VZCZCXYZ0001
PP RUEHWEB

DE RUEHVI #0269/01 0371237
ZNR UUUUU ZZH
P 061237Z FEB 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 6173
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS VIENNA 000269 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/AGS 
USDOC ALSO FOR 4212/MAC/EUR/OWE/PDACHER 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ELAB ETRD PGOV KTDB OPIC
USTR, AU 
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT FOR 
AUSTRIA 
 
REF:  06 STATE 178303 
 
¶1.  Following is the 2007 Investment Climate 
Statement for Austria, keyed to reftel 
instructions: 
 
 
2007 INVESTMENT CLIMATE STATEMENT -- AUSTRIA 
-------------------------------------------- 
 
Introduction 
------------ 
With the European Union's (EU) enlargements in May 
2004 and January 2007, Austria solidified its 
central position in the EU.  As an investment 
location, Austria, and Vienna in particular, faces 
growing competition from its Eastern neighbors, 
all of which are EU members.  Budapest, Prague and 
Bratislava are competing directly with Vienna for 
foreign investors.  Many have pointed out that 
direct transportation links among Austria's 
Eastern neighbors are in some places better than 
those running through Austria.  Many view the 
current state of inadequate transport links as a 
missed opportunity.  The new Austrian Government's 
program includes plans to address these 
infrastructure gaps.  The 2005 corporate tax cut 
was a major step towards remaining competitive 
vis-Q-vis Austria's Eastern EU neighbors.  The tax 
cut has also enticed firms to open regional 
headquarters in Vienna.  Some 350 U.S. companies 
have invested in Austria and most have expanded 
their original investment over time. 
 
Austria continues to offer some advantages for 
foreign investors, but it also presents some 
challenges. 
 
 
Openness to Foreign Investment 
------------------------------ 
Government attitude towards foreign private 
investment:  Observers do not expect Austria's 
basic policies and openness towards foreign direct 
investment to change under the new government, a 
grand coalition between the Social Democratic 
Party (SPO) and the People's Party (OVP).  The new 
government took office on January 11, 2007 for a 
four-year term.  The coalition program includes a 
promise to promote direct investment and to 
further strengthen Austria's attractiveness as a 
location for investment and headquarters for 
international firms.  In general, the coalition 
program is relatively broad, reflecting the hand 
of both the SPO and the OVP.  The need for 
compromise between the big center-left and center- 
right parties prevented the development of 
visionary reforms.  The government will not 
reverse major structural and economic reforms 
implemented in recent years.  However, the SPO 
will insist on a more "social face" for these 
reforms, such as softening some features of the 
past pension reforms.  Reforms will continue, 
although perhaps more slowly and with a different 
focus, i.e., with more emphasis on social and 
welfare reforms and less on deregulation, 
liberalization and privatizations. 
 
The new Austrian government intends to pursue 
initiatives to raise economic growth as a means to 
attain full employment by 2010.  Other initiatives 
include the following: expanding and improving the 
road, rail, energy and telecom infrastructures; 
introducing Public-Private Partnership (PPP) 
models; improving education and training; 
improving R&D policies and raising R&D 
expenditures to 3% of GDP by 2010; continuing 
efforts to balance the budget over the economic 
cycle in line with the requirements of the EU's 
Stability and Growth Pact; implementing 
administrative reforms and streamlining the 
division of responsibilities among the various 
levels of government; and lowering income and 
corporate taxes by the end of the legislative 
period.  By mid-2007, the new government plans to 
increase the petroleum tax on diesel and gasoline 
 
and to increase truck tolls with a parallel 
reduction of the tax on trucks.  An increase in 
social security contributions is also pending, 
ruling out any cut in non-wage costs.  The 
government plans to introduce a basic social 
allowance for "those in need," expand shop opening 
hours and introduce more work hour flexibility, 
promote renewable energy, and secure energy 
supplies and diversification of energy resources. 
 
The new government can build on the comprehensive 
structural reforms the outgoing government 
implemented during the 2000-2006 timeframe.  These 
reforms helped streamline government, create a 
more competitive business environment, and 
strengthen Austria's attractiveness as a location 
for investment.  According to many observers, in 
comparison to other EU member states, Austria has 
made a major policy shift in recent years by 
pursuing a balanced budget, pension reform, 
privatizations, strengthening financial market 
supervision and competition policy bodies, and 
implementing a corporate tax cut in 2005.  The 
reforms addressed long-standing imbalances and 
have improved the Austrian economy's long-term 
growth potential. 
 
Austria has been virtually strike-free since two 
politically motivated strikes in spring 2003 
against the government's pension and railroad 
reforms. 
 
Liberalization and deregulation in the energy and 
telecom sectors have lowered prices for 
businesses.  However, in practice continuing 
barriers to entry and competition have resulted in 
only partial liberalization.  Network tariffs for 
electricity, for example, have remained above 
average, according to the International Energy 
Agency. 
 
Austria welcomes foreign direct investment that 
does not have a negative impact on the 
environment.  Austria particularly welcomes those 
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, but has become 
increasingly attractive as a headquarters location 
due to the 2005 corporate tax cut from 34% to 25%. 
Because of tax base adjustments, experts estimate 
the effective corporate tax burden to be at 22%. 
Austria also offers a highly favorable provision 
for group taxation, unique in Europe, which allows 
offsetting 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 the group taxation.  The corporate tax cut 
and group taxation aim to keep Austria competitive 
vis-Q-vis the new EU neighbors. 
 
The Austrian Government assesses the business 
profits of non-corporations at half the income tax 
rate to which they would be subject based on 
income alone.  Austria has no wealth or net worth 
tax, and no trade tax (Gewerbesteuer), unlike 
neighboring Germany. 
 
There are no formal sectoral or geographic 
restrictions on foreign investment.  In some 
regions, Austria offers special facilities and 
services ("cluster packages") to foreign 
investors.  For example, these can include 
automotive producers or manufacturers of chips, 
silicon, and high-tech products.  Austria offers 
financial and tax incentives within EU parameters 
to firms undertaking projects in economically 
depressed and underdeveloped areas on Austria's 
eastern and southern borders.  For most of these 
 
areas, eligibility for co-financing subsidies 
under EU regional and cross-border programs will 
decline under the EU's 2007-2013 financial 
framework (from Euro 2 billion to Euro 1.3 
billion).  The only opposition to investment in 
the manufacturing sector has arisen because of 
environmental concerns. 
 
Potential U.S. investors need to factor Austria's 
strict environmental laws into their decision- 
making process.  Austria has imposed marketing 
bans on some agricultural biotechnology seeds 
despite existing EU approvals.  The European 
Commission's efforts to overturn these bans have 
been unsuccessful, although the EU's Scientific 
Committee has found no justification for the bans 
and a WTO panel ruled against the bans in 2006. 
For new varieties, the EU's legislation on the 
deliberate release of genetically modified 
organisms (GMOs) and on traceability and labeling 
requires Austria to allow GMO seeds in fields and 
in stores.  However, strict liability regulations 
for research, production, and distribution of GMOs 
still apply.  Under the Kyoto Protocol, Austria 
has made a commitment to cut its CO2 emissions by 
13% from the 1990 level.  Austria is in the 
process of implementing the EU's regulatory 
framework on greenhouse gas emissions trading, 
which entered into force in 2005. 
 
In investor surveys and international rankings, 
Austria consistently earns high marks for 
political stability, personal security, quality of 
life, rule of law, skill and motivation of labor, 
productivity and quality, health infrastructure, 
and mobile phone costs.  However, Austria receives 
low marks for economic growth, tax burden, rigid 
labor practices and work hours, lack of risk 
capital financing, low innovation dynamics, 
restrictive immigration laws, size of the public 
sector, and regulatory red tape.  With the 2005 
corporate tax cut, the government addressed one 
major investment disincentive.  Surveys show that 
Austria faces stiffer competition from Central and 
Eastern European (CEE) markets, as well as from 
the twelve new EU members, especially the four 
that border Austria.  This competition is 
especially noticeable in sectors where wage costs 
are decisive.  In the International Institute for 
Management Development's (IMD) 2006 World 
Competitiveness Scoreboard Austrian ranked 
thirteenth, up from the seventeenth position in 
¶2005.  A "Centre for European Reform," designed to 
evaluate how successful the EU member states have 
been in boosting their overall competitiveness, 
moved Austria up to third place in terms of 
implementing the EU's 2005 growth and employment 
targets.  A.T.Kearney's 2006 Globalization Index, 
which measures variables such as economic 
integration, technological connectivity or 
political engagement, ranks Austria number 9 (By 
comparison, the U.S. was third, the UK twelfth, 
and Germany eighteenth). 
 
Acquisitions, mergers, takeovers, cartels:  A new 
Anti-Trust Act, in effect since January 1, 2006, 
harmonizes Austrian anti-trust regulations with EU 
competition law.  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 
personnel shortages. 
 
