The Austrian private foundation was for decades the standard instrument for structuring large family and business assets in the German-speaking area. It offers high legal certainty but has tax particularities. This article explains the model, the taxation and the delineation from foreign alternatives.
The Austrian private foundation rests on the Private Foundation Act (PSG) of 1993. It is an independent legal person that is endowed with assets by the founder and administers these for the benefit of the beneficiaries. For decades it was the preferred vehicle for wealthy Austrian families – today it competes with more flexible and tax-favourable models.
The legal framework of the Austrian private foundation
The Austrian private foundation requires a minimum endowment of €70,000. The founder sets out the purpose and the beneficiaries in the foundation deed. The foundation board, which consists of at least three members, runs the foundation. Characteristic is a strict organisational separation: beneficiaries may not belong to the board.
- Legal basisPrivate Foundation Act (PSG) 1993
- Minimum endowment€70,000
- Boardat least 3 members, beneficiaries excluded
- Purposeasset administration and passing-on; no operating trade
The taxation of the Austrian private foundation
Taxation is the decisive point in assessing the Austrian private foundation. It follows a three-tier model, which is presented in simplified form below:
| Level | Burden |
|---|---|
| Entry (contribution to the foundation) | 2.5% foundation entry tax |
| Ongoing income (e.g. interest, certain gains) | interim tax of around 23%, creditable later |
| Distributions to beneficiaries | 27.5% capital-yield tax (KESt) |
The combination of entry tax, interim tax and KESt on distributions means that the Austrian private foundation is for tax purposes often more expensive than foreign models such as the Liechtenstein foundation or the trust in Cyprus. The interim tax is admittedly credited on later distributions but initially ties up liquidity.
Advantages and limits
Despite the tax burden, the Austrian private foundation has clear strengths: high legal certainty, an established body of case law and social acceptance domestically. Its limits lie in the comparatively high ongoing taxation and the strict separation between beneficiaries and board, which restricts the founder's influence.
Anyone who is considering a relocation of residence anyway should compare the Austrian private foundation with foreign models. A Liechtenstein foundation or a trust in Cyprus in connection with a Non-Dom residence can, depending on the starting position, achieve a considerably lower overall burden. Decisive is always the concrete asset and family situation.
The Austrian private foundation in international comparison
Compared with the Austrian private foundation, Liechtenstein and Cyprus score with flexibility and lower taxation. Anyone who places the emphasis on legal certainty in the German-speaking area and social acceptance still finds in the Austrian private foundation a solid instrument. Anyone who, by contrast, wishes to minimise the tax burden and achieve maximum freedom of structuring should seriously examine the alternatives.
Organisation and influence of the founder
The Austrian private foundation is characterised by a deliberately strict governance. The foundation board with its at least three members runs the foundation on its own responsibility; beneficiaries are excluded from it in order to avoid conflicts of interest. The founder can secure their influence via the foundation deed and supplementary deeds, such as through the right to change the foundation purpose or to revoke the foundation while they are alive. These far-reaching founder rights are a reason why the Austrian private foundation was so popular in the past – they connect legal independence with continuing structuring power. However, too widely framed reservation rights can raise tax and civil-law questions, which is why the structuring must be carefully weighed.
On the death of the founder, the personal reservation rights fall away, and the foundation follows the rules set out in the deed. A forward-looking design of these succession rules is therefore of central importance so that the foundation continues to work after the founder in the sense of the family.
When the Austrian private foundation still makes sense
Despite the higher tax burden, the Austrian private foundation remains the right choice in certain constellations. For families with a strong personal, business and social connection to Austria who do not wish to relocate their residence, it offers a proven, legally secure and domestically recognised vehicle. Even when the emphasis lies on the long-term binding of a family company, it is a proven instrument. Anyone who, by contrast, is internationally positioned anyway or is considering a relocation of residence should include the noticeably more favourable taxation of a Liechtenstein foundation or a trust in Cyprus in the weighing. The decision should always rest on a concrete comparison of the overall burden over the planned time horizon, not on a blanket preference for a particular model.
