Navigating Legal Risks and Specifics of Doing Business in Austria

Austria represents an attractive market for Czech entrepreneurs; however, current practice reveals fundamental differences in legislation and business culture. Although most Czech business owners assume that trading will be straightforward, the reality is considerably more complex. Our Prague-based attorneys at ARROWS law firm daily resolve disputes arising from the underestimation of the specificities of the Austrian legal system, particularly in the areas of liability for defects and employment law.

Quick Summary

• Austrian law emphasizes a strict duty to notify defects (Rügepflicht) in B2B relationships – defects must be reported without delay, often within a matter of days.
• A critical point is compliance with collective bargaining agreements (Kollektivvertrag), which in Austria are binding for entire industries and define not only minimum wages but usually also the entitlement to 13th and 14th-month salaries.
• Although both systems are based on Roman law, the Austrian interpretation (ABGB, UGB) tends to be more formalistic and procedurally demanding in commercial dealings than in the Czech Republic.
• Incorrect classification of Czech sole traders (OSVČ) posted to Austria may be judged as disguised employment (Scheinselbständigkeit), leading to high fines and the assessment of back-dated social security contributions.

The Austrian legal system and its principles

Many Czech entrepreneurs assume that the legal systems in the Czech Republic and Austria are sufficiently similar, and therefore believe they can proceed according to Czech customs when doing business in Austria. This "similarity trap" is one of the most common mistakes. 

Although Czech and German belong to different language families, the legal systems share common roots. However, developments in recent decades have caused them to differ fundamentally in the details. A key difference in business practice is that the Austrian legal system and judicial practice place great emphasis on the protection of formal requirements and integrity in commercial dealings.

While in the Czech Republic one might sometimes rely on a more flexible interpretation, in Austria, authorities and courts proceed with great precision and consistently enforce the letter of the law and the wording of contracts. This approach is reflected in every aspect of legal interaction with Austria. 

Austrian lawyers and authorities expect clarity and adherence to procedures, which is manifested in commercial contracts, labor law documents, and administrative procedures. Our attorneys in Prague at ARROWS law firm commonly handle cases where Czech companies failed because they interpreted a contract "intuitively," while the Austrian party insisted on the exact legal meaning of the terms used.

The second fundamental element of the Austrian system is the dominant role of collective bargaining agreements (Kollektivvertrag). Unlike in the Czech Republic, where higher-level collective agreements are only binding for part of the market, in Austria, collective agreements cover the vast majority of sectors. For a Czech company posting workers, this means an obligation to follow the Austrian collective agreement, not just the statutory minimums.

Liability for defects under Austrian law

One of the frequent reasons for disputes between Czech and Austrian business partners is the area of liability for defects (Gewährleistung). This topic is risky for Czech companies trading with Austria if they underestimate procedural obligations in business-to-business (B2B) transactions.

Duty to notify and the deadline for reporting defects

In Austrian commercial law (for relationships between entrepreneurs), there is a key principle called the duty to notify defects (Rügepflicht) under § 377 of the Austrian Commercial Code (UGB). According to this provision, the buyer-entrepreneur is obliged to inspect the goods within a reasonable period after delivery and promptly notify the seller of any detected defects. If the buyer fails to notify the defect in time, they lose their claims arising from liability for defects as well as the right to damages.

Our Czech legal team at ARROWS law firm has experience with cases where a Czech company delivers goods to Austria and the Austrian partner claims defects only after a long period. Here, it is necessary to examine precisely whether the inspection deadline was met. Conversely, if a Czech company is in the position of the buyer, it must be aware that any delay in inspecting the goods may deprive it of the possibility of making a claim.

Related questions on the duty to notify

1. What exactly does "without undue delay" mean regarding the notification of a defect?
In Austrian commercial law, this depends on the type of goods and the feasibility of the inspection. For obvious defects, a response within days is expected. For hidden defects, the period runs from the moment of discovery, but even then, it is necessary to act quickly.

2. Does the duty to notify also apply to hidden defects?
Yes, § 377 UGB also applies to hidden defects. As soon as you discover the defect, you must notify it immediately (the so-called Rüge). If you fail to do so, the goods are deemed approved even with that defect.

