Republic of Austria Business Guide
Introduction
Austria (German: Österreich), officially the Republic of Austria (German: Republik Österreich), is a landlocked country in Central Europe. It borders Germany and the Czech Republic to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the west. Its capital city is Vienna. The origins of modern Austria date back to the ninth century, when the countryside of upper and lower Austria became increasingly populated. The name "Ostarrichi" is first documented in an official document from 996. Since then this word has developed into the German word Österreich. Austria is a parliamentary representative democracy consisting of nine federal states and is one of six European countries that have declared permanent neutrality and one of the few countries that includes the concept of everlasting neutrality in their constitution. Austria has been a member of the United Nations since 1955 and joined the European Union in 1995.
Economy
Austria, with its well-developed market economy and high standard of living, is closely tied to other EU economies, especially Germany's. The Austrian economy also benefits greatly from strong commercial relations, especially in the banking and insurance sectors, with central, eastern, and southeastern Europe. The economy features a large service sector, a sound industrial sector, and a small, but highly developed agricultural sector. Membership in the EU has drawn an influx of foreign investors attracted by Austria's access to the single European market and proximity to the new EU economies. The outgoing government has successfully pursued a comprehensive economic reform program, aimed at streamlining government and creating a more competitive business environment, further strengthening Austria's attractiveness as an investment location. It has implemented effective pension reforms; however, lower taxes in 2005-06 led to a small budget deficit in 2006. Weak domestic consumption and slow growth in Europe held the economy to growth rates below 3% in 2002-05. Due to higher growth across Europe, Austria grew 3.3 percent in 2006. To meet increased competition - especially from new EU members and Central European countries - Austria will need to continue restructuring, emphasizing knowledge-based sectors of the economy, and encouraging greater labor flexibility and greater labor participation by its aging population.
Market Overview
This Country Commercial Guide (CCG) presents a comprehensive look at Austria’s commercial environment, including economic, political and market analysis. It is provided for use by U.S. companies intending to do business in Austria. The CCG is prepared annually at the U.S. Embassy in Vienna through the combined efforts of several United States Government agencies. It is a living document and its contents are updated during the year, as necessary and appropriate. Austria, with a population of 8.2 million, is a small but relatively dynamic EU member country offering export opportunities and an investment market for U.S. companies of all sizes. It tends to be overlooked as a place for business, mainly because of the large German market next door, with ten times the population. Austria offers some attractive features as an investment location, and recent Austrian governments have sought to increase that attractiveness through economic reforms and by playing up Austria’s historical and economic ties to the surrounding region. At present, approximately 370 U.S. firms have subsidiaries, affiliates, franchisees, and licensees in Austria, of which about 150 have regional responsibilities for Central European, Eastern European, or Balkan countries. Nevertheless as an investment location, Austria, and Vienna in particular, face growing competition from their Eastern neighbors, all of which are now EU members as of May 2004. The EU also welcomed two new members in January 2007: Romania and Bulgaria, bringing the total EU Member Country count to 27.
Compared to other EU countries, Austria's economy has performed well in the last year with a GDP of $ 320 billion, a growth rate in real terms of 3.3 percent (the highest rate since 2000 and about half of a percentage point higher than that of the Euro area), which is expected to ease to 2.6-2.7 percent this year, average per capita income of $ 38,631, and an unemployment rate of 4.9 percent in 2006. U.S. exports to Austria in 2005 amounted to $ 4.0 billion while U.S. imports from Austria were $ 6.7 billion. Resulting bilateral trade totaled $ 10.7 billion. After Germany and Italy, the United States is Austria's third most important trading partner.
Market Challenges
Austria is a good export market for U.S. companies, with no significant trade barriers. Qualified Austrian agents and distributors can be found for nearly every kind of product. Because of Austria’s geographic location and history, many Austrian agents and distributors sell regionally, covering several markets in Central and Eastern Europe in addition to Austria.
