign investors receive national treatment in the main. However, some requirements exist. For example, at least one manager must meet residency and other legal qualifications. Non-residents must appoint a representative in Austria.

The Austrian government may impose performance requirements when foreign investors seek financial or other assistance from the government, although there are no performance requirements to gain access to tax incentives. There is no requirement that nationals hold shares in foreign investments or that there be a technology transfer.

The U.S. and Austria are signatories to the 1931 Treaty of Friendship, Commerce, and Consular Rights. Austrian immigration law restricts the overall number of visas, but a few non-immigrant business visa classifications, including intra-company transfers/rotational workers, and employees on temporary duty, are eligible for visas with no numerical limitations. Recruitment of long-term overseas specialists or those with managerial duties is under quota controls. Austrian law defines employment-based immigrants as multinational executives/managers or similar professionals who are self-employed. The 2005 Amendment to the Austrian Immigration Law has eased the integration policy requiring immigrants to attain a minimum level of competence in the German language. Under the amendment, previous education (university degree) will automatically fulfill the integration requirement. Over the years, immigration quotas have remained static at approximately 8,000 per year. The annual quota for 2009 has been set at 8,145.

Right to Private Ownership and Establishment

Foreign and domestic private enterprises are free to establish, acquire, and dispose of interests in business enterprises, except for in some infrastructure and utilities, and in a few state monopolies, such as gambling. However, through privatizations, the government may gradually open up some of these industries to private investment as well. For example, in recent years, the Austrian government implemented legal changes to allow private radio and private terrestrial TV; dismantled the postal monopoly for wire-transmitted voice telephony and infrastructure; and liberalized the electricity and gas markets. In 2006, in line with EU regulations, the government privatized 49% of its postal company. However, by law, federal and state governments maintain at least a 51% share in all electricity providers. In most business activities, the law permits 100% foreign ownership. Foreign direct investment is restricted only when competing with monopolies and utilities. Licensing requirements, such as those in the banking and insurance sectors, apply equally to domestic and foreign investors. Entrenched political interests may make it more difficult to challenge quasi-monopolies in some sectors where they still exist. However, U.S. investors have had success in this regard, especially when they have used local partners and contacted the U.S. Embassy at an early stage.

Protection of Property Rights

The Austrian legal system protects secured interests in property. The law recognizes mortgages, if recorded in the land register and if the underlying contracts are valid. For any real estate agreement to be effective, owners must register with the land registry, which requires approval of the land transfer commission or the office of the state governor. The land registry is a reliable system for recording interests in property, and any interested party has access to it.

Austria has effective laws to protect intellectual property rights, including patent and trademark laws; a law protecting industrial designs and models; and a copyright law. Austria is a party to the World Intellectual Property Organization (WIPO) and several international property conventions, including the European Patent Convention, the Patent Cooperation Treaty, the Universal Copyright Convention, and the Geneva Treaty on the International Registration of Audiovisual Works. 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 protection under Austrian patent legislation as are Austrian nationals. Amendments in 2005 and 2006 to the Austrian Patent Act strengthened protection of patents from innovative enterprises, particularly through more efficient and transparent implementation procedures. One can file objections only after authorities have granted the patent, and the right to receive information from authorities has been extended.

Austria’s copyright law is in conformity with EU directives on intellectual property rights and grants the author the exclusive rights to publish, distribute, copy, adapt, translate, and broadcast his/her work. Infringement proceedings, however, can be time-consuming and complicated. The Austrian Copyright Act also regulates copyrights of digital media (restrictions to private copies), works on the Internet, protection of computer programs, and related damage compensation. In line with EU requirements, Austria also has a law against trade in counterfeits. The Austria film and music industry lobby groups complain regularly about high rates of piracy in their fields. In 2007, Austrian customs authorities confiscated pirated goods worth EUR 15.2 million ($22.3 million), a sharp increase compared to 2006, mainly due to confiscated pharmaceuticals.

Transparency of the Regulatory System

Austria’s legal, regulatory, and accounting systems are transparent and consistent with international norms. The government usually publishes proposals for new laws and regulations in draft form for public comment.