Existing private foundations and their options
Many families established an Austrian private foundation in the past and today face the question of whether this structure is still optimal. The ongoing tax burden, in particular the interim tax and the capital-yield tax on distributions, is increasingly perceived as a disadvantage compared with modern foreign models. In such cases, a stocktaking is worthwhile: which income arises, how high is the actual overall burden, and which goals does the family pursue today? Depending on the result, different routes come into consideration – from retaining and optimising the existing structure via an adjustment of the investment and distribution policy through to more fundamental considerations in connection with a relocation of residence. A blanket recommendation is out of the question, because the tax and legal consequences of a restructuring are to be carefully examined. Clear, however, is that the once-made decision for an Austrian private foundation need not be regarded as unchangeable but should be regularly reviewed in the light of today's possibilities.
Foundation entry, ongoing phase and dissolution
The tax consideration of the Austrian private foundation must comprise all phases of its existence. At the foundation entry, the entry tax arises; in the ongoing phase, the interim tax applies to certain income, which is credited on later distributions to beneficiaries; on distributions, finally, the capital-yield tax. Anyone who considers only one of these phases gains a distorted picture of the actual burden. Only the overall view over the planned time horizon shows whether and to what extent the structure makes economic sense.
The dissolution of a private foundation too is to be considered, since it can trigger its own tax consequences. Families that hold an existing Austrian private foundation and reconsider its orientation should therefore carefully calculate the consequences of each option – retention, adjustment or dissolution. The Austrian private foundation remains a reliable instrument, but its economic assessment demands a holistic consideration reaching across all life phases of the foundation, which also includes international alternatives.
Legal certainty as the asset of the private foundation
The strongest argument for the Austrian private foundation remains its extraordinary legal certainty. Over more than three decades, an extensive body of case law has developed that has clarified almost every practical question – from the reach of the founder rights via the duties of the board to the treatment of distributions. This reliability is a high good precisely in the long-term binding of large assets, because it creates planning certainty over decades and minimises the risk of unexpected legal disputes. For families that place stability and predictability above the last tax optimisation, the Austrian private foundation is therefore still an option to be seriously considered, which holds its place in the spectrum of structuring instruments.
The three levels of taxation
The Austrian private foundation is taxed on three levels: on the contribution to the foundation (entry taxation), during ongoing operation and on the distribution to beneficiaries (exit taxation). With the reform as of 1 January 2026, two of these levels were tightened, which increases the overall burden and changes the planning.
Entry, ongoing and exit taxation
On the contribution of assets, the foundation entry tax arises, which was raised from 2.5% to 3.5% of the fair value as of 1 January 2026; for property contributions, the likewise increased equivalent applies. In ongoing operation, most income is subject to corporate tax of 23%. Certain capital income and property gains are charged with the interim tax, which rises from 23% to 27.5% from the 2026 assessment. Distributions to beneficiaries are subject to the capital-yield tax of 27.5%.
| Level | Rate from 2026 | previously |
|---|---|---|
| Foundation entry tax | 3.5% | 2.5% |
| Corporate tax (ongoing) | 23% | 23% |
| Interim tax | 27.5% | 23% |
| KESt on distributions | 27.5% | 27.5% |
The interim tax as advance taxation
The interim tax of the Austrian private foundation is conceived as advance taxation: it is levied on retained capital income and realised value increases but is credited or refunded on later distributions to beneficiaries. If the distributions exceed the interim-tax-liable income of a year, a credit of previously paid interim tax arises. Participation income from domestic corporations remains tax-free.
Substance distribution and the record account
Whether dedicated assets can be repaid tax-free depends on the time of contribution. Assets dedicated after 31 July 2008 (new assets) can be documented via a record account and flow back tax-free to beneficiaries within the framework of a substance distribution – but only after the income earned so far has been distributed in a taxable manner. For old assets, a tax-free repayment is not possible.
