2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Introduction

Economic conditions in Austria -- particularly those relevant to foreign investors -- remain favorable in the aftermath of the global economic crisis. As a small and highly internationalized economy, Austria was affected by the world downturn in 2009: Austria's GDP shrank 3.5 percent in the country's first full-year recession since 1981 and sharpest contraction in more than fifty years. In 2010, Austria's economy recovered with growth of about two percent, a pace that is expected to continue in 2011 and 2012. Economists see no significant risk of a "double dip" recession, but predict that the recovery will remain moderate. Like Europe as a whole, Austria's economy is on a lower growth path than before the economic crisis; the government has thus far failed to utilize the crisis to implement far-reaching structural reforms.

Some 340 U.S. companies have invested in Austria; most have expanded their original investment over time. European Union (EU) enlargements in May 2004 and January 2007 strengthened Austria's attractiveness as an investment location -by increasing access to markets in Eastern Europe, but also bolstered Austria's competitors in that region, most of which are now EU members. Border controls between Austria and the Czech Republic, Hungary, Slovakia, and Slovenia were lifted when the EU's Schengen area expanded to those countries in December 2007. Budapest, Prague, and Bratislava now compete directly with Vienna for foreign investors. To maintain long-term competitiveness, Austria must enhance its role as hub for business in Central, Eastern, and Southeastern Europe (CESEE), further improve inadequate transport links to CESEE neighbors, ease regulatory red tape, and promote language capabilities.

Austria continues to offer a stable, advantageous climate for foreign investors, but it also presents challenges.

Openness To, and Restrictions Upon, 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 current 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's program includes commitments to promote foreign investment and further strengthen Austria's attractiveness as a location for investment and headquarters for international firms. Reforms are likely to remain incremental, with an emphasis on promoting social policy rather than deregulation, liberalization, or privatization.

The Austrian government profits from extensive structural reforms implemented after 1990 which helped to streamline government, promote competition, and strengthen Austria's attractiveness as a location for investment. A major policy shift from 2000 to 2006 -- when the government implemented a largely balanced budget, liberal market reforms, pension reform, privatizations, competition policy, and a corporate tax cut -- improved the Austrian economy's long-term growth potential, but Austria retains elements of a highly regulated economy with a large government sector. In 2007, the reform agenda came to a standstill; with the prospect of early elections in 2008, political parties approved a large expansion of social spending, abolished university student fees, extended the option of early retirement without cuts in pension payments, and cut the VAT on pharmaceuticals from 20 percent to 10 percent. These measures bolstered private consumption during the economic crisis but led to a higher budget deficit.

The Austrian government acted decisively in response to the 2008-2009 financial crisis, enacting an income tax cut, new infrastructure investments, increased subsidies, and a large-scale financial sector rescue package. Now that Austria's economy is growing again, the government's central task is to scale back the country's budget deficit and rising public debt, which will reach 72 percent of GDP in 2011. The 2011 budget aims to reduce Austria's federal deficit to 2.6 percent of GDP and its total public sector deficit to 3.2 percent of GDP in 2011 through tax increases, minor social policy changes, and modest across-the-board spending cuts. The government may bring the total public sector deficit within the three-percent Stability and Growth Pact threshold in 2012, easing Austria's medium-term financing needs. However, current budget cuts are insufficient to reduce total public sector debt below 60 percent of GDP in the foreseeable future, nor do current budget plans include long-term structural reforms to reduce the cost of Austria's large bureaucracy, eliminate overlap among the various levels of government, close under-utilized health care facilities, reform schools and universities, make the pension system sustainable, or reduce the cost of long-term care for Austria's aging population. Administrative streamlining is complicated by the need to obtain the support of provincial governments and other public bodies.

Austria has a low incidence of industrial unrest and has been largely strike-free since 2003.

Liberalization and deregulation in the telecom sector has resulted in attractively low prices for business services, particularly for mobile telephony and broadband services. Likewise, liberalization and deregulation in the energy sector has also lowered business costs. However, remaining barriers to entry in utility markets have resulted in only limited competition -- including the requirement that federal or local governments own at least fifty percent of energy distribution companies, the incomplete separation of ownership and transmission companies, and the limited powers of the supervisory authority. There are few incentives for customers to switch from incumbent electricity and gas providers, and pricing is not fully 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 with a heavy personal income tax burden, but due to a 25-percent corporate tax rate, it has become increasingly attractive as a business headquarters location. Because of tax base adjustments, experts estimate the effective corporate tax burden at no more than 22 percent. 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 percent, 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-à-vis its EU neighbors. Austria has no wealth tax, net worth tax, trade tax, nor inheritance/gift tax (only a reporting requirement).

