Every Austrian founder asks this question: should I start as an Einzelunternehmen (sole proprietorship) or a GmbH (limited liability company)? I have been asked it hundreds of times — at Startup Burgenland, in workshops, in coffee meetings with aspiring founders — and the answer is almost always the same: start as an Einzelunternehmen, convert to a GmbH when revenue justifies it.
But “almost always” is not “always.” And the exceptions matter enough that you need to understand both structures deeply before choosing. I watched a founder spend EUR 5,000 and six weeks setting up a GmbH before earning her first euro of revenue. I watched another founder operate as an Einzelunternehmen for three years, accumulate EUR 40,000 in personal liability from a client dispute, and wish she had formed a GmbH from the start.
Both made the wrong decision. Here is the comparison that helps you make the right one.
Einzelunternehmen: The Starting Point
The Einzelunternehmen is Austria’s simplest business structure. It is fast, cheap, and minimal in administrative requirements.
Formation cost: EUR 15-50 (Gewerbeanmeldung at the Bezirkshauptmannschaft or Magistrat).
Formation time: Same day. You walk in, fill out the form, pay the fee, and walk out as a business owner. In some cases, you can complete the process online through e-government portals.
Minimum capital: None. Zero. You need no money to start an Einzelunternehmen beyond the registration fee.
Liability: Unlimited personal liability. This is the critical distinction. Your personal assets — savings, car, property — are at risk if the business incurs debts it cannot pay. If a client sues your business and wins a EUR 100,000 judgment, your personal assets are used to satisfy that judgment.
Taxation: Business profit is taxed as personal income. Progressive tax rate from 0% (under EUR 12,816) to 55% (over EUR 1,000,000). The progressive nature means your tax rate increases as your profit increases. At EUR 30,000 profit, you pay roughly 25%. At EUR 60,000, roughly 35%. At EUR 100,000, roughly 42%.
The Gewinnfreibetrag provides some relief — a 15% basic profit allowance on the first EUR 33,000 of profit. But at higher profit levels, the progressive rate becomes a significant cost.
Accounting: Simple cash-based accounting (Einnahmen-Ausgaben-Rechnung) up to EUR 700,000 in revenue. You record income when received and expenses when paid. No balance sheet required. A basic spreadsheet can handle the bookkeeping for a simple business, though a Steuerberater is still recommended.
Ongoing costs: Low. No minimum capital requirement, no mandatory audit, no notary fees. Your Steuerberater costs EUR 500-1,500/year for basic bookkeeping and tax filing.
The Einzelunternehmen is fast, cheap, and simple. For a solo founder validating an idea — testing whether customers will pay for a service, launching a first product, freelancing to build a client base — it is the obvious starting point. You can be operational in one day with less than EUR 100 in costs.
GmbH: The Corporate Structure
The GmbH (Gesellschaft mit beschrankter Haftung) is Austria’s standard limited liability company. It provides a corporate structure with legal separation between the company and its owners.
Formation cost: EUR 2,000-5,000 total (notary: EUR 800-1,500, court registration: EUR 300-500, legal fees: EUR 500-2,000, various administrative fees).
Formation time: 2-6 weeks. The process involves: drafting the Gesellschaftsvertrag (articles of association) with a notary, depositing the share capital, registering with the Firmenbuch (commercial register), and obtaining the Steuernummer from the Finanzamt. Each step has its own timeline.
Minimum capital: EUR 35,000 (EUR 17,500 must be paid in). With the “privileged founding” option (Grundungsprivilegierung), the effective minimum is EUR 10,000 (EUR 5,000 paid in) for the first ten years. The privileged founding reduces the initial capital requirement but creates a liability gap — creditors may pursue the full EUR 35,000 if the company defaults during the privileged period.
Liability: Limited to company assets. Your personal assets are protected. If the company incurs debts, creditors can only access the company’s assets, not your personal savings, car, or property. This is the GmbH’s primary advantage.
Note the exception: if you personally guarantee company debts (common with bank loans for new companies), the limited liability protection is undermined for those specific obligations. Be cautious about personal guarantees.
Taxation: Corporate tax (Korperschaftsteuer) of 23% on profit. Dividends to shareholders taxed at 27.5% (KESt). The combined rate depends on how much you distribute vs. reinvest.
The key insight: at a 23% corporate rate, reinvested profits are taxed significantly less than the progressive income tax rate that applies to Einzelunternehmen profits above EUR 60,000. This makes the GmbH more tax-efficient for growing companies that reinvest most of their earnings.
Accounting: Double-entry bookkeeping (doppelte Buchfuhrung) required. Annual financial statements (Jahresabschluss) filed with the Firmenbuch. The accounting requirements are more complex, which means higher Steuerberater costs.
Ongoing costs: Higher accountant fees (EUR 2,000-5,000/year), Firmenbuch filings, the mandatory minimum corporate tax of EUR 500/year (even if the company makes no profit), potentially higher bank fees, and the cost of annual financial statement preparation.
The GmbH provides liability protection and is perceived as more professional by clients, partners, and investors. It costs more in every dimension — setup, ongoing administration, and professional services.
