Law of Contracts, Retention of title and Bill of exchange
This article gives an overview of the basic principles of Austrian contract law and the retention of title. You can also find information about the bill of exchange and cheque.
Primer on Austrian Contract Law
The legal framework on the law of contracts is set forth in the Austrian Civil Code and a newly enacted Uniform Commercial Code (UGB). The UGB governs all commercial transactions as of January 1, 2007.
Freedom of contract
Freedom of contract is the underlying principle of Austrian contract law. The contracting parties are thus free to choose any terms suitable for a transaction, unless a contractual provision or covenant would render the agreement unconscionable or otherwise unlawful. A contract is defined as consenting declarations of an offer and a corresponding acceptance and in general, neither offer nor acceptance requires a specific form under Austrian law. Also oral agreements and, under restricted circumstances, agreements implied through action (tacit agreement) are legally binding and enforceable.
Certain exceptions to this freedom of form apply with respect to securities and suretyship agreements, insurance contracts and certain agreements governed by consumer protection laws. These contracts must be made in writing to become effective. The even stricter form of a notarial deed is required to set up corporations and transfer shares held in a limited liability company.
Terms and Conditions
Business transactions are commonly subject to either of the contracting parties’ terms and conditions and Austrian law safeguards that such general terms pass a test of fairness and are not forced upon the other party.
Retention of title and other security instruments
As a general principal, Austrian Law does not recognize undisclosed collateral. Encumbrances attached to chattels or real estate must meet certain public disclosure requirements. For movable property (non real estate possessions) this requirement is satisfied by handing over the object to the creditor; with respect to real estate (immovable property) a registration of the security interest in the land register is necessary. Without adhering to disclosure requirements, a security instrument will not become effective
Retention of title (Eigentumsvorbehalt)
Retention of title is the exception to the rule that effectiveness of a security requires public disclosure. Retention of title means an (express or tacit) agreement that ownership in the delivered good will only be transferred from seller to buyer once full payment has been made. Should the buyer default on payment, the seller has the right to reposess goods sold to the purchaser. In the event of the purchaser’s bankruptcy, the seller has the right to recover the goods to which he retained title.
Retention of title-clauses in commercial transactions commonly provide that purchaser is enttitled to process and resell the goods even though he is not the legal owner (due to the retention of title by seller). To safeguard the security interests of the seller, the purchaser typically assigns his claims in connection with a resale to seller (so called extended retention of title; verlängerter Eigentumsvorbehalt ).
Other security instruments
Liens (mortgages), security assignment of goods ( Sicherungsübereignung ), security assignment of rights (Sicherungszession), sureties ( Bürgschaft ), guarantees (bank guarantees) and letters of comfort are some of the other more frequently used instruments for securing debtor’s obligations.
Bill of exchange and cheque
Bills of exchange (Wechsel) are widely and commonly used as a form of security that can also be used for financing by way of discounting. Bills of exchange are regulated in the Austrian Bills of Exchange Act (Wechselgesetz) which was drafted according to the model law of the 1930 Geneva Convention on bills of exchange. The Act distinguishes between drawn bills and promissory notes. With a drawn bill, the issuer directs the drawee to make payment to the payee or remitter. Austrian law also recognizes a blank bill of exchange (Blankowechsel) which is only signed by the debtor (as drawee). The blank bill is then filled out by the payee complying with the terms of the underlying security agreement.
A defence claiming that the bill of exchange was used contrary to the underlying security agreement cannot be raised against a bona fide third-party transferee. A bill of exchange establishes its own abstract claim. If assigned to third parties, a defence claiming a remedy attached to the originally secured transaction can only be raised to a very limited extent. This legal framework prompted widespread use of bills of exchange for financing and collateralization purposes.
Cheques, in turn, did not achieve the same importance as in Anglo-Saxon countries.
Currency Control and Value Added Tax
This article contains further information about the liberal Austrian currency control regulations and the value added taxation.