Labor law and collective bargaining agreements

If a Czech company decides to post employees to Austria or establish a branch there, it enters a strictly regulated sphere. Austrian labor law, and particularly the Act Against Wage and Social Dumping (LSD-BG), are enforced very strictly. A key element is the obligation to meet the conditions set out in the relevant collective bargaining agreement.

Collective bargaining agreements and their binding nature

In Austria, industry-wide collective agreements are binding on all employers in the given field, regardless of whether they are union members. If your company falls into a certain category and posts workers to Austria, it must guarantee them a wage according to the Austrian collective agreement for the duration of the posting. This defines not only the minimum wage but also entitlements to overtime pay, meal allowances, and usually the 13th and 14th-month salary.

Our Prague-based attorneys handle cases where Czech companies were unaware that they must also pay a proportional part of the 13th and 14th-month salary for the period of the posting, which is considered wage dumping. Inspections are carried out by the financial police (Finanzpolizei). If they find that a Czech company is not paying a wage corresponding to the Austrian standard, including correct classification into a pay grade, they will initiate administrative proceedings. 

Although fines are no longer accumulated indefinitely following an amendment to the law, they can still reach tens of thousands of euros depending on the severity and the number of employees affected. An error in classifying a worker into a lower group than they are entitled to is one of the most common reasons for sanctions.

Related questions on collective agreements and wage obligations

1. How do I find out which collective agreement applies to my company?
Determining the correct collective agreement depends on the activities that the employees actually perform in Austria. It is often necessary to study the scope of validity of individual agreements. We recommend entrusting this assessment to the experts at ARROWS law firm.

2. Do I have to pay the 13th and 14th salary even during short-term postings?
Usually yes, if the relevant collective agreement stipulates it. Typically, a proportional part of these salaries corresponding to the time spent working in Austria is paid.

Scheinselbständigkeit: Czech Sole Traders and Austrian Law

One of the major risks for Czech entrepreneurs working in Austria is the issue of so-called Scheinselbständigkeit – disguised self-employment. Austrian authorities monitor and penalize this phenomenon very strictly.

How Austrian Authorities Distinguish Between Sole Traders and Employees

Austrian law examines the actual economic substance of the activity. If an external person (sole trader) effectively works as an employee, is subject to instructions, uses the client's tools, and bears no entrepreneurial risk of their own, then the contract for work is considered a disguised employment relationship.

The consequences are severe: retroactive assessment of social security and taxes in Austria, fines for illegal employment, and penalties for violations of the LSD-BG (Wage and Social Dumping Prevention Act).

Our attorneys in Prague at ARROWS law firm handle situations where a Czech construction company hires Czech sole traders for work in Austria. The line between a legitimate subcontract and Scheinselbständigkeit is thin, and a sole trader must demonstrate signs of independent business in Austria, such as their own structure, the ability to refuse a job, and responsibility for the result.

Risks and Sanctions	How ARROWS (office@arws.cz) assists
Incorrect interpretation of the duty to notify defects: Loss of claims for warranty and damages due to late notification of a defect (often within a matter of days).	Legal advice on Austrian commercial law: We will explain the exact rules for inspecting goods and set up your internal processes so that you notify defects on time and in a legally perfect manner.
Non-compliance with the collective agreement: Failure to pay wages according to the Austrian collective agreement (including 13th and 14th salaries) leads to fines ranging from thousands to tens of thousands of euros under the LSD-BG.	Payroll audit and compliance: We identify the correct collective agreement, determine the proper wage classes for your employees, and prepare a payroll policy for postings.
Reclassification of a sole trader as an employee: Retroactive assessment of contributions and taxes, high fines for illegal employment, and absence of A1 forms.	Review of contracts with sole traders: We assess whether your cooperation with sole traders will stand up before Austrian authorities.
Errors in the commercial contract: Litigation in Austria is expensive, and an unclear clause regarding which court will decide the dispute can lead to proceedings in Austria with high costs.	Preparation and review of commercial contracts: We prepare bilingual contracts under Austrian law, handle choice of law, jurisdiction, and delivery terms (INCOTERMS) to ensure you are protected.
Ignoring pre-contractual liability: Terminating contract negotiations without a valid reason can lead to an obligation to compensate the other party for damages in Austria.	Negotiation advisory: We guide you through the negotiation process so that you do not create unwanted obligations even before the contract is signed.