The Austrian Anti-Trust Act prohibits cartels, any 
competitive restrictions, and the misuse of a 
dominant market position.  Companies must inform 
the FCA about mergers and acquisitions (M&A) 
concerning domestic enterprises, if combined 
worldwide sales exceed Euro 300 million $375 
million at the current exchange rate of $1.0 per 
Euro 0.80), domestic sales exceed Euro 30 mllion 
($37.5 million), or if two of the firms inolved 
each have worldwide sales exceeding Euro 50 
millin ($6.3 million).  Special regulations aply 
to M&As of media enterprises.  The cartel cout 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 regulatory 
authority separately examines antitrust concerns 
in the energy sector, but also has to submit any 
cases to the cartel court. 
 
European Community anti-trust regulations continue 
to apply and take precedence over national 
regulations in cases of trade between Austria and 
other EU member states. 
 
Austria's 1999 Takeover Law applies to both 
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 regulations 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.  A 2006 amendment to the law 
implemented the EU's Takeover Directive prohibits 
defensive action to frustrate bids.  The law does 
not implement the directive's breakthrough 
regulations, but allows individual companies to 
address these in company bylaws.  The Shareholder 
Exclusion Act of 2006 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 
overview.  Screening ensures compliance with EU 
regulations, which limit such assistance to 
disadvantaged geographic areas. 
 
Privatizations:  The largest party in the new 
government coalition, the SPO, has announced it 
has no plans for additional privatizations.  In 
past years, the government privatized many public 
enterprises successfully.  Foreign and domestic 
investors received equal treatment.  Despite the 
government's expressed preference for an Austrian 
core shareholding, foreign investors have been 
successful in obtaining shares in important 
Austrian industry sectors, including the telecom 
sector; Austria's largest bank, Bank Austria; the 
Austrian Tobacco Company; Voest-Alpine (VA), a 
major steel producer; and VA Tech, a metallurgy, 
power generation and infrastructure conglomerate. 
In 2005, the government sold its 34.7% stake in 
VA, in which U.S. institutional investors now hold 
more than 20%.  In mid-2005, Siemens, which held a 
16.5% share in VA Tech, made a successful public 
takeover bid, as the government sold its 14.7% 
share in VA Tech to Siemens.  In 2006, the 
government successfully privatized 49% of its 
postal company through an IPO.  In 2006, the U.S. 
investment fund Cerberus Capital Management took 
over more than 75% of the shares of BAWAG P.S.K. 
(BAWAG) bank, Austria's fourth largest banking 
group, from its owner, the Austrian Trade Union 
Federation. 
 
Treatment of foreign investors:  There is no 
discrimination against foreign investors, but they 
are required to follow a number of 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.  The Austrian immigration law 
requires permanent legal residents to take German 
language and civics courses.  A 2005 amendment to 
the Austrian immigration law exempts applicants 
for residence permits from the German language 
course requirement, if they hold a university 
degree. 
 
Investment incentives:  Starting in 2007, Austria 
will have less access to funds from various EU 
structural and cohesion programs, primarily 
regional competitiveness and employment programs. 
The Austrian federal, state, and local governments 
also provide financial incentives within EU 
guidelines to promote investments in Austria. 
Incentives under these programs are equally 
available to domestic and foreign investors, and 
range from tax incentives to preferential loans, 
guarantees and grants.  Most of these incentives 
are available only if the investment meets 
specified criteria (e.g., implementation of new 
technology, reducing unemployment, etc.).  Tax 
 
allowances for advanced employee training and R&D 
expenditures are also available.  The government 
has merged various institutions providing 
financial incentives into a "one-stop shop" at the 
Austria Wirtschaftsservice.  Further information, 
in the German language only, is available under 
http://www.awsg.at/portal/). 
 
Conversion and Transfer Policies 
-------------------------------- 
In Austria, there are 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 twelve other 
Euro-zone member countries, shields investors from 
exchange rate risk in the entire 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 when no other alternative for satisfying 
the public interest exists; 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 towards foreign firms. 
 
 
Dispute Settlement 
------------------ 
The Austrian legal system provides an effective 
means for protecting property and contractual 
rights of nationals and foreigners.  Additionally, 
Austria is a member of the International Center 
for the Settlement of Investment Disputes.  The 
1958 New York Convention also grants enforcement 
of foreign arbitration awards in Austria.  There 
have been no recent reports of bilateral 
investment disputes. 
 