Austria has very liberal currency control regulations, based on the ruling EU-provisions and the Austrian Currency Law ( Devisengesetz (2004). The Austrian National Bank (Österreichische Nationalbank, OeNB) is responsible for currency control in Austria . The principle of Freedom of Movement of Capital applies within the EU and there are no legal restrictions on payments and capital transfers between Austria and the other EU member states.
In respect of currency transactions with countries outside the EU there are, with few exceptions, neither restrictions on payments relating to foreign trade, investment or other transactions nor on capital transfers, payment of dividends, profits or other earnings. Foreign firms have unrestricted access to the Austrian capital market. Some currency transactions do, however, have to be reported to the OeNB, principally for the statistical purposes. Further information is available at:
Otto Wagner Platz 3
- +43 1 40420 0
- +43 1 40420 2399
Value Added Tax
Value-added (also: turnover) tax (VAT, Umsatzsteuer ) is a consumption tax. The tax rate is 20%, however for certain services a reduced tax rate of 10% applies (art sales, transport, residential leases, food stuffs, agricultural produce).
It applies to all deliveries of goods and services in the course of ordinary business. It also applies to the import of goods into Austria . The tax burden is ultimately with the person who purchases for consumption. The obligation to pay the tax to the tax office, however, lies with the entrepreneur. This system is reflected in the right of the business to deduct VAT charged to it by other entrepreneurs for delivery of goods or services in Austria from its own tax liability (input VAT refund – Vorsteuerabzug ). A refund of input VAT is also permitted for deliveries from abroad (EU and non-EU countries); no refund is applicable, however, for acquisition of motor vehicles with fewer than nine seats.
In order to obtain a refund on input VAT, the delivering entrepreneur must issue an invoice (Rechnung) which must meet certain criteria under the Austrian VAT Act. The tax is assessed on the basis of the annual value-added tax return. The entrepreneur must make advance payments for each calendar month. The regulation of value-added tax in the EU is only provisional. In trading between entrepreneurs, the tax liability is incurred in the country of destination (Bestimmungslandprinzip) at the rates applicable there. In the country of origin, no value-added tax is then due. All exports from Austria are exempt from VAT.
For further information on Austrian Taxes visit the website of the Austrian Ministry Of Finance .
Under the Austrian Act on Foreign Employees, a non-EU employee of a foreign employer that has no registered branch in Austria requires a secondment permit (Entsendebewilligung) if sent to Austria for installation work. Austrian salary-levels and working conditions must be observed and the secondment-related project must not exceed six months. Also, any employment exceeding four months is prohibited under this permit. All other types of employment require a fully-fledged work permit that must be applied for by an Austrian employer. Further restrictions apply with respect to construction work, which always require a work permit. The secondment and work permits are issued by the competent regional office of the Austrian labour agency (AMS) .
EU-nationals are not subject to those restrictions, with the exception of citizens of Romania and Bulgaria who shall require a EU-secondment permit according to article 18 (12) of the Austrian Act on Foreign Employees until December 31, 2013.
A secondment of both EU and non-EU employees must be reported to the Central Coordination Office of the Ministry of Finance (ZKO); no later than one week before starting to provide services. The Central Coordination Office of the Ministry of Finance is in charge of the control and enforcement against illegal employment according to the Austrian Act on Foreign Employees and the Austrian Employment Law Harmonization Act.
E-Commerce and Commercial Agent
This article gives an overview of the basic principles of the E-Commerce Act. You can also find information about the Austrian Commercial Agency Law.
The Austrian E-Commerce Act implemented the European E-Commerce Directive and applies to services that are rendered via electronic processing and storage systems. Voice telephony, telefax or telex services are excluded from the scope of the Act. Those means of communication are covered under the provisions on distance contracts which are contained in the Austrian Consumer Protection Act.
