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P 260750Z JAN 10
FM AMEMBASSY VIENNA
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RUEATRS/DEPT OF TREASURY WASHDC
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UNCLAS VIENNA 000087 
 
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STATE FOR EB/IFD/OIA, EUR/ERA AND EUR/CE 
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TAGS: EINV EFIN ELAB ETRD PGOV KTDB OPIC USTR AU
SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT FOR AUSTRIA 
 
REF:  09 STATE 124006 
 
¶1.  Following is the 2010 Investment Climate Statement for Austria, 
keyed to reftel instructions: 
 
2010 INVESTMENT CLIMATE STATEMENT -- AUSTRIA 
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Introduction 
- - - - - - 
Major structural conditions and the decisive parameters for foreign 
investors remain unchanged and favorable, despite the global 
economic crisis.  As a small, open and highly internationalized 
economy, Austria is swayed by global developments, including the 
world downturn in 2009, when GDP shrank 3.5%, which was less than 
expected and less than the Eurozone dip, but still the first 
full-year recession in Austria since 1981 and the deepest in more 
than 50 years.  As of January 2010, the Austrian economy is 
projected to grow again in 2010 and 2011, but only by around 1.5%. 
Economists predict that the recovery will be slow, bumpy, and beset 
with downside risks. 
 
With European Union (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 compete directly with Vienna for 
foreign investors.  Over the longer term Austria must enhance 
efforts to maintain its role as hub for business in Central, Eastern 
and Southeastern Europe (CESEE).  Austria must further improve 
inadequate transport links to CESEE neighbors, ease regulatory red 
tape for overseas managers and other specialist staff, and promote 
language capabilities.  The sale of national carrier Austrian 
Airlines (AUA) to German Lufthansa in 2009 may signal a lesser role 
for Vienna International Airport over the long term.  Border 
controls between Austria and the Czech Republic, Hungary, Slovakia, 
and Slovenia were lifted when the EU's Schengen area expanded to 
those countries in December 2007.  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 
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Government attitude towards foreign private investment:  Observers 
do not expect Austria's basic policies and openness to foreign 
direct investment to change under the current coalition government 
between the center-left Social Democratic Party (SPO) and the 
center-right People's Party (OVP) which took office in December 2008 
for a five-year term.  The coalition program includes commitments to 
promote foreign investment and further strengthen Austria's 
attractiveness as a location for investment and headquarters for 
international firms.  Like the grand coalition itself, Austria's 
government program is broad-based and the government is unlikely to 
reverse structural and economic reforms implemented after 1990. 
Reforms will continue at a slow pace and with an emphasis on social 
policy rather than deregulation, liberalization, or privatization. 
 
The Austrian government profits from extensive structural reforms 
implemented in recent years, which helped streamline government, 
create a more competitive business environment, and strengthen 
Austria's attractiveness as a location for investment.  Austria made 
a major policy shift from 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 improved 
the Austrian economy's 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. 
 
In 2007/2008, 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 option of 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 
led to a higher budget deficit.  Since the onset of the global 
crisis, the current government has acted decisively to prevent a 
credit crunch, stimulate economic activity, and avert mass 
unemployment by implementing large stimulus measures including an 
income tax cut, new infrastructure investments, an increase in 
public consumption and subsidies, and a large-scale financial sector 
rescue package.  The most urgent policy challenge, once growth 
returns, is to scale back Austria's budget deficit and its 
burgeoning public debt, which will reach 75-80% of GDP by 2011. 
Economists concur that the economy will be too weak in 2010 to begin 
consolidation, but urge the government to set out soon an austerity 
roadmap concentrating on expenditures.  Given the scale of Austria's 
deficit, experts say the government will probably also need to 
pursue revenue increases.  Other important issues the government 
must address include: improving the school education system; 
streamlining administration; reform of health-care delivery; 
sustainability of the pension system; ensuring adequate, affordable 
long-term care for Austria's aging population; and improving R&D 
policy.  With economic growth rates of no more than 2% until at 
least 2014 (according to forecasts), unemployment is likely to 
persist at current levels and remain a major economic policy 
challenge. 
 
Austria has a low incidence of industrial unrest and has been 
virtually strike-free since 2003. 
 