 
Performance Requirements/Incentives 
----------------------------------- 
Austria is in compliance with the World Trade 
Organization's Trade Related Investment Measures 
(TRIMS) agreement.  There are virtually no 
restrictions on foreign investment in Austria and 
foreign investors receive national treatment in 
the main.  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. 
 
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 that there be a technology transfer. 
 
The U.S. and Austria are signatories to the 1931 
Treaty of Friendship, Commerce, and Consular 
Rights.  Austrian immigration law restricts the 
overall number of visas, but a few non-immigrant 
business visa classifications, including intra- 
company transfers/rotational workers, and 
employees on temporary duty, are eligible for 
visas with no numerical limitations.  Recruitment 
of long-term overseas specialists or those with 
managerial duties is under quota controls, limited 
to a total of between 1,000 and 1,500 per year for 
all non-EU countries.  Austrian law defines 
employment-based immigrants as multinational 
executives/managers or similar professionals who 
are self-employed.  The 2005 Amendment to the 
Austrian Immigration Law has eased the integration 
policy requiring immigrants to attain a minimum 
level of competence in the German language.  Under 
the amendment, previous education (university 
degree) will automatically fulfill the integration 
requirement.  Austria cut annual immigration 
quotas for 2006 from 7,500 to 7,000, largely at 
the expense of key workers/managers.  Since the 
quota for key managers has proven to be 
insufficient to match economic growth, the new 
government is expected to approve soon a higher 
quota for 2007.  Until this approval, a special 
provision allows for the 2006 quotas to remain in 
place. 
 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
Foreign and domestic private enterprises are free 
to establish, acquire, and dispose of interests in 
business enterprises, with the exception of some 
infrastructure and utilities, and a few state 
monopolies, such as gambling.  If the government 
pursues privatizations, it may gradually open up 
some of these industries to private investment as 
well.  For example, in recent years, the Austrian 
Government implemented legal changes to allow 
private radio and private terrestrial TV, 
dismantled the postal monopoly for wire- 
transmitted voice telephony and infrastructure, 
liberalized the electricity and gas markets, and 
in 2006, in line with EU regulations, partially 
liberalized the postal monopoly and privatized 49% 
of its postal company.  However, by law, federal 
and provincial governments maintain at least a 51% 
share in all electricity providers.  In most 
business activities, the law permits 100% foreign 
ownership.  Foreign direct investment is 
restricted only when competing with monopolies and 
utilities.  Licensing requirements, such as those 
in the banking and insurance sectors, apply 
equally to domestic and foreign investors. 
 
 
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 any interested party has access to 
it. 
 
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.  Legislation also 
protects three-dimensional semiconductor chip 
layout design.  In line with EU requirements, 
Austria has a law against trade in counterfeits. 
In 2005 Austrian customs authorities confiscated 
goods worth Euro 33 million ($41.2 million). 
Austria is a party to the World Intellectual 
Property Organization (WIPO) and several 
 
international property conventions, including the 
European Patent Convention, the Patent Cooperation 
Treaty, the Universal Copyright Convention, and 
the Geneva Treaty on the International 
Registration of Audiovisual Works.  Since both the 
United States and Austria are members of the 
"Paris Union" International Convention for the 
Protection of Industrial Property, American 
investors are entitled to the same protection 
under Austrian patent legislation as are Austrian 
nationals.  Amendents in 2005 and 2006 to the 
Austrian Patent Actstrengthened protection of 
patents from innovatie enterprises, particularly 
through more efficien and transparent 
implementation procedures.  Onecan file 
objections only after authorities have ranted the 
patent, and the right to receive infomation from 
authorities has been extended. 
 
Autria's copyright law is in conformity with EU 
dirctives on intellectual property rights and 
grant the author the exclusive rights to publih, 
distribute, copy, adapt, translate, and broadcast 
his/her work.  Infringement proceedings, however, 
can be time consuming and complicated.  The 
Austrian Copyright Act also regulates copyrights 
of digital media (restrictions to private copies), 
works on the Internet, protection of computer 
programs, and related damage compensation. 
 
 
Transparency of the Regulatory System 
------------------------------------- 
Austria's legal, regulatory, and accounting 
systems are transparent and consistent with 
international norms.  The government usually 
publishes proposals for new laws and regulations 
in draft form for public comment. 
 