According to the E-Commerce Directive and the E-Commerce Act, the country-of-origin-principal provides that the regulations apply where the service provider has its principal place of business. Consequently, a provider with a registered office in Austria must comply with the Austrian Trade Act and related regulations governing supply and distribution of goods and services. Once the Austrian requirements are met, however, the provider may also conduct its activities in other EU member states without additional requirements. Conversely, every provider with an establishment in another EU member state may conduct its activities in Austria if it complies with the provisions of its country of origin.
Contract Conclusion via Internet
Generally, contracts can be concluded over the internet and are governed by the same rules as other, more traditional contracting activities. One crucial aspect is, however, that promotion of goods on the internet does not constitute an offer but only a request addressed to a customer to make an offer. The contract is only perfect if and when the customers receive express acceptance/acknowledgement from the supplier or if goods ordered are subsequently delivered.
Commercial Agent and Distributor
Austrian Commercial Agency Law was harmonized with the respective EU directive. The new rules are set forth in the Austrian Act on Commercial Agents 1993 (Handelsvertretergesetz 1993).
If not agreed otherwise, the commercial agent is entitled to a commission for every transaction resulting from his activities. Upon termination of the contractual relationship, the commercial agent may claim a severance payment that is meant to compensate for any surviving business advantages left with the entrepreneur. The amount of computation can reach up to one year’s commissions (calculated from the average of the previous five years). Contracts with commercial agents usually run for one to five years and must not contain a post-termination covenant prohibiting competitive activities.
For detailed Information and contact informations of Austrian commercial agents visit the website of the The Austrian Association of Commercial Agents .
Other widespread means of distribution are through
- authorized dealers (Vertragshändler)
- and by way of (exclusive or non-exclusive) license contracts.
The Austrian Patent Act (Patentgesetz) contains detailed regulations for the protection of new inventions. A patent right gives the holder an exclusive right to the commercial production and general use of the invention. The patent right is limited to a period of 20 years. In case of infringement, the holder can ask for preliminary injunctions (cease and desist order) and is also entitled to receive accurate consideration as compensation. The infringing party can also be ordered to disgorge profits made through infringement. The patent is acquired by way of registration with the Austrian Patent Office . Protection is granted according to priority of registration. Austria has also ratified the TRIPS Agreement.
The official Austrian body for the registration of patent rights is the Austrian Patent Office. The European Patent Convention of 1973 decrees that a patent registration within Europe can be applied to all member states. This European patent registration can be filed at the Austrian Patent Office and the European Patent Office. Individuals without a permanent residence in Austria must be represented by an Austrian attorney. Here you can find a list of Austrian patent lawyers (German only) .
Inventions below patent-level are protected under the Austrian Registered Design Act (Gebrauchsmustergesetz). Registration procedure for a registered design is easier than for a patent; the protection period is also shorter (10 years). The scope of protection, however, corresponds to that of a patent.
Other designs are protected under the Austrian Design Protection Act (Musterschutzgesetz). Protected are forms, covers, materials etc. of a specific design. The protection also grants a right of exclusivity. The period of protection is five years.
The Austrian authority for the registration of designs is the Austrian Patent Office, Österreichisches Patentamt .
Trade Mark Rights
Trademarks, service marks and brand names (Marken) are protected under the Austrian Trademark Act (Markenschutzgesetz). A trademark right is established by way of registration. A registered trademark provides its holder with an exclusive right to use and transfer the trademark. In case of infringement, the trademark holder can claim damages, compensation for unjust enrichment and also move for preliminary injunctions. The initial registration provides for protection of 10 years; indefinite renewals are permissible under Austrian Law. The Austrian authority for the registration of trade mark rights is the Austrian Patent Office, Österreichisches Patentamt .
Under applicable EU-directives, community trademarks can be registered with the EU-Trademark Office
in Alicante, Spain. Such a community trademark offers protection in all EU-member states. International protection requires an international trademark under the Madrid Trademark Agreement of 1891.
