Starting an E-Commerce Business in Austria

9 2. Starting a business – registration and permission requirements 10 Starting an E-Commerce Business in Austria As a first step, Selma and Sebastian have to become traders. They do not really know whether they can just give themselves a trade name and start doing...

9 2. Starting a business – registration and permission requirements 10 Starting an E-Commerce Business in Austria As a first step, Selma and Sebastian have to become traders. They do not really know whether they can just give themselves a trade name and start doing business or whether they need a permission or need to meet any other formal requirements. It cannot be that difficult to start an online shop, can it? Well … there are some legal steps that need to be taken... 2.1. Trade regulation law (Gewerberecht) 2.1.1. Who needs a trade licence? Opening a business in Austria Starting a business in Austria requires that all necessary permits are granted. For starting a trade (Gewerbe), including a craft, the most relevant legal instrument is the Trade Act 1994 (Gewerbeordnung 1994, GewO). This instrument applies to any economic activity that is self-employed; at least potentially conducted on a regular or continuous basis or at a larger scale; and for profit. A range of economic activities that would, as such, satisfy the above criteria are nevertheless excluded from all or most of the requirements of the Trade Act 1994. Some of these economic activities are wholly or largely exempt because the legislator felt there was no need for regulation, e.g. agriculture and forestry, the arts, and household activities (such as self-employed cleaning or babysitting) or other very simple activities. Other economic activities are not governed by the Trade Act 1994 because they are subject to more specific (and usually stricter) requirements under other laws. This applies, e.g., for the regulated liberal professions (such as doctors, attorneys-at-law, notaries or tax advisors). Trade regulation law is part of special administrative law (Besonderes Verwaltungsrecht), together with a You will study administrative wide range of other areas, such as asylum law, planning law in BA CM 13 (Public Law). and building law, energy law, waste management law and genetic engineering law, to name but a few. Since Some aspects of economic trade regulation law deals with economic activities it is administrative law will be dealt specifically considered to be part of ‘economic with in BA CM 11 (Business Law). administrative law’ (Wirtschaftsverwaltungsrecht). In contrast, general administrative law (Allgemeines Verwaltungsrecht) deals with cross-cutting issues, such as the structure and competence of administrative authorities, administrative procedure, or remedies against administrative decisions. Together, they form the body of administrative law, which is part of the wider area of public law (Öffentliches Recht). E-commerce businesses targeting Austria from EU and EEA countries Selma is wondering why she needs a trade licence in Austria while Matteo, who has been operating his online shop from Rome for some time and makes good money with Austrian professional customers, is only registered in Italy. Traders established in other EU Member States may, without any restrictions, sell goods or provide services into Austria from abroad. This is based on the very cornerstones of the European Single Market, the ‘Four Freedoms’, as laid down in the Treaties. The same rules apply for the Member States of the EEA and, due to bilateral agreements, for Switzerland (see p. 4).  Starting a business – registration and permission requirements 11 These Freedoms are Free movement of goods You will study EU law in BA CM 2 Free movement of capital (Introduction to International Law) Freedom to establish and provide services and CM 5 (European Law). Free movement of persons The free movement of goods implies, inter alia, a prohibition between Member States of customs duties on imports and exports with regard to products originating in Member States and to products coming from third countries which are in free circulation in Member States, as well as of all charges and other measures having equivalent effect (Article 28 TFEU). The freedom of establishment includes the right to take up and pursue activities on a permanent basis as self-employed persons and to set up and manage undertakings in another Member State (Article 49 TFEU), whereas the freedom to provide services means the right to offer and provide services in other Member States on a temporary basis while remaining in one’s country of origin (Article 56 TFEU). With the emergence of e-commerce, the delineations between these freedoms have become somewhat blurred because, for being an online retailer ‘in Austria’ on a permanent basis (i.e. targeting Austrian customers in a similar way as a shop established in Austria) one does not have to be physically present in Austria any more. A number of EU legal instruments address in a cross-cutting manner the phenomenon of the ‘Digital Single Market’. E-commerce businesses targeting Austria from third countries Selma understands that Matteo from Italy may be a somewhat special case, but how can the parents of her friend Xu from China sell goods to Austria on a regular basis, through big online platforms, without having an Austrian trade licence? And what about John from the UK? Other third countries, such as China, may be associated with the EU and Austria through trade agreements, notably the rules of the World Trade Organization (WTO), of which both Austria You will study international and China are member states. The three most important trade law in ‘pillars’ of WTO law are the General Agreement on Tariffs and BA CM 2 (Introduction to Trade (GATT), the General Agreement on Trade in Services International Law) and (GATS) and the Agreement on Trade-Related Aspects of CM 6 (International Law). Intellectual Property Rights (TRIPS). The fundamental principles of the trading system include: The Most Favoured Nation (MFN) rule, which requires a WTO member to grant the most favourable conditions under which it allows trade in a certain product type with one WTO member to all other WTO members (in practice, this most importantly implies that customs duties must be levied on a non-discriminatory basis, but the establishment of specific free trade zones between particular WTO members, such as the EU, is still permissible). The National Treatment rule, which means that foreign goods, once they have entered the WTO member’s market, must be treated no less favourably than domestically produced goods. A trader established in China is free to sell and deliver goods into Austria, but has to declare goods at customs and possibly pay customs duties (tariffs) and taxes (on which see p. 25) when the goods enter the EEA. Charging customs duties on import is considered to be compatible with the National Treatment rule. The amount of customs duties due depend on the product type and can easily be identified with the help of the Access2Markets tool. Import of goods shipped in consignments with a value not exceeding EUR 150 (low value goods) is exempt from customs duties, but not from VAT (see p. 25). 