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P 271015Z JAN 09
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AU 
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA 
 
REF:  08 STATE 123907 
 
¶1.  Following is the 2009 Investment Climate Statement 
for Austria, keyed to reftel instructions: 
 
 
2009 INVESTMENT CLIMATE STATEMENT -- AUSTRIA 
-------------------------------------------- 
 
Introduction 
------------ 
Major structural conditions and the decisive parameters 
for foreign investors remain unchanged and favorable, 
despite the global economic downturn.  As a small, open 
and highly internationalized economy, Austria is swayed 
by world developments including the current downturn: 
2009 will be the first full-year recession in Austria 
since 1981.  As of late January, the Austrian economy 
is projected to contract by 0.5-1.2% in 2009 -- not as 
deep as in Germany or in the European Union as a whole, 
due to AustriaQs close ties with growing Central, 
Eastern and Southeastern European (CESEE) economies. 
The Austrian government is implementing an economic 
stimulus package to support the labor market, stimulate 
investment, and finance infrastructure.  These measures 
and the shrinking economy will drive the public sector 
deficit above the 3% Maastricht deficit limit, but 
economists regard this as justified by the current 
downturn.  For 2010, modest recovery of 0.6-1.3% is 
expected. 
 
With the European UnionQs (EU) enlargements in May 2004 
and January 2007, Austria solidified its central 
position in the EU.  As an investment location, 
however, 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.  Austria has improved road and rail 
transportation links, e.g. to Bratislava, but many 
transport links to Central, Eastern, and Southeastern 
European (CESEE) neighbors are still inadequate.  The 
Austrian government will continue to address and close 
these infrastructure gaps.  The sale of troubled 
national carrier Austrian Airlines (AUA) to German 
Lufthansa may mean a lesser hub role for Vienna 
International Airport over the long term.  In December 
2007, the EUQs Schengen area expanded to include the 
Czech Republic, Hungary, Slovakia, and Slovenia 
(Switzerland in December 2008), removing border 
controls between these countries and Austria. 
AustriaQs 2005 corporate tax cut has kept Austria 
competitive with newer EU member states and induced 
firms to open regional headquarters in Vienna.  Some 
340 U.S. companies have invested in Austria; most have 
expanded their original investment over time. 
 
Austria continues to offer advantages for foreign 
investors, but it also presents challenges. 
 
Openness to Foreign Investment 
------------------------------ 
Government attitude towards foreign private investment: 
Observers do not expect AustriaQs basic policies and 
openness to foreign direct investment to change under 
the renegotiated coalition government between the 
center-left Social Democratic Party (SPO) and the 
center-right PeopleQs Party (OVP) which took office in 
December 2008 for a five-year term.  The coalition 
program includes commitments to promote foreign 
investment and to further strengthen AustriaQs 
attractiveness as a location for investment and 
headquarters for international firms.  Like the grand 
coalition government itself, AustriaQs government 
program is broad-based and the government is unlikely 
to reverse structural and economic reforms implemented 
after 1990.  Reforms will continue at a slower pace and 
with an emphasis on social policy rather than 
deregulation, liberalization, or privatization. 
 
The new Austrian government will profit from extensive 
structural reforms implemented in recent years, which 
helped streamline government, create a more competitive 
business environment, and strengthen AustriaQs 
attractiveness as a location for investment.  Relative 
to most other EU member states, Austria made a major 
policy shift in 2000 to 2006 by pursuing liberal market 
reforms, a largely balanced budget, pension reform, 
privatizations, reorganizing financial market 
supervision and competition policy, and implementing a 
corporate tax cut in 2005.  The reforms have improved 
the Austrian economyQs long-term growth potential, but 
Austria remains in transition from a highly regulated 
economy with a large government sector to a flexible 
social market economy. 
 
