Consequences of Brexit for limited companies (Ltd.) based in Austria

In recent years limited companies under English law have been established with registration at Companies House in the UK, but with their principal activity conducted in Austria from the beginning, and their head office (place of effective management) here. Based on EU law, they were treated in accordance with applicable English company law. The main advantage of the “limited company” legal form is that there is no minimum capital requirement for establishing a limited liability company under English law.

Legal and tax implications

Due to Brexit, after 31 December 2021 British limited companies with their place of effective management in Austria lost their recognition as foreign legal persons. This has legal and tax implications.

The financial authorities have taken the view that such companies are to be treated as civil law partnerships (Gesellschaft bürgerlichen Rechts). If the limited company had only one shareholder, from 2021 it is treated as a sole proprietorship (Einzelunternehmen). Among other implications, this means that shareholders are personally liable, up to and including all personal assets, for all business debts. From a tax point of view, the conversion from a British limited company to a civil law partnership or sole proprietorship means that hidden reserves in the operating assets must be disclosed, and are subject to 25% corporate income tax.

In addition, for the shareholders the reorganisation due to Brexit results in liquidation of the shares, and for tax purposes this is treated as a sale, so that hidden reserves included in shareholdings are subject to 27.5% capital gains tax. The consequences of legally acceptable reorganisation of a British limited company into a partnership or sole proprietorship need to be assessed on case-by-case basis.