The Austrian Government has made some progress in 
streamlining its complex and cumbersome permit and 
paperwork requirements for business licenses and 
permits.  The government maintains that it has 
reduced the time necessary to obtain permits to 
about three months, except for large projects 
requiring an environmental impact assessment.  The 
"one-stop shop" for a business permit, which the 
government implemented in 2002, does not include 
plant and building permits.  These simplified 
procedures should accelerate permit procedures, 
but unpredictable and inflexible bureaucratic 
rules can still be a problem. 
 
The government applies tax and labor laws 
uniformly, as well as health and safety standards. 
The government thus does not influence the 
allocation of investments amongst sectors.  The 
Austrian investment climate has become more 
conducive for business since Austria became a 
member of the EU.  However, inflexible shop- 
opening hours and working times remain a major 
concern for many businesses.  The government plans 
to implement more flexible working time 
regulations and more liberal shop-opening hours. 
However, shops will remain closed on Sundays. 
 
 
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 
a huge network in many of the twelve new EU 
members and other countries in Central and Eastern 
Europe (CEE) and in Southeastern Europe (SEE). 
Austrian banking groups dominate CEE/SEE banking 
markets.  Six out of the seven largest Austrian 
banks hold sizeable investments in CEE/SEE.  Three 
of them are among the five largest banking groups 
in the area.  Total assets of Austria's five 
largest banking groups (Bank Austria Creditanstalt 
 
(BA-CA), Erste Bank, Raiffeisen Zentralbank (RZB), 
Bank fuer Arbeit und Wirtschaft und 
Oesterreichische Postsparkasse (BAWAG PSK), and 
Oesterreichische Volksbanken) amounted to 
approximately Euro 518 billion ($648 billion) in 
2005, representing 71% of Austria's total bank 
assets. 
 
The Vienna Stock Exchange (VSE) is connected to 
Xetra, Frankfurt's electronic trading system, so 
traders worldwide have on-screen information and 
direct access to all stocks listed in Vienna.  In 
March 2005, a consortium of Austrian and Hungarian 
investors, led by VSE, acquired a majority share 
in the Budapest Stock Exchange with the goal of 
establishing a broader "Central European Stock 
Exchange" alliance, including several other stock 
exchanges in CEE/SEE.  The VSE continues to pursue 
a regional alliance and has signed a cooperation 
agreement with the Zagreb Stock Exchange and MoUs 
for closer cooperation with stock exchanges in 
Banja Luka, Belgrade, Macedonia, Montenegro and 
Sarajevo.  Since February 2006, the VSE also 
publishes a Southeast Europe Traded Index (SETX), 
which contains 15 blue chip stocks listed on the 
stock exchanges of Bucharest, Ljubljana, Sofia and 
Zagreb. 
 
Austria's venture capital market is 
underdeveloped.  The market has been flat since it 
peaked in 2000, but it started to recover in 2005. 
The volume of private equity and venture capital 
raised in Austria during 1996-2005 was Euro 1.5 
billion ($1.8 billion), according to the Austrian 
Private Equity and Venture Capital Organization 
(AVCO).  In 2005, fund raising almost doubled, 
compared to 2004, to Euro 216 million ($270 
million). 
 
Listed companies must publish quarterly reports. 
Criminal penalties for insider trading exist.  The 
Austrian Financial Market Authority (FMA), similar 
to the U.S. Securities and Exchange Commission, is 
responsible for policing irregularities on the 
stock exchange and, with support from the Austrian 
National Bank, for supervising banks, insurance 
companies, securities markets, and pension funds. 
 
The legal, regulatory, and accounting systems are 
transparent and consistent with international 
norms.  Austrian regulations governing accounting 
provide U.S. investors with improved and 
internationally standardized financial 
information.  Listed companies must prepare their 
consolidated financial statements according to the 
IAS/IFRS (International Financial Reporting 
Standards), and the European Commission must 
improve the statements.  For firms with annual 
sales exceeding Euro 400,000 ($500,000), the new 
Austrian Enterprise Code, in effect since January 
1, 2007 in place of the Austrian Business Code, 
includes detailed accounting regulations.  The new 
Code of Corporate Governance, in effect since 
January 1, 2006, requires listed companies to 
comply or explain why they are not following it. 
 
 
Political Violence 
------------------ 
There have been no incidents of politically 
motivated damage to foreign businesses.  Civil 
disturbances are extremely rare. 
 