However, in 2007 and early 2008, the reform agenda came 
to a standstill: with the prospect of new elections in 
September 2008, parties engaged in a spending spree by 
instituting a thirteenth monthly family allowance and a 
higher nursing care allowance, abolishing university 
student fees, extending the possibility for early 
retirement without cuts in pension payments, and 
cutting the VAT on pharmaceuticals from 20% to 10%. 
These pre-crisis measures bolstered private consumption 
but will increase the deficit.  The new government has 
acted decisively to avert a credit crisis, stimulate 
the domestic economy, and avert mass layoffs.  Its 
other economic priorities include:  an income tax cut 
in 2009; balancing the budget once growth returns; 
increasing economy-wide spending on R&D to 3% of GDP by 
2010 and 4% by 2020, improving R&D policy and 
infrastructure; improving education and training; 
streamlining administration; furthering reform of 
public health insurance; securing the pension system 
over the long-term; and ensuring adequate, affordable 
long-term care for AustriaQs aging population. 
 
In addition, many economists believe that to remain 
competitive in the medium-term, the government should 
also implement strategic measures 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 business costs.  However, 
remaining barriers to entry and competition have 
resulted in only partial liberalization.  There are few 
incentives for customers to switch from incumbent 
electricity and gas providers, and pricing is not 
completely transparent. 
 
Austria welcomes foreign direct investment that does 
not have a negative impact on the environment. 
Austrian authorities particularly welcome 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 overall, 
but due to a 25% corporate tax rate, has become 
increasingly attractive as a headquarters location. 
Because of tax base adjustments, experts estimate the 
effective corporate tax burden at no more than 22%. 
Austria also offers a highly favorable framework 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 group taxation. 
AustriaQs corporate tax rate and group taxation rules 
make it competitive vis-a-vis its EU neighbors. 
 
Under certain conditions, limited amounts of the 
business profits of non-corporations are 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, unlike neighboring Germany.  As of August 
1, 2008, the government abolished the inheritance and 
gift taxes, but introduced a reporting requirement for 
large donations and gifts. 
 
There are no sectoral or geographic restrictions on 
foreign investment.  In some regions, Austria offers 
special facilities and services (Qcluster packagesQ) to 
foreign investors.  For example, these can include 
automotive producers or manufacturers of integrated 
circuits, 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 
AustriaQs eastern and southern borders.  In most of 
these areas, eligibility for co-financing subsidies 
under EU regional and cross-border programs will 
decline under the EUQs 2007-2013 financial framework 
from EUR 2 billion to EUR 1.3 billion. 
 
Resistance to investment in the industrial sector may 
arise from environmental concerns.  Potential U.S. 
investors need to factor AustriaQs strict environmental 
laws into their decision-making process.  While import 
bans have had to be lifted, Austrian ordinances still 
ban the planting of all EU approved biotechnology 
crops.  For new varieties, EU legislation on the 
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.  Many industries also 
fall under greenhouse-gas Emissions Trading System, the 
EUQs implementation of the Kyoto Protocol. 
 
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, 
social factors and health infrastructure.  However, 
Austria receives lower marks for economic growth, tax 
burden, high cost of living, 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 and introduced a highly competitive 
corporate tax system, while the personal income tax 
burden remains heavy. 
 
Surveys show that Austria faces stiffer competition 
from countries in Central, Eastern, and Southeastern 
European (CESEE) markets, as well as from the twelve 
new EU members, especially the four that border Austria 
and particularly in sectors where wage costs are 
decisive. 
 
The International Institute for Management 
DevelopmentQs (IMD) 2008 World Competitiveness 
Scoreboard ranks Austria fourteenth, down from the 
eleventh position in 2007;  A.T.KearneyQs 2007 
Globalization Index, which measures variables such as 
economic integration, technological connectivity or 
political engagement, ranks Austria number fourteen (by 
comparison, the U.S. was seventh, the UK twelfth, and 
Germany twenty-second);  and A.T.KearneyQs 2007 FDI 
Confidence Index ranks Austria eleven (by comparison, 
the U.S. was number three, the UK four, and Germany 
ten).  The 2009 Index of Economic Freedom of The 
Heritage Foundation/Wall Street Journal ranks Austria 
number twenty-three worldwide and eleven among the 43 
European countries.  In A.T.KearneyQs 2008 Global 
Cities Index, Vienna ranks number eighteen among the 
worldQs most globalized cities (just behind Berlin). 
 
Acquisitions, mergers, takeovers, cartels:  AustriaQs 
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 limited personnel. 
 
