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Imagine someone in Austria, let's call him Franz, registers a company in another, non-EU country.

He sells some services in the name of the company. The company gets paid by its customers (the money goes to the bank account of that company).

Franz does not pay himself a salary, nor does he take money out of the company in any other way.

The company pays all required taxes in the country it is registered it. Also, Franz puts money into the company.

Franz has a job in Austria and his employer deducts all required taxes and fees from his salary. Whatever money Franz receives from his employer is already after-tax.

Does Franz need to pay taxes/fees in Austria for the earnings of his company, if he does not get any revenue from it (neither salary, nor dividends, nor other money flows from the company to him)?

If yes, what taxes or fees does he need to pay?

Note: If you don't know the Austrian regulations, but know German ones, please provide the answer for Germany (as the laws are similar in both countries).

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    I can't speak to either countries laws specifically. But in general, international tax law would say you don't have to pay taxes.
    – Jake Freeman
    Oct 16, 2019 at 20:05
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    The corporation may have taxes to pay. But thats mostly a US idea.
    – Jake Freeman
    Oct 16, 2019 at 20:06
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    @JakeFreeman corporations pay tax in almost all jurisdictions
    – Dale M ♦
    Oct 16, 2019 at 20:46
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    @DaleM generally not jurisdictions in which they are not incorporated in or have revenue in.
    – Jake Freeman
    Oct 16, 2019 at 20:52
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    Are the services performed in Austria? Are the company's clients in Austria?
    – phoog
    Oct 17, 2019 at 15:20

4 Answers 4

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what taxes or fees does he need to pay?

According to this glimpse of Austrian tax law, Franz would still have to pay income tax on any non-monetary compensation he gets from the company. See section of "Vermietung und Verpachtung [...]".

Non-monetary compensation is typically known as benefits. The term serves to distinguish that compensation from (1) any cash flows from the company to Franz, which you ruled out in your description, and (2) any expenses the company incurs for business purposes involving Franz.

Your mention that "nor does he take money out of the company in any other way" might mean that you ruled out benefits as well. I just wanted to be safe and preclude any misunderstanding in case you had in mind only cash flows from the company to Franz.

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The corporation is a separate entity from its shareholders and directors and it pays taxes on its income. If no salary, dividend, stock buy back or other benefit is provided to a director or shareholder, the person has no income from the corporation and thus no taxes. This is a generic answer regarding the nature of corporations.

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Assuming the company does everything correct irregardless of ownership, and assuming the company makes a profit (no profit = no taxes on profit), if Franz doesn't extract any money through salary or dividends, or any other benefits, then the company just increases in value. At some point in the future Franz or his heirs could sell the company for lots of money, and then taxes will be due on the profit he makes.

It is possible for a company to give a loan to a director. Assuming that reasonable interest is paid, that would be tax free. Since it is a loan, it isn't tax deductible for the company, and it isn't income for Franz. Some country's inland revenue might suspect more or less strongly that there is legal tax avoidance or illegal tax evasion involved, lots of UK contractors find themselves in that situation right now. The principle of a loan is of course that it is repaid. So if a limited company goes bankrupt, debtors can demand that any such director loan is repaid.

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The company pays all required taxes in the country it is registered it. Also, Franz puts money into the company.

The company will generally have to pay taxes on services rendered in Austria, even if the company is not registered in Austria. The jurisdiction of registration is all but irrelevant to the obligation to pay taxes on active business income.

Corporations are subject to unlimited taxation in Austria of their entire income if they have their legal seat or place of effective management in Austria.

From here.

The company may also have an obligation to pay value added taxes.

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