Literary, musical, artistic and cinematographic works and computer programmes are protected under the Austrian Copyright Act (Urheberrechtsgesetz). Protection under the Copyright Act does not require registration; the copyright exists upon creation of the work. In case of a copyright infringement, the copyright holder can demand a cease and desist order, removal or destruction of plagiarism and counterfeit and damages or compensation for unjust enrichment. The protection period is:
- 70 years for works of literature, music and the arts
- 50 years for broadcasts, sound carriers and photographs
Insolvency and Restructuring
Austrian restructuring legislation provides for a variety of possible proceedings once insolvency looms. All proceedings except for bankruptcy proceedings are aimed at salvaging the insolvent debtor, i.e. structured to achieve a full debt release.
Available assets of the debtor are divided among creditors following the principle of equal treatment. Certain creditors are granted preferential treatment:
- rights to separation
- rights to recovery
- priority of secured creditors
Claims of employees are mostly covered by a government-run insolvency protection fund and financed through mandatory contributions by employers. If a debtor cannot honour claims by creditors or if liabilities exceed assets (over-indebtedness – Überschuldung), the debtor must file a bankruptcy petition within 60 days. Under those circumstances creditors may also file such a petition. A debtor’s failure to file a petition within due time amounts to a criminal offence and also entails a personal liability irrespective of a limited liability-structure of the insolvent entity. Once bankruptcy proceedings are opened, a trustee in bankruptcy (Masseverwalter) assumes control and administration of the failed business and divides the assets among the creditors (private sale, court auction). After the estate has been distributed, bankruptcy proceedings are terminated. Creditors may, however, bring their non-secured or unsatisfied claims against the bankrupt entity or individual for up to 30 years.
Restructuring proceedings (Sanierungsverfahren) serve to rescue the debtor by way of partial release from debts. Debtor must offer creditors payment of at least 30 % of the outstanding debt within 2 years. This proposal requires acceptance by creditors (simple majority of the creditors present at the court hearing and majority of creditors representing at least 50 % of the total debt) and a court order approving the proposal. Creditors who do not consent are subject to a proposal’s terms once accepted by the majority of creditors and confirmed by the court. Once the debtor has made payment of the proposed fraction of the outstanding debt, the debtor is then released from the residual debt balance.
The Austrian Act on Business Reorganisation (Unternehmensreorganisationsgesetz) provides for special court proceedings in the event of a threatened insolvency. Reorganization proceedings start with the submission of a reorganization plan to the court. The reorganization plan must explain the reasons for the business crisis, contain counter-measures planned and a prospect of the reorganized business. The reorganization plan and its implementation will be monitored by a reorganization auditor.
Bankruptcy proceedings are not restricted to businesses. Individuals who became insolvent may petition the court with a payment plan (Zahlungsplan) or similar proceedings with a subsequent release from the balance of the debt. Provided the private debtor pays off at least 10% of the outstanding debt, he or she will be released from all other debts so that creditors can no longer instigate proceedings.
Court System, Arbitration and Attorneys-at-law
This article provides more information about the court system and arbitration in Austria. In addition you can find contact details and information about the competences and activities of Austrian attorneys-at-law, public notaries, chartered accountants and auditors, as well as certified translators and interpreters.
Court System and Jurisdiction in Austria
Claims based on private law (commercial transactions, torts, domestic relations, employment litigation etc.) are tried before the courts of general jurisdiction (ordentliche Gerichte); in turn, arbitration would require an express, written arbitration agreement. The Austrian court system is strictly federal and has a three-tier structure. Subject matter jurisdiction on the trial level is either with one of the county courts (Bezirksgericht) - each having jurisdiction in the relevant county - or with the district court (Landesgericht), having jurisdiction in each of the district circuits. The county courts are small–claims courts (amounts in controversy below Euro 10,000) and also have subject-matter jurisdiction in domestic relations cases and rent control. All other claims must be brought before the district court.
The venue in either case is determined by a defendant’s residence or place of business. Austrian trial courts (county and district courts) are general-jurisdiction courts (with a few exceptions, e.g. administrative, constitutional and anti-trust matters). Cases are principally decided by a single trial judge and not by a panel of judges. Austria has no jury trial for claims based on private law. Judges are not elected but appointed and then receive a lifetime tenure.