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 EUR 300 
million ($441 million at the 2008 average exchange rate 
of $1.00 / EUR 0.68), domestic sales exceed EUR 30 
million ($44.1 million), or if two of the firms 
involved each have worldwide sales exceeding EUR 5.0 
million ($7.4 million).  Special M&A regulations apply 
to 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 companyQs 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 apply and 
take precedence over national regulations in cases 
between Austria and other EU member states. 
 
AustriaQs 1999 Takeover Law applies to 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 companyQs voting shares) must offer to buy out 
smaller shareholders at a defined Qfair marketQ price. 
The law also includes provisions 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 EUQs Takeover Directive prohibits defensive action 
to frustrate bids.  The law did not implement the 
directiveQs 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 Qsqueeze outQ 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:  After many successful privatizations 
in previous years, the government did not privatize any 
public enterprises in 2007 or 2008 except Austrian 
Airlines (AUA), which it sold to Lufthansa in December 
¶2008.  The AUA sale was not a typical privatization, 
but rather a crisis sale to a strategic partner for a 
symbolic price, in order to resolve AUAQs cash crunch 
and avert a shutdown.  The government program does not 
identify any public enterprises for privatization, so 
no major privatizations are expected in 2009 or 2010. 
The larger party in the new coalition government, the 
Social Democratic Party, has announced its opposition 
to further privatization, including of the federal 
railroads and the postal service.  Moreover, the weak 
economy, the situation on stock and capital markets, 
and AustriansQ increasingly skeptical attitude towards 
privatizations also seem to rule out privatization 
tenders in the near future.  In past privatizations, 
foreign and domestic investors received equal 
treatment.  Despite Austrian authoritiesQ historical 
preference for having domestic shareholders keep a 
blocking minority, foreign investors have successfully 
gained control of enterprises in strategic sectors of 
the Austrian economy, including telecoms, banking, 
steel production, power generation and infrastructure. 
For example, in early 2007, the U.S. investment fund 
Cerberus Capital Management bought about 90% of BAWAG 
P.S.K. Bank, AustriaQs fourth largest banking group, 
from its previous owner, the Austrian Trade Union 
Federation. 
 
Treatment of foreign investors:  There is no 
discrimination against foreign investors, but they are 
required to follow numerous 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 had 
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 
governmentQs Qone-stop shopQ 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 fifteen 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.  The U.S. Embassy is aware of a U.S. 
investor who faced unfair bureaucratic delays and added 
costs when it attempted to introduce competition to a 
market entirely dominated by a large local employer. 
 
Performance Requirements/Incentives 
----------------------------------- 
Austria is in compliance with the World Trade 
OrganizationQs 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. 
Over the years, immigration quotas have remained static 
at approximately 8,000 per year.  The annual quota for 
2009 has been set at 8,145. 
 
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.  Entrenched political interests 
may make it more difficult to challenge quasi-monopolies 
in some sectors where they still exist.  However, U.S. 
investors have had success in this regard, especially 
when they have used local partners and contacted the U.S. 
Embassy at an early stage. 
 
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 QParis UnionQ 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. 
 
AustriaQs 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 2007, Austrian customs authorities 
confiscated pirated goods worth EUR 15.2 million ($22.3 
million), a sharp increase compared to 2006, mainly due 
to confiscated pharmaceuticals. 
 
Transparency of the Regulatory System 
------------------------------------- 
AustriaQs 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 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 less than three 
months, except for large projects requiring an 
environmental impact assessment.  The Qone-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 will continue plans to reduce by 25% the 
administrative cost burden for companies no later than 
2010, by streamlining regulations and data collection/ 
information requirements and by expanding the use of e- 
government. 
 
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, 
Eastern, and Southeastern Europe (CESEE) and the former 
Soviet Union (FSU) and operate 73 fully consolidated 
subsidiaries in CESEE/FSU, of which 37 are in the 12 
new EU member states, 23 in other SEE countries and 13 
in FSU.  Six out of the seven largest Austrian banks 
hold sizeable investments in CESEE/FSU; three of them 
are among the five largest banking groups in the area. 
Austrian banks have a 15% share of the entire CESEE/FSU 
banking market (21.8% excluding Russia) and hold about 
20% of all loans extended by EU banks in the area. 
 