12 Starting an E-Commerce Business in Austria It is important to note that all goods imported from outside the EU/EEA must nevertheless comply with EU/EEA product safety standards. Strictly speaking, acting as a retailer is also a service, and the provision of services by traders established in other WTO members into Austria is governed by GATS and is much less liberal than the delivery of goods (e.g. a Chinese trader could not simply fly in from Beijing once a week, on the basis of their Chinese trade licence, and provide services in Austria). However, although e-commerce is not exactly a new phenomenon, the WTO is still struggling with how to deal with e-commerce. Already in 1998, there was a ‘Work programme on electronic commerce’, which included a moratorium in which WTO members agreed to continue the current practice of not imposing customs duties or other restrictions on electronic transmissions. This moratorium has been renewed several times so far. Since 2019, a ‘Joint Statement Initiative on E-Commerce’ is underway within the WTO, which a fair number of States have joined, but potential results are still not clear. When Selma asks her about this, Xu confirms that dealing with customs requirements has always been a major obstacle for her parents. Since recently, they have outsourced this to a provider of global parcel delivery services, which is working reasonably well. John, who has overheard the conversation, complains that Brexit has made things really complicated for him. Since the United Kingdom left the EU, relationships between the EU and UK are governed by WTO law and special international agreements, notably the Trade and Cooperation Agreement (TCA). As far as goods are concerned, the Title on trade in goods provides, inter alia, freedom of transit (i.e. traffic in transit to or from the territory of either EU or UK and any other third country) and prohibition of customs duties on all goods ‘originating in the other Party’, and in some other cases. It is, in particular, the requirement of ‘originating in’ that makes customs procedures necessary, and the rules on ‘origin’ are complicated. The Title on trade in services facilitates the cross-border provision of services, but provides for less liberal rules than the Title for goods. Other than current WTO law, the TCA provides for a separate Title on ‘Digital Trade’, which includes both trade in digital content or services (i.e. where the traded commodity is digital) and trade in traditional goods or services by digital means (i.e. e-commerce in the proper sense). However, the TCA has to use the WTO regime as a backbone, and this Title, while featuring a number of special provisions, largely qualifies digital trade as the supply of services. The relevant Title on services does not contain provisions that address e-commerce more specifically. 2.1.2. How to obtain a trade licence in Austria? Selma and Sebastian accept that they cannot just start selling stuff but have to get a trade licence first. They will have to file an application, accompanied by a range of documents, with the competent trade authority (Gewerbebehörde). Normally, this can also be done electronically using the Austrian Business Licence Information System (GISA). They just hope that this is not going to be too difficult. They are both of age, but Selma is from Bosnia and resident in Austria on the basis of her student visa, so she is worried whether there are any restrictions. General requirements If an economic activity falls under the GewO, this may still mean very different things. The majority of trades is ‘free’ in the sense that no special certificate of qualification is required. The only requirement is the registration with the competent trade authority (Anmeldungsgewerbe). In order to register, a natural person has to fulfil the following requirements (cf. §§ 8 to 15 GewO):  Starting a business – registration and permission requirements 13 Full legal age and capacity; Citizenship of an EU Member State, or another Member State of the European Economic Area (EEA), or equivalent status under international law, or residence permit that includes self- employed economic activities; and No grounds for exclusion (on which see p. 14 further below). Full legal age and capacity is very rarely a problem. What is usually more problematic is whether the residence permit (Aufenthaltstitel) of a third-country national (i.e. a person who is not a citizen of an EU/EEA Member State) allows self-employed commercial activities. The most important provisions can be found in the Settlement and Residence Act (Niederlassungs- und Aufenthaltsgesetz, NAG) and the Asylum Act 2005 (Asylgesetz 2005, AsylG), but there are also specific provisions for diplomats, employees of international organisations etc., and special visa for temporary activities under the Aliens Police Act (Fremdenpolizeigesetz, FPG). § 8 NAG lists 13 different types of residence permits, each of which has its own rules as to the permissibility of employment or self-employed activities. For employment, many types of residence permits require an additional employment permit (Beschäftigungsbewilligung) issued by the Public Employment Service Austria (Arbeitsmarktservice, AMS) under the Employment of Foreign Nationals Act (Ausländerbeschäftigungsgesetz, AuslBG). The most important categories of individuals addressed by the AsylG are: Asylum and migration law will Recognised refugees (Asylberechtigte, § 3 AsylG); be addressed in individuals with subsidiary protection status BA CM 6 (International Law) (subsidiär Schutzberechtigte, § 8 AsylG); and CM 13 (Public Law) Asylum seekers (Asylwerber) enjoying de facto protection (§ 12 AsylG) and a temporary residence permit after the asylum procedure has been admitted (§ 13 AsylG); and Individuals with a residence permit for exceptional circumstances (§§ 54 to 57 AsylG). Recognised refugees and individuals with subsidiary protection status may engage in the same economic activities as Austrian nationals. Asylum seekers whose asylum procedure is admitted and individuals with a residence permit for exceptional circumstances require an additional employment permit under the AuslBG for employed activities, but may pursue a self-employed economic activity. Selma holds a visa for third-country students (§ 64 NAG). If she were seeking employment, she would need a separate employment permit, which would normally be issued for employment not exceeding 20 hours/week because her work may not seriously impair her studies (no such permit would, by the way, be required if Selma sought employment in academic research and teaching, e.g. as a student assistant at Vienna University). There is no explicit restriction for self-employed traders but, of course, Selma must prove that she is actually and successfully pursuing her studies if she seeks an extension for her student visa. Specific requirements for regulated trades An enumerative list of trades (§ 94 GewO) are regulated trades (reglementierte Gewerbe), which require a specific qualification (§§ 16 et seq. GewO). Those among the regulated trades for which the law requires particular ‘reliability’ are sometimes referred to as ‘reliability trades’ (Zuverlässig- keitsgewerbe, § 95 GewO). Regulated trades are a subset of the wider notion of ‘regulated professions’, which can, for EU/EEA Member States, be identified by way of a search in the EU Regulated Professions Database. Where a professional qualification has been obtained in another EU/EEA country (or Switzerland), there are, in general, three different types of recognition, depending on the type of profession concerned: 14 Starting an E-Commerce Business in Austria Recognition on the basis of coordination of minimum training conditions (e.g. for doctors) Recognition of professional experience (e.g. for many crafts) Recognition of an attestation of competence issued by the competent authorities of a Member State (for all other regulated professions) An attestation of competence does not preclude the host Member State from requiring the applicant to complete an adaptation period of up to three years or to take an aptitude test (Eignungsprüfung), e.g. if the training the applicant has received covers substantially different matters than those required in the host Member State. This applies, inter alia, for lawyers who have obtained their law degree in another Member State and wish to practice as attorneys in Austria. For professional qualifications obtained in third states there exist a wide range of bilateral and multilateral agreements on recognition. Practical guidance is provided by the Recognition Guide of the Austrian Integration Fund. Selma and Sebastian browse the list of regulated trades and note with a degree of relief that running an online shop and platform is not among them, but is a ‘free’ trade. They later learn that it is in fact an explicit requirement set out in the E-Commerce Act (E-Commerce-Gesetz, ECG) that no specific procedures are imposed. Nevertheless, they have to specify the type of trade in their application. They will primarily choose ‘Handelsgewerbe’. Depending on whether or not they plan to engage in further activities, such as working more extensively with customer data and providing digital services, including marketing services for third parties, they may also wish to add ‘Dienstleistungen in der automatischen Datenverarbeitung und Informationstechnik’ and/or ‘Ankündigungsunternehmen’. 2.1.3. Who is excluded from obtaining a trade licence? When filling in the relevant forms Selma and Sebastian have to tick a range of boxes concerning possible exclusion criteria, mentioning criminal convictions and something about insolvency. Suddenly, new worries emerge because of a criminal conviction for forgery of documents, which Sebastian committed as a 19-year-old high school student. Moreover, he became a partner in his father’s company when he was 18, and the company went insolvent during the Covid-19 crisis. There are exclusion criteria both for natural persons and for companies (§ 13 GewO). It is immaterial whether the facts giving rise to exclusion occurred in Austria or abroad. Where a natural person would be excluded, a company on whose operations that natural person has a significant influence is likewise excluded. The same applies to a natural person that had significant influence on the operations of a company that would be excluded. Criminal convictions For natural persons, exclusion criteria are the final conviction by a court of an enumerative list of criminal offences (such as fraudulent withholding of employees’ social security contributions or organised undeclared work, for persons seeking a licence for the catering trade also drug crimes); or a final sentence for other criminal offences to more than three months imprisonment or to a fine of more than 180 daily rates, unless the crime has already been expunged. There is also a list of financial offences that serve as exclusion criteria where the financial authority has imposed a fine of more than 726 EUR or imprisonment. Criminal law (Strafrecht) is an independent part of public law dealing with sanctions and other measures You will study criminal law in imposed by the State for qualified unlawful and BA CM 8 (Criminal Law and culpable behaviour (including for cases where the Procedure). offender is not criminally responsible due to insanity).  Starting a business – registration and permission requirements 15 Behaviour that is qualified as a crime must be clearly defined as such in the law. In Austria, criminal law can be divided into two main areas: judicial criminal law (Kriminalstrafrecht), and administrative criminal law (Verwaltungsstrafrecht). Criminal law normally addresses only natural persons, but companies can be prosecuted if a decision-maker or employee has committed a judicial crime that can be attributed to the company under the Corporate Criminal Liability Act (Verbandsverantwortlichkeitsgesetz, VbVG). Judicial criminal law is adjudicated exclusively by fully independent judges in the general (judicial) courts (ordentliche Gerichte), including by lay judges where so provided (e.g. murder, political offences). Jurisdiction in the first instance is either with the district courts (Bezirksgerichte, BG) or the regional courts (Landesgerichte, LG), depending on the severity of the offence. Regional courts also deal with appeals against decisions of district courts. Appeals against decisions of regional courts are dealt with partly by one of the four higher regional courts (Oberlandesgerichte, OLG) and partly by the Supreme Court (Oberster Gerichtshof, OGH), which is the highest instance of judicial courts in Austria. Crimes are mostly defined in the Criminal Code (Strafgesetzbuch, StGB), but may also be defined in other statutes. The main forms of punishment are fines (Geldstrafe) and imprisonment (Freiheitsstrafe), but there is also a range of further measures (e.g. confiscation, forfeiture) that can be imposed. Crimes are divided into felonies (Verbrechen) and misdemeanours (Vergehen), with felonies being defined as serious intentional crimes punishable by a maximum term of imprisonment of more than three years. Criminal convictions by courts, once they are final and can no longer be challenged by way of appeal, are entered into the criminal records (Strafregister). This concerns all convictions by Austrian courts and convictions by foreign courts where the convict is an Austrian citizen or has their domicile or habitual residence in Austria. After the lapse of a certain period of time, which is normally counted from the time when the sentence has been fully served or remitted, an entry in the criminal records is expunged. The length of that period (Tilgungsfrist) depends on the nature of the crime and the severity of the sentence imposed. Life-sentences and (at least in principle) sentences of over five years imposed for sexual crimes cannot be expunged from the criminal records. Administrative criminal law is applied by administrative authorities. Since 2014, appeals are, however, dealt with by administrative courts (Verwaltungsgerichte) and not by the administration itself. Administrative authorities in charge of the prosecution of administrative offences may also impose both fines and imprisonment (generally limited to a maximum period of six weeks), but the sentences are not entered into the criminal records. While administrative offences are listed in a broad range of different statutes, cross-cutting issues are addressed in the Administrative Offence Act (Verwaltungsstrafgesetz 1991, VStG). To a large extent, it is within the discretion of the Austrian legislator whether a particular offence is qualified as a crime under judicial criminal law or under administrative criminal law. Normally, the more serious offences with rather high maximum punishment will be classified as crimes under judicial criminal law. However, administrative offences, such as under cartel law or data protection law, can also trigger fines of several million Euros. Sebastian is relieved - forgery of documents is not among the crimes that would disqualify him from starting a business in Austria, and he was only sentenced to a fine of 15 daily rates. But what about that insolvency? Insolvency law For companies, there is also the exclusion criterion of a denial of the opening of insolvency proceedings for want of sufficient assets, unless the period during which insolvencies are listed in the insolvency registry has lapsed. In Austria, there are several different types of insolvency proceedings, in particular different types You will study insolvency law in of restructuring proceedings (Sanierungsverfahren, MA CM 4 (Law of Civil Procedure). Restrukturierungsverfahren), which aim at the rescue of 16 Starting an E-Commerce Business in Austria a company, as well as bankruptcy proceedings (Konkursverfahren), which head directly towards the winding up of the company and the sale of remaining assets or, in many cases, the sale of the business as a whole. There are also special proceedings for natural persons, so-called ‘private insolvency’ proceedings (Privatinsolvenz), which are available to both traders and consumers. Insolvency proceedings are opened where the debtor is in a state of being unable to pay the debts (Zahlungsunfähigkeit) or, in the case of certain companies, of over-indebtedness (Überschuldung). Since July 2021, also preventive restructuring proceedings in a situation where insolvency is likely are possible. A petition for insolvency proceedings can be filed by the debtor or any creditor, but the debtor is obliged to initiate proceedings within 60 days at the latest (failure to do so may amount to a crime or result in personal liability). The petition is entered into the insolvency register (Insolvenzdatei). When bankruptcy proceedings are opened, an insolvency practitioner (receiver) is appointed to take over the administration of the estate. In restructuring proceedings and ‘private insolvency’ proceedings, the debtor may perform the administration of the estate themselves under the supervision of the court and a special administrator. Creditors must file their claims, which are normally converted into monetary claims irrespective of their nature. Unsecured creditors, i.e. creditors that cannot rely on security interests such as a pledge or a mortgage, must be treated equally (with very few exceptions) and will receive an equal quota of their claims, whether after restructuring and partial discharge of residual debt or after sale of the debtor’s assets. However, proceedings are opened only where there are sufficient assets to cover the likely costs of the proceedings or where the applicant or the officers or shareholders of an insolvent company make an advance payment to cover these costs. If there are no sufficient assets left and the officers or shareholders are not able to pay the amount of up to EUR 4,000 required for opening proceedings, the court will refuse to open proceedings, which means that the debtor will lose their trade license and will not be granted a new license before the entry in the register has been expunged. The latter is normally the case after three years. While this applies to companies, there are some significant differences that apply to natural persons and private insolvency proceedings. Inter alia, proceedings are cheaper, and it is possible to obtain debt discharge after a certain period even against the will of the creditors. The opening of insolvency proceedings does not affect a trade licence, and it would even be possible to register a new trade during proceedings. After having studied insolvency law, Sebastian is once again relieved, because in the case of their family company insolvency proceedings were opened and properly conducted. So are they all set? Well, Selma and Sebastian come across some other boxes they have to tick… 2.1.4. When is the appointment of a manager under the Trade Act required? Companies, natural persons without full legal capacity, and persons that are not resident in Austria and where proper service of documents concerning administrative sanctions, and the enforcement of such sanctions, is not otherwise guaranteed, may start a trade in Austria, but have to appoint a manager under the Trade Act (gewerberechtlicher Geschäftsführer, § 39 GewO) who must fulfil the requirements and make sure that all obligations under trade regulation law are met. The same applies if a person wants to start a regulated trade, but does not hold the relevant qualification themselves. In the case of a company, the manager must fulfil a number of minimum requirements concerning their actual role in the company and their actual influence on the company’s operations. So, when filling in the form, Selma and Sebastian suddenly realise that some important decisions still need to be taken …  Starting a business – registration and permission requirements 17 2.2. Company law (Gesellschaftsrecht) Before Selma and Sebastian file an application, they have to decide precisely in whose name that application will be made, and whether they need one or two applications. In other words, they have to make up their mind whether they will act as sole proprietors or whether they will establish a company, and if the latter, what type of company. Starting a new business in Austria requires choosing between the different types of companies provided by the Austrian legal system. You will study company law in 2.2.1. Sole proprietorship (Einzelunternehmen) BA CM 11 (Business Law). A sole proprietor (also: sole trader) is a single natural person who operates the business alone in their own name and for their own account. Of course, the sole proprietor can engage employees, subcontractors, or other third parties on a contractual basis, but these persons would not join the trader in leading the business. No further formalities are required in order to establish sole proprietorship. Support for taking all necessary steps electronically are provided by the USP portal. The sole proprietor is liable for debts with business assets as well as private assets, without limitation. This means that, where the sole proprietor has incurred a debt in the course of their business activities, the creditor can sue the sole proprietor and, at the end of the day, have even the sole proprietor’s private assets seized by the court in enforcement proceedings if the debt cannot be paid otherwise. Sole proprietors do not have to register in the company register until their annual turnover exceeds a particular threshold (EUR 1,000,000 in one or EUR 700,000 in each of two consecutive business years, which is the threshold that triggers formal accounting duties). Even if these thresholds are not reached, voluntary registration is possible. Sole proprietors who are registered may choose a trade name (see below p. 20) and must use the designation ‘eingetragener Unternehmer’ or an abbreviation such as ‘e.U.’. 2.2.2. Business partnerships (Personengesellschaften) Selma and Sebastian are determined to run the trade jointly, i.e. not separately, nor with one of them being the other’s employee. Therefore, they are wondering whether there are other options, such as business partnerships … Partnerships are companies formed by two or more natural or legal persons (partners), which may have legal personality, but are not clearly detached from the partners in legal and financial terms (e.g. in terms of liability). Civil law partnership (Gesellschaft bürgerlichen Rechts, GesbR) The GesbR is a company in which two or more persons participate by contributing labour or assets for a common undertaking, e.g. in a consortium or joint venture. There are no particular formalities, but usually a written agreement is drawn up. The company itself has no legal personality and cannot be entered in the company register, but the partners may operate under a common name, which must indicate the nature as a GesbR. If the turnover exceeds the threshold for formal accounting requirements, the company must be transformed into a general partnership or limited partnership. The partners are fully liable with their business as well as their private assets and without limitation. Each individual partner must obtain all the necessary trade licences. 18 Starting an E-Commerce Business in Austria General partnership (Offene Gesellschaft OG) The OG is established by the conclusion of a partnership agreement between two or more natural or legal persons. It must be entered in the company register and only comes into existence upon entry in the company register. No minimum share capital is required and, therefore, no cash has to be raised on the occasion of the formation. The OG can acquire rights and incur liabilities in its name and can sue and be sued (rechtsfähige Personengesellschaft). The partners are personally and jointly liable for the company's debts, including with their private assets, without any limitation. Unless agreed otherwise and noted in the company register, each partner is authorized to manage the company and can also represent the OG alone. The trade licence must be in the name of the company, which requires the appointment of a manager under the Trade Act. Limited partnership (Kommanditgesellschaft KG) A limited partnership is similar to the OG, but the liability vis-à-vis the company's creditors of at least one partner is limited. This limitation is entered into the company register. Such a partner is called a ‘limited partner’ (Kommanditist). There must also be at least one partner who has unlimited liability, and this partner is called a ‘general partner’ (Komplementär). The legal situation is similar to that of an OG, but most rules applicable in an OG only apply to the general partners. For instance, only the general partners are authorized to represent the company (a limited partner can theoretically be appointed an authorized signatory under the law of agency, though). 