Liechtenstein: Personal Taxation

Introduction

Liechtenstein is a fairly lightly-taxed country but there are no special regimes for the foreign employees of 'offshore' companies. The main taxes for individuals are Income Tax and the Property Profits Tax. VAT applies to most goods and services.

Along with Switzerland, in 2004 Liechtenstein accepted the EU's Savings Tax Directive, and imposed a withholding tax on interest and other savings returns paid to citizens of the member states of the EU as from 1st July 2005. Initially, this tax was at the rate of 15% but increased to 20% on July 1, 2008, and rose to 35% on July 1, 2011. 75% of the revenues collected from the tax are handed over to the member states concerned.

The new agreements form part of a framework for co-operation in the field of direct taxation that includes both the Savings Tax Directive adopted by EU member states, and the agreements on the legislation with several third countries and dependent and associated territories of Member States.

The three agreements are based on the same four elements as the savings agreement between the EU and Switzerland which was signed on 26 October 2004. These are as follows:

Withholding Tax: Paying agents in the three countries are required to withhold tax on interest payments to EU individuals at the same rates as Belgium, Luxembourg and Austria under the Savings Directive - 15% during the first three years, 20% for the subsequent three years and 35% thereafter. The three countries share the revenue of the tax withheld, transferring 75 per cent of the revenue to the tax authorities of the individual's Member State of residence.

Voluntary disclosure of information: The retention tax is not applied if the EU resident taxpayer authorises the paying agent to disclose information on the interest payment to his home tax authorities.

Review clause stating that the Contracting Parties shall consult with each other at least every three years or at the request of either Contracting Party with a view to examining and if necessary improving the technical functioning of the Agreement, taking into account international developments.

Exchange of information upon request: For income covered by the Agreement, the three countries will grant exchange of information on request for cases of fraud or comparable misbehaviour.

In September 2008, the government unveiled plans to substantially reform Liechtenstein's tax regime.

With regard to the taxation of individuals, the government announced, the new tax system would continue to apply a combination of fixed property and income taxes.

It further explained that the property tax would be calculated by reconciling assets to a special type of income, thus more closely linking property and income tax. The initial goal is to standardize the taxation of income from assets; in the long term, this type of taxation will be integrated into an interest-adjusted income tax.

In May 2010, the government confirmed that the new Tax Act would continue 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 would be granted.

According to the government, the existing progressive tax schedule would be replaced by a seven bracket schedule. Dividends and other income on capital such as interest, leases, and rents would 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 would be eliminated.

The new Tax Act 2010 came into force on January 1, 2011, and includes the above mentioned points.