There are no sectoral or geographic restrictions on foreign investment. In some regions, the government offers special facilities and services ("cluster packages") to foreign investors. For example, these can include incentives for automotive producers and manufacturers of integrated circuits, silicon, and other high-tech products and environmental technologies. Austria offers financial and tax incentives (within EU competition policy limits) 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 has declined 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 regulations into their decision-making process. Many industries also fall under the greenhouse-gas Emissions Trading System, part of the EU's implementation of the Kyoto Protocol. In agriculture, Austrian laws make it impossible in practice to cultivate genetically-modified crops. While EU-approved varieties are available for sale in Austria, strict liability regulations and co-existence rules sharply restrict any research, cultivation, or distribution of biotechnology crops.

The Austrian judicial system upholds the sanctity of contracts.

In investor surveys and international rankings, Austria consistently earns high marks for political stability, personal security, quality of life, rule of law, worker skill and motivation, productivity, quality, social factors, health infrastructure, business, trade, as well as investment and financial freedoms. Austria receives lower marks for economic growth, tax levels and regulations, high cost of living, lack of risk capital financing, slow pace of innovation, restrictive immigration laws, size of the public sector, and regulatory red tape (particularly when starting a business).

The 2011 Index of Economic Freedom of the Heritage Foundation/Wall Street Journal ranks Austria number twenty-one worldwide and tenth among 43 European countries. The World Bank's Ease of Doing Business Index 2010 ranks Austria thirty-second worldwide, down four places from 2009. The International Institute for Management Development's (IMD) 2010 World Competitiveness Scoreboard ranks Austria fourteenth, up from sixteenth position in 2009. The World Economic Forum's (WEF) 2010-2011 Global Competitiveness Index ranks Austria number eighteen. The Swiss Economic Institute (KOF) Index of Globalization ranks Austria second out of 208 countries, reflecting Austria's high degree of economic, social, and political integration within the European Union and with non-EU countries in eastern Europe.


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Measure

Year

Ranking

TI Corruption Index

2010

15

Economic Freedom Index

2011

21

World Bank Doing Business

2011

32

IMD World Competitiveness Scoreboard

2010

14

KOF Globalization Index

2010

2

WEF Global Competitiveness Index

2010-2011

18

WEF Availability of Latest Technologies Index

2009-2010

13

MCC Government Effectiveness Ranking

2009

14

Acquisitions, mergers, takeovers, cartels: Austria's Anti-Trust Act is in line with European Community anti-trust regulations, which take precedence over national regulations in cases spanning Austria and other EU member states. The Austrian Anti-Trust Act prohibits cartels, any competitive restrictions, and abuse of a dominant market position. 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 resources. Companies must inform the FCA about mergers and acquisitions (M&A) concerning domestic enterprises, if combined worldwide sales exceed EUR 300 million ($400 million at the 2010 average exchange rate of $1.00 / EUR 0.75), domestic sales exceed EUR 30 million ($40 million), or if two of the firms involved each have worldwide sales exceeding EUR 5 million ($6.7 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 percent of a company's annual worldwide sales. An independent energy regulator separately examines antitrust concerns in the energy sector, but must also submit cases to the cartel court.

Austria's 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 percent 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. The law prohibits defensive action to frustrate bids. Austria has not implemented the EU's Takeover Directive's breakthrough regulations, but does allow individual companies to address these in company bylaws. The Shareholder Exclusion Act allows a primary shareholder with at least 90 percent 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 review. Screening ensures compliance with EU regulations limiting such assistance to disadvantaged regions.

Privatizations: After many successful privatizations in previous years, the government has not privatized any public enterprises since 2007, except for the sale of Austrian Airlines (AUA) to German Lufthansa (LH). The AUA sale was not a typical privatization, but rather a crisis sale for a symbolic price, in order to avert a shutdown of AUA and gain a strategic partner. The current government program does not identify any public enterprises for privatization, so no major privatizations are expected until after 2013 (when the current government's term will end). Austrian public opinion is increasingly skeptical towards privatization, and the senior coalition partner (the Social Democratic SPOe) is on record opposing further privatizations. In past privatizations, foreign and domestic investors received equal treatment. Despite a historical government preference for having domestic shareholders retain a blocking minority, foreign investors have successfully gained full control of enterprises in strategic sectors of the Austrian economy, including telecoms, banking, steel production, power generation, and infrastructure.