2.2.3. Corporations (Kapitalgesellschaften) Selma and Sebastian want to have a ‘real’ company that is registered in the company register, and they want to run the company on equal terms and with equal liability, so an OG would be an option. But they know that there are also company types with just limited liability, which sounds attractive … As contrasted with business partnerships, corporations are legal persons of their own that are – legally and financially – fully detached from the shareholders. The most important forms of corporations are the private limited company and the public limited company. There are also other forms, such as cooperatives, which are less frequently used. Private Limited Company (Gesellschaft mit beschränkter Haftung, GmbH) A private limited company (also: limited liability company) is a corporation whose share capital is divided into shares in accordance with initial capital contributions of the shareholders. The company is a legal entity of its own. In principle, only the company is liable with its entire corporate assets, i.e. there is You will study accounting no direct or personal liability of the shareholders. The GmbH law in MA CM 6 (Economic is subject to the accounting regulations under company law Competence in Law) and must therefore prepare annual financial statements, which must also be submitted to the competent authorities. Unlike partnerships, a limited liability company can be established by only one person. The company needs written articles of association, and the founding agreement of the company must be in the form of a notarial deed (which may, however, be in electronic form, and one-person companies can anyway be established electronically via the USP portal). The company is represented by one or several managing directors (who may or may not be identical to the manager under the Trade Act). The GmbH comes into existence only upon entry in the company register. The trade license must be in the name of the company.  Starting a business – registration and permission requirements 19 The absence of personal liability creates a risk for creditors. The law provides for minimum amounts of share capital to protect future creditors and reduce incentives to create ‘fake’ companies. The share capital, which must be raised by the shareholders, must be at least EUR 10,000. Half of this amount must be paid up in cash at the time of formation. Newly established limited liability companies can take advantage of the so-called foundation privilege, which provides simplified formal requirements. Flexible Company (Flexible Kapitalgesellschaft, FlexKapG/FlexCo) Since January 2024, the Flexible Company (FlexCo, FlexKapG) has been available as a new form of company. It is similar to a GmbH, but offers more flexibility in order to be particularly attractive to innovative start-ups and founders in the early stages, as well as to international venture capital investors. Among other things, this form of company allows the issue of so-called ‘company value shares’ (Unternehmenswert-Anteile), which can be issued in any nominal amount from 1 cent and can be made available, for example, to the company's employees as a form of incentive. There are few formal requirements for the acquisition and transfer of these shares, and their holders are not entitled to participate in the formation of the company's will but are entitled to a proportional share of retained earnings. Public Limited Company (Aktiengesellschaft, AG) Another company form is the public limited company. The AG is also a separate legal entity. The share capital of the AG is at least EUR 70,000 and is to be raised by subscription of the shares by the shareholders. For many AGs, shares are traded on the stock market. Shareholders are not personally liable for debts of the AG, and all they can lose is the value of shares subscribed for. Like the GmbH, the AG comes into existence upon registration in the company register. The mandatory bodies of an AG are the Management Board (Vorstand), Supervisory Board (Aufsichtsrat) and General Meeting (Hauptversammlung). The management and representation of the AG is carried out by the Management Board, whose members are appointed by the Supervisory Board, which is in turn elected by the General Meeting. While Selma and Sebastian are convinced their company will be really big one day, they realise that an AG is beyond reach. A GmbH or FlexCo would be an option, but they are not sure they want to face the formal accounting requirements (and associated costs) that come with establishing a GmbH or FlexCo immediately. So after considering all the pros and cons of the various company forms they tend towards an OG … but they want to check first whether they also have the option of a European or foreign company form. 2.2.4. Cross-border situations While most companies operate cross-border, there are only few truly European company forms, such as the Societas Europaea (SE), a kind of public limited company, and the Societas Cooperativa Europaea (SCE). This is why the vast majority of companies are established under domestic law. Foreign companies can in any case open a branch office (Zweigniederlassung) in Austria, which has to be registered in the company register. A branch office of a foreign company does not have its own legal personality and is normally not established under Austrian law. A branch office is not to be confused with a subsidiary (Tochtergesellschaft) in Austria, which is a separate company with its own legal personality, but dominated by a foreign parent company (Muttergesellschaft) within a group of companies (Konzern). 20 Starting an E-Commerce Business in Austria Freedom of establishment is one of the fundamental principles of Union law (Articles 49 and 54 TFEU). In a long line of judgments, the CJEU has stressed the right of a company duly established under the law of one Member State to continue operating under this law, and maintain its foreign legal form, while moving its registered office, central administration or principal place of business to another Member State. This is why also foreign company forms from EU/EEA countries may also be entered into the Austrian company register. Since August 2023, cross-border conversions, mergers and divisions of corporations have been governed by a separate law. Subject to international agreements, companies established under the law of third countries do not benefit from freedom of establishment and must, if they wish to move their seat to Austria, normally be dissolved and re-established under Austrian law. Selma and Sebastian realise they have to go for an Austrian company form. So their final choice remains an OG. So they first need to establish the company and register it in the company register before they can apply for a trade licence. However, when filling in the forms required for this step, they realise they also have to decide on a name for their company …. 