The Austrian government has made progress in streamlining its complex and cumbersome permit and paperwork requirements for business licenses and permits. The government maintains that it has reduced the time necessary to obtain permits to less than three months, except for large projects requiring an environmental impact assessment. The “one-stop shop” for a business permit, which the government implemented in 2002, does not include plant and building permits. These simplified procedures should accelerate permit procedures, but unpredictable and inflexible bureaucratic rules can still be a problem. The government will continue plans to reduce by 25% the administrative cost burden for companies no later than 2010, by streamlining regulations and data collection/ information requirements and by expanding the use of e-government.

The government applies tax and labor laws uniformly, as well as health and safety standards. The government thus does not influence the allocation of investments amongst sectors. The Austrian investment climate has become more conducive for business since Austria became a member of the EU.

Efficient Capital Markets and Portfolio Investment

Austria has modern and sophisticated financial markets. All financial instruments are available. Foreign investors have access to the Austrian market without restrictions. Austria has a highly developed banking system with worldwide correspondent banks, and representative offices and branches in the United States and other major financial centers. Large Austrian banks also have a huge network in many of the fourteen new EU members and other countries in Central, Eastern, and Southeastern Europe (CESEE) and the former Soviet Union (FSU) and operate 73 fully consolidated subsidiaries in CESEE/FSU, of which 37 are in the 12 new EU member states, 23 in other SEE countries and 13 in FSU. Six out of the seven largest Austrian banks hold sizeable investments in CESEE/FSU; three of them are among the five largest banking groups in the area. Austrian banks have a 15% share of the entire CESEE/FSU banking market (21.8% excluding Russia) and hold about 20% of all loans extended by EU banks in the area.

Total assets of Austria’s five largest banking groups (Bank Austria (BA), Erste Bank, Raiffeisen Zentralbank (RZB), Bank fuer Arbeit und Wirtschaft und Oesterreichische Postsparkasse (BAWAG P.S.K.), and Oesterreichische Volksbanken) amounted to approximately EUR 750 billion ($1,103 billion) in 2008, representing 63% of Austria’s total bank assets.

The subprime crisis has had limited impact on Austrian banks, with total write-downs of about EUR 2 billion ($2.9 billion) through mid-2008. Banks were spared immediate fallout from the U.S. crisis due to their strong CESEE/FSU focus. However, Austrian banks are suffering indirectly from the worldwide financial crisis through higher refinancing costs and credit scarcity. In response to the crisis, the outgoing government crafted a large-scale EUR 100 billion ($147 billion) financial sector rescue package in October 2008, comprising EUR 15 billion ($22 billion) for equity injections into banks and insurance companies and EUR 85 billion ($125 billion) to guarantee interbank lending.

All Austrian banks active in CESEE/FSU say they can manage risks in emerging Europe and are determined to remain in those growing markets. An IMF “stress test” in 2008 showed considerable resilience in Austrian banks against shocks. All Austrian banks active in CESEE/FSU are “system-relevant” in Austria -- “too big to fail” -- so the Austrian government will not willingly allow them to collapse.

2008 was the worst year for the Vienna Stock Exchange since the Austrian Traded Index (ATX) debuted eighteen years ago. At year-end 2008, the ATX stood at 1,801 -- 60.1% lower than a year before (4,513) -- a worse fall than many other OECD stock exchanges. At year-end 2008, market capitalization of listed domestic shares was down 66% from year-end 2007 at only EUR 53 billion (about 19% of GDP).

The Vienna Stock Exchange (VSE) uses Xetra, Frankfurt’s electronic trading system, for trading securities, so traders worldwide have on-screen information and direct access to all stocks listed in Vienna. Listed companies must publish quarterly reports. The VSE operates regulated markets (the Official Market and the Second Regulated Market) and Multilateral Trading Systems (MTF) pursuant to the EU’s Markets in Financial Instruments Directive (MiFID), which differentiates between regulated markets and MTFs. Companies and investors should be aware that the operation of MTFs is not part of exchange trading.Therefore, the requirements of the Stock Exchange Act regarding financial instruments admitted to trading in a regulated market (especially obligations imposed on issuers) do not apply to financial instruments traded on an MTF. However, the VSE’s Third Market Rules and the provisions of the Securities Supervision Act apply.

In pursuing its idea of establishing a regional “Central European Stock Exchange” alliance, the VSE, as leader of a consortium of Austrian and Hungarian investors, holds a majority share in the Budapest Stock Exchange. The VSE also holds a majority in the Prague Stock Exchange and the Slovenian Ljubljana Stock Exchange and has signed a cooperation agreement with the Zagreb Stock Exchange, as well as MoUs prompting closer cooperation with stock exchanges in Banja Luka, Belgrade, Macedonia, Montenegro, Sarajevo and Ukraine. The VSE also publishes a Southeast Europe Traded Index (SETX) and a number of county-specific CEE/SEE indices, including for Russia.

Criminal penalties apply to insider trading, money laundering and terrorist financing. The Austrian Financial Market Authority (FMA), similar to the U.S. Securities and Exchange Commission, is responsible for policing irregularities on the stock exchange and for supervising banks, insurance companies, securities markets, and pension funds. Beginning in the late 1990s, scandals in Austria’s financial sector raised questions about the effectiveness of financial oversight. As a result, the government in 2008 strengthened regulation and instituted a strong dual-oversight system with bank supervisory roles for both the Austrian National Bank and the FMA.

Austria’s venture capital market is small and remains underdeveloped. The market, which has been flat since it peaked in 2000, started to recover in 2005 and continued to grow in both 2006 and 2007, but not as fast as the European venture capital market. The volume of private equity and venture capital raised in Austria during 1997-2006 was EUR 2.1 billion ($3.1 billion), according to the Austrian Private Equity and Venture Capital Organization (AVCO). After a 30% increase in 2006, fund raising rose 55% in 2007 to EUR 431 million ($634 million). The bulk of the money invested is used for buy-outs and expansion projects, only a small portion for start-ups and seed financing. Figures for 2008 are not yet available.

The legal, regulatory, and accounting systems are transparent and consistent with international norms. Austrian regulations governing accounting provide U.S. investors with improved and internationally standardized financial information. In line with pertinent EU regulations, listed companies must prepare their consolidated financial statements according to the IAS/IFRS (International Financial Reporting Standards). Further, for firms with annual sales exceeding EUR 400,000 ($588,000), the Austrian Enterprise Code includes detailed accounting regulations. The new Code of Corporate Governance, in effect since January 1, 2006, requires listed companies to comply or explain why they are not following it.

Political Violence

There have been no incidents of politically motivated damage to foreign businesses. Civil disturbances are extremely rare.

Corruption

To implement the United Nations Convention against Corruption (UNCAC), which Austria ratified on January 11, 2006, the Austrian government tightened the Criminal Code’s corruption regulations effective January 1, 2008 and is now establishing a special central public prosecution department with Austrian-wide authority for corruption cases. The new regulations cover managers of Austrian public enterprises, civil servants and other officials (holding a function in legislation, administration or justice on behalf of Austria, a foreign country or an international organization), but also representatives of companies. In the Criminal Code the term “corruption” includes several offense such as bribery and illicit intervention; abuse of office; and accepting an advantage by public officials, senior executives of a public enterprise or experts; and could also include fraud, embezzlement, breach of trust, or accepting an advantage by managers. Criminal penalties for all cases of corruption include imprisonment of up to several years for all parties involved. Criminal Code legislation prohibiting tax deductibility for bribes is in place since summer 1998. Austria has ratified the OECD Anti-Bribery Convention, joined the Group of States against Corruption (GRECO) within the Council of Europe, has ratified the Council of Europe’s Civil Law Convention on Corruption and signed, but not yet ratified, the Criminal Law Convention on Corruption. Austria’s Law on Responsibility of Associations, in force since 2006, introduced criminal responsibility for legal entities and partnerships. The law covers all criminal offences, including corruption, money laundering, and serious tax offences that are subject to the Tax Offences Act. Fines pursuant to this law can rise to as much as 180 daily rates, with one daily rate equal to one-360th of yearly proceeds, but not less than EUR 50 ($74) and not more than EUR 10,000 ($14,700). Transparency International’s 2008 Corruption Perceptions Index ranks Austria number 12, up from number 15 in 2007 (by comparison Germany is 14th, and the U.S. 18th).

Bilateral Investment Agreements

Austria has bilateral investment agreements in force with Albania, Algeria, Argentina, Armenia, Azerbaijan, Bangladesh, Belarus, Belize, Bolivia, Bosnia-Herzegovina, Bulgaria, Cape Verde, Chile, China, Croatia, Cuba, Egypt, Estonia, Ethiopia, Georgia, Hong Kong, Hungary, India, Iran, Jordan, Kuwait, Latvia, Lebanon, Libya, Lithuania, Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia Oman, Paraguay, Philippines, Poland, Romania, Saudi Arabia, Serbia, Slovenia, South Korea, South Africa, Tunisia, Turkey, Ukraine, United Arab Emirates, Uzbekistan, Vietnam, and Yemen.