Liberalization and deregulation in the energy and telecom sectors 
have lowered business costs.  However, remaining barriers to entry 
such as over 50% government ownership of providers have resulted in 
only limited competition.  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 with a heavy 
personal income tax burden, 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 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.  Austria's corporate tax rate and group 
taxation rules make it competitive vis-a-vis its EU neighbors. 
Austria has no wealth or net worth tax, no trade tax, and no 
inheritance and gift taxes (only a reporting requirement). 
 
There are no 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 
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 Austria's eastern and southern borders.  In most of these 
areas, eligibility for co-financing subsidies under EU regional and 
cross-border programs has declined under the EU's 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 
Austria's strict environmental laws into their decision-making 
process.  While import bans have been lifted, Austrian laws make it 
impossible in practice to cultivate even 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 approved seeds in fields and in 
stores.  However, strict liability regulations and co-existence 
rules apply on research, production, and distribution of 
biotechnology crops.  Many industries also fall under the 
greenhouse-gas Emissions Trading System, part of the EU's 
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, business, 
trade, investment and financial freedoms.  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, particularly for starting a business. 
 
The International Institute for Management Development's (IMD) 2009 
World Competitiveness Scoreboard ranks Austria sixteenth, down from 
the fourteenth position in 2008.  The Swiss Economic Institute's 
(KOF) 2009 Globalization Index, which measures economic, social and 
political globalization, ranks Austria number five (by comparison, 
the U.S. was thirty-eighth, the UK twenty-seventh, and Germany 
twenty-second)  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.  The World 
Bank's Ease of Doing Business Index 2009 ranks Austria twenty-eighth 
(by comparison, the U.S. was fourth).  The World Economic Forum's 
(WEF) 2009 Global Competitiveness Index ranks Austria number 
seventeen. 
 
2009 Scoreboard                                Rank 
 
IMD World Competitiveness Scoreboard             16 
KOF's Globalization Index                         5 
Heritage Foundation Economic Freedom Index       23 
World Bank's Ease of Doing Business Index        28 
WEF's Global Competitiveness Index               17 
WEF'S Availability of Latest Technologies Index  13 
TI's Corruption Perception Index                 16 
 
Acquisitions, mergers, takeovers, cartels:  Austria's Anti-Trust Act 
is in line with European Community anti-trust regulations, which 
also apply and take precedence over national regulations in cases 
between Austria and other EU member states.  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 ($417 million at the 2009 average exchange rate of $1.00 / 
EUR 0.72), domestic sales exceed EUR 30 million ($41.7 million), or 
if two of the firms involved each have worldwide sales exceeding EUR 
5.0 million ($6.9 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 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. 
 
Austria's 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 company's voting shares) 
must offer to buy out smaller shareholders at a defined "fair 
market" 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.  The law prohibits defensive action to 
frustrate bids; it has not implemented the EU's Takeover Directive's 
breakthrough regulations, but allows individual companies to address 
these in company bylaws.  The Shareholder Exclusion Act 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:  After many successful privatizations in previous 
years, the government did not privatize any public enterprises in 
2007, 2008 or 2009, except Austrian Airlines (AUA), of which it sold 
42% to the German Lufthansa (LH) in December 2008.  However, 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 AUA's 
cash crunch and avert a shutdown; in September 2009, LH took over 
100% in AUA.  The government program does not identify any public 
enterprises for privatization, so no major privatizations are 
expected in 2010 or 2011.  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.  Last year the recession and the 
situation on stock and capital markets practically ruled out 
privatizations, aside from the Austrians increasingly skeptical 
attitude toward them.  In past privatizations, foreign and domestic 
investors received equal treatment.  Despite Austrian authorities' 
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 2007, the U.S. investment fund 
Cerberus Capital Management bought about 90% of BAWAG P.S.K. Bank, 
Austria's 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 those 
applying for resident permits to take German courses, but does 
exempt applicants for residence permits from the German language 
course requirement, if they hold a university degree.  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. 
 
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 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 
fifteen other Euro-zone member countries, shields investors from 
exchange rate risks within the 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. 
 