2.3. Trade name law and trademark law 2.3.1. Trade name law (Firmenrecht) The trade name (Firma) of a sole proprietor or company is the name under which that trader pursues their economic You will study trade name law as activities. It is not to be confused with a trademark (on well as trademark law in which see below p. 21). A trade name must be a legible and BA CM 11 (Business Law). pronounceable designation that may serve as a name (as contrasted with, e.g., purely figurative characters). There are different types of trade names, which must, in each case, be followed by a suffix indicating the company type: Trade name based on the name of an individual subject to unlimited liability (Namensfirma) Trade name based on the business purpose (Sachfirma) Trade name based on a fancy designation (Phantasiefirma) The above-mentioned forms can also be mixed or combined, e.g. the name of an individual can be combined with the business purpose. The trade name must fulfil a number of requirements and serve a number of purposes. In particular, it must allow the company name to be distinguishable from other company names, which means that a mere descriptive information or generic designations are not permissible (e.g. Driving School for a company where you learn to drive; Barber Shop for a Barber Shop, in that cases you have to add another component, e.g. Selma and Sebastian Barbers), it may not be confusingly similar to already registered trade names in the relevant geographical area and must not be misleading, i.e. the trade name must not create an incorrect impression about the company (e.g. its purpose, size or economic significance). A reference to the legal form has also to be added, as e.U.,OG, GmbH etc. If a trader wishes to include a geographical term (e.g. ‘Creative Stuff Vienna GmbH’) there must already be a certain economic significance in the geographical area. Selma and Sebastian decide to create their trade name out of their MaSwyS marketing slogan ‘Make a Statement with your Stuff’ and call their company ‘MaSwyS’ OG – looks a bit weird at first sight, but people may start wondering what it means and become interested.  Starting a business – registration and permission requirements 21 They are just wondering whether someone else, be it in Austria or abroad, might simply open a shop with the same or a similar name. Maybe they should go for a better form of protection? 2.3.2. Trademark law (Markenrecht) Entering a trade name in the company register only affords the trader limited protection against other traders who wish to use the same or a similar name. This is why it is possible to register a trademark, which is a special type of intellectual property right. Conversely, before choosing a trade name or a distinctive design for one’s website or one’s products and services it is highly advisable to check whether this infringes someone else’s registered trademark. National trademark Trademarks are recognisable signs or designs which serve to identify products or services as coming from a particular company and to distinguish the products or services of a company from similar products and services of other companies (identifying and distinguishing function). The sign must be capable of being presented in such a way that the competent authorities and the public can clearly and unambiguously determine the subject of the protection granted to them and can consist of numbers, letters or words (word mark), in a graphic design (figurative marks) including a particular colour or combination of colours (colour mark) or a special written form (word-image mark). The mark can also be a physical (three-dimensional) mark or a sound mark. A national trademark within the meaning of the Trademark Protection Act (Markenschutzgesetz, MSchG) is registered with the national Patent Office. It is valid for a period of 10 years and may be renewed an indefinite number of times. A trademark confers on the registered owner a bundle of exclusive rights. Most importantly, it gives the trademark holder the right to exclusive use of the mark for the types of products or services for which it is registered. Thus, competitors are not allowed to use identical or very similar signs for similar types of products or services. A sign is considered to infringe a trademark if a consumer or the public could be confused as to the identity of the source or origin of products or services. It is sufficient for confusion if there is a certain likelihood a consumer will associate the products or services with the registered owner. However, the use of a sign similar to a well-known trademark (e.g. ‘Coca-Cola’) may be an infringement of trademark law, even though there is no risk that the public would confuse the products or services with those of the registered owner of the well-known trademark. The higher level of protection is based on the rationale that no one should in an unjustified manner exploit or impair the reputation associated with a well-known trademark. EU and international trademarks A national trademark offers protection only for the national territory of the Republic of Austria (including protection against goods produced elsewhere to be imported into the national territory). Where a trader wishes to be protected also on other markets that trader must register the trademark also in the relevant countries. The so-called Madrid System of the WIPO is a convenient and cost-effective solution for registering and managing trademarks worldwide as it allows to file one single application and pay one set of fees to apply for protection in up to 123 participating states. Alternatively, the EU trade mark is obtained by registration in the Register kept by EU Intellectual Property Office (EUIPO) and has EU-wide effect. Filing an application to register an EU trade mark is much cheaper than filing separate national applications in all EU Member States. However, if an 22 Starting an E-Commerce Business in Austria application is rejected on grounds which apply in only one or several Member States, such as following opposition by the holder of a national trademark, things may become more expensive. Selma and Sebastian would hate to incur further costs and have absolutely zero appetite for still more bureaucracy. Something to be dealt with later … 2.4. Tax law (Steuerrecht) So Selma and Sebastian make a simple written contract to establish an OG, then fill in the form for registering the company in the company register. Their signatures on the form require authentication (Beglaubigung) by a notary or by the court. It is only after having taken all these steps that they can apply for a trade licence. They appoint Sebastian as manager under the Trade Act. They hope that these were the last formalities they have to deal with, but there is still something missing…. 2.4.1. Types of taxes and taxable entities Whoever wants to start a business must think about taxes and about registering with the tax authorities. There are different types of taxes. Direct taxes are taxes levied directly from the person that will ultimately bear the economic burden resulting from the tax and You will study tax law in include, e.g., taxes on income and property. Indirect taxes are MA CM 5 (Tax Law) taxes levied from a person or company that will openly pass the economic burden on to other parties. This includes, e.g., value added tax or VAT (Mehrwertsteuer), also referred to as sales tax or turnover tax (Umsatzsteuer), excise duties (Verbrauchssteuern) on certain goods and services (such as alcoholic beverages or tobacco products), and payroll tax (Lohnsteuer) for employees. The question who is the taxable subject depends on the type of company: Sole proprietors are liable for both direct and indirect taxes. Partnerships are considered an independent tax subject only with regard to VAT and other indirect taxes, but not with regard to income tax. The company and the individual partners need their own tax numbers. Corporations (such as GmbHs) are taxable entities in their own right and liable for both direct and indirect taxes Selma and Sebastian realise that they each need their own tax number (luckily, at least Sebastian already has one), plus a tax number and UID for the MaSwyS OG. They are a bit worried, though, about taxation as they do not have much of a clue what kind of taxes they will have to pay … 2.4.2. Income tax Personal and corporate income tax All natural persons who have a domicile or habitual residence in Austria, including sole proprietors and partners in a business