 
Corruption 
---------- 
The Austrian Criminal Code contains penalties for 
bribery, including a fine of up to Euro 500 ($625) 
per day for up to 360 days or up to two years 
imprisonment for the payer of a bribe.  The 
recipient of a bribe faces up to five years 
imprisonment.  Under the Criminal Code, any person 
who bribes a civil servant, a foreign official, or 
a manager of an Austrian public enterprise is 
subject to criminal penalties.  Austria has 
ratified the OECD Anti-Bribery Convention, which 
 
entered into force in July 1999.  Corresponding 
criminal code legislation, in place since summer 
1998, also prohibits tax deductibility for bribes. 
The OECD's 2006 report on corruption recommended 
that Austria strengthen the tax authorities' 
limited capacity to detect illicit payments and to 
broaden the income tax guidelines' restrictive 
interpretation of the foreign bribery offense. 
The Law on Responsibility of Associations, in 
force since January 1, 2006, introduced criminal 
responsibility for legal entities and 
partnerships.  The law covers all criminal 
offences, including corruption, money laundering, 
and serious tax offences that are subject to the 
Tax Offences Act.  Fines pursuant to the new law 
can rise to as much as 180 daily rates, with one 
daily rate equal to one-360th of yearly proceeds, 
but not less than Euro 50 ($63) and not more than 
Euro 10,000 ($12,500).  Transparency 
International's 2006 Corruption Perceptions Index 
ranks Austria number 11 (By comparison Germany is 
16th, and the U.S. 20th). 
 
 
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, Oman, Paraguay, 
Philippines, Poland, Romania, Saudi Arabia, 
Serbia, Slovenia, South Korea, South Africa, 
Tunisia, Turkey, Ukraine, United Arab Emirates, 
Uzbekistan, Vietnam, and Yemen. 
 
Austria has signed agreements with Cambodia, 
Guatemala, Namibia and Zimbabwe, but the 
agreements have not yet entered into effect.  An 
agreement with North Korea is in initial stages of 
discussion.  Until new agreements take effect, the 
existing 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 treaty covering income and 
corporate taxes, which went into effect on 
February 1, 1998.  Another bilateral double 
taxation treaty, covering estates, inheritances, 
gifts and generation-skipping transfers, has been 
in effect since 1982. 
 
 
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 and productive labor 
force of approximately 4.2 million people, of 
which 3.6 million are employees and 550,000 are 
self-employed or farmers.  Austria's labor market 
is more rigid than that of the U.S., but more 
flexible than markets in some other EU member 
states.  Depending on labor demand, government 
policies limit the number of foreign workers to 
between 8-10% of the salaried workforce.  In 2006, 
the number of guest workers, predominantly from 
the former Yugoslavia and Turkey, averaged 
390,000.  As part of the 2004 EU enlargement, 
 
Austria adopted a 7-year transition period vis-Q- 
vis eight of the ten new EU members (except Cyprus 
and Malta) before fully allowing free movement of 
labor.  In May 2006, the Austrian Government 
extended the restrictions for another three years, 
after which the EU Commission can approve a 
further extension for two years.  For new EU 
members Bulgaria and Romania, which joined the EU 
on January 1, 2007, Austria adopted the same 7- 
year transition period.  Exemptions for the 
recruitment of specialists or managers from all 
twelve new EU members apply. 
 
Compared to other EU countries, Austria had a 
relatively low unemployment rate of 4.9% in 2006. 
The 2007 forecast is for an unemployment rate of 
4.5-4.6%, assuming real economic growth of 2.6- 
2.7%.  Forecasts call for no change in the 
unemployment rate in 2008, projecting economic 
growth of only 2.3-2.4%.  Analysts expect no 
potential labor market shortages in the medium 
term.  While demographic trends indicate little 
growth in the labor force over the next few years, 
other factors will help guarantee sufficient labor 
supply.  These factors include industrial 
restructuring, productivity gains, increased 
participation of women and older employees in the 
workforce, gradual phase-out of early retirement, 
efforts to reduce civil service employment and 
economic growth rates of around 2.5%.  Moreover, 
immigration, including from EU member states, will 
outpace the impact of low birth rates on the 
overall labor supply.  Long-term population 
estimates indicate an increase in the working age 
population (15-60 years) to 5.27 million by 2015, 
up from 5.11 million in 2005.  The working 
population should then remain stable until 2020, 
before decreasing slowly to about 5.02 million by 
¶2025.  However, measures to promote participation 
in the labor force should help mitigate any 
potential shortages. 
 