Austria has signed agreements with Cambodia, Guatemala and Zimbabwe, but the agreements are still pending ratification by these countries and have not yet entered into effect. An agreement with Tajikistan has been initialed, two others with Bahrain and Turkmenistan are ready for initialing. An agreement with North Korea was initialed in 2001, but has not been signed, yet.. Until new agreements take effect, the existing agreements with the former Czechoslovakia continue to apply to the Czech Republic and Slovakia, and that with the former Soviet Union to Russia and Tajikistan. Austria and Russia are negotiating a new agreement. Under all these agreements, if parties cannot amicably settle investment disputes, a claimant submits the dispute 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. With regard to the latter treaty, the U.S. government may seek changes or cancellation of the treaty following Austria’s abolition of inheritance/gift taxes on August 1, 2008.

OPIC and Other Investment Insurance Programs

OPIC programs are not available for Austria. Austria is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

Austria has a highly educated and productive labor force of approximately 4.3 million people, of whom 3.7 million are employees and 600,000 are self-employed or farmers. Austria’s labor market is more rigid than that of the U.S., but more flexible than markets in some other EU member states. Since January 1, 2008, important work hour flexibility regulations have been in effect, which among other features allow firms to increase the maximum regular time hours from 40 to 50 per week. In special cases and including overtime, work hours can be raised up to 60 hours per week for a maximum of 24 weeks annually. However, these 24 weeks can only be in 8-week segments, with at least two weeks break between each 8-week slot.

Depending on labor demand, government policies limit the number of foreign workers to 8-10% of the salaried workforce. In 2007, the number of guest workers, predominantly from the former Yugoslavia and Turkey, averaged 425,000. As part of the 2004 EU enlargement, Austria adopted a 7-year transition period vis-a-vis eight of the ten new EU members (except Cyprus and Malta) before fully allowing free movement of labor. In May 2009, the Austrian government plans to extend the restrictions for the last two years, which, however, requires EU Commission approval. For new EU members Bulgaria and Romania, which joined the EU on January 1, 2007, Austria adopted the same 7-year transition period. At the same time, the government plans additional exemptions and to open the market gradually for the recruitment of specialists or managers from all twelve new EU members apply. Industry keeps pressing the Austrian government to shorten these transition periods with the argument of a shortage of qualified labor in specific industrial sectors.

Compared to other EU countries, Austria had a relatively low unemployment rate of 4.3% in 2007. After record employment growth of 2.4% in 2008, the unemployment rate dropped to 3.5%. However, with the economic downturn, the labor market has started to deteriorate. The 2009/10 forecasts call for an unemployment rate of 3.9-5.1% in 2009 and 4.1-6.1% in 2010, assuming a recession with the economy contracting by 0.5-1.2% in 2009 and modest recovery with growth of 0.6-1.3% in 2010. Analysts expect no labor market shortages in the medium term. While demographic trends indicate little growth in the labor force over the next few years, factors such as industrial restructuring, productivity gains, increased participation of women and older employees in the workforce, gradual phase-out of early retirement, efforts to reduce civil service employment and moderate economic growth rates will help guarantee sufficient labor supply. Additional immigration, including from EU member states, will be necessary to balance the impact of low birth rates on the overall labor supply. Without additional immigration, Austria’s labor supply will decline 15% by 2015. Long-term population estimates indicate a slight increase in the working age population (15-60 years) to 5.27 million by 2015, up from 5.18 million in 2007, but then a decline to 5.20 in 2020 and further to 4.93 million in 2030.

In general, skilled labor is available in sufficient numbers. However, regional shortages of highly specialized laborers in specific sectors, such as systems administration, metalworking, healthcare, and tourism, may occur. Data for 2007 indicate that strong economic growth and the government’s labor market policy helped to exceed the EU goals for 2010 of a labor market participation rate of 70% (now 71.4%) and for women of 60% (now 64.4%). However, Austria has not yet reached the 2010 EU goal of 50% for workers aged 55-64, but the percentage is increasing (now 38.6% compared to 35.5% in 2007). The government introduced new regulations requiring recipients of unemployment benefits to be more flexible regarding which jobs they would accept. Companies hiring workers age 50 and above are eligible for financial bonuses, and face penalties for laying off workers within this age group.

