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LIECHTENSTEIN
LINKS IN THIS SECTION
PROFITS TAX
CALCULATION OF TAXABLE BASE
NET WORTH TAX
STAMP DUTY
TURNOVER TAX
PROPERTY PROFITS TAX
VALUE ADDED TAX
WITHHOLDING TAX
FILING REQUIREMENTS
RELATED INFORMATION

Direct Corporate Taxation

 

In Liechtenstein taxes are levied under the Act relating to National and Local Taxation 1961, as qualified in yearly Finance Acts. The main taxes impinging on businesses are Corporation Taxes (Profits Tax and Net Worth Tax), Capital Tax, Value Added Tax and Coupon (Withholding) Tax. There is no separate capital gains tax as such; capital gains are treated as taxable income unless they are from real estate, when Property Profits Tax applies.

In November 2006, a working group was commissioned by the government to offer proposals for a revision of Liechtenstein's tax laws. This was adopted by the government in February 2007 as the 'Future Liechtenstein Tax Roadmap,' which contained the essential guidelines and basic ideas for a reform of Liechtenstein tax law.

The government elaborated further on the idea of tax reform in autumn 2008, unveiling plans for the introduction of a uniform profit tax for companies, and the abolition of the capital tax and the coupon tax on securities. According to the proposals unveiled in September 2008, the new profit tax was envisaged at a moderate rate of 12.5%, combined with a deduction for equity capital and an exemption for earnings from holdings.

The planned introduction of group taxation for group companies was also announced, with the stated aim of compensating for any losses within a corporate group.

"For the Liechtenstein financial centre, it is of fundamental importance to preserve the attractiveness of the location for asset management structures for individuals or for multiple investors," the government stated.

"The tax concept therefore pays particular attention to the taxation of companies for asset investments by individuals. As private asset companies, such investments will henceforth be subject to an attractive taxation regime," it added.

The domestic taxation regime described here applies to resident companies, meaning those that have their registered office in Liechtenstein, or which are managed and controlled from Liechtenstein. However, 'holding' companies (companies that hold investments) or 'domiciliary' companies (not having trading activities inside Liechtenstein), have a separate taxation regime, as do Establishments, Foundations and Trusts. See Offshore Legal and Tax Regimes for further details.

In May 2010, Liechtenstein’s government has approved plans for creating a new tax act, designed to modernize the existing Liechtenstein Tax Act of 1961.

The government considers that the current tax law no longer meets demands for a simple, transparent and competitive system. Changes are also needed to make Liechtenstein's tax legislation compatible with European law. The government confirmed that the reforms would usher in a 12.5% flat rate corporate tax.

According to Liechtenstein’s Prime Minister Klaus Tschütscher: “The new Tax Act is an important step toward enhancing the attractiveness of our location".

He added that: "Through rapid implementation of this tax reform, we will give more transparency to our citizens and a framework for sustainable growth to our business location."

Regarding simplification of the taxation of natural persons, the new Tax Act continues to provide a combination of a tax on assets and a tax on income. Instead of the existing asset exemption limit and the household deduction, a new increased tax exemption from overall income will be granted.

According to the government, the existing progressive tax schedule will be replaced by a seven bracket schedule. Dividends and other income on capital such as interest, leases, and rents will no longer be taxed separately, but rather via the taxation of assets. Under the proposal, taxation of capital gains as well as the estate, inheritance and gift tax will be eliminated.

Legal persons taxable in Liechtenstein and engaged in economic activities will only be subject to a 12.5% tax on income and the existing capital tax will be eliminated under the new law. In addition, loss carryforwards will no longer be subject to a time limit, and an equity interest deduction will be introduced.

Other important innovations outlined by the government include group taxation for affiliated companies and provisions for the treatment of patent income. The proposal also contains provisions on the tax treatment of national and cross-border restructurings.

The tax reform also provides for the elimination of the "special company taxes" for domiciliary companies, since this special tax type threatens to violate the European Economic Area Agreement with respect to the prohibition of state aid. The proposed reform suggests replacing it with a private asset structure, which facilitates taxation of asset management companies that is attractive yet compatible with European law and thus further strengthens Liechtenstein as an attractive location for asset management.

The proposal provides for elimination of the coupon tax, with the exception of old reserves, which can be distributed in the first two years after entry into force of the new Tax Act at a lower tax rate of 2%. Afterwards, the tax on distributed old reserves will again be 4%.

The proposed Tax Act introduces a new endowment tax for transferring assets to legal persons and for special asset endowments, to the extent these assets are not subject to ordinary taxation of assets. The provisions of the formation tax, which previously was governed by the annual Finance Act, have been incorporated into the Tax Act without any significant changes. The proposal also introduces a new tax on insurance premiums.