Treatment of foreign investors: There is no discrimination against foreign investors, but businesses 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. Austrian immigration law requires those applying for resident permits to take German language courses, but 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) but Austrian federal, state, and local governments continue to provide financial incentives to promote investments. Incentives under these programs are equally available to domestic and foreign investors, and include tax incentives, preferential loans, loan guarantees, and grants. Most of these incentives are available only if the investment meets specified criteria including employment creation and use of high technology. 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 on targeted investment incentives (German language only) is available at http://www.awsg.at.

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 16 other Euro-zone member countries, shields investors from exchange rate risks within the 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. Austria's civil courts enforce property and contractual rights and do not discriminate against foreign investors. Austrian courts, like those in other countries, operate rather slowly and a losing party can delay execution of a judgment by appealing.

Austria is a member of the International Center for the Settlement of Investment Disputes. The 1958 New York Convention (UNCITRAL) also grants enforcement of foreign arbitration awards in Austria.

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 general. 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.

Austria offers an attractive incentive system for research and development (R&D) activities -- including foreign-owned enterprises -- with pre-seed and seed financing options for start-ups and cash grants up to 80 percent for later-stage companies.

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 for technology transfer.

The United States and Austria are signatories to a 1931 bilateral 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. A 2005 amendment to Austria's Immigration Law eased the integration policy requiring immigrants to attain a minimum level of competence in the German language. Under the amendment, a prior university degree automatically fulfills the integration requirement. Over the years, immigration quotas have remained static at approximately 8,000 per year; the annual quota for 2011 is 8,145 persons. New legislation is currently pending to comply with the EU Blue Card scheme setting conditions of entry and residence of third-country nationals for the purposes of highly qualified employment. A new immigration system is expected to replace the current quota system by 2012. Individuals will be assessed on a points system based on qualifications, education, age, language skills, and the demand for specialists in individual sectors. The proposed system will facilitate the admission of highly qualified managers, specialists, and other high-demand workers (such as skilled craftspersons and health care workers) to address labor market shortages in individual sectors. The Labor Ministry expects a moderate expansion of labor immigration with some 100,000 additional qualified workers and specialists to be admitted between 2010 and 2030.

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 some infrastructure and utilities, and a few remaining state monopolies (the state monopoly on gambling is currently being dismantled after negative rulings by the European Court of Justice). Over the long-term, the government may gradually open up these industries to private investment as well. Licensing requirements, such as those in the banking and insurance sectors, apply equally to domestic and foreign investors. In most business activities, the law permits 100 percent foreign ownership. An exemption is that by law, federal and state governments maintain at least a 51 percent share in all electricity providers. 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 some success, 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 all interested parties have access to the registry.

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.

Austria's Copyright Act 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. The law also regulates copyrights of digital media (restrictions to private copies), works on the Internet, protection of computer programs, and related damage compensation. Infringement proceedings, however, can be time-consuming and costly. Film and music industry representatives complain that they are unable in practice to block access to pirated audiovisual products over the Internet. In line with EU requirements, Austria also has a law against trade in counterfeit articles. In 2009, Austrian customs authorities confiscated pirated goods worth EUR 16 million ($21.3 million).

Patent Prosecution Highway: In September 2010, the United States and Austria signed a "Patent Prosecution Highway" (PPH) agreement. PPH allows filing of streamlined applications for inventions determined to be patentable in other participating countries and is expected to reduce the average processing time. The program, which is based on information sharing between national patent offices and standardized application and examination procedures, should reduce costs and encourage greater utilization of the patent system

Transparency of the Regulatory System

Austria's legal, regulatory, and accounting systems are transparent and consistent with international norms. Ministries generally publish draft laws and regulations for expert comment prior to their adoption by Austria's cabinet (Ministerrat) and/or Parliament.

