Liechtenstein: Domestic Corporate Taxation
Liechtenstein taxes are levied under the Tax Act 2010. Until December 31, 2010, Liechtenstein taxes were levied under the Act relating to National and Local Taxation 1961, as qualified in yearly Finance Acts. The main taxes impinging on businesses were 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.
In May 2010, Liechtenstein’s government approved plans for creating a new tax act, designed to modernize the existing Liechtenstein Tax Act of 1961.
The government considered that the then current tax law no longer met demands for a simple, transparent and competitive system. Changes were 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 previously existing asset exemption limit and the household deduction, a new increased tax exemption from overall income is now granted.
The old progressive tax schedule was replaced by a seven bracket schedule. Dividends and other income on capital such as interest, leases, and rents are no longer taxed separately, but rather via the taxation of assets. Taxation of capital gains as well as the estate, inheritance and gift tax were eliminated.
Legal persons taxable in Liechtenstein and engaged in economic activities are only subject to a 12.5% tax on income. The previously existing capital tax has been eliminated under the new law. In addition, loss carryforwards are no longer subject to a time limit, and an equity interest deduction has been introduced.
Other important innovations include group taxation for affiliated companies and provisions for the treatment of patent income. The new law 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 threatened to violate the European Economic Area Agreement with respect to the prohibition of state aid. The reform replaced 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 new law has eliminated 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 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 new Act also introduces a tax on insurance premiums.
With respect to the tax based on expenditure as well as the property gains tax, only small changes have been made when compared with the previous provisions. Various adjustments have been made to procedural law, but these are not significant substantive changes compared to previous practice.
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 increased further to 35% from July 1, 2011.
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. Holding' companies (companies that hold investments) or 'domiciliary' companies (not having trading activities inside Liechtenstein) are subject to an Alternative Minimum Tax of CHF1,200 payable annually in advance. Since the coming into force of the new Tax Act, Establishments, Foundations and Trusts are generally subject to corporate income tax. See Offshore Legal and Tax Regimes for further details.