Representation by an Austrian attorney-at-law (German only) is compulsory unless the amount at issue does not exceed Euro 5,000. Legal aid is available for plaintiffs and defendants without sufficient financial means to cover legal expenses.
Under more recent EC regulations on jurisdiction and recognition/enforcement of tribunal awards, judgments rendered in Austria will also be recognized and enforced in other EU or EEA member states, and vice versa . Other than that, foreign judgments are only enforced in Austria subject to bilateral treaties on recognition and enforcement.
For further information about the Austrian Justice System please visit the website of the Austrian Ministry Of Justice .
Arbitration in Austria
On an international level, dispute resolution through arbitration has the considerable advantage that based on international treaties; Austrian arbitration awards are enforceable in almost any jurisdiction. Austria has signed all important bilateral and multilateral treaties, among those the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
An arbitration agreement must be drawn up in writing to be valid and legally binding, although an arbitration clause by way of exchanging fax or electronic messages would suffice to meet this statutory requirement. It is highly recommendable to include an arbitration clause in contracts with an international context. Dispute resolution through arbitration allows for comparatively expeditious proceedings and an award on the merits that is also fully recognized and enforced by Austrian federal courts.
The International Court of Arbitration of the Austrian Federal Economic Chamber in Vienna is a renowned arbitration organisation that is increasingly chosen to settle multi-jurisdictional disputes and helped establish Austria ’s reputation as a venue for international arbitration.
Attorneys-at-law, Public Notaries, Chartered Public Accountants und Certified Translators
Legal advice is primarily rendered by a Rechtsanwalt (attorney-at-law). Admission to the Austrian Bar requires extensive post-graduate training:
- several years of court clerkship and employment as a trainee lawyer
- multi-day bar exam
Membership in the Austrian Bar Association (German only) is mandatory, the association also rules in disciplinary matters. Lawyers from other EU and EEA member states are entitled to preliminary practice of law in Austria under the professional admission of their home country. After at least three years of practice in Austria , European lawyers may apply for full admission in Austria . With a few exceptions, Austrian lawyers have the exclusive right to represent their clients also before courts and jurisdictional branches of government. Fees are determined according to the statutory Lawyers’ Tariffs Act, although fee arrangements based on time spent are gaining importance. Constituency fees are prohibited by law. Austrian lawyers are subject to a strict statutory obligation of confidentiality.
The Directory of Lawyers (German only) of the Austrian Bar Association offers detailed information and contact addresses of Austrian attorneys-at-law.
Legal education and training for public notaries is similarly strict and time-consuming. Public notaries are appointed by the Austrian attorney general; the number of positions is limited by law. Notaries provide important certification services in connection with corporate law (many legal instruments concerning establishment, restructuring or sale of Austrian companies require the form of a notarial deed). Also, notaries act as quasi–governmental administrators for estates and provide administrative assistance to courts in inheritance proceedings. Generally, notaries are not admitted to litigate before court. Fees of notaries are determined according to the statutory Notarial Tariff Act.
Comprehensive information on the institutions and duties of the Austrian civil law notaries and contact informations of Austrian public notaries can be reached via the website of the Austrian Chamber of Civil Law Notaries .
Chartered Public Accountants
Tax advice is generally provided by tax consultants (Steuerberater). Tax consultants and lawyers closely cooperate in corporate restructurings and similar transactions. Tax consultants often also carry out tax audits, but certain types of audits (e.g. financial statements of stock corporations) may only be carried out by certified auditors (Wirtschaftsprüfer).
Online directories of Austrian tax consultants, auditors and certified auditors can be reached via the website of the Austrian Chamber of Chartered Public Accountants (German only) and on www.steuerberater.at (German only) .
In the international business world it is often necessary to have documents translated by certified translators. Following are contact addresses of certified translators and interpreters in Austria: