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TAGS: EINV EFIN ELAB ETRD PGOV KTDB OPIC USTR AU
SUBJECT: 2008 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA 
 
REF:  07 STATE 158802 
 
¶1.  Following is the 2008 Investment Climate Statement for Austria, 
keyed to reftel instructions: 
 
2008 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 road and rail transport links to 
Central, Eastern and Southeastern European neighbors as a missed 
opportunity.  The Austrian government's program includes plans to 
address these infrastructure gaps.  On December 21, 2007, the EU's 
Schengen area expanded to the Czech Republic, Hungary, Slovakia, and 
Slovenia, removing border controls between these countries and 
Austria.  The 2005 corporate tax cut was a major step towards 
remaining competitive vis-a-vis Austria's Eastern EU neighbors.  The 
tax cut has also enticed firms to open regional headquarters in 
Vienna.  Some 340 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 grand coalition between the 
Social Democratic Party (SPO) and the People's Party (OVP), which 
took office in January 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 
insists on a more "social face" for reforms.  Observers are 
convinced that reforms will continue, although more slowly and with 
greater emphasis on social and welfare reforms and less on 
deregulation, liberalization and privatizations. 
 
Strong growth is now primarily the result of favorable global 
trends.  The Austrian government intends to pursue initiatives to 
raise economic growth as a means to attain full employment by 2010. 
These 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 taxes by the end of the 
legislative period. 
 
The government can build on the comprehensive structural reforms the 
previous 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 carried 
out a major policy shift in 2000-2006 by pursuing a balanced budget, 
pension reform, privatizations, reorganizing 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. 
 
Addressing a major concern of many businesses, the government has 
extended shop opening hours (shops will remain closed on Sundays) 
and started initiatives to raise R&D expenditures.  In an effort to 
transfer more transportation from roads to railways, the government 
raised taxes on diesel and gasoline, as well as truck tolls. 
However, the reform agenda has lost momentum following the formation 
of the grand coalition government in January 2007.  A legislated 
increase in social security contributions rules out any cuts in 
non-wage costs.  In a controversial move, the government reversed 
some features of the previous government's pension reforms by 
extending possibilities for early retirement without cuts in pension 
payments.  The government is still working on introducing a basic 
social allowance.  Little or no progress has been made on health 
system reform, educational reform, and the increasingly prominent 
challenge of ensuring adequate and affordable nursing care for 
Austria's ageing population. 
 
In order to balance the budget and implement tax cuts by 2010 as 
promised, the government must resist pressure to spend cyclical 
generated revenues.  To remain competitive in the medium-term, the 
government should implement an array of innovative strategic 
measures, including added emphasis on the high-tech goods and 
services segment to transform Austria from a technology consumer to 
a supplier of high-tech products. 
 
Austria has been virtually strike-free since spring 2003. 
 
Liberalization and deregulation in the energy and telecom sectors 
have lowered prices for businesses.  However, remaining barriers to 
entry and competition have resulted in only partial liberalization. 
Network tariffs for electricity, for example, have remained too 
high, according to a December 2006 study by the Austrian Federal 
Competition Authority. 
 
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 due to a 25% corporate tax rate, it 
has become increasingly attractive as a headquarters location. 
Because of tax base adjustments, experts estimate the effective 
corporate tax burden to be no more than 22%.  Austria also offers a 
highly favorable provision for group taxation, unique in Europe, 
which allows business to offset profits and losses of group 
operations (requiring direct or indirect participation of more than 
50%, but no other financial, economic or organizational integration) 
in Austria and abroad.  This group taxation system offers 
interesting opportunities for U.S. investors, in particular 
joint-venture structures, M&A transactions, headquarter companies 
and simple holding companies without active business, which can also 
benefit from the group taxation.  The corporate tax cut and group 
taxation aim to keep Austria competitive vis-a-vis its new EU 
neighbors. 
 
Under certain conditions, limited amounts of the business profits of 
non-corporations will be assessed at half the income tax rate to 
which they would regularly be subject.  Austria has no wealth or net 
worth tax, and no trade tax (Gewerbesteuer), unlike neighboring 
Germany.  As of July 31, 2008, the existing inheritance tax and most 
likely the gift tax will be abolished. 
 