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 services, 
may occur.  In line with EU goals, the 
government's labor market policy aims to raise the 
labor market participation rate to 70% (currently 
68.6%) by 2010, that of women to 60% (currently 
exceeded at 62.0%), and that of workers aged 55-64 
to 50% (currently 31.8%).  The government 
introduced new regulations requiring recipients of 
unemployment benefits to be more flexible 
regarding which jobs they would accept.  Companies 
hiring workers age 50 and above are eligible for 
financial bonuses, but face penalties for laying 
off workers within this age group.  The new 
government has plans to introduce more flexible 
working hours, including the possibility to 
increase daily work hours, but with no fixed 
timeline for implementation. 
 
Austrian social insurance is compulsory and 
comprises health insurance, old-age pension 
insurance, unemployment insurance, and accident 
insurance.  Employers and employees contribute a 
percentage of total monthly earnings to a 
compulsory social insurance fund.  Although EU 
requirements encourage greater job flexibility, 
various Austrian laws closely regulate terms of 
employment.  These include working hours, minimum 
vacation time (five weeks), holidays, maternity 
leave, statutory separation notice, protection 
against dismissal, and the option for parents with 
children under the age of seven to choose part- 
time work for several years.  The new regulation 
only applies to parents working for companies with 
at least 20 employees.  The 2002 severance pay 
system aims to enhance worker flexibility by 
providing employees the right to carry their 
accrued entitlements with them to subsequent jobs. 
A current issue, which could affect the social 
insurance system, and thus also social insurance 
contributions, is the immense shortage of nursing 
 
personnel for the fast rising number of elderly 
people. 
 
Since World War II, labor-management relations 
have generally been harmonious in Austria, as 
reflected in extremely low strike figures in past 
decades.  Two major strikes in May/June 2003 were 
politically motivated strikes against the 
government's pension reform and did not reflect 
management-labor disputes.  No major work 
stoppages occurred in 2005 or 2006.  About 40% of 
the work force belongs to a union.  The Austrian 
Trade Union Federation is trying to recover from 
an internal crisis, and will therefore probably 
temper short-term wage and benefit demands. 
 
Collective bargaining revolves mainly around wage 
adjustments and fringe benefits.  While existing 
legal provisions stipulate a maximum workweek of 
40 hours, collective agreements provide for a 
workweek of 38 or 38.5 hours per week for more 
than half of all employees.  Part time employment 
is also high in Austria: 41% of female workers and 
7% of male workers have part time jobs. 
 
 
Foreign Trade Zones/Free Ports 
------------------------------ 
Austria has no foreign trade zones. 
 
 
Foreign Direct Investment Statistics 
------------------------------------ 
The inflow of new foreign direct investment (FDI) 
in 2005 reached Euro 7.3 billion ($9.1 billion), 
the highest since 2000 and much higher than the 
Euro 3.1 billion ($3.9 billion) that existed in 
¶2004.  New FDI in the first half of 2006 amounted 
to Euro 1.4 billion ($1.7 billion).  The value of 
FDI stock in Austria was Euro 53.0 billion ($66.3 
billion) at the end of 2005 and about Euro 54.5 
billion ($68.0 billion) by mid-2006.  In 2005, 
U.S. firms invested about 10% of the total. 
 
At Euro 8.1 billion ($10.1 billion), flows of 
Austrian direct investment abroad in 2005 hit an 
all-time high, following the impressive level of 
Euro 6.7 billion ($8.3 billion) in 2004.  In the 
first half of 2006, FDI abroad was Euro 1.2 
billion ($1.5 billion).  This raised the value of 
Austrian direct investment stock abroad to Euro 
57.8 billion ($72.3 billion) at the end of 2005 
and to Euro 59.0 billion ($73.7 billion) by mid- 
¶2006. 
 
Note:  Figures converted at the 2006 annual 
average exchange rate of $1.00 for Euro 0.80. 
Source:  Austrian National Bank. 
 
 
Austria's International Investment Position (EUR 
billion) 
 
Year                   2004      2005 (1)  2006 
(2) 
--------------------------------------------- ----- 
FDI in Austria         45.8      53.0      54.5 
Austrian FDI Abroad    49.8      57.8      59.0 
 
Footnotes: 
(1) preliminary figures; 
(2) first half year, preliminary figures. 
 