The government has made progress in streamlining its complex and cumbersome requirements for business licenses and permits. It claims to have reduced the processing time for permits to less than three months, except for large projects requiring an environmental impact assessment. The government's "one-stop shop" for business permits does not include plant and building permits. The government plans to further streamline regulations and data collection requirements, but progress is expected to be slow. All licensed businesses in Austria (including foreign-owned enterprises) must be members of Austria's Economic Chamber and pay compulsory dues; the Chamber plays an administrative role in some areas (including retailing, tourism, and certification of skilled labor).

The government applies tax and labor laws uniformly, as well as health and safety standards. The government does not influence the allocation of investments among sectors.

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 extensive networks in Central, Eastern, and Southeastern Europe (CESEE) countries and the Commonwealth of Independent States (CIS, the countries of the former Soviet Union); the three largest Austrian banks are among the five largest banking groups in eastern Europe. Austrian banks have a 14 percent share of the entire CESEE/CIS banking market (21 percent excluding Russia) and have made a strong commitment to remain in the CESEE/CIS markets.

Assets of Austria's five largest banking groups (Bank Austria, Erste Bank, Raiffeisen Zentralbank, BAWAG/PSK-Bank fuer Arbeit und Wirtschaft / Oesterreichische Postsparkasse, and Oesterreichische Volksbanken) totaled approximately EUR 650 billion ($864 billion) in 2010, representing 63 percent of Austria's banking sector assets. All five banks are considered "system-relevant" ("too big to fail"), so the government will take any measures deemed necessary to support them.

Regulators and criminal investigators have dealt with several major financial sector fraud and mismanagement cases in the past five years, the largest of which resulted in the nationalization of Kommunalkredit bank in 2008 and the Hypo Group Alpe Adria banking group in December 2009. Austria's bank supervision system was reorganized in 2008 -- instituting a dual-oversight system with supervisory roles for both the Austrian National Bank and the Financial Market Authority (FMA).

After a steep drop in 2008, the Vienna Stock Exchange (VSE) rebounded in 2009 and 2010. Since 2008, VSE activity has languished due to a lack of IPOs and the delisting of several prominent companies, including Bank Austria and Austrian Airlines. In January 2010, the stock exchanges of Budapest, Ljubljana, Prague, and Vienna became subsidiaries of the Vienna-based CEE Stock Exchange Group (CEESEG AG) holding company. CEESEG accounts for about half of total market capitalization and two-thirds of equity trading volume in CESEE, making it the largest stock exchange group in the region.

Criminal penalties apply to insider trading, money laundering, and terrorist financing. The FMA (similar to the U.S. Securities and Exchange Commission) and National Bank are responsible for policing irregularities on the stock exchange and for supervising banks, insurance companies, securities markets, and pension funds. In 2010, new legislation brought Austria's Anti-Money Laundering/Combating Terrorist Financing (AML/CTF) regime much more fully in line with Financial Action Task Force standards and considerably weakened bank secrecy. The new legislation extends the scope of money laundering offenses to self-laundering, broadens the conditions for disclosure of information on bank accounts and transactions during criminal proceedings, facilitates processing mutual legal assistance requests, introduces stricter identification for savings deposits, and provides for more transparency for trusts and foundations. In addition, Austria's new Sanctions Act facilitates asset seizure, forfeiture, and other anti-terrorism measures.

Austria's venture capital market is small and underdeveloped. The volume of private equity and venture capital raised in Austria during 1997-2008 was EUR 2.4 billion ($3.2 billion). In 2009, funds raised rose 16 percent to EUR 287 million ($383 million).

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 International Financial Reporting Standards (IAS/IFRS) system.

Competition from State Owned Enterprises

Private enterprises in Austria can compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies. After many successful privatizations in previous years, public enterprises are mainly active in the area of state monopolies (e.g., gambling) and in utilities, hospitals, social insurance, infrastructure, and related sectors. In many of these sectors (e.g., hospitals, utilities) private companies compete successfully; however, public enterprises occasionally use political ties to prolong dispute resolution and appeal procedures and/or delay implementation of remedies, which in some markets can lead to significant uncertainties. While most state-owned enterprises (SOEs) must finance themselves under similar terms to private enterprises, the largest SOEs (such as the Federal Railways) do not have a hard budget constraint and some benefit from state-subsidized pension systems.

Since many public enterprises are outsourced and organized as stock corporations, senior management usually does not report directly to a minister but to a board. However, the government often appoints management and board members, who usually have political affiliations.

Austria does not have a sovereign wealth fund.