Austrian social insurance is compulsory and comprises health insurance, old-age pension insurance, unemployment insurance, and accident insurance. Employers and employees contribute a percentage of total monthly earnings to a compulsory social insurance fund. Although EU requirements encourage greater job flexibility, various Austrian laws closely regulate terms of employment. These include working hours, minimum vacation time (five weeks), holidays, maternity leave, statutory separation notice, protection against dismissal, and an option for parents with children under the age of seven to choose part-time work for several years. The latter regulation only applies to parents working for companies with at least 20 employees. The severance pay system aims to enhance worker flexibility by providing employees the right to carry their accrued entitlements with them to subsequent jobs. Ongoing issues, which could seriously affect the social insurance system, are an increasing deficit of the health insurance, the immense shortage of nursing personnel to care for the fast growing number of elderly people and the lack of funding for available nursing personnel, which could eventually lead to a rise in social insurance contributions.

Since World War II, labor-management relations have generally been harmonious in Austria, as reflected in extremely low strike figures in past decades. No major work stoppages occurred in 2005, 2006, 2007 or 2008. About 36% of the work force belongs to a union. The Austrian Trade Union Federation is still trying to recover from a major financial scandal and reform its organization. However, the difficult economic period ahead is likely to raise again the union’s importance and help sharpen its profile, while it will probably temper short-term wage and benefit demands.

Collective bargaining revolves mainly around wage adjustments and fringe benefits. About 80% of the labor force worked under a collective bargaining agreement. All collective bargaining agreements meanwhile provide for a minimum wage of EUR 1,000 per month. Existing legal provisions stipulate a maximum workweek of 40 hours, but collective agreements also provide for a workweek of 38 or 38.5 hours per week for more than half of all employees. Effective in 2008, the government provided for additional flexibility allowing collective agreements to stipulate a maximum workweek of 50 hours. The government also transferred responsibility for agreements on flextime or 4-day work weeks to the company level. Part time employment is high in Austria: 39% of female workers and 4% of male workers have part time jobs. On average, Austrian employees are absent 12 days annually for sickness.

Foreign Trade Zones/Free Ports

Austria has no foreign trade zones.

Foreign Direct Investment Statistics

The net inflow of new foreign direct investment (FDI) in 2007 reached a record of EUR 21.7 billion ($31.9 billion). A high share of this new FDI inflow and parallel also FDI outflow was due to the Italian UniCredit’s takeover of Bayerische Hypovereinsbank (HVB), in course of which UniCredit also took over HVB’s Austrian subsidiary, Bank Austria, Austria’s largest bank. New FDI in the first half of 2008 amounted to EUR 6.0 billion ($8.8 billion). The value of FDI stock in Austria was about EUR 106.1 billion ($156.0 billion) at the end of 2007 and an estimated EUR 112.0 billion ($164.6 billion) by mid-2008.

In 2007, U.S. investment accounted for more than 7% of total FDI in Austria. This represented an increase from the 5.5% of total FDI in Austria in 2006, but is still below the 10% level of 2005. The decline in U.S. FDI from 2005 was primarily due to the sale of Austrian mobile phone operator tele.ring by the U.S. Western Wireless International; the increase in 2007 was due to the Cerberus takeover of BAWAG P.S.K., Austria’s fourth largest bank. In 2008, new U.S. FDI included Eaton Corporation’s takeover of the Moeller Group, a leading supplier of electrical components and industrial controls, while the takeover of GE Money Bank by the Spanish Bank Santander was another U.S. disinvestment.

At EUR 22.9 billion ($33.7 billion), the flow of Austrian direct investment abroad in 2007 also reached a new record, which in part was due to the Bank Austria transaction (see above). In the first half of 2008, FDI abroad showed a continued high level of EUR 9.3 billion ($13.7 billion). This raised the value of Austrian direct investment stock abroad to about EUR 105.1 billion ($154.5 billion) at the end of 2007 and an estimated EUR 114.4 billion ($168.2 billion) by mid-2008.

Note: Figures converted at the 2008 annual average exchange rate of $1.00 for EUR 0.68.
Source: Austrian National Bank.