Formal and Procedural Errors in Commercial Contracts

At the heart of many problems is the fact that Czech companies underestimate the formal precision of commercial contracts. The Austrian legal system and business culture require precision. Provisions that are perceived as "clear from context" in the Czech Republic may be interpreted differently in Austria.

Specific Mistakes Czech Companies Make in Commercial Contracts

Common errors observed by our Prague-based attorneys at ARROWS law firm:

1. Inconsistent terminology: Using different terms for the same thing can lead to interpretive disputes.
2. VAT (Umsatzsteuer): The contract must clearly state whether the price is inclusive of VAT (gross) or exclusive of VAT (net). In international trade, the reverse charge mechanism often applies, but the contract should reflect this by referencing the relevant directive.
3. INCOTERMS: Merely stating the abbreviation is not enough; the place of destination must be specified. Czech companies often choose disadvantageous clauses, thereby taking on obligations related to import duties or VAT in Austria.
4. Absence of choice of law and jurisdiction: If the contract is silent, the relationship is governed by European regulations. This may mean that a Czech company will be sued in an Austrian court under Austrian law, where costs are significantly higher.

The Principle of Culpa in Contrahendo

In Austria, the institute of culpa in contrahendo—fault in the conclusion of a contract—is strongly recognized. If one party creates a legitimate expectation in the other that a contract will be concluded and subsequently terminates negotiations without a fair reason, they may be liable for damages. Although the Czech Civil Code also recognizes this principle, the enforcement of such claims is more common in Austrian practice.

Taxes in Austria: VAT and Permanent Establishment

Tax issues are another pitfall for Czech companies. If a Czech company provides services or delivers goods to Austria, it must address VAT (Umsatzsteuer).

VAT and Registration Obligations

The standard VAT rate in Austria is 20%. For Czech companies, it is crucial to distinguish to whom and what they are delivering—whether it is a B2B delivery of goods or services, or sales to end customers. The small business exemption in Austria with a limit of EUR 35,000 per year is primarily intended for entrepreneurs based in Austria, and foreign entities generally cannot utilize it.

Permanent Establishment (Betriebsstätte)

If a Czech company carries out a construction or assembly project in Austria that exceeds 12 months, a so-called permanent establishment is created under the double taxation treaty. In that case, income from this project must be taxed in Austria, and complex administrative obligations arise, including bookkeeping.

Related Questions on VAT and Taxes

1. Do I need to register for VAT in Austria?
If you provide construction work to an Austrian VAT payer (B2B), the reverse charge mechanism usually applies, and you do not need to register. However, if you sell goods from a warehouse in Austria or provide services to non-entrepreneurs, registration is often necessary.

2. How long does VAT registration take?
It can take several weeks. Forms must be submitted to the tax office in Graz (Finanzamt Österreich - Dienststelle Graz-Stadt), which is the competent authority for Czech entities.

3. When is a permanent establishment created?
For construction and assembly projects, usually after 12 months. Be aware that the durations of individual consecutive projects may be aggregated.

Inspections by the Austrian Financial Police and Administrative Penalties

Austrian authorities carry out very strict inspections regarding compliance with the Act on Combating Wage and Social Dumping. Before posting an employee to Austria, an electronic notification must be submitted, and the employee must carry an A1 form at all times.

Workplace Documentation

During an inspection, a Czech company must have complete documentation ready in German, which includes the employment contract, pay slips, proof of wage payment, records of hours worked, and proof of salary group classification.

Missing documents or documents provided only in Czech lead to fines. Sanctions for serious violations, such as failure to pay the minimum wage, can escalate quickly and reach tens of thousands of euros.