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 may arise from 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 EU Commission is currently in a 
position to overturn the bans, but it is unclear whether it will act 
accordingly. 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% between 2008 and 2012 from its 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, 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 particularly noticeable in sectors where wage costs are decisive. 
 The International Institute for Management Development's (IMD) 2007 
World Competitiveness Scoreboard ranks Austria eleventh, up from the 
thirteenth position in 2006, while A.T.Kearney's 2007 Globalization 
Index, which measures variables such as economic integration, 
technological connectivity or political engagement, ranks Austria 
number 14, down from number 9 in 2006 (by comparison, the U.S. was 
seventh in 2007, the UK twelfth, and Germany twenty-second).  The 
Index of Economic Freedom of The Heritage Foundation/Wall Street 
Journal ranks Austria number 25 worldwide and number 15 among the 41 
European countries. 
 
Acquisitions, mergers, takeovers, cartels:  Austria's 2005 
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 abuse 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 ($411 million at the current exchange rate of $1.00 per Euro 
0.73), domestic sales exceed Euro 30 million ($41.1 million), or if 
two of the firms involved each have worldwide sales exceeding Euro 
5.0 million ($6.9 million).  Special regulations apply to M&As of 
media enterprises.  The cartel court is competent to decide on any 
M&A notification from the FCA or the FCP.  For violations of 
anti-trust regulations, the cartel court can impose fines of up to 
the equivalent of 10% of a company's annual worldwide sales.  An 
independent energy 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 implementing the EU's Takeover Directive 
prohibits defensive action to frustrate bids.  The law does not 
imlement the directive's breakthrough regulations, bt allows 
individual companies to address these i company bylaws.  The 
Shareholder Exclusion Act f 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 larger party in the coalition government, the 
Social Democratic Party, has announced it has no plans for further 
privatizations.  As a result, there were no privatizations in 2007, 
whereas the previous government had privatized many public 
enterprises successfully.  Foreign and domestic investors received 
equal treatment.  Despite Austrian government's historical 
preference for maintaining a Austrian core shareholding, foreign 
investors have been successful in obtaining shares in strategic 
sectors of the Austrian economy, including the following: telecoms; 
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 
early 2007, the U.S. investment fund Cerberus Capital Management 
finalized the takeover of about 90% of the shares of BAWAG P.S.K. 
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:  Since 2007, Austria has 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. 
Austria Wirtschaftsservice is the government's "one-stop shop" 
institution providing financial incentives.  Further information, in 
the German language only, is available from 
http://www.awsg.at/portal/). 
 
Conversion and Transfer Policies 
-------------------------------- 
Austria has no restrictions on cross-border capital transactions, 
including the repatriation of profits and proceeds from the sale of 
an investment, for non-residents and residents.  The Euro, a freely 
convertible currency and the only legal tender in Austria and 
fourteen other Euro-zone member countries, shields investors from 
exchange rate risks 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 in the absence of any other alternative to 
satisfy the public interest; when the action is exclusively in the 
public interest; and when the owner receives just compensation.  The 
expropriation process is fully transparent and non-discriminatory 
toward foreign firms. 
 
 
Dispute Settlement 
------------------ 
The Austrian legal system provides an effective means for protecting 
property and contractual rights of nationals and foreigners. 
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.  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" category.  In 2007, 
the overall number of immigration slots decreased further to 6,500. 
However, during 2007, the quota for key managers had to be increased 
by some 300 slots to meet rising demand because of strong economic 
growth.  Immigration quotas for 2008 have been raised to 8,050, with 
the new quotas again benefiting the visa category for key managers. 
 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
Foreign and domestic private enterprises are free to establish, 
acquire, and dispose of interests in business enterprises, except 
for in some infrastructure and utilities, and in a few state 
monopolies, such as gambling.  However, through privatizations, the 
government 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; and liberalized 
the electricity and gas markets.  In 2006, in line with EU 
regulations, the government privatized 49% of its postal company. 
However, by law, federal and state 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.  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.  Amendments in 2005 and 2006 to the Austrian 
Patent Act strengthened protection of patents from innovative 
enterprises, particularly through more efficient and transparent 
implementation procedures.  One can file objections only after 
authorities have granted the patent, and the right to receive 
information from authorities has been extended. 
 
Austria's copyright law is in conformity with EU directives on 
intellectual property rights and grants the author the exclusive 
rights to publish, distribute, copy, adapt, translate, and broadcast 
his/her work.  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.  In line with EU requirements, Austria 
also has a law against trade in counterfeits.  The Austria film and 
music industry lobby groups complain regularly about high rates of 
piracy in their fields.  In 2006, Austrian customs authorities 
confiscated pirated goods worth Euro 10.4 million ($14.2 million), a 
sharp decline compared to 2005. 
 