partnership, are subject to unlimited liability for personal income tax (Einkommensteuer, Est). ‘Unlimited’ means that, in principle, all domestic and foreign income is subject to income tax in Austria. Personal income tax is calculated on the basis of the sum of all taxable income, whatever its source. In Austria, there is a progressive income tax scheme, i.e. the  Starting a business – registration and permission requirements 23 first EUR 12,815 are not taxed at all, and beyond this threshold tax rates range from 20 percent to 55 percent, depending on the amount of annual income. Corporations (such as GmbHs) are taxable entities in their own right. Profits are taxed at 25% corporate income tax (Körperschaftsteuer, KÖSt). For GmbHs, there is a minimum corporate income tax that must be paid in any case, even if the company makes no or only small profits. A 27.5% capital gains tax (Kapitalertragsteuer, KESt) must be withheld from the profit distributions to the shareholders and paid directly to the tax office. International tax law Selma and Sebastian have read in the media that digital businesses, in particular of the GAFAM type, often get away with paying close to zero taxes. Is that an option for them? After all, they want to engage in a digital business. … In the context of cross-border economic activities, double taxation agreements (‘DTA’) are in place between most states to avoid that the same income is taxed twice. In these agreements, contracting states formulate rules as to which state’s rights of taxation prevail under which circumstances. In respect of business income derived from countries other than the place of residence taxing rights under DTA usually require a permanent establishment (Betriebsstätte). A main argument in favour of taxation in the state of establishment is that companies benefit from public institutions, services and infrastructures provided by that state and should therefore participate in its financing. The debate about ‘digital tax’ Digitalisation has changed the situation because it is no longer necessary to have a relevant (physical) establishment in a country in order to profit from its institutions and infrastructures. So typical online companies have a motivation to have their establishment in a place where taxes and wages are low, do business and make profits elsewhere, and not contribute in any way to the financing of the systems they benefit from (free riding). Experience shows that big cross-border digital companies can reduce effective taxation to almost zero through aggressive tax planning. Since January 2020, Austria has levied a digital tax on online advertising services, the details of which are laid down in the Digital Tax Act 2020 (Digitalsteuergesetz 2020). Online advertising services are subject to digital tax if and to the extent that they are provided by online advertisers in Austria against payment. An online advertising service is deemed to be provided in Austria if it is received on a device of a user with an Austrian IP address and is (also) targeted at Austrian users in terms of content and design. The person liable for the tax is the company entitled to remuneration for the provision of the online advertising service. The Austrian digital tax only applies to online advertising operators with a worldwide annual turnover of at least EUR 750 million and that generate sales of at least EUR 25 million in Austria from the provision of online advertising services. The tax rate is 5 percent of the tax base. Of course, online advertising companies (e.g. Facebook) will normally pass the additional costs on to the companies on whose behalf the advertising is made. In late 2021, leaders of 136 countries worldwide signed an agreement to introduce a global minimum corporate tax rate (GMCTR) of 15% in order to reduce tax competition between countries and the avoidance of corporate taxes. In January 2024, Austria transposed the corresponding EU- Directive into national law with the Minimum Taxation Act (Mindestbesteuerungsgesetz). The global minimum tax rate applies to overseas profits of multinational firms with EUR 750 million euros in sales globally. National governments are still allowed to set a lower corporate tax rate for their countries, but if a multinational company pays lower effective tax rates in a particular country, 24 Starting an E-Commerce Business in Austria its home government may ‘top up’ that company’s taxes to the 15% minimum, thus eliminating incentives to shift profits. 2.4.3. VAT While Selma and Sebastian are determined to market their goods cross-border, they accept that they are probably not able, at least not for the time being, to profit from international tax havens (and who knows how much profit they will be making anyway). They have heard, though, that VAT is really difficult for e-commerce traders, in particular when trading cross-border. So they are worried whether they will be able to cope. … VAT in domestic cases Sole proprietors, partnerships and corporations must pay turnover tax, which is passed on to customers as value added tax (VAT) on all supplies and services provided. In most cases, VAT amounts to 20% of the net remuneration. There are also reduced rates, such as for food, books and tickets for cultural and sporting events. If the trader’s annual turnover is below EUR 35,000, no VAT must be charged and paid and, in return, no input tax deduction can be claimed. However, the trader can apply for being submitted to standard taxation (Regelbesteuerung) instead, which may make sense in certain constellations. For business customers, VAT is an on-and-off item because they can deduct any VAT paid to their suppliers from their own tax debt by way of input tax deduction (Vorsteuerabzug). Only end users not charging VAT to their customers (e.g. consumers, but also legal entities other than businesses, such as the University of Vienna) cannot deduct VAT paid to suppliers and therefore have to bear the ultimate burden in economic terms. Cross-border VAT in pure EU/EEA cases VAT poses major challenges to cross-border trade, even within the EU/EEA, as VAT rates and other provisions differ vastly across the EU/EEA. Generally speaking, VAT taxation follows the place-of- supply principle, but the rules may be different depending on whether the recipient is a taxable person or not. Generally speaking, efforts are made to tax cross-border transactions in the customer’s state rather than in the supplier’s state to ensure a level playing field for businesses throughout the EU/EEA. Where both the supplier of goods or services and the recipient are taxable persons (i.e. have to charge VAT and hold a VAT number) in their respective Member States, for most deliveries of goods, only the recipient will pay taxes for intra-community acquisition (innergemeinschaftlicher Erwerb) to the financial authorities in its Member State and at the VAT rates applicable in its Member State; for the intra-community provision of most services only the recipient will pay VAT to the financial authorities in its Member State and at the rate applicable in its Member State (reverse charge system, RCS). Where the recipient of goods or services is a non-taxable person (such as in the case of B2C sales), VAT must be charged and paid by the supplier, preferably also in the recipient’s state. Until recently, there was a complicated system under which the place of supply switched from the supplier’s state to the recipient’s state where turnover from distance sales to that state exceeded a particular threshold. Since July 2021, the system for e-commerce traders has been greatly facilitated through the Union-One-Stop Shop (EU-OSS) system.  Starting a business – registration and permission requirements 25 The EU-OSS simplifies VAT obligations for businesses selling goods and supplying services to non- taxable persons throughout the EU by allowing them to register for VAT electronically in one single Member State for all the eligible sales of goods and services to customers located in all the other 26 Member States, to declare in a single electronic VAT OSS return, and to make a single payment of the VAT due on all these sales of goods and services. For micro enterprises there are further facilitations. Where a trader does not have a permanent establishment in another Member State and turnover from distance sales to all other EU Member States does not exceed EUR 10,000, that trader may apply Austrian VAT rates and pay VAT to Austrian financial authorities, unless the trader prefers to be subject to the regular scheme. This change in the law is really good news for Selma and Sebastian because it means they can start with very little bureaucracy, and once their cross-border sales exceed the threshold they only have to deal with the authorities of one other Member State (and they may choose one with no language barriers, e.g. Germany). Cross-border VAT in cases involving third countries They have read in the media, though, that goods from Chinese e-commerce businesses are flooding the European market without being subject to VAT. While they really like their friend Xu they find this utterly unfair. But they are wondering whether it is at all true or just some ‘fake news’. … In principle, similar considerations as for EU/EEA cases apply in cross-border cases involving third countries. Where goods enter the EEA, not only customs duties are collected (see above p. 11), but also import VAT (Einfuhrumsatzsteuer) payable to the financial authorities in the Member State of destination at the VAT rate applicable in that Member State. Where the recipient is a taxable person, import VAT is owed by the recipient. Where the recipient is a non-taxable person, VAT must be paid by the supplier. Until recently, low value consignments of goods (under EUR 22) were exempt from VAT, resulting in a massive competitive advantage of third country e-commerce sellers. Since July 2021, even low value goods have been subject to VAT and have to comply with customs formalities, but there will be a simplified customs procedure for consignments whose value does not exceed EUR 150. Third country suppliers will be able to make use of an OSS scheme for services and an Import OSS (IOSS) scheme for goods, which will greatly facilitate trade from third countries to the whole EU. As third country e-commerce suppliers often make use of online marketplaces and similar intermediaries, such an intermediary becomes a ‘deemed supplier’ for certain supplies made via its electronic interface with the effect that it is the intermediary who owes import VAT. This concerns goods supplied to a customer in the EU/EEA where they are imported in the EU/EEA in consignments of an intrinsic value not exceeding EUR 150, irrespective of whether the underlying supplier is established outside the EU/EEA (e.g. goods directly sent to Austria by a Chinese seller) or in the EU/EEA (e.g. a German business sells goods to an Austrian customer, but the goods are directly delivered from China); or sold by an underlying supplier not established in the EU, irrespective of the value of the goods and whether they are already in the EU/EEA (e.g. a Chinese business sells goods to an Austrian customer, even if the goods are warehoused in Germany). Selma and Sebastian are relieved to hear that a number of steps have meanwhile been taken to ensure more of a level playing field! Matteo absolutely agrees, whereas Xu is quite upset... 26 Starting an E-Commerce Business in Austria 2.5. Social security law (Sozialversicherungsrecht) Now that tax issues have been dealt with, Selma and Sebastian are wondering whether there is anything else in terms of formalities and registrations they have to bear in mind. Well, something is still missing… The sole proprietor who holds a trade licence is automatically a member of the Chamber of Commerce (WKÖ) and thus is insured with the Social Insurance for Trade and Industry (Gewerbliches Sozialversicherungsgesetz, GSVG). Contributions to health insurance, to pension insurance and, in case of opting-in, to unemployment insurance are calculated as a percentage of the self-employed income. Percentage rates are a bit lower than the amounts due for employees under the General Social Insurance Act (Allgemeines Sozialversicherungsgesetz, ASVG). For accident insurance, a fixed amount per month is to be paid irrespective of income. Young entrepreneurs who are members of the Chamber of You will study social security Commerce and who become self-employed for the first law and labour law in time are granted preferential health insurance coverage in MA CM 3 (Labour Law and the first two years of their self-employment. Sole proprietors with very low turnover and income can be Law of Social Security) exempted from pension and health insurance payments upon their application if they meet particular requirements. Largely the same rules apply to partners of an OG and to general partners of a KG if the relevant company holds a trade license. Limited partners are not automatically subject to compulsory insurance, but they can – depending on the situation – be insured as employees of the limited partnership under the ASVG, or under the GSVG if they take on typical entrepreneurial tasks. Executive board members of an AG are insured under the ASVG. The same can be true for a managing director of a GmbH, although they might also be insured under the GSVG. If the managing director of a GmbH does not hold a share (third-party managing director) or a share of up to 25% (shareholder managing director) they are normally subject to compulsory insurance under the ASVG. Where shares are higher, there may be compulsory insurance under the ASVG or the GSVG, depending on the size of the share and the individual circumstances. For shares of 50% or more, only the GSVG applies. Employers must register their employees with the social security system of the ASVG. Failure to register employees before they start work or to pay the contributions properly is considered social security fraud, i.e. a crime that can lead to the loss of one’s trade licence, amongst other consequences. Disguised employment (Scheinselbständigkeit) triggers largely the same legal effects as if the parties had concluded an employment contract right away. Needless to say, having employees entails a host of further obligations under a separate body of law called labour law (Arbeitsrecht). The area of individual labour law (Individualarbeitsrecht), which is scattered across many legal instruments, regulates the legal relationship between an employer and an employee. Important aspects of individual labour law are, for example, rules concerning working hours, annual leave, parental leave, working time or protection against wrongful dismissal. Austrian law has traditionally made a distinction between blue collar workers (Arbeiter) and white collar workers (Angestellte), but legal differences between both have been reduced over the years. Collective labour law (Kollektivarbeitsrecht), regulated inter alia in the Labour Constitution Act (Arbeitsverfassungsgesetz, ArbVG), concerns, amongst others, the relationship between employee representatives (e.g. trade unions, works councils) and individual employers or employer representatives (e.g. the WKÖ). It includes works constitution law, collective agreement law and industrial action law. One characteristic of collective labour law is the existence of collective bargaining agreements and works agreements as separate sources of law, which have the same effect  Starting a business – registration and permission requirements 27 as laws. There is no statutory minimum wage, but around 98 % of employment relationships are covered by collective bargaining agreements which provide for minimum wages of at least EUR 1,500. For the time being, Selma and Sebastian cannot afford to have employees, so this is something to worry about later.