 
FDI in Austria - Source Country Breakdown 2004 
(share of total in percent) 
--------------------------------------------- - 
U.S.                        11.3 
Germany                     37.8 
U.K.                        11.1 
Switzerland/Liechtenstein    7.5 
Netherlands                  7.3 
France                       3.2 
Denmark                      2.4 
Italy                        2.3 
Japan                        2.3 
 
All other countries         14.8 
 
 
FDI in Austria - Industry Breakdown 2004 (Euro 
billion) 
--------------------------------------------- ----- 
Mining and energy                             508 
Metals, machinery                           1,660 
Vehicles                                      426 
Electrical engineering, electronics         2,143 
Petroleum, chemicals                        3,661 
Paper, wood                                 1,244 
Building and allied trades                    580 
Trade                                       9,019 
Transport, communication                      685 
Banking, insurance, finance                 5,696 
Real estate, business related services     19,399 
Other industries                              744 
                                           ------ 
Total                                      45,765 
 
 
Austrian FDI Abroad - Destination Country 
Breakdown 2004 
(share of total in percent) 
--------------------------------------------- ----- 
U.S.                         3.9 
Germany                     15.0 
Czech Republic               8.4 
Hungary                      7.6 
Switzerland/Liechtenstein    7.3 
Netherlands                  6.4 
U.K.                         4.8 
Poland                       4.6 
Slovakia                     3.7 
Romania                      3.2 
Croatia                      2.8 
Italy                        2.0 
Slovenia                     1.7 
All other countries         28.6 
 
 
Austrian FDI Abroad - Industry Breakdown 2004 
(Euro billion) 
--------------------------------------------- ----- 
Mining and energy                           2,312 
Metals, machinery                           1,543 
Electrical engineering, electronics         1,100 
Petroleum, chemicals                        3,816 
Paper, wood                                 1,201 
Food, drink, tobacco                          580 
Building and allied trades                  2,163 
Trade                                       6,597 
Transport, communication                      602 
Banking, insurance, finance                15,737 
Real estate, business related services     13,102 
Other industries                            1,012 
                                          ------- 
Total                                      49,765 
 
 
List of Major Foreign Investors: 
-------------------------------- 
More than 350 U.S. firms hold investments in 
Austria, which range from simple sales offices to 
major production facilities.  The following is a 
short 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 
Electronic Data Systems Corp. 
Exxon Corporation 
General Electric Capital Corporation 
General Electric Company 
General Motors Corp. 
Harman International Industries Inc. 
Hewlett-Packard Company 
Honeywell Inc. 
 
IBM World Trade Corp. 
ITT Fluid Technology Corp. 
Johnson & Johnson Int. 
Johnson Controls Inc. 
Kraft Foods International, Inc. 
Lear Corporation 
Lem Dyn Amp 
McDonald's Corporation 
Marriott International, Inc. 
Mars Inc. 
MeadWestvaco Corp. 
Merck & Co., Inc. 
Modine USA 
Otis Elevator Co. 
Pioneer Hi-Bred International Inc. 
PricewaterhouseCoopers LLP 
PQ International Inc. 
Quintiles Transnational Corp. 
Schindler Elevator Corp. 
Starwood Hotels and Resorts Worldwide, Inc. 
Toys"R"Us, Inc. 
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 U.S., 
holding major investments in Austria. 
 
Alcatel Holding, Netherlands 
Allianz AG, Germany 
Amer, Finland 
Asea Brown Boveri, Switzerland 
Assicurazioni Generali, Italy 
Aventis, Germany 
Axel Springer Verlag, Germany 
BASF, Germany 
Bayer AG, Germany 
Bayerische Motorenwerke (BMW), Germany 
Bombardier, Canada 
Bosch Robert AG, Germany 
Borealis, Denmark 
BP Amoco, UK 
DaimlerChrysler, Germany 
Detergenta Investment, Germany 
Deutsche Telekom, Germany 
DM Drogerie Markt, Germany 
Electricite de France, France 
Electrolux, Sweden 
Epcos AG, Germany 
Ericsson, Sweden 
Flextronics International, Singapore 
Gallaher, U.K. 
Heineken, Netherlands 
H&M, Netherlands 
Infineon, Netherlands 
Kone Corp., Finland 
Koramic, Belgium 
Liebherr, Switzerland 
Magna, 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 
REWE, Germany 
RWE, Germany 
Sappi Ltd, South Africa 
Schlecker, Germany 
Shell Petroleum N.V., Netherlands 
Siemens, Germany 
Smurfit Group, Ireland 
Solvay et Cie, Belgium 
Sony, Japan 
Sueddeutscher Verlag, Germany 
Svenska Cellulosa Ab (SCA), Sweden 
UniCredit Group, Italy 
Unilever N.V., Netherlands 
 
Voith, Germany 
Westdeutsche Allgemeine Zeitung (WAZ), Germany 
 
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