 
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 has plans to reduce the 
administrative cost burden for companies by 25% until 2010 by 
streamlining and cutting legal regulations and firms' data 
collection and information obligations. 
 
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. 
 
 
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 fourteen 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 P.S.K.), and Oesterreichische 
Volksbanken) amounted to approximately Euro 570 billion ($781 
billion) in 2006, 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. 
Listed companies must publish quarterly reports.  As of November 1, 
2007, the VSE's Unregulated Third Market will no longer be covered 
by the Stock Exchange Act, but considered a Multilateral Trading 
Facility (MTF), operated by the VSE.  This change is in line with 
the EU's Markets in Financial Instruments Directive (MiFID), which 
differentiates only between regulated markets and MTFs.  Companies 
and investors have to be aware that the operation of an MTF is not 
part of exchange trading and therefore the requirements of the Stock 
Exchange Act regarding financial instruments admitted to trading on 
a regulated market (especially obligations imposed on issuers) do 
not apply to the financial instruments traded on an MTF.  However, 
the Third Market Rules of the VSE will apply. 
 
In pursuing its idea of establishing a regional "Central European 
Stock Exchange" alliance, the VSE, as leader of a consortium of 
Austrian and Hungarian investors, acquired a majority share in the 
Budapest Stock Exchange and has signed a cooperation agreement with 
the Zagreb Stock Exchange, as well as MoUs prompting closer 
cooperation with stock exchanges in Banja Luka, Belgrade, Macedonia, 
Montenegro, Sarajevo and Ukraine.  The VSE also publishes a 
Southeast Europe Traded Index (SETX), which contains 20 blue chip 
stocks listed on the stock exchanges of Bucharest, Ljubljana, Sofia 
and Zagreb, and a number of county-specific CEE/SEE indices, 
including for Russia. 
 
Criminal penalties for insider trading, money laundering and 
terrorist financing 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 
for supervising banks, insurance companies, securities markets, and 
pension funds.  However, several recent scandals in the financial 
sector have raised questions about the effectiveness of regulations 
and their execution.  Subsequently, the government implemented legal 
changes to reform the supervisory system, strengthening the role of 
the Austrian National Bank vis-a-vis the FMA in the supervisory 
system. 
 
Austria's venture capital market is still underdeveloped.  The 
market, which has been flat since it peaked in 2000, started to 
recover in 2005 and continued to grow in 2006, but not as fast as 
the European venture capital market.  The volume of private equity 
and venture capital raised in Austria during 1997-2006 was Euro 1.7 
billion ($2.3 billion), according to the Austrian Private Equity and 
Venture Capital Organization (AVCO).  After a doubling in 2005, 
compared to 2004, fund raising rose again almost 30% to Euro 279 
million ($382 million) in 2006.  Figures for 2007 are not yet 
available. 
 
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.  In line with pertinent EU 
regulations, listed companies must prepare their consolidated 
financial statements according to the IAS/IFRS (International 
Financial Reporting Standards).  For firms with annual sales 
exceeding Euro 400,000 ($548,000), the new Austrian Enterprise Code, 
which replaced the Austrian Business Code on January 1, 2007, 
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 ($685) per day for up to 360 days or up to 
three 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.  To implement the United Nations 
Convention against Corruption (UNCAC), which Austria ratified 
January 11, 2006, the Austrian government recently tightened the 
Criminal Code's corruption regulations and established a special 
central department of public prosecution with Austrian-wide 
authority for corruption cases.  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 ($69) and not more than Euro 10,000 ($13,700).  Transparency 
International's 2007 Corruption Perceptions Index ranks Austria 
number 15, down from number 11 in 2006, due to a lack of awareness 
of corruption (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 4.3 million people, of whom 3.7 million are employees 
and 600,000 are self-employed or farmers.  Austria's labor market is 
more rigid than that of the U.S., but more flexible than markets in 
some other EU member states.  Starting January 1, 2008, the 
government introduced important work hour flexibility, including 
allowing firms to increase the maximum regular time hours from 40 to 
¶50.  In special cases and including overtime, work hours can be 
raised up to 60 hours per week for a maximum of 24 weeks annually. 
However, these 24 weeks can only be in 8-week segment, with at least 
two weeks break between each 8-week slot. 
 