With respect to the tax based on expenditure as well as the property gains tax, only small changes are proposed compared with the current provisions. Various adjustments are also made to procedural law, but no significant substantive changes compared to current practice are planned.

In December, 2004, Liechtenstein signed an agreement with the EU by which the country joined EU and non-EU states implementing the Savings Tax Directive as from 1st July 2005, imposing a 15% withholding tax on the returns from individuals' savings. This increased to 20% on July 1, 2008, and will increase further to 35% from July 1, 2011.

The following information describes domestic corporate taxes in Liechtenstein prior to any reforms taking effect.

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Liechtenstein Profits Tax

Profits Tax is levied on taxable income at a basic rate (at the time of writing) between a minimum of 7.5% and a maximum of 15% according to a formula. The percentage rate is X, where

X = (Taxable Income x 100) / (Taxable Capital x 2).

(See below under Calculation of Taxable Base for the definitions of Taxable Income and Taxable Capital). It will be evident that a reasonably profitable company will always qualify for the maximum rate.

In addition, if dividend distribution exceeds 8% of Taxable Capital (same definition) there is a surcharge of up to 5% of Taxable Income in the year in which the dividend is declared, as follows:

Dividend as % of Taxable Capital
Profits Tax Surcharge, %
> 8 up to 10
1.0
> 10 up to 12
1.5
> 12 up to 14
2.0
> 14 up to 16
2.5
> 16 up to 18
3.0
> 18 up to 20
3.5
> 20 up to 22
4.0
> 22 up to 24
4.5
> 24
5.0

Thus, the maximum rate of profits tax is 20%, likely to be incurred by a company which makes a decent profit without much capital employed.

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Liechtenstein Calculation of Taxable Base

According to the legislation, profits tax (and capital tax, see below) are levied only on the proportion of income (or capital) that the Liechtenstein operation bears to the company's world-wide operations; plus, in the case of profits tax, any profits that are remitted to Liechtenstein. The interpretation of this rule is complex and cannot be simply explained here.

The following are some of the main provisions affecting calculation of the taxable base for the profits tax:

  • Inventories are to be stated at the lower of cost or market value; FIFO is usually applied. General reserves up to one third of of value are usually accepted without demur.
  • Capital gains, otherwise than from real estate, are treated as taxable income.
  • Capital gains from real estate are taxed (at the time of writing) at between a minimum of 1.2% and a maximum of 35.64% (sic) depending on the amount of the gain, the length of time the property was held, etc etc.
  • Foreign dividends after taxation are included in taxable income (but in the case of foreign subsidiaries, this interacts in a complicated way with the 'proportion' rule stated above, especially because there is no group relief in Liechtenstein).
  • Companies may capitalise reserves or undistributed profits, but any resulting increase in the carrying value of shareholders' interests will be counted as taxable income for the company.
  • Either straight-line or declining balance depreciation methods are allowed. Higher rates may be permitted on occasion. There are detailed schedules of depreciation rates applicable to various types of asset. It may be worth noting that goodwill can be depreciated at 25% per annum (declining balance) or 12.5% (straight-line).
  • Gains on realisation of assets are taken to taxable income.
  • Trading losses can be carried forwards for two years, but not backwards.
  • There is no group relief.
  • All taxes paid, including profits tax, are deductible from income in the accounting period in which they are paid (the year after the fiscal year, usually).

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Liechtenstein Net Worth Tax

The net worth tax is levied on the share capital of a company (original capital plus subsequent increases) plus open and hidden reserves, in so far as these form part of the company's net worth.

In this calculation, reserves might for instance include retained earnings brought forward, provisions for income and capital taxes, disallowed inventory and depreciation reserves, and any other disclosed or undisclosed reserves; deductions might include any current year loss, a net deficit brought foward, dividends in excess of the current year's net profit, and any capital increase in the current year. Other items might also be involved depending on circumstances.

The rate of net worth tax applying to a resident company is 0.2% of taxable net worth.

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Liechtenstein Stamp Duty

Stamp Duty in Liechtenstein is levied according to Swiss legislation, which was substantially amended by the Swiss Federal Law on Stamp Duty 1993. There is a liability to stamp duty on the issue of shares and bonds. Zero rates apply to mergers and other corporate transformations. Issuance of foreign securities was relieved from stamping in 1993, but turnover tax applies (see below).

The rate of stamp duty on shares (the issue of capital in a corporation) is, at the time of writing, 1%; but the first SFr 250,000 of any issue of capital (initial or subsequent) is exempt.

The transfer against payment of ownership in certain instruments (such as bonds, shares, participation certificates, shares in investment funds) are subject to the stamp duty as turnover tax, if one party or intermediary is a domestic securities dealer. The duty is calculated on the basis of the payment and is 0.15% for instruments issued by a domestic issuer and 0.3% for instruments issued by a foreign issuer. Tax liability rests with the domestic securities dealer.