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 eased the integration policy requiring 
immigrants to attain a minimum level of competence in the German 
language.  Under the amendment, previous education (university 
degree) automatically fulfills the integration requirement.  Over 
the years, immigration quotas have remained static at approximately 
8,000 per year.  The annual quota for 2010 has been set at 8,145. 
 
Right to Private Ownership and Establishment 
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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 
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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.  Recent amendments to the Austrian Patent Act 
brought about more efficient and transparent implementation 
possibilities, and, in 2010, swifter procedures for holders of 
rights of registered brands against alleged breaches by newcomers. 
 
The Austrian Copyright Act 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 law 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 2008, Austrian customs authorities confiscated pirated 
goods worth EUR 83 million ($115.3 million), a six fold increase 
compared to 2007, mainly due to confiscated jewelry, apparel and 
pharmaceuticals. 
 
Transparency of the Regulatory System 
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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 government has made progress in streamlining its complex and 
cumbersome permit and paperwork requirements for business licenses 
and permits.  It maintains to have reduced the time necessary to 
obtain permits to less than three months, except for large projects 
requiring an environmental impact assessment.  The "one-stop shop" 
for a business permit does not include plant and building permits; 
simplified procedures should accelerate permit procedures, but 
unpredictable and inflexible bureaucratic rules can still be a 
problem.  The government will continue plans to reduce the 
administrative cost burden for companies by streamlining regulations 
and data collection/ information requirements. 
 
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 arkets.  All 
financial instruments are available  Foreign investors have access 
to the Austrian arket without restrictions.  Austria has a highlydeveloped banking system with worldwide correspondnt banks, and 
representative offices and branche in the United States an other 
major financial enters.  Large Austrian banks also have a huge 
ntwork in ten of the twelve new EU members (except Mlta and 
Cyprus) and nine other countries in Cental, Eastern, and 
Southeastern Europe (CESEE) andthe former Soviet Union (FSU) and 
operate 68 fuly consolidated subsidiaries in CESEE/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 (21.9% excluding Russia).  Of Austrian bank 
assets in CESEE, 75% are in EU member states (countries unlikely to 
default outright), very little of that portion is in the 
crisis-stricken Baltics. 
 
Total assets of Austria's five largest banking groups (Bank Austria, 
Erste Bank, Raiffeisen Zentralbank, BAWAG/Bank fuer Arbeit und 
Wirtschaft und Oesterreichische Postsparkasse, and Oesterreichische 
Volksbanken) amounted to about EUR 655 billion ($910 billion) in 
2009, representing 62% of Austria's total bank assets. 
 
The subprime crisis has had limited impact on Austrian banks, but 
they suffered indirectly from the worldwide financial crisis through 
higher refinancing costs and credit scarcity, and later, due to 
their strong CESEE/FSU focus, from huge loan losses and write-offs 
in the area.  The government's EUR 100 billion ($139 billion) 
financial sector rescue package of October 2008, comprising EUR 15 
billion ($21 billion) for equity injections into banks and insurance 
companies and EUR 85 billion ($118 billion) to guarantee interbank 
lending, helped banks to recapitalize, to maintain interbank lending 
and prevent a credit crunch.  Most Austrian banks active in 
CESEE/FSU will continue to suffer loan losses in the region -- but 
have performed better than expected in 2009 and continue to make 
profits, have ramped up loan loss provisions, are taking advantage 
of government state aid, and appear sufficiently capitalized. 
Austrian banks view the situation in CESEE/FSU as difficult but 
manageable and all have made a strong commitment to remain in those 
growing markets.  New stress test results for Austrian banks show 
that major banks could withstand even the highly adverse scenario of 
a "double-dip" recession; major banks' capital ratios would stay 
above the legal minimum, but in the medium-term they will need 
additional capital.  In any case, all Austrian banks active in 
CESEE/FSU are "system-relevant" in Austria -- "too big to fail" -- 
so the Austrian government will not willingly allow them to 
collapse. 
 