Depending on labor demand, government policies limit the number of 
foreign workers to 8-10% of the salaried workforce.  In 2007, the 
number of guest workers, predominantly from the former Yugoslavia 
and Turkey, averaged 413,000.  As part of the 2004 EU enlargement, 
Austria adopted a 7-year transition period vis-a-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.  Recently, a shortage of qualified 
labor in specific industrial sectors sparked a discussion about 
shortening the transition period for laborers from the new EU 
members. 
 
Compared to other EU countries, Austria had a relatively low 
unemployment rate of 4.3% in 2007.  The 2008/09 forecasts call for 
no change in the 4.3% unemployment rate, assuming real economic 
growth of 2.2-2.4% in 2008 and 2.0-2.5% in 2009.  Medium-term 
forecasts project no significant change in the unemployment rate 
through 2011.  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, factors such as 
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 moderate economic growth rates of around 2.5% will 
help guarantee sufficient labor supply.  Additional immigration, 
including from EU member states, will be necessary to balance the 
impact of low birth rates on the overall labor supply.  Without 
additional immigration, Austria's labor supply will decline 15% by 
¶2015.  Long-term population estimates indicate a slight increase in 
the working age population (15-60 years) to 5.27 million by 2015, up 
from 5.18 million in 2007, but then a decline to 5.20 in 2020 and 
further to 4.93 million in 2030. 
 
In general, skilled labor is available in sufficient numbers. 
However, regional shortages of highly specialized laborers in 
specific sectors, such as systems administration, metalworking, 
healthcare, and tourism, may occur.  Data for 2006 indicate that 
strong economic growth and the government's labor market policy 
helped to exceed the EU goals for 2010 of a labor market 
participation rate of 70% (now 70.2%) and for women of 60% (now 
63.5%).  However, Austria has not yet reached the 2010 EU goal of 
50% for workers aged 55-64, but the percentage is increasing (now 
35.5%).  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. 
 
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 an option for parents with children under the age of 
seven to choose part-time work for several years.  The latter 
regulation only applies to parents working for companies with at 
least 20 employees.  The severance pay system aims to enhance worker 
flexibility by providing employees the right to carry their accrued 
entitlements with them to subsequent jobs.  Ongoing issues, which 
could seriously affect the social insurance system, are the immense 
shortage of nursing personnel to care for the fast growing number of 
elderly people and the lack of funding for available nursing 
personnel, which could eventually lead to a rise in social insurance 
contributions. 
 
Since World War II, labor-management relations have generally been 
harmonious in Austria, as reflected in extremely low strike figures 
in past decades.  No major work stoppages occurred in 2005, 2006 or 
¶2007.  About 36% of the work force belongs to a union.  The Austrian 
Trade Union Federation is trying to recover from a major financial 
scandal, and will therefore probably temper short-term wage and 
benefit demands. 
 
Collective bargaining revolves mainly around wage adjustments and 
fringe benefits.  Existing legal provisions stipulate a maximum 
workweek of 40 hours, but collective agreements also provide for a 
workweek of 38 or 38.5 hours per week for more than half of all 
employees.  Starting in 2008, the government introduced additional 
flexibility allowing collective agreements to stipulate a maximum 
workweek of 50 hours.  The government also transferred 
responsibility for agreements on flextime or 4-day work weeks to the 
company level.  Part time employment is 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 net inflow of new foreign direct investment (FDI) in 2006 
reached Euro 1.7 billion ($2.4 billion), much less than the 2005 
figure of Euro 13.3 billion ($17.9 billion).  A high inflow of new 
FDI in 2006 was largely offset by very large disinvestment.  New FDI 
in the first half of 2007 amounted to Euro 12.2 billion ($16.7 
billion).  The value of FDI stock in Austria was about Euro 58.9 
billion ($80.6 billion) at the end of 2006 and an estimated Euro 
72.8 billion ($99.8 billion) by mid-2007. 
 