Corporate Social Responsibility

In past years, awareness of corporate social responsibility (CSR) has risen among Austrian producers and consumers. Major Austrian companies follow generally accepted CSR principles and publish a CSR chapter in their annual reports; many also provide information on their health, safety, security, and environmental activities. CSR Europe (the leading European business network for CSR) has a local partner organization respACT (short for "responsible action"), founded in 2005 to promote CSR in Austria.

Political Violence

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

Corruption

Austria has ratified the United Nations Convention against Corruption (UNCAC), the OECD Anti-Bribery Convention, the Council of Europe's Civil Law Convention on Corruption, and has signed -- but not yet ratified -- the Criminal Law Convention on Corruption. Austria is also a member of the Group of States against Corruption (GRECO) within the Council of Europe. Transparency International's (TI) 2010 Corruption Perceptions Index ranked Austria 15th for absence of corruption. OECD experts have criticized Austria's anti-bribery legislation and practices as not fully in line with the Anti-Bribery Convention; TI's 2010 Progress Report on Enforcement of the OECD Anti-Bribery Convention characterizes Austria as one of 20 OECD countries with "little or no enforcement" against international bribery. There are a number of high-profile corruption cases currently under investigation, on trial, or on appeal; legal proceedings in such cases are slow (sometimes taking five years or longer) and so far there have been no convictions in a cross-border bribery case. Large and exchange-listed companies in Austria generally have codes of conduct, but these are not a requirement. Watchdog groups such as Transparency International are active, but play no formal role.

Corruption provisions in Austria's Criminal Code cover managers of Austrian public enterprises, civil servants and other officials (those with functions in legislation, administration, or justice on behalf of Austria, in a foreign country, or an international organization), and representatives of public companies. The term "corruption" includes: active and passive bribery; illicit intervention; abuse of office; and accepting consideration. It can sometimes include a private manager's fraud, embezzlement, breach of trust, or accepting consideration. Criminal penalties for corruption include imprisonment of up to 10 years for all parties involved. By law, such payments are not tax deductible for companies making them. A separate law, the Law on Responsibility of Associations, deals with criminal responsibility for legal entities and partnerships. The law covers all criminal offenses, including corruption, money laundering, and serious tax offenses that are subject to the Tax Offences Act. Fines pursuant to this law can rise to as much as EUR 1.8 million ($2.4 million). Austria has a special public prosecutor's office with Austrian-wide authority for corruption cases.

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, Kazakhstan, Kosovo, Tajikistan, and Zimbabwe, but those agreements are still pending ratification by those countries and have not yet entered into effect. Agreements with Bahrain and Turkmenistan are ready for initialing. An agreement with North Korea was initialed in 2001, but has not been signed. Until new agreements take effect, prior 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 conventions covering income and corporate taxes, which went into effect on February 1, 1998. Another bilateral double taxation convention (covering estates, inheritances, gifts and generation-skipping transfers) has been in effect since 1982. In September 2009, Austria enacted new procedures for handling foreign tax information requests -- expanding the provision of bank account information to foreign tax authorities -- but the new law will not apply to U.S. persons unless the U.S.-Austria tax conventions are amended. Austria and the United States do not have a bilateral investment treaty.

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, disciplined and productive labor force of approximately 4.3 million, 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 United States, but more flexible than in some other European counties. In May 2011, the seven-year transition period that Austria adopted vis-à-vis eight of the ten EU members that acceded the EU in May 2004 will end, allowing free movement of labor from these countries. For Bulgaria and Romania (which joined the EU in January 2007) Austria plans to maintain the 7-year transition period until 2014.

Austria maintains a highly successful labor market policy. Government support, including subsidized reduced working hour programs, helped to keep the 2009 unemployment rate at 4.8 percent, the second lowest in the EU-27. In 2010, the unemployment rate fell to 4.5 percent on the basis of a solid economic recovery. Unemployment may increase somewhat in 2011 and 2012, because of reduced government funding and the opening of Austria's labor market for citizens of eight new EU member states.

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. Analysts expect no labor market shortages in the medium term. While demographic trends indicate little growth in the labor force over the coming years, factors such as industrial restructuring, productivity gains, efforts to further increase the participation of women and older employees in the workforce, and steps to reduce civil service employment will help guarantee sufficient labor supply. Starting in 2015, demographic factors will cause the number of domestic labor market entrants to fall short of those retiring, indicating a need for additional immigration.