In past years, Austria has seen a number of financial sector 
scandals, which peaked in the government's nationalization of 
Kommunalkredit bank in late 2008 and Hypo Alpe Adria banking group 
in December 2009 to avoid their collapse.  These failures may have 
been triggered by the financial crisis, but primarily they reflect 
gross mismanagement, including alleged criminal activities.  These 
demonstrate problems and inefficiencies in the Austrian bank 
supervision system, and in particular a too intimate relationship 
between the banking sector and politics.  The effectiveness of the 
reorganization of Austria's bank supervision system in 2008 (by 
instituting a strong dual-oversight system with bank supervisory 
roles for both the Austrian National Bank and the FMA) cannot yet be 
evaluated. 
 
After a disastrous 2008 and a 61.5% drop in the Austrian Traded 
Index (ATX -- which represents blue chips with the largest market 
capitalization and highest liquidity), the Vienna Stock Exchange 
(VSE) rebounded in 2009 and outperformed many larger exchanges.  At 
year-end 2009, the ATX stood at 2,496 -- 42.5% higher than a year 
before; market capitalization of listed domestic shares was up 
almost 50% from year-end 2008 at EUR 80 billion ($ 111 billion or 
about 29% of GDP), but still well below the 2007 level. 
 
The Vienna Stock Exchange (VSE) uses Xetra (Deutsche Boerse's 
electronic trading system) for trading securities, so traders 
worldwide have on-screen information and direct access to all stocks 
listed in Vienna.  Listed companies must publish quarterly reports. 
The VSE operates regulated markets (the Official Market and the 
Second Regulated Market) and Multilateral Trading Systems (MTF) 
pursuant to the EU's 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 VSE's Third Market Rules and the provisions of the 
Securities Supervision Act apply. 
 
As of January 14, 2010, the stock exchanges of Budapest, Ljubljana, 
Prague, and Vienna are subsidiaries under a CEESEG AG holding 
company.  Currently, CEESEG accounts for about half of total market 
capitalization and some two-thirds of all equity trading volumes in 
CESEE, making it the largest stock exchange group in the region; a 
total of 264 companies are listed.  The VSE has signed MoUs or 
cooperation agreements with stock exchanges in Bosnia-Herzegovina, 
Bulgaria, China, Croatia, Dubai, Japan, Kazakhstan, Macedonia, 
Montenegro, Romania, Serbia, Slovakia, and Ukraine.  The VSE 
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. 
 
Austria's venture capital market is small and remains 
underdeveloped.  After strong growth in 2005-2007, the market 
weakened again in 2008.  Market development considerably lags behind 
that of the European venture capital market.  The volume of private 
equity and venture capital raised in Austria during 1997-2008 was 
EUR 2.4 billion ($3.3 billion), according to the Austrian Private 
Equity and Venture Capital Organization (AVCO).  After a 30% 
increase in 2006 and one of 58% in 2007, fund raising dropped 47% in 
2008 to EUR 230 million ($320 million).  The bulk of the money 
invested is used for buy-outs (almost 70%) and expansion projects, 
only a small portion (5%) for start-ups and seed financing. 
 
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 ($556,000), the Austrian Enterprise Code 
includes detailed accounting regulations.  A Corporate Governance 
Code, in effect since 2006, was amended and updated effective 
January 1, 2010.  Since June 2008, the Commercial Code stipulates a 
legal requirement for listed companies to attach a corporate 
governance report to their annual statement. 
 
Competition from State Owned Enterprises 
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Private enterprises in Austria are allowed to compete with public 
enterprises under the same terms and conditions with respect to 
access to markets, credit, and other business operations, such as 
licenses and supplies.  After many successful privatizations in 
previous years, public enterprises are mainly active in the area of 
state monopolies (e.g., gambling), utilities, hospitals, social 
insurance, and related sectors.  In many of these sectors (e.g., 
hospitals, utilities) private companies are competing successfully; 
however, public enterprises sometimes use their influence and 
political connections to prolong dispute resolutions and appeal 
procedures and to delay implementation of remedies, which in some 
markets can lead to significant uncertainties. 
 
Since many public enterprises are outsourced and organized as 
corporations, senior management usually does not report directly to 
a minister but to a board.  However, the government appoints 
management and board members, who are usually 
politically-affiliated. 
 
Austria does not have a sovereign wealth fund. 
 