In general, all insurance premium payments for policies belonging to the domestic portfolio of a supervised insurer are subject to the tax on insurance premiums. In addition, premium payments for policies concluded by a domestic policyholder with a foreign non-supervised insurer are subject to tax. Due to a comprehensive list of exemptions, generally only premium payments for liability and vehicle damage insurance as well as for certain property insurance are still subject to tax, but not premium payments for personal insurance. The tax is calculated on the cash premium and is in general 5%, or 2.5% for single premium redeemable life insurance.

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Liechtenstein Turnover Tax

Turnover Tax is payable by securities dealers and traders (Effektenhandler), which includes banks, financing companies, investment funds, and other entities or persons whose business is focussed mainly on securities dealing, trading or broking. It also applies in general to companies whose assets include taxable securities valued at more than SFr 10 million.

The rate of turnover tax at the time of writing varies between 0.15% and 0.30%.

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Liechtenstein Property Profits Tax

The Property Profits Tax applies to any individual or corporate person who gains from a real property transaction. The taxable profit is the amount by which the proceeds of sale exceed the invested cost. 'Invested cost' is an officially-assessed value plus any excess of original purchase cost and subsequent capital additions (less maintenance costs) over the assessed value.

The rate of property profits tax is set annually by Parliament, and is usually equal to the rate of the general Profits Tax.

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Liechtenstein Value Added Tax

Alongside the entry of Liechtenstein into the EEA, Value Added Tax was introduced under the Law on Value Added Tax 1995. The law is very similar to the equivalent Swiss law.

The rate of VAT is 7.6%, with a reduced rate of 2.4% for food, printed matter and medicines. Exports are exempt, as are medical and educational services, and most real estate transactions. A special tax rate of 3.6% applies to lodging services.

In November 2008, the government ratified proposals seeking to amend three provisions contained within its value-added tax (VAT) law.

Among the new provisions detailed in the bill was an order to align Liechtenstein's legislation with Swiss VAT law.

As a result of these modifications, the tax exemption afforded to investment companies was to be regulated differently in future, the government explained.

Not only would a distinction be made between investment companies with fixed and variable capital, but also investment fund assets, hitherto benefiting from tax exemptions, would be deprived of their favourable position.

However, the number of beneficiaries, both individuals and organisations alike, gaining from tax exemptions and enjoying international legal privileges, immunities and facilities, would be widened under the proposals, the government announced.

On May 4, 2010, Liechtenstein’s government adopted a report and proposal concerning an amendment to the country’s value-added tax (VAT) law: in accordance with the bill, VAT rates in Liechtenstein will be increased in line with those in Switzerland from 2011.

In a bid to finance disability insurance, Switzerland’s parliament voted to temporarily increase the standard rate of VAT from 7.6% to 8.0%, the reduced rate of VAT from 2.4% to 2.5% and the special rate of VAT accorded to accommodation services from 3.6% to 3.8%. Approved in a referendum by the Swiss people and cantons, Switzerland’s Federal Council has now enacted the corresponding decree implementing the new rates.

Given Liechtenstein’s international treaty obligation with Switzerland, the principality must also adopt these tax increases, by making the necessary changes to articles 25, 28, and 37 of the country’s VAT law.

The VAT rise is due to take effect in both Liechtenstein and Switzerland from January 1, 2011.

Liechtenstein Withholding Tax

Withholding (Coupon) Tax applies to companies whose capital is divided into shares, and is levied at the rate of 4% on any distribution of dividends or profit shares including distributions in the form of shares, although see above for proposed changes to this. Generally, there is no withholding tax on interest or royalty payments, but it does apply to interest from bonds, to interest from time deposits with domestic banks in excess of 12 months, and to interest on some commercial loans over SFr 50,000 with a minimum term over 2 years. Most normal inter-company loans are not caught by the coupon tax.

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Liechtenstein Filing Requirements and Payment of Tax

Entities subject to Profits Tax must file a return within six weeks of the shareholders' meeting which adopts the financial statements, and no later than 1st July in the calendar year following the end of the company's fiscal year.

The tax assessment is then normally received in the autumn, and the tax due is payable within one month of receipt of the assessment. Instalment payment can sometimes be agreed with the tax authorities.

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LINKS IN THIS SECTION
PROFITS TAX
CALCULATION OF TAXABLE BASE
NET WORTH TAX
STAMP DUTY
TURNOVER TAX
PROPERTY PROFITS TAX
VALUE ADDED TAX
WITHHOLDING TAX
FILING REQUIREMENTS
RELATED INFORMATION

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