Total assets of AustriaQs five largest banking groups 
(Bank Austria (BA), Erste Bank, Raiffeisen Zentralbank 
(RZB), Bank fuer Arbeit und Wirtschaft und 
Oesterreichische Postsparkasse (BAWAG P.S.K.), and 
Oesterreichische Volksbanken) amounted to approximately 
EUR 750 billion ($1,103 billion) in 2008, representing 
63% of AustriaQs total bank assets. 
 
The subprime crisis has had limited impact on Austrian 
banks, with total write-downs of about EUR 2 billion 
($2.9 billion) through mid-2008.  Banks were spared 
immediate fallout from the U.S. crisis due to their 
strong CESEE/FSU focus.  However, Austrian banks are 
suffering indirectly from the worldwide financial 
crisis through higher refinancing costs and credit 
scarcity.  In response to the crisis, the outgoing 
government crafted a large-scale EUR 100 billion ($147 
billion) financial sector rescue package in October 
2008, comprising EUR 15 billion ($22 billion) for 
equity injections into banks and insurance companies 
and EUR 85 billion ($125 billion) to guarantee 
interbank lending. 
All Austrian banks active in CESEE/FSU say they can 
manage risks in emerging Europe and are determined to 
remain in those growing markets.  An IMF Qstress test 
in 2008 showed considerable resilience in Austrian 
banks against shocks.  All Austrian banks active in 
CESEE/FSU are Qsystem-relevantQ in Austria -- Qtoo big 
to failQ -- so the Austrian government will not 
willingly allow them to collapse. 
 
2008 was the worst year for the Vienna Stock Exchange 
since the Austrian Traded Index (ATX) debuted eighteen 
years ago.  At year-end 2008, the ATX stood at 1,801 -- 
60.1% lower than a year before (4,513) -- a worse fall 
than many other OECD stock exchanges.  At year-end 
2008, market capitalization of listed domestic shares 
was down 66% rom year-end 2007 at only EUR 53 billion 
(about 9% of GDP). 
 
The Vienna Stock Exchange (VSE) use Xetra, FrankfurtQs 
electronic trading system, for trading securities, so 
traders worldwide have o-screen information and direct 
access to all stoks listed in Vienna.  Listed 
companies must publsh quarterly reports.  The VSE 
operates regulate markets (the Official Market and th 
Second Regulated Market) and Multilateral Trading 
Systems (MTF) pursuant to the EUQs Markets in Financial 
Instruments Directive (MiFID), which differentiates 
between regulated markets and MTFs.  Companies and 
investors should be aware that the operation of MTFs is 
not part of exchange trading.Therefore, the 
requirements of the Stock Exchange Act regarding 
financial instruments admitted to trading in a 
regulated market (especially obligations imposed on 
issuers) do not apply to financial instruments traded 
on an MTF.  However, the VSEQs Third Market Rules and 
the provisions of the Securities Supervision Act apply. 
 
In pursuing its idea of establishing a regional 
QCentral European Stock ExchangeQ alliance, the VSE, as 
leader of a consortium of Austrian and Hungarian 
investors, holds a majority share in the Budapest Stock 
Exchange.  The VSE also holds a majority in the Prague 
Stock Exchange and the Slovenian Ljubljana 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) and a number of county-specific CEE/SEE indices, 
including for Russia. 
 
Criminal penalties apply to insider trading, money 
laundering and terrorist financing.  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.  Beginning in the late 
1990s, scandals in AustriaQs financial sector raised 
questions about the effectiveness of financial 
oversight.  As a result, the government in 2008 
strengthened regulation and instituted a strong dual- 
oversight system with bank supervisory roles for both 
the Austrian National Bank and the FMA. 
 