Risks and Sanctions	How ARROWS (office@arws.cz) assists
Failure to register for VAT in Austria (when required): If a Czech company performs taxable transactions in Austria (outside of Reverse Charge) without registration, it faces tax assessments and penalties.	VAT Obligation Analysis: Our Czech legal team will assess your specific situation and determine whether you must register or if you can invoice under the reverse charge mechanism.
Absence of ZKO3/ZKO4 notification and A1 form: Fines for formal violations of notification duties and missing social security documentation (A1).	Managing Notification Duties: We will guide you through the posting notification process and advise on what documentation employees must have available at the construction site or workplace.
Creation of a Permanent Establishment: Unintentional creation of a permanent establishment through long-term construction projects (>12 months) and subsequent sanctions for failing to file income tax returns in Austria.	Tax Advisory on Permanent Establishments: We monitor the duration of your projects and alert you in time regarding the creation of a permanent establishment and related obligations.
Missing wage documentation in German: The financial police will impose a fine if payroll records are not available at the place of work in the German language.	Preparation of "Lohnunterlagen": We ensure that your documentation (contracts, timesheets) meets the requirements of the LSD-BG and is linguistically prepared for inspection.

Most Common Errors in Legal Interpretation

In practice, our attorneys in Prague at ARROWS law firm encounter Czech companies making several systematic errors. Here are the most frequent ones.

Error No. 1: Solving problems "ex post"

Czech companies often seek a lawyer only when a fine or lawsuit arrives. In Austria, prevention in the form of a solid contract and correct notification is significantly cheaper than subsequent dispute resolution, as legal representation costs are high.

Error No. 2: Underestimating the German language

In official dealings in Austria, German is the sole official language, and documents for inspection must be in German. Even commercial contracts should have a prevailing German version to avoid interpretation discrepancies in court.

Error No. 3: Ignoring formal details

The view that "details don't matter as long as we understand each other" is dangerous in Austria. Austrian law is formal in many respects, and if you do not meet formal requirements, the law is uncompromising.

Conclusion

Trading with Austria is a great opportunity for Czech companies, but it requires respect for local rules. The Austrian market is heavily regulated and emphasizes formal correctness and employee protection. The most common mistakes involve underestimating the duty to notify defects, ignoring collective bargaining agreements, and lack of knowledge regarding tax rules.

Our Prague-based attorneys at ARROWS law firm handle these issues daily and have years of experience helping Czech companies navigate the environment of Austrian law. If you are planning to enter the Austrian market, or if you already have projects in Austria and want to ensure you are on the right track, contact ARROWS law firm.

FAQ – Most Frequent Legal Questions

1. Is it possible to have a commercial contract with an Austrian partner only in Czech?
Theoretically yes, if both parties agree, but we strongly advise against it. In the event of a dispute in an Austrian court, a certified translation will be required, increasing costs and the risk of misinterpretation. A bilingual version with a clause stating which language prevails is ideal.

2. How strictly is a late complaint assessed in B2B?
Very strictly. According to § 377 UGB, you lose rights arising from defects if you do not report the defect within a reasonable period, which for obvious defects means a matter of days.

3. Do I have to pay Czech employees in Austria up to the level of Austrian wages?
Yes, if the Austrian minimum wage according to the collective agreement is higher than their Czech wage. You must make up the difference, including the proportional part of the 13th and 14th salary.

4. What is Scheinselbständigkeit?
This refers to "bogus self-employment" – a situation where a person formally acts as a self-employed individual but effectively performs dependent work. High sanctions apply for this in Austria.

5. Do I always have to register for VAT in Austria?
Not always. When providing most services between businesses (B2B), Reverse Charge applies, and the tax is paid by the Austrian customer. Registration is typically required for B2C sales, specific services, or if you establish a warehouse in Austria.

6. How long does it take to obtain an A1 form?
It is issued by the Czech Social Security Administration (ČSSZ) in the Czech Republic. The process can take up to 30 days, or longer in complex cases, so the form should be requested well in advance of departure.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy, legislation and its interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is essential to contact ARROWS law firm directly (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution; therefore, do not hesitate to contact us.

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