Austria’s International Investment Position (EUR billion)

Year20062007 (1)2008 (2)
FDI in Austria84.3106.1112.0
Austrian FDI Abroad80.3105.1114.4
Footnotes:
(1) preliminary figures;
(2) first half year, preliminary figures.

FDI in Austria – Source Country Breakdown 2007
(share of total in percent)

U.S. 7.4
Italy 28.0
Germany 14.0
Netherlands 11.1
U.K. 7.2
Switzerland/Liechtenstein 7.2
Gulf States 3.8
All other countries 28.7

Austrian FDI Abroad – Destination Country
Breakdown 2007(share of total in percent)
U.S. 3.0
Germany 12.6
Croatia 8.7
Hungary 7.0
Czech Republic 6.9
Romania 5.5
Switzerland/Liechtenstein 4.8
Netherlands 4.4
Russia 4.2
Slovakia 3.7
Poland 3.6
Bulgaria 3.1
Italy 2.7
Ukraine 2.7
U.K. 2.6
All other countries 24.5

List of Major Foreign Investors:
More than 340 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.
Capital Research and Management Company
Cerberus Capital Management
Cisco Systems, Inc.
Citibank Overseas Investment Corp.
The Coca-Cola Company
CSC Computer Sciences Corporation
Deloitte & Touche LLP
Eaton Corp.
Electronic Data Systems Corp.
ExxonMobil Corporation
General Electric Company
General Motors Corp.
Harman International Industries Inc.
Hewlett-Packard Company
Honeywell Inc.
IBM World Trade Corp.
ITT Fluid Technology Corp.
Johnson & Johnson Int.
Johnson Controls Inc.
Kraft Foods International, Inc.
Lear Corporation
Lem Dyn Amp
McDonald’s Corporation
Marriott International, Inc.
Mars Inc.
MeadWestVaco Corp.
Merck & Co., Inc.
Modine USA
Otis Elevator Co.
Pioneer Hi-Bred International Inc.
PricewaterhouseCoopers LLP
PQ International Inc.
Quintiles Transnational Corp.
Schindler Elevator Corp.
Starwood Hotels and Resorts Worldwide, Inc.
Toys”R”Us, Inc.
UGI Corporation
United Global Com, Inc.
Unysis Corporation
Verizon Information Services Inc.
Western Union
Worthington Cylinder Corp.
York International
Xerox Corporation

The following is a brief list of firms, headquartered in countries other than the U.S., holding major investments in Austria.

Alcatel Holding, Netherlands
Allianz AG, Germany
Amer, Finland
Asea Brown Boveri, Switzerland
Assicurazioni Generali, Italy
Axel Springer Verlag, Germany
Banco Santander, Spain
BASF, Germany
Bayer AG, Germany
Bayerische Motorenwerke (BMW), Germany
Bombardier, Canada
Bosch Robert AG, Germany
Borealis, Denmark
BP Amoco, UK
DaimlerChrysler, Germany
Detergenta Investment, Germany
Deutsche Telekom, Germany
DM Drogerie Markt, Germany
Electricite de France, France
Electrolux, Sweden
Epcos AG, Germany
Ericsson, Sweden
Flextronics International, Singapore
Fomento de Construcctiones & Contratas, Spain
Heineken, Netherlands
H&M, Netherlands
Infineon, Netherlands
Japan Tobacco, Japan
Kone Corp., Finland
Koramic, Belgium
Liebherr, Switzerland
Magna, Canada
MAN, Germany
Metro, Germany
Mondi Europe, Luxembourg and UK
Nestle S.A., Switzerland
NKT Cables, Denmark
Novartis, Switzerland
Nycomed Holding, Denmark
Philips, Netherlands
Plus Warenhandel, Germany
RENO, Germany
REWE, Germany
RWE, Germany
Sanfoi-Aventis, France
Sappi Ltd, South Africa
Schlecker, Germany
Shell Petroleum N.V., Netherlands
Siemens, Germany
Smurfit Group, Ireland
Solvay et Cie, Belgium
Sony, Japan
Sueddeutscher Verlag, Germany
Svenska Cellulosa Ab (SCA), Sweden
Unibail-Rodamco, France-Netherlands
UniCredit Group, Italy
Unilever N.V., Netherlands
Voith, Germany
Westdeutsche Allgemeine Zeitung (WAZ), Germany



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