2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report

Introduction

Economic conditions in Austria -- particularly those relevant to foreign investors – continue to remain favorable during the current financial/economiccrisis. As a small and highly internationalized economy, Austria was affected by the world downturn in 2009 and experienced its first full-year recession since 1981. Austria's economy recovered swiftly, with growth of more than 2% in 2010 and more than 3% in 2011. The pace is expected to be much slower in 2012, with growth estimates ranging from 0.4-0.8%. For 2013, recovery with growth of 1.6-1.9% is projected. In line with its EU neighbors, Austria's economy is on a lower growth path than before the 2008-2009 financial/economic crisis. The Austrian government’s response to that crisis led to a further deterioration in public finances. The OECD’s2011 Economic Survey on Austria and the IMF’s2011 Article IV Consultations Report both note that Austria’s fiscal position compares favorably to that of other Euro-zone members, but that current plans to put the debt ratio on a firm downward path are insufficient. These reports also recommend structural reforms to boost long-term growth should top the policy agenda for the period ahead.

Some 330 U.S. companies have invested in Austria; many 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 expansion also bolstered Austria's competitors in that region, most of which are now EU members. Border controls between Austria and all of its eight neighboring countries were lifted (in most cases) under the EU's Schengen area agreement. Due to their vicinity, Budapest, Prague, and Bratislava now compete directly with Vienna for foreign investors. To maintain long-term competitiveness, Austria is working to enhance its role as a 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, albeit one with challenges. The World Bank’s Ease of Doing Business Index 2012 ranks Austria thirty-second, unchanged from 2011.

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.

In late 2011, Parliament approved a debt cap designed to limit Austria's federal budget deficit to 0.35% of GDP beginning in 2017. If implemented, the debt cap would require austerity measures of at least €2 billion annually over the next five years. Measures under consideration include new taxes (e.g., net worth tax) and/or increasing existing taxes (e.g., higher tax bracket for very high incomes), along with structural reforms that would 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, and eliminate early retirement schemes. Any reforms are likely to remain incremental, with an emphasis on promoting social policy rather than further deregulation, liberalization, or privatization.

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 50% 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. The EU “Third Package” on the internal electricity and gas markets - adopted in Austria in November 2011 – aims at easing these shortcomings.

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 relatively low 25% corporate tax rate, it has become attractive as a business 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-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 producersand manufacturers of integrated circuits, silicon, other high-tech productsand 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 €2 billion to €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. 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, quality of life (Mercer’s 2011 Quality of Living Index ranks Vienna the top location to reside in the world), personal security (Mercer ranks Vienna fifth among the world’s safest cities; overall, crime,particularly violent crime, is low in Austria and Vienna, but the incidence of residential burglaries is high), skill and motivation of labor, productivity and quality, rule of law, social factors and health infrastructure, business, trade, investment and financial freedoms. Austria receives lower marks for economic growth, tax burden and tax regulation, the high cost of living, lack of risk capital financing, low innovation dynamics, restrictive immigration laws, the 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-first worldwide and tenth among the 43 European countries – up one rank from 2010 because of high marks in trade, investment, and monetary freedoms. The World Bank’s Ease of Doing Business Index 2012 ranks Austria thirty-second (by comparison, the United States was fourth), unchanged from 2011. The International Institute for Management Development’s (IMD) 2011 World Competitiveness Scoreboard ranks Austria eighteenth, down from the fourteenth position in 2010 (by comparison, the United States was number one). The Swiss Economic Institute (KOF) Index of Globalization ranks Austria unchanged 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

2011

16

Heritage Economic Freedom

2011

21

World Bank Doing Business

2012

32

IMD World Competitiveness Scoreboard

2011

18

KOF’s Globalization Index

2011

2

WEF’s Global Competitiveness Index

2011-2012

19

WEF’S Availability of Latest Technologies Index

2011-2012

10

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 €300 million ($417 million at the 2011 average exchange rate of $1.00 / EUR 0.72), domestic sales exceed EUR 30 million ($41.7 million), or if two of the firms involved each have worldwide sales exceeding EUR 5 million ($6.9 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 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% 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% 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: The government has not privatized any public enterprises since 2007, except for the sale of Austrian Airlines to German Lufthansa, which was not a typical privatization, but instead a transfer of an indebted company for a symbolic price. Austrian public opinion remains skeptical towards privatization, and the senior coalition partner (the Social Democratic SPOe) is on record opposing additional privatizations. The current government program does not identify any public enterprises for privatization, however, this policy could change given the government’s commitment to reducing the budget deficit and public debt. 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 institution that provides 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 many other countries, operate 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

