Start-up package promotes innovation and facilitates the establishment of start-ups

The "start-up package" presented by the BMF and the BMJ at the end of May 2023 aims to promote entrepreneurial innovation and risk-taking through more flexible frameworks in corporate and tax law. It currently stands as a ministerial draft and includes, in particular, the concept of the flexible capital company, the reduction of the minimum share capital of a GmbH, and the possibility for start-up employees to participate.

The "flexible stock corporation" ("FlexKap" or "FlexCo") is intended to be a new variation of this legal form, offering more freedom in company decision-making and capital measures. Likewise, the possibility of employee participation in entrepreneurial success through the transfer of company shares is to be the focus. In detail, it is intended that employees will be guaranteed a say in decision-making when resolutions subsequently alter the rights of those involved in the company's value. Regarding retained earnings, it is planned that employees will not be economically disadvantaged compared to the founders themselves. Therefore, employees are to participate in retained earnings or liquidation proceeds to the extent of their capital share. Finally, company shares of such a FlexCo are to be transferable in writing. Furthermore, it is intended that flexible stock corporations can be easily and unbureaucratically converted into a public limited company (AG) or a private limited company (GmbH).

The threshold for starting a business often also depends on the amount of the minimum share capital required. To facilitate business start-ups, it is therefore proposed to reduce the minimum share capital for GmbHs from €35,000 to €10,000. Coupled with this, the minimum share capital tax is to be €500 in the future (5 % of the statutory minimum share capital). A transitional arrangement is provided for the 4th quarter of 2023 (planned entry into force of the reduction of the minimum share capital).

The new regulations for employee share ownership are planned for shares issued from January 1, 2024 onwards. Employee participation in the company's success can often be a challenge for start-ups, such as the lack of cash flow and insufficient liquidity, which often lead to problems in hiring and paying for suitable and qualified employees. However, the issuance of capital shares to employees has previously resulted in taxation of this valuable benefit (after taking into account the already existing tax exemption for employee shareholdings of €3,000 or €4,500 for employee shareholdings by foundations), and thus in liquidity shortages for employees ("dry-income" problems).

The presence of such start-up employee participation is to be linked to the following criteria regarding the company - no more than 100 employees, no more than 40 million € in revenue, the company was founded no more than 10 years ago and the company must not be part of a group of companies. Start-up employee participation is to be encouraged if the capital contributions are given free of charge - a mere reduced payment of the company's share in value does not constitute an advantage. Taxation of such start-up employee participation is to take place - instead of the currently de facto immediate taxation of the monetary benefit - only in selected cases, thus delaying the tax burden. For example, taxation applies when the employee sells their shares (this is the typical case of terminating the tax deferral), when the employment relationship ends (however, not for company shareholdings in a flexible capital company under certain conditions), or in circumstances that restrict Austria’s tax law (such as in the case of retirement).

In the case of company shareholdings, the employer has the option, at the time of termination of the employment relationship, to avoid immediate taxation if they are liable for the payment of the tax and declare this on the payslip. In these cases, the inflow of funds only takes place upon later sale of the shares, cancellation of the lock-in, death or departure. The taxation of the start-up employee shareholding is flat-rate at 75 % %, % with a fixed rate of 27.5 - % the remaining 25 are subject to the regular tariff. In terms of time, the retention period for the start-up employee shareholding is at least 5 years, the employment relationship must have lasted at least 3 years. The 5-year period does not apply if taxation occurs as a result of the termination of the employment relationship. It is ultimately intended that the tax benefits for start-up employee contributions will be complemented by corresponding provisions that favor social security law.

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