In 2006, U.S. investment accounted for about 9% of total FDI in 
Austria.  This represented a drop from 12% of total FDI in Austria 
in 2005.  The decline in U.S. FDI was primarily due to the sale of 
the Austrian Western Wireless International subsidiary, the mobile 
phone operator tele.ring.  However, the 2007 Cerberus takeover of 
Austria's fourth largest bank, BAWAG P.S.K., the takeover of the 
Moeller Group, a leading supplier of electrical components and 
industrial controls, by Eaton Corp. in early 2008 and other new FDI 
by U.S. companies will drive up U.S. FDI in Austria to a new record 
total of more than Euro 11 billion ($15 billion) and should move the 
U.S. up again to the number two position among foreign investors in 
Austria. 
 
At Euro 4.1 ($5.6 billion), the flow of Austrian direct investment 
abroad in 2006 was lower than in 2005, but continued on an 
impressive level.  In the first half of 2007, FDI abroad was a 
record Euro 14.3 billion ($19.5 billion).  This raised the value of 
Austrian direct investment stock abroad to about Euro 59.6 billion 
($81.6 billion) at the end of 2006 and an estimated Euro 73.9 
billion ($101.2 billion) by mid-2007. 
 
Note:  Figures converted at the 2007 annual average exchange rate of 
$1.00 for Euro 0.73. 
Source:  Austrian National Bank. 
 
 
Austria's International Investment Position (EUR billion) 
 
Year                   2005      2006 (1)  2007 (2) 
--------------------------------------------- ------ 
FDI in Austria         58.9      60.6      72.8 
Austrian FDI Abroad    55.5      59.6      73.9 
 
Footnotes: 
(1) preliminary figures; 
(2) first half year, preliminary figures. 
FDI in Austria - Source Country Breakdown 2005 
(share of total in percent) 
--------------------------------------------- - 
U.S.                        12.2 
Germany                     38.2 
Netherlands                  9.5 
U.K.                         8.0 
Switzerland/Liechtenstein    7.9 
Denmark                      3.1 
France                       2.8 
Japan                        2.0 
Italy                        1.7 
All other countries         14.6 
 
 
 
FDI in Austria - Industry Breakdown 2005 
(Euro billion) 
--------------------------------------------- ----- 
Mining and energy                             717 
Metals, machinery                           1,830 
Vehicles                                      376 
Electrical engineering, electronics         1,614 
Petroleum, chemicals                        3,302 
Paper, wood                                 1,374 
Food, drink, tobacco                        2,643 
Building and allied trades                    711 
Trade                                      10,794 
Transport, communication                    2,121 
Banking, insurance, finance                 6,309 
Real estate, business related services     26,571 
Other industries                              512 
                                           ------ 
Total                                      58,874 
 
 
Austrian FDI Abroad - Destination Country 
Breakdown 2005 (share of total in percent) 
------------------------------------------ 
U.S.                         3.9 
Germany                     12.7 
Czech Republic               8.9 
Switzerland/Liechtenstein    8.3 
Netherlands                  7.5 
Hungary                      7.0 
U.K.                         5.7 
Poland                       5.3 
Romania                      5.1 
Croatia                      4.2 
Slovakia                     3.6 
Slovenia                     2.2 
Italy                        2.0 
All other countries         23.6 
 
 
Austrian FDI Abroad - Industry Breakdown 2005 (Euro billion) 
--------------------------------------------- ------ 
Mining and energy                           1,172 
Metals, machinery                           1,687 
Electrical engineering, electronics         1,131 
Petroleum, chemicals                        4,867 
Paper, wood                                 1,152 
Food, drink, tobacco                          916 
Building and allied trades                  2,270 
Trade                                       8,775 
Transport, communication                    1,220 
Banking, insurance, finance                14,935 
Real estate, business related services     15,960 
Other industries                            1,391 
                                          ------- 
Total                                      55,476 
 
 
List of Major Foreign Investors: 
-------------------------------- 
More than 340 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 
Eaton Corp. 
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. 
UGI Corporation 
United Global Com, Inc. 
Unysis Corporation 
Verizon Information Services Inc. 
Western Union 
Worthington Cylinder Corp. 
York International 
Xerox Corporation 
 
The following is a brief list of firms headquartered in countries 
other than the 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 
Fomento de Construcctiones & Contratas, Spain 
Heineken, Netherlands 
H&M, Netherlands 
Infineon, Netherlands 
Japan Tobacco, Japan 
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 
RENO, 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 
Unibail-Rodamco, France-Netherlands 
UniCredit Group, Italy 
Unilever N.V., Netherlands 
Voith, Germany 
Westdeutsche Allgemeine Zeitung (WAZ), Germany 
 
KILNER