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 those undertaken by foreign-owned enterprises -- with pre-seed and seed financing options for start-ups and cash grants up to 80% 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. Effective July 1, 2011, Austria changed its migration policy and introduced a new points based immigration scheme to attract skilled workers and specialists in individual sectors. The annual quota for managerial positions has been replaced with a more open system designed to react flexibly to rising demand in different occupations. Under the new “Red-White-Red” (RWR) model, highly qualified managers and key personnel/professionals are assessed on a points system based on qualification, education, age, and language skills.The RWR program is available to highly qualified individuals, qualified specialists/craftsmen in certain understaffed professions (details on the specific occupations will be announced in May 2012), and key personnel/professionals. All three groups need to have an offer of employment to apply for the RWR program. Because highly qualified individuals are by law required to apply locally in Austria, this group is eligible for a six-month job-seeker visa, issued by Austrian consulates or embassies (this provides for a longer stay for U.S. citizens than the usual three-month visa free period).While principal applicants are exempt from any language requirement, family members must submit proof of basic language proficiency when first applying for their residence permits. During its initial period, U.S. citizens comprised the second-largest group of non-EU nationals qualifying for the program.

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. A new law, effective December 2011, requires all third-country nationals or companies with their seat in a third country (not a member state of the European Economic Area or Switzerland) to obtain approval by the Federal Minister of Economy, Family and Youth for any investment of 25% or more in a company headquartered in Austria and active in sectors relevant for domestic and foreign security, public order, or crisis precaution. This affects investment in defense equipment producers, security services, hospitals, fire brigades, disaster control and rescue services, electricity and gas providers, water providers, telecom companies, railroads, air and ship transportation, federal roads, universities, schools and child care facilities.

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% foreign ownership. An exemption is that by law, federal and state governments maintain at least a 51% 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, and the Universal Copyright Convention. 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. Austrian courts have convicted and sentenced to jail at least one person for stealing intellectual property from a company associated with U.S. investors, though the damages assessed did not offset the company’s losses from the theft.

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 2010, Austrian customs authorities confiscated pirated goods worth €6.7 million ($9.3 million).

Patent Prosecution Highway: In September 2010, the United States and Austria signed a "Patent Prosecution Highway" (PPH) agreement on a trial basis. 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. On November 1, 2011, the trial period was extended in order to collect additional information before a formal decision on the program is made.

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 has announced 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 also among the five largest banking groups in Eastern Europe. Austrian banks are committed to remain in the CESEE/CIS markets. Due to U.S. reporting requirements, some private banks do not accept personal accounts from U.S. citizens, though locally incorporated businesses belonging to foreign investors have reported no problems in this regard.

Assets of Austria's five largest banking groups (Erste Bank, Bank Austria, RaiffeisenZentralbank, OesterreichischeVolksbanken, and BAWAG P.S.K. Bank) totaled approximately €640 billion ($889 billion) in 2011, representing 63% of Austria's banking sector assets. All five banks are considered "system-relevant" ("too big to fail"). Several banks are currently restructuring and downsizing.

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 AlpeAdriabanking 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 (OeNB) and the Financial Market Authority (FMA).

The Vienna Stock Exchange (VSE) is a small exchange of regional importance. Since the market has few listings, little liquidity, and is dominated by few but excellent blue chips, the VSE tends to overreact to international trends. In past years, VSE activity has languished due to the delisting of several prominent companies, including Bank Austria and Austrian Airlines, and a lack of IPOs. 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 the OeNB 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 more fully in line with Financial Action Task Force standards and 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. A recent amendment to the Stock Corporation Act eliminates bearer shares for all companies except those listed on a recognized stock exchange.

Austria's venture capital market is small and underdeveloped. In 2010, funds raised dropped 6% to €268 million ($372 million). The volume of private equity and venture capital raised in Austria during 2001-2010 was €2.4 billion ($3.3 billion).

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 (SOEs)

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 (CSR)

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 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) 2011 Corruption Perceptions Index ranked Austria 16th 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 2011 Progress Report on Enforcement of the OECD Anti-Bribery Convention characterizes Austria as one of 21 OECD countries with "little or no enforcement" against international bribery. Corruption cases are routinely reported in the media. The Parliament has formed a special committee to investigate a number of high-profile corruption cases, some involving current or past senior government officials. In January 2012, the Council of Europe criticized what it described as shortfalls in Austria’s anti-corruption legislation. 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 €1.8 million ($2.5 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 and ratified agreements with Cambodiaand Zimbabwe, and signed agreements with Guatemala, Kazakhstan, Kosovo, and Tajikistan, 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 convention 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 U.S. 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 ended, allowing free movement of labor from these countries. For Bulgaria and Romania (which joined the EU in January 2007) Austria plans to maintain a transition period until 2014.