When establishing a business in Austria, U.S. companies may still encounter troublesome bureaucratic barriers. Some Austrian provinces have established one-stopshops for investors, and they are competing with each other to eliminate red tape. Most business activities in Austria are regulated and require that a separate application be made for a business license and for registration in the commercial register. Evidence of proficiency in running a business is required for most businesses. Usually a passing score on an examination or evidence of prior experience in the field is sufficient. For business activities that do not require proof of proficiency, the business license is granted automatically upon registration of the business.
Market Opportunities
To overlook Austria would be to overlook one of the world’s most prosperous nations on a per capita basis. Austria is a good test market for products or services and is often used as such by companies seeking access to broader European markets. Doing business in and from Austria definitely has its advantages. The introduction below summarizes four advantages that are particularly relevant in the current period. First, Austria is an international crossroads, bordering on eight European countries: Germany, Italy, Switzerland, Slovenia, Hungary, Slovakia, Czech Republic, and Liechtenstein. Four of Austria’s neighbors joined the EU in May 2004 (Czech Republic, Slovakia, Slovenia, and Hungary), transforming Austria geographically from a country on the eastern frontier of the EU to one occupying a more central position in the enlarged EU. The addition of two other Eastern European countries, Romania and Bulgaria, as new EU members at the beginning of this year strengthened Austria’s central position. Thus Austria offers U.S. companies access to growing markets in the new EU frontier of Eastern and Southeastern Europe.
Some ask whether Austria will continue to play a role as gateway to the East in attracting U.S. exports and investment, or whether U.S. firms will bypass Austria and go directly to the more growth-oriented and often more probusiness new EU members. The answer depends on many factors, and American firms are wise to assess all options. U.S. business continues to view Austria as a prime location. The country has financial and transportation links to the Eastern European region, and its banks and service providers understand regional business practices. Partnerships with Austrian firms having a presence in regional markets may be an attractive option for some U.S. companies.
A second advantage for Austria is its well-diversified and relatively resilient economy. The previous conservative government sought to remain competitive by pursuing investment in high-potential industries such as telecommunications, non-agricultural biotechnology, medical and pharmaceutical research, and electronics. A new coalition government elected in late 2006 is expected to continue this policy. For U.S. companies in these industry sectors, Austria represents a good opportunity for export, joint ventures, and investment. Under pressure from the newest EU members, which offer lower corporate tax rates, Austria lowered its corporate tax rate in 2005 from 34 percent to 25 percent. This step reflected a commitment by the government to compete with its new EU neighbors. Slovakia’s corporate tax rate, for example, is 19 percent.
A third plus for Austria is that it is a member of the EU and the Euro currency zone. The Euro has been the common currency for Austria since 2002. It has already facilitated trade and promoted economic stability for U.S. companies, helping them to manage pricing, balance accounts, and move products within Austria and throughout EU member countries. One of the drawbacks of Austria’s EU membership is that the many EU directives coming out of Brussels are not always readily implemented in Austria, or are implemented in ways that seem unnecessarily burdensome or non-transparent. This CCG summarizes the impact for U.S. companies in specific industries of relevant EU Directives. Some U.S. firms have found it frustrating to try to sort out Austria’s implementation of EU rules, and have cut back on their investment in Austria. Nevertheless for U.S. exporters, the unified EU market and the increasingly favorable exchange rate between the Euro and the dollar mean that U.S. goods should be able to compete on advantageous terms in the coming year.
A fourth advantage Austria offers is that the United States is its third largest supplier of goods and services, and its largest trading partner outside of Europe. U.S. companies entering the market for the first time will benefit from the strong trading relationship already established between the two countries. Austria is a very attractive market demanding high product quality, excellent after sales service, and competitive prices. Although Austrian buyers often decide to buy from the supplier who is closest geographically and who speaks German, many U.S. products and services can compete well with those from Germany and other EU member countries.