If the foundation deeds are not fully disclosed to the tax office, the foundation entry tax rises to 25% and all income is treated as a trade. Added to this are new reporting obligations under the register of beneficial owners. A proper disclosure and documentation is therefore indispensable.
When the private foundation pays off
The advantage of the Austrian private foundation lies above all in retention: if income is left in the foundation and reinvested, initially only the lower ongoing taxation or the refundable interim tax applies. As soon, however, as high amounts are regularly distributed to beneficiaries, the overall burden approaches the direct taxation. After the tightening in 2026, a sober comparison with alternatives is worthwhile – such as the Liechtenstein foundation or a structure anchored in Cyprus.
Worked example: retention versus distribution
The effect of the Austrian private foundation shows itself in the income. If the foundation earns rental income, this is subject to corporate tax of 23%. If it is retained and reinvested, this burden initially remains – ideal for the build-up of further assets. If, by contrast, it is immediately distributed to beneficiaries, the capital-yield tax of 27.5% is added, so that the effective overall burden lies at around 44%. The advantage of the foundation thus lies clearly in retention.
The private foundation compared
After the tightening in 2026, the comparison with alternatives is worthwhile. The Liechtenstein foundation offers, with 12.5% income tax and the PVS option, a lower ongoing burden but demands careful structuring because of the German attribution. A structure anchored in Cyprus combines low corporate taxation with the Non-Dom status. The Austrian private foundation remains attractive for Austrian matters and for retention but is no longer the most favourable variant in international comparison.
| Location | ongoing taxation |
|---|---|
| Austria | 23% CIT / 27.5% interim tax |
| Liechtenstein | 12.5% (PVS: only minimum tax) |
| Cyprus (structure) | 15% CIT, Non-Dom 0% SDC |
Organs, reporting obligations and liability
The Austrian private foundation is run by a foundation board consisting of at least three members; beneficiaries and their close relatives may in principle not belong to the board, in order to preserve independence. A foundation auditor supervises the accounting. Optionally, an advisory board with control and participation rights can be set up to safeguard the founder's will.
With the 2026 reform, the reporting obligations under the register of beneficial owners were tightened, and the liability of the organs was made more precise. A complete disclosure of the foundation deeds to the tax office is mandatory; otherwise an increased entry tax and treatment as a trade threaten.
The separation of board and beneficiaries as well as the proper documentation are not mere formalities but a precondition for the recognition and protection of the structure. A professional governance secures the long-term functioning of the private foundation.
Recommendations for action after the reform
After the tightening in 2026, founders and boards of an Austrian private foundation should review their structures. In ongoing planning, retention gains in importance, since distributions are connected with the increased capital-yield tax and – via the interim tax – with a higher advance burden. Anyone who leaves income in the foundation and reinvests it makes best use of the remaining advantage.
In addition, a careful documentation of the record accounts is advisable in order to be able to make later substance distributions tax-free, as well as the complete disclosure of the deeds. In international comparison, it is worthwhile to weigh the private foundation against alternatives such as the Liechtenstein foundation or a Cyprus structure.
Only with a complete documentation of the dedicated assets and the income is a tax-free substance distribution possible. If it is lacking, the tax administration treats the entire distribution as subject to capital-yield tax. The proper keeping of the record accounts is therefore of considerable financial value.
Conclusion
The Austrian private foundation remains a proven and legally secure instrument that is, however, more costly for tax purposes than modern foreign models. For families with a strong Austrian connection it is still attractive; anyone looking for international flexibility and a lower tax burden should include the Liechtenstein foundation or the trust in Cyprus in their considerations.
This article serves general information only and does not constitute individual tax, legal or investment advice. All tax information refers to the 2026 legal footing in Cyprus and may change. Florian Wilk is a Director and not a tax adviser; technical tax and structural work is carried out by the CMC team and cooperating law firms.