Facilitation of company succession – Grace Period Act passes Council of Ministers

Council of Ministers adopts amendments to the law to facilitate business succession in order to support the uncomplicated transfer of family businesses. In future, family businesses and small and medium-sized enterprises can apply to be accompanied by the tax authorities during a so-called “grace period” when transferring a business and periods that have not yet been audited can be examined. In addition, a reduction in bureaucracy is intended to simplify the framework conditions for SMEs.

More than 99 per cent of Austria’s 600,000 companies are small and medium-sized enterprises (SMEs), of which around 150,000 are family businesses, which are also responsible for the majority of jobs in Austria.

According to the Federal Ministry of Finance (BMF), two thirds of all business transfers take place within the family. And family businesses in particular are and will be affected by handovers in the future, as every tenth family business in Austria is about to be handed over in the next few years due to demographic trends. It can therefore be assumed that around 15,000 businesses will be handed over to successors in the coming years.¹

The Grace Period Act ², which was originally planned to come into force on 1 January 2023, is now intended to introduce certain simplifications from 2025, strengthen legal and planning certainty for successors willing to take over and support an orderly transfer of the business within the family for the duration of a grace period. The changes are to be implemented through amendments to the Industrial Code 1994, the Employee Protection Act and the Federal Fiscal Code.

 

Innovations in the tax procedure

In the area of tax procedure law, entrepreneurs are to be given the opportunity to be accompanied by the tax authority during the transfer process (“accompaniment of a company transfer”). The aim of this is to guarantee the successor willing to take over greater legal and planning certainty with regard to the transfer process.

In the course of the monitoring of a company transfer, it is therefore intended to

• periods of the transferring entrepreneur that have not yet been audited, and on the other hand
• the possibility of obtaining information from the tax office on matters that have already been realised or not yet realised.

 

Prerequisites

It is important to note that only natural persons who are entrepreneurs within the meaning of Section 1 of the Austrian Commercial Code (UGB) can apply for an assisted company transfer if they are

• sole proprietors or
• have a major shareholding in partnerships or corporations and/or are authorised to manage the company.

Another prerequisite is that the Austrian tax office is responsible for collecting VAT for the company or all partnerships or corporations concerned. The applicant must also declare that the company will be transferred to one or more persons from their circle of relatives (as defined in Section 25 of the Federal Fiscal Code – BAO) within two years of submitting the application.

 

Mandatory external audit

The Austrian tax office must check whether the conditions for the change to the transfer of the business are met in accordance with Sec 153i BAO and carry out an external audit. This external audit covers the last five (!) assessment years prior to the application, if a tax return has already been submitted for these years and an external audit has not already taken place.

 

Extended disclosure

From the time the application is submitted until the end of the grace period, the applicant, the acquirer and, if applicable, the executive bodies of a partnership or corporation are subject to an extended disclosure obligation. In addition to other disclosure obligations under tax law, those facts must be disclosed that are relevant to the business transfer and where there is a risk that they could be assessed differently by the Austrian tax authorities. This disclosure must be made without being requested by the tax authorities.

 

Increased legal certainty through support

Meetings between the representatives of the company to be transferred or taken over and the competent bodies should serve to increase legal certainty, whereby these are possible an unlimited number of times depending on the need to clarify pending tax law issues. Minutes are to be taken of these meetings in accordance with Sec 87 BAO, whereby the result of the legal information is to be recorded.

 

Duty to provide information

The Austrian tax office is obliged to provide the representatives of the company concerned with information on matters already realised or not yet realised during the business transfer process.

 

Expected entry into force

The Grace Period Act, which was already announced in 2021, is now expected to enter into force in 2025, meaning that applications for assistance with a business transfer should be possible from 1 January 2025. An evaluation of the “Grace Period” measures is planned for 2028, whereby the Federal Ministry of Finance (BMF) assumes that up to 600 transfers per year will be accompanied by then.

It remains to be seen how the legislation will develop.