The Decision Framework
Choose Einzelunternehmen when:
- You are a solo founder or freelancer
- Your annual profit is under EUR 60,000
- Your business has low liability risk (consulting, digital services, content, coaching)
- You want to start fast with minimal cost
- You are in the first 1-2 years and still validating your model
- You have no co-founders who need formal equity
Choose GmbH when:
- You need liability protection (physical products, construction, high-value contracts, medical services)
- Your annual profit exceeds EUR 60,000 consistently
- You plan to raise external capital — investors cannot invest in an Einzelunternehmen
- You have co-founders who need formal equity splits
- Your clients require a GmbH (government procurement, enterprise contracts)
- Your business operates in a regulated industry
The EUR 60,000 Threshold
Below EUR 60,000 in annual profit, the personal income tax rate is lower than the combined GmbH corporate tax plus dividend tax. Above EUR 60,000, the GmbH becomes more tax-efficient, especially if you reinvest profits rather than distributing them.
The math, simplified:
Einzelunternehmen at EUR 80,000 profit: Approximately EUR 28,000 in income tax (after deductions). Take-home: EUR 52,000.
GmbH at EUR 80,000 profit, fully distributed: EUR 18,400 corporate tax + EUR 16,940 KESt on dividends = EUR 35,340. Take-home: EUR 44,660. (Worse than Einzelunternehmen.)
GmbH at EUR 80,000 profit, EUR 40,000 salary + EUR 40,000 retained: Salary taxed at approximately 25% = EUR 10,000. Corporate tax on remaining EUR 40,000 profit = EUR 9,200. Take-home from salary: EUR 30,000. Retained in company: EUR 30,800. Total accessible: EUR 30,000 (cash) + EUR 30,800 (company reserves). Effective tax: EUR 19,200. Take-home equivalent: EUR 60,800.
This is a simplification. Deductions, social insurance, and personal circumstances affect the calculation significantly. But the pattern is clear: the GmbH advantage appears when profits are reinvested rather than fully distributed. Consult your Steuerberater for your specific numbers.
The Conversion Path
Most founders start as Einzelunternehmen and convert later. This is the standard Austrian path and one that accountants and lawyers handle routinely.
The conversion involves founding the GmbH, transferring assets and contracts from the Einzelunternehmen to the GmbH, redirecting all business relationships to the new entity, and closing the Einzelunternehmen. It takes four to eight weeks and costs EUR 3,000-8,000 (notary, legal, administrative).
Key conversion considerations:
- Customer contracts need to be novated (transferred) to the new entity. Most customers approve this without issue, but it requires communication and documentation.
- Employees are transferred under Austrian transfer-of-business law (AVRAG) with their existing rights preserved.
- Tax implications exist — consult your Steuerberater before converting to ensure the timing is optimal.
- SVS (self-employed social insurance) obligations end, and ASVG (employee social insurance) obligations begin if you become an employee of your own GmbH (Gesellschafter-Geschaftsfuhrer).
The conversion is routine. It is not a reason to start as a GmbH “just in case.” Start lean, grow into the right structure.
The Insurance Alternative
If liability is your main concern but your profit does not justify a GmbH, consider business insurance before defaulting to the corporate structure.
A Berufshaftpflichtversicherung (professional liability insurance) costs EUR 200-1,000/year depending on your industry and coverage level. It provides protection for professional mistakes, client claims, and third-party damages. For consultants, designers, developers, and digital service providers, insurance achieves practical liability protection at a fraction of the GmbH cost.
A Betriebshaftpflichtversicherung (general business liability insurance) covers broader risks — property damage, personal injury claims, and product liability. Essential for businesses with physical interactions (events, retail, manufacturing) regardless of legal structure.
Insurance does not replace the GmbH’s structural liability protection. But for many early-stage businesses where the primary risk is professional liability, insurance provides adequate protection at EUR 200-1,000/year versus EUR 5,000-10,000/year for GmbH overhead.
The FlexKapG: The New Middle Ground
Austria introduced the Flexible Kapitalgesellschaft (FlexKapG) as a new legal form aimed at startups. It offers features from both the GmbH and AG (stock corporation) structures with more flexibility for equity participation.
Key features: lower minimum capital (EUR 10,000 with EUR 5,000 paid in), the ability to issue employee participation shares (Unternehmenswert-Anteile) without notarial requirements, and simplified governance. The FlexKapG is designed specifically for startups that need corporate structure and investor-friendly equity mechanisms without the full cost and complexity of a traditional GmbH.
If you plan to raise investment, issue employee equity, or structure complex ownership, discuss the FlexKapG with your lawyer. It may be a better fit than the traditional GmbH for venture-backed startups.
My Recommendation
Start as an Einzelunternehmen. Review at two checkpoints:
Checkpoint 1: Annual profit approaches EUR 60,000. Run the tax comparison with your Steuerberater. Factor in your reinvestment plans and distribution needs.
Checkpoint 2: External factors require it. Raising capital, large contracts with liability clauses, entering regulated industries, adding co-founders, or winning government procurement that requires a GmbH.
The structure is a tool, not an identity. Use the simplest tool that fits your current situation. Upgrade when needed. The Austrian startup ecosystem supports both paths, and the transition between them is straightforward.
The worst decision is spending EUR 5,000 and six weeks on a GmbH before you have earned your first euro. Start fast, start cheap, start now. The legal structure can evolve as your business does.
For the full picture of what it costs to get started, see startup costs in Austria.