Corporate Social Responsibility 
- - - - - - - - - - - - - - - - 
In past years, general awareness of corporate social 
responsibility (CSR) among both producers and consumers has risen. 
Major Austrian companies follow generally accepted CSR principles 
and publish a CSR chapter in their annual reports, many also provide 
information on their health, safety, security and environmental 
activities.  CSR Europe (the leading European business network for 
CSR) has a local partner organization respACT (short for 
"responsible action"), founded in 2005 to promote CSR and 
sustainable development in Austria. 
 
Political Violence 
- - - - - - - - - 
There have been no incidents of politically motivated damage to 
foreign businesses.  Civil disturbances are extremely rare. 
 
Corruption 
- - - - - 
Austria has ratified the United Nations Convention against 
Corruption (UNCAC), the OECD Anti-Bribery Convention, the Council of 
Europe's Civil Law Convention on Corruption and signed, but not yet 
ratified, the Criminal Law Convention on Corruption; it joined the 
Group of States against Corruption (GRECO) within the Council of 
Europe in 2006.  In 2008, the Austrian government tightened the 
Criminal Code's corruption regulations and established a special 
central public prosecution department with Austrian-wide authority 
for corruption cases.  In September 2009, the government amended and 
defined more precisely its criminal regulations against corruption 
(to alleviate some measures viewed as too strict), one reason why 
Transparency International's 2009 Corruption Perceptions Index 
ranked Austria 16th in non-corruption, down from number 12 in 2008 
(by comparison Germany was 14th and the U.S. 19th).  Criminal Code 
regulations cover managers of Austrian public enterprises, civil 
servants and other officials (holding those with functions in 
legislation, administration or justice on behalf of Austria, in a 
foreign country or an international organization), and 
representatives of companies.  The term "corruption" includes 
bribery and illicit intervention; abuse of office; and accepting an 
advantage by public officials, senior executives of a public 
enterprise and experts; it could also include a private manager's 
fraud, embezzlement, breach of trust, or accepting consideration. 
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 has been in 
place since 1998.  A separate law, the Law on Responsibility of 
Associations, deals with 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 income, but not less than EUR 50 ($69.5) and not 
more than EUR 10,000 ($13,900). 
 
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 those countries 
and have not yet entered into effect.  An agreement with Tajikistan 
has been initialed, and agreements with Bahrain and Turkmenistan are 
ready for initialing.  An agreement with North Korea was initialed 
in 2001, but has not been signed.  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.  In September 2009, 
Austria enacted new procedures for handling foreign tax information 
requests (limiting bank secrecy in those cases), but the new law is 
not yet applicable to the U.S.-Austria tax agreements. 
 
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, 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.  Depending on labor demand, government 
policies limit the number of foreign workers to 8-10% of the 
salaried workforce.  In 2009, the number of guest workers, 
predominantly from the former Yugoslavia and Turkey, averaged 
430,000.  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 EU Commission approved the Austrian 
government's plans to extend the restrictions for a final two years, 
i.e., until May 2011.  For Bulgaria and Romania, which joined the EU 
on January 1, 2007, Austria adopted the same 7-year transition 
period, which the government plans to maintain until 2014 despite 
appeals by Austrian employers. 
 
Compared to other EU countries, Austria had a relatively low 
unemployment rate of 5.0% in 2009.  After record employment in 2008 
and an unemployment rate of 3.8%, the recession in 2009 had a severe 
impact on the labor market.  The 2010/11 forecasts call for an 
unemployment rate of about 5.5, the projected economic growth of 
only around 1.5% in both years will be insufficient to prevent 
unemployment rising.  As long as the economy does not grow again by 
around 2% or more, labor demand will not increase.  For this reason, 
analysts expect no labor market shortages in the medium term.  Also, 
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 and efforts to reduce civil service 
employment will help guarantee sufficient labor supply.  Over the 
longer term, additional immigration, including from EU member 
states, will be necessary to balance the impact of low birth rates 
on the overall labor supply.  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, 
indicating a need for additional immigration. 
 