Austria’s labor market policy has successfully maintained unemployment to levels near the lowest in the European Union. Government support, including programs to subsidize reduced working hour, helped reduce the unemployment rate to 4.4% in 2010, the lowest in the EU-27, and 4.2% in 2011. Unemployment may increase somewhat in 2012 and 2013, because of the weak economy, but should not exceed 4.7%. Youth unemployment is much less a problem in Austria than other 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 are designed to ensure 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.

Compulsory Austrian social insurance is comprised of 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 increasing number of elderly, and escalating costs for long-term care could eventually lead to a rise in social insurance contributions.

Labor-management relations are relatively harmonious in Austria, which has a low incidence of industrial unrest. No major work stoppages have occurred since 2005. However, the increasing pressure on the government and industry to reduce costs and implement unpopular reforms, is likely to increase labor tensions, as seen by isolated warning strikes in fall 2011. Approximately 35% of the work force belongs to a union.

Collective bargaining revolves mainly around wages and fringe benefits. Approximately 80% of the labor force works under a collective bargaining agreement. All collective bargaining agreements now provide for a minimum wage of €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 is at 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

According to the Austrian National Bank, the net inflow of new foreign direct investment (FDI) in 2010 was €2.9 billion ($4.0 billion) or 1.0% of GDP. New FDI in the first three quarters of 2011 amounted to €9.7 billion ($13.4 billion). The value of FDI stock in Austria was approximately €124.3 billion ($172.6 billion) at the end of 2010 and an estimated €134.0 billion ($186.2 billion) by end-September 2011, equal to 44% of GDP.

In 2010, U.S. investment accounted for 10.0% of total FDI in Austria.

At €6.3 billion ($8.8 billion), new Austrian direct investment abroad in 2010 was still lower than in 2008 and pre-crisis levels. The most significant figure was a €1.3 billion investment in Turkey. The value of Austrian direct investment stock abroad was approximately €128.7 billion ($178.8 billion) at the end of 2010 and an estimated €143.2 billion ($198.9 billion) by end-September 2011.

Note: Figures converted at the 2011 annual average exchange rate of $1.00 = EUR 0.72.

Austria's International Investment Position


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Year

2009

2010

2011

€ billion

$ billion

€ billion

$ billion

€ billion

$ billion

FDI in Austria

119.8

166.4

124.3

172.6

134.0

186.2

Austrian FDI Abroad

113.3

157.4

128.7

178.8

143.2

198.9

Note: 2011 figures are third-quarter, preliminary figures.

Source: Austrian National Bank.

FDI in Austria – Source Country Breakdown 2010


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Source Country

Share of Total

(in%)

U.S.

10.0

Germany

24.7

Italy

21.4

Switzerland/Liechtenstein

6.1

Netherlands

6.0

Middle East

3.1

France

2.8

U.K.

2.7

Spain

2.1

All other countries

21.1

Source: Austrian National Bank.

Austrian FDI Abroad – By Destination Country 2010

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Destination Country / Region

Share of Total

(in%)

U.S.

3.5

Germany

13.7

Czech Republic

7.9

Hungary

5.9

Romania

5.5

Croatia

4.8

Russia

4.5

Switzerland/Liechtenstein

4.5

Slovakia

3.5

Turkey

3.3

Bulgaria

3.2

U.K.

2.7

Italy

2.7

Poland

2.6

Netherlands

2.2

All other countries

29.5

Source: Austrian National Bank.

List of Major Foreign Investors:

More than 330 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

LemDyn Amp

McDonald's Corporation

Marriott International, Inc.

Mars Inc.

MeadWestVaco Corp.

Merck & Co., Inc.

Modine USA

One Equity Partners

Otis Elevator Company.

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

AssicurazioniGenerali, Italy

Axel Springer Verlag, Germany

Banco Santander, Spain

BASF, Germany

Bayer AG, Germany

BayerischeMotorenwerke (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 etCie, Belgium

Sony, Japan

Sueddeutscher Verlag, Germany

Svenska Cellulosa Ab (SCA), Sweden

Unibail-Rodamco, France/Netherlands

UniCredit Group, Italy

Unilever N.V., Netherlands

Voith, Germany

WestdeutscheAllgemeineZeitung (WAZ), Germany

Wolong Holding Group Co. Ltd., China

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

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