AustriaQs venture capital market is small and remains 
underdeveloped.  The market, which has been flat since 
it peaked in 2000, started to recover in 2005 and 
continued to grow in both 2006 and 2007, 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 EUR 2.1 billion ($3.1 
billion), according to the Austrian Private Equity and 
Venture Capital Organization (AVCO).  After a 30% 
increase in 2006, fund raising rose 55% in 2007 to EUR 
431 million ($634 million).  The bulk of the money 
invested is used for buy-outs and expansion projects, 
only a small portion for start-ups and seed financing. 
Figures for 2008 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).  Further, for firms with annual sales 
exceeding EUR 400,000 ($588,000), the Austrian 
Enterprise 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 
---------- 
To implement the United Nations Convention against 
Corruption (UNCAC), which Austria ratified on January 
11, 2006, the Austrian government tightened the 
Criminal CodeQs corruption regulations effective 
January 1, 2008 and is now establishing a special 
central public prosecution department with Austrian- 
wide authority for corruption cases.  The new 
regulations cover managers of Austrian public 
enterprises, civil servants and other officials 
(holding a function in legislation, administration or 
justice on behalf of Austria, a foreign country or an 
international organization), but also representatives 
of companies.  In the Criminal Code the term 
QcorruptionQ includes several offense such as bribery 
and illicit intervention; abuse of office; and 
accepting an advantage by public officials, senior 
executives of a public enterprise or experts; and could 
also include fraud, embezzlement, breach of trust, or 
accepting an advantage by managers.  Criminal penalties 
for all cases of corruption include imprisonment of up 
to several years for all parties involved.  Criminal 
Code legislation prohibiting tax deductibility for 
bribes is in place since summer 1998.  Austria has 
ratified the OECD Anti-Bribery Convention, joined the 
Group of States against Corruption (GRECO) within the 
Council of Europe, has ratified the Council of EuropeQs 
Civil Law Convention on Corruption and signed, but not 
yet ratified, the Criminal Law Convention on 
Corruption.  AustriaQs Law on Responsibility of 
Associations, in force since 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 this 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 EUR 50 ($74) and not more 
than EUR 10,000 ($14,700).  Transparency 
InternationalQs 2008 Corruption Perceptions Index ranks 
Austria number 12, up from number 15 in 2007 (by 
comparison Germany is 14th, and the U.S. 18th). 
 
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, Namibia 
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 
and Zimbabwe, but the agreements are still pending 
ratification by these countries and have not yet 
entered into effect.  An agreement with Tajikistan has 
been initialed, two others with Bahrain and 
Turkmenistan are ready for initialing.  An agreement 
with North Korea was initialed in 2001, but has not 
been signed, yet.  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.  With regard to the 
latter treaty, the U.S. government may seek changes or 
cancellation of the treaty following AustriaQs 
abolition of inheritance/gift taxes on August 1, 2008. 
 
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.  AustriaQs labor market is more rigid than 
that of the U.S., but more flexible than markets in 
some other EU member states.  Since January 1, 2008, 
important work hour flexibility regulations have been 
in effect, which among other features allow firms to 
increase the maximum regular time hours from 40 to 50 
per week.  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 segments, 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 425,000.  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 
2009, the Austrian government plans to extend the 
restrictions for the last two years, which, however, 
requires EU Commission approval.  For new EU members 
Bulgaria and Romania, which joined the EU on January 1, 
2007, Austria adopted the same 7-year transition period. 
At the same time, the government plans additional 
exemptions and to open the market gradually for the 
recruitment of specialists or managers from all twelve 
new EU members apply.  Industry keeps pressing the 
Austrian government to shorten these transition periods 
with the argument of a shortage of qualified labor in 
specific industrial sectors. 
 
Compared to other EU countries, Austria had a relatively 
low unemployment rate of 4.3% in 2007.  After record 
employment growth of 2.4% in 2008, the unemployment rate 
dropped to 3.5%.  However, with the economic downturn, 
the labor market has started to deteriorate.  The 2009/10 
forecasts call for an unemployment rate of 3.9-5.1% in 
2009 and 4.1-6.1% in 2010, assuming a recession with the 
economy contracting by 0.5-1.2% in 2009 and modest 
recovery with growth of 0.6-1.3% in 2010.  Analysts 
expect no 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 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, AustriaQs 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 2007 indicate that strong 
economic growth and the governmentQs labor market 
policy helped to exceed the EU goals for 2010 of a 
labor market participation rate of 70% (now 71.4%) and 
for women of 60% (now 64.4%).  However, Austria has not 
yet reached the 2010 EU goal of 50% for workers aged 
55-64, but the percentage is increasing (now 38.6% 
compared to 35.5% in 2007).  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, and 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 an increasing 
deficit of the health insurance, 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, 2007 or 2008. 
About 36% of the work force belongs to a union.  The 
Austrian Trade Union Federation is still trying to 
recover from a major financial scandal and reform its 
organization.  However, the difficult economic period 
ahead is likely to raise again the unionQs importance 
and help sharpen its profile, while it will probably 
temper short-term wage and benefit demands. 
 