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.  An issue to watch is the 
growing number of low-qualified school leavers -- 10% of those 
leaving school have only lower secondary education, 20% of the 
15-year olds show low reading literacy performance.  Figures for 
2008 show that Austria has exceeded the EU goals for 2010 of a labor 
market participation rate of 70% (now 72.1%) and for women of 60% 
(now 65.8%).  Austria, however, has not yet reached the 50% goal for 
workers aged 55-64 (41.0%).  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 system, the immense 
shortage of nursing personnel to care for the fast growing number of 
elderly, 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 have occurred since 2005. 
About 35% of the work force belongs to a union.  The difficult 
economic period ahead is likely to raise again the unions' 
importance and help sharpen their 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. 
Flexible work hour regulations, in place since 2008, 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.  Responsibility for agreements 
on flextime or 4-day work weeks lies on 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 2008 
reached EUR 9.5 billion ($13.2 billion).  This was only about half 
of the EUR 22.8 billion ($31.6 billion) in 2007, a figure which was, 
however, inflated by the takeover of Bank Austria, Austria's largest 
bank, by the Italian UniCredit from its former owner Bayerische 
Hypovereinsbank (HVB), which likewise also inflated the 2008 FDI 
outflow figure.  New FDI in the first three quarters of 2009 
amounted to EUR 5.4 billion ($7.4 billion).  The value of FDI stock 
in Austria was about EUR 117.6 billion ($163.4 billion) at the end 
of 2008 and an estimated EUR 122.9 billion ($170.9 billion) by 
end-September 2009. 
 
In 2008, U.S. investment accounted for about 7% of total FDI in 
Austria.  This represented a decline from 9.1% of total FDI in 
Austria in 2007.  The decline in U.S. FDI from 2007 was primarily 
due to the takeover of GE Money Bank by the Spanish Bank Santander. 
 
At EUR 20.0 billion ($27.8 billion), the flow of Austrian direct 
investment abroad in 2008 was about 30% below the 2007 record (in 
part due to the sale of Bank Austria, see above).  More than half of 
the amount was invested in CESEE countries.  In the first three 
quarters 2009, FDI abroad was only EUR 2.8 billion ($3.9 billion). 
This raised the value of Austrian direct investment stock abroad to 
about EUR 122.6 billion ($170.4 billion) at the end of 2008 and an 
estimated EUR 125.4 billion ($174.3 billion) by end-September 2009. 
 
 
Note:  Figures converted at the 2009 annual average exchange rate of 
$1.00 for EUR 0.72. 
Source:  Austrian National Bank. 
 
 
Austria's International Investment Position (EUR billion) 
 
Year                   2007      2008 (1)  2009 (2) 
- - - - - - - - - - - - - - - - - - - - - - - - - - 
FDI in Austria         108.1     117.6     122.9 
Austrian FDI Abroad    102.6     122.6     125.4 
 
Footnotes: 
(1) preliminary figures; 
(2) first three quarters, preliminary figures. 
 
 
FDI in Austria - Source Country Breakdown 2008 
(share of total in percent) 
- - - - - - - - - - - - - - - - - - - - - - - 
U.S.                         7.0 
Germany                     25.8 
Italy                       23.0 
Netherlands                  7.2 
U.K.                         5.4 
Switzerland/Liechtenstein    5.2 
Gulf States                  4.2 
Japan                        4.1 
All other countries         18.1 
 
 
Austrian FDI Abroad - Destination Country 
Breakdown 2008(share of total in percent) 
- - - - - - - - - - - - - - - - - - - - - 
U.S.                         2.8 
Germany                     13.9 
Hungary                      7.3 
Czech Republic               7.1 
Croatia                      6.2 
Romania                      5.5 
Ukraine                      4.8 
Switzerland/Liechtenstein    4.6 
Russia                       4.2 
Netherlands                  4.1 
U.K.                         3.7 
Slovakia                     3.6 
Poland                       3.0 
Italy                        3.0 
Bulgaria                     3.0 
All other countries         23.2 
 
 
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 
McDonald's Corporation 
Marriott International, Inc. 
Mars Inc. 
MeadWestVaco Corp. 
Merck & Co., Inc. 
Modine USA 
One Equity Partners 
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 
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 
Criteria CaixaCorp., Spain 
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 
Xi'an Aircraft Industry (Group) Company Ltd., China 
 
EACHO