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. Austrian laws closely regulate terms of employment including working hours, minimum vacation time, holidays, maternity leave, statutory separation notice, severance pay, protection against dismissal, and an option for part-time work for parents with children under the age of seven. Increasing deficits in the pension and health insurance systems, the shortage of personnel to care for the fast growing number of elderly, and increasing costs for long-term care could eventually lead to a rise in social insurance contributions.

Labor-management relations are relatively harmonious in Austria. No major work stoppages have occurred since 2005. Approximately 35 percent of the work force belongs to a union. Now that Austria's economy is recovering from the crisis of 2008-2009, unions are likely to increase their demands, particularly on wage and social cost issues.

Collective bargaining revolves mainly around wages and fringe benefits. About 80 percent of the labor force works under a collective bargaining agreement. All collective bargaining agreements now provide for a minimum wage of EUR 1,000 per month. Austrian law stipulates 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. Flexible work hour regulations, in place since 2008, allow firms to increase the maximum regular time hours from 40 to 50 per week in special cases (for a limited period even to 60 hours). Responsibility for agreements on flextime or reduced workweeks lies on the company level. Austrian employees are generally entitled to five weeks of paid vacation (and an additional week after 25 years in the workforce); the overall rate of absence due to illness/injury is about three percent, with a declining trend in recent years.

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 2009 was EUR 5.3 billion ($7.1 billion) or 1.4 percent of GDP. This was an improvement from 2008, but still well below the figures recorded prior to the financial crisis. New FDI in the first three quarters of 2010 amounted to EUR 7.1 billion ($9.5 billion). The value of FDI stock in Austria was approximately EUR 111.7 billion ($148.9 billion) at the end of 2009 and an estimated EUR 118.8 billion ($158.4 billion) by end-September 2010, or approximately 31 percent of GDP.

In 2009, U.S. investment accounted for 10.4 percent of total FDI in Austria. This represented an increase from 9.1 percent of total FDI in Austria in 2008.

At EUR 6.1 billion ($8.1 billion), new Austrian direct investment abroad in 2009 was significantly lower than in 2008 and well below pre-crisis levels. Some 46 percent of the new FDI went to EU-27 countries, some 41 percent of the amount was invested in CESEE countries. In the first three quarters 2010, FDI abroad recovered again to reach EUR 6.0 billion ($8.0 billion). This raised the value of Austrian direct investment stock abroad to about EUR 112.9 billion ($150.5 billion) at the end of 2009 and an estimated EUR 118.9 billion ($158.5 billion) by end-September 2010.

Note: Figures converted at the 2010 annual average exchange rate of $1.00 for EUR 0.75.

Austria's International Investment Position (EUR billion)


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Year

2008

2009

2010

FDI in Austria

106.4

111.7

118.8

Austrian FDI Abroad

106.9

112.9

118.9

Note: 2010 figures are third-quarter, preliminary figures.

Source: Austrian National Bank.

FDI in Austria – Source Country Breakdown 2009


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Source Country

Share of Total

(in percent)

U.S.

10.4

Germany

27.2

Italy

21.7

Switzerland/Liechtenstein

5.8

Netherlands

5.0

France

3.0

Middle East

3.5

U.K.

2.5

Japan

2.2

All other countries

18.7

Source: Austrian National Bank.

Austrian FDI Abroad – By Destination Country (2009)

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Destination Country / Region

Share of Total

(in percent)

U.S.

2.9

Germany

14.9

Czech Republic

7.8

Hungary

6.3

Romania

5.7

Croatia

5.3

Slovakia

4.2

Russia

4.1

Switzerland/Liechtenstein

4.0

U.K.

3.6

Poland

3.6

Italy

3.6

Bulgaria

3.4

Turkey

2.5

Cyprus

2.5

All other countries

25.6

Source: Austrian National Bank.

List of Major Foreign Investors:

More than 340 U.S. firms hold investments in Austria, which range from sales offices to major production facilities. The following is a partial 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.

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

One Equity Partners

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 United States, 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

Criteria CaixaCorp., Spain

DaimlerChrysler, Germany
Detergenta Investment, Germany

Deutsche Lufthansa, Germany

Deutsche Telekom, Germany

DM Drogerie Markt, Germany

Electricite de France, France

Electrolux, Sweden

Eni/Agip, Italy

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 International, 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

Xi'an Aircraft Industry (Group) Company Ltd., China

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