Collective bargaining revolves mainly around wage 
adjustments and fringe benefits.  About 80% of the 
labor force worked under a collective bargaining 
agreement.  All collective bargaining agreements 
meanwhile provide for a minimum wage of EUR 1,000 per 
month.  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.  Effective in 2008, 
the government provided for 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: 39% of female workers and 4% of male 
workers have part time jobs.  On average, Austrian 
employees are absent 12 days annually for sickness. 
 
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 2007 reached a record of EUR 21.7 billion ($31.9 
billion).  A high share of this new FDI inflow and 
parallel also FDI outflow was due to the Italian 
UniCreditQs takeover of Bayerische Hypovereinsbank 
 
(HVB), in course of which UniCredit also took over 
HVBQs Austrian subsidiary, Bank Austria, AustriaQs 
largest bank.  New FDI in the first half of 2008 
amounted to EUR 6.0 billion ($8.8 billion).  The value 
of FDI stock in Austria was about EUR 106.1 billion 
($156.0 billion) at the end of 2007 and an estimated 
EUR 112.0 billion ($164.6 billion) by mid-2008. 
 
In 2007, U.S. investment accounted for more than 7% of 
total FDI in Austria.  This represented an increase 
from the 5.5% of total FDI in Austria in 2006, but is 
still below the 10% level of 2005.  The decline in U.S. 
FDI from 2005 was primarily due to the sale of Austrian 
mobile phone operator tele.ring by the U.S. Western 
Wireless International; the increase in 2007 was due to 
the Cerberus takeover of BAWAG P.S.K., AustriaQs fourth 
largest bank.  In 2008, new U.S. FDI included Eaton 
CorporationQs takeover of the Moeller Group, a leading 
supplier of electrical components and industrial 
controls, while the takeover of GE Money Bank by the 
Spanish Bank Santander was another U.S. disinvestment. 
 
At EUR 22.9 billion ($33.7 billion), the flow of 
Austrian direct investment abroad in 2007 also reached 
a new record, which in part was due to the Bank Austria 
transaction (see above).  In the first half of 2008, 
FDI abroad showed a continued high level of EUR 9.3 
billion ($13.7 billion).  This raised the value of 
Austrian direct investment stock abroad to about EUR 
105.1 billion ($154.5 billion) at the end of 2007 and 
an estimated EUR 114.4 billion ($168.2 billion) by mid- 
¶2008. 
 
Note:  Figures converted at the 2008 annual average 
exchange rate of $1.00 for EUR 0.68. 
Source:  Austrian National Bank. 
 
 
AustriaQs International Investment Position (EUR 
billion) 
 
Year                   2006      2007 (1)  2008 (2) 
--------------------------------------------- ------ 
FDI in Austria         84.3     106.1     112.0 
Austrian FDI Abroad    80.3     105.1     114.4 
 
Footnotes: 
(1) preliminary figures; 
(2) first half year, preliminary figures. 
 
 
FDI in Austria Q Source Country Breakdown 2007 
(share of total in percent) 
--------------------------------------------- - 
U.S.                         7.4 
Italy                       28.0 
Germany                     14.0 
Netherlands                 11.1 
U.K.                         7.2 
Switzerland/Liechtenstein    7.2 
Gulf States                  3.8 
All other countries         28.7 
 
 
Austrian FDI Abroad Q Destination Country 
Breakdown 2007(share of total in percent) 
------------------------------------------ 
U.S.                        3.0 
Germany                     126 
Croatia                      8.7 
Hungary                     7.0 
Czech Republic              6.9 
Romania                      .5 
Switzerland/Liechtenstein    4.8 
Netherlands                  4.4 
Russia                       4.2 
Slovakia                     3.7 
Poland                       3.6 
Bulgaria                     3.1 
Italy                        2.7 
Ukraine                      2.7 
U.K.                         2.6 
All other countries         24.5 
 
 
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. 
ExxonMobil 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 
McDonaldQs 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. 
ToysQRQUs, 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 
Axel Springer Verlag, Germany 
Banco Santander, Spain 
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 
Sanfoi-Aventis, France 
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