Tax treatment of crowdfunding

In the past year, the general conditions for start-ups in Austria were challenging, as investors were reluctant to invest due to the uncertainty surrounding economic development. The focus is therefore on new forms of financing for young entrepreneurs that are aimed at a broader group of investors. Crowdfunding can address new groups of investors who want to participate in the long-term success of companies with smaller amounts. The tax framework is challenging and depends on the structure of the investment in each individual case.

Peter Wundsam, Managing Partner at Mazars Austria

It is characterized by processing via an internet platform and the broad participation of the "crowd". The specific tax treatment of the transaction depends on the type of crowdfunding.

Crowdinvesting and crowdlending

Crowd investing or equity-based crowdfunding refers to the provision of long-term capital by investors, who in return receive a share in the company's success. The contractual structure usually takes the form of a profit participation right or a genuine silent partnership. In crowdlending, subordinated loans are issued and interest is paid in return. The latter variant is also known as peer-to-peer crowdfunding and is used in practice in connection with real estate, among other things.
From the perspective of the borrower, the remuneration paid to the investor is generally only tax-deductible if the invested capital is debt capital (e.g. nominal participation right, genuine silent partnership, subordinated loan). If there is equity capital (e.g. profit participation right), this constitutes non-deductible remuneration to the investors. In the case of investors, the specific classification of the consideration received depends on the type of consideration, the corporate form of the capital recipient and whether the investment is made from private assets or business assets.

Crowdsponsoring

In crowd sponsoring or rewards-based crowdfunding, investors/sponsors receive non-monetary consideration, such as advertising services or various products. From an income tax perspective, the question arises as to whether sponsorship payments or a (mutually income tax-neutral) pre-financing of products is involved. Sponsorship payments are to be assessed as taxable business income at the borrower level and are only deductible for sponsors if there is a business reason and the payment both causes a broad advertising effect and is in reasonable proportion to the consideration.

Crowddonating

The focus here is on the promotion of projects, for example from the creative, cultural or art scene. Investors do not receive any consideration at all. In this respect, this "donation" can only be tax-deductible for the donor if the recipient of the payment is a beneficiary of the donation. From the perspective of the donation recipient, the donation is considered business income if it relates to the business. Outside of the business purpose, the payment must be qualified as a gift. In connection with a possible donation, the obligation to notify the tax office must be observed from a cumulative amount of € 15,000 within five years.