Taxes in Liechtenstein

The direct taxes

1. The tax on assets and tax on earnings
    1.1 The tax on assets
    1.2 The tax on earnings
    1.3 Fiscal treatment of partnerships
           a. Exclusive residency of the shareholders in Liechtenstein
           b. Exclusive residency of the shareholders overseas
           c. Residency of the shareholders both in Liechtenstein as well as overseas
    1.4 The EU interest taxation
2. The pensioner’s tax
3. The property gains tax
4. The corporation taxes
    4.1 Capital and income tax
    4.2 Special corporation taxes
5. Coupon tax
6. The estate and inheritance tax
    6.1 Tax subject of the estate and inheritance tax
7. The gift tax
8. The municipal authority taxes
    8.1 Municipal authority surcharge to the tax on assets and earnings
    8.2 Ticket tax
    8.3 Dog tax
    8.4 Household allocation

1. The tax on assets and tax on earnings
1.1 The tax on assets

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1.2 The tax on earnings

The tax on earnings according to Liechtenstein fiscal law does not concern a general income tax as known in the neighbouring countries Switzerland, Austria and Germany. The object of the Liechtenstein tax on earnings is all income existing in money or monetary value with the exclusion of the income of the assets, for which the taxpayer pays tax on assets. Thus, merely income from an activity is subject to the tax on earnings (for example income from a self-employed and dependent activity). Asset profits such as dividends, interest income or rental income are exempted from the tax on earnings.
Capital gains from the sale of assets are on the other hand liable to tax on earnings.

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1.3 Fiscal treatment of partnerships

Collective and limited partnerships with registered seat or plant in the country are principally treated as an own tax subject in Liechtenstein fiscal law and are subject to the tax on assets and earnings.39 The tax obligation begins with the founding of the partnership and lasts until the completion of the liquidation.
Partnerships are principally not transparent in Liechtenstein, i.e. the corporate assets are not taxed at the shareholders. A deviation can be determined with regard to the fiscal treatment of partnerships on an international comparison, thus partnerships are principally treated as tax-transparent in other countries.

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A distinction is principally to be made between the following case constellations with regard to the fiscal treatment of partnerships:

a. Exclusive residency of the shareholders in Liechtenstein

Shareholders of a partnership in Liechtenstein who are based in the country are personally liable to tax to an unlimited extent owing to their domicile in the country.
In order for the correct consideration of deduction factors and the avoidance of progression fluctuations can be guaranteed partnerships in Liechtenstein with shareholders who are based in the country are not assessed independently, but the taxation is carried out with the shareholders and thus in a transparent manner. Accordingly the shareholders must declare and pay tax on the share of the corporate assets or the net assets together with the other asset and earning parts in their personal tax return. The work income received by the shareholders represents earnings from dependent gainful employment which are liable to tax and are to be declared accordingly within the framework of the ordinary tax return.

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b. Exclusive residency of the shareholders overseas

With this case constellation the shareholders are merely liable to tax to a limited extent in the country.
A consideration of deduction factors as well as progression fluctuations is excluded.
Partnerships in Liechtenstein with shareholders who are based overseas are treated as a self-employed tax subject and are subject to the tax on assets and earnings with the net profits and
the corporate assets.

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c. Residency of the shareholders both in Liechtenstein as well as overseas

The share of the corporate assets and net profits to which the shareholder with residency in the domestic country is entitled, is removed from the partnership in advance and to be declared and taxed by the shareholder analogue to case constellation a) together with his other asset and earning parts within the framework of the ordinary taxation.
The work income received by the corresponding shareholder represents earnings from dependent gainful employment which are liable to tax and are to be entered on the tax return accordingly.
With regard to the residual assets or the residual profits (to which the shareholders who are based overseas are entitled) the partnership is treated as an independent tax subject and with the residual assets and the residual profits is subject to tax on assets and earnings.
A progression reservation is not carried out.

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1.4 The EU interest taxation

Since 1 July 2005 the directive 2003/48/EC of 3 June 2003 has applied throughout the whole of the European Union in the field of taxation of interest income (EU interest directive). With this directive it should be guaranteed that interest income which are paid out to a natural person in a EU member state, in which this person does not establish its residency, is effectively taxed in the state of residence according to the fiscal law regulations which apply there.

The agreement which was negotiated between the principality of Liechtenstein and the European Community concerning regulations, which are equivalent to those of the directive 2003/48/EC of the Council concerning the taxation of interest income (interest taxation agreement) came into force on 1 July 2005. The interest taxation agreement will be supplemented in Liechtenstein by the law of 19 May 2005 concerning the interest taxation agreement with the European Community of 7 December 2004 (interest taxation law, ZBStG LGBl. 2005 No. 112). With the agreement between the principality of Liechtenstein and the European Community it is ensured that the directive 2003/48/EC (interest taxation directive) cannot be circumvented through interest payments from Liechtenstein. At the same time the banking secrecy which is anchored in the Liechtenstein legal system is safeguarded.
Liechtenstein undertakes to carry out a tax retention on that interest income which is paid by Liechtenstein paying agents to natural persons with domicile in a EU member state. As an alternative to the tax retention there is the possibility of a voluntary report of the interest payment to the state of domicile of the interest recipient. The foreign recipient of an interest payment which falls under the agreement can thus choose between the tax retention and the voluntary report by expressly authorising his paying agent in Liechtenstein to report the interest payment to the responsible authority of the corresponding state.

The tax retention applies to all interest payments which a paying agent located in Liechtenstein pays to a natural person with fiscal domicile in a EU member state. It is initially 15 per cent and will increase step-by-step to 35 per cent by 2011. The income of the tax retention will be due with 75 per cent to the EU member state concerned, the remaining 25 per cent will remain for the principality of Liechtenstein.

In addition, the agreement knows a limited obligation to exchange information upon request in case of tax fraud and similar offences, which are committed after 1 July 2005. The exchange of information upon request is based on the regulation in the agreement concerning mutual judicial assistance with the USA and only refers to the interest income covered by the agreement.
Affected by the interest taxation agreement are natural persons from all 27 EU countries including Gibraltar (GB), Madeira and the Azores (P), the Canary Islands (E) as well as the overseas department of the French Republic. Natural persons from third countries and legal entities will principally not fall under the scope of the agreement.

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2. The pensioner’s tax

The pensioner’s tax concerns a special form of tax on assets and earnings, which with regard to its basic conceptual design is comparable with the so-called expenses or flat rate taxation in Switzerland. As in the majority of the Swiss cantons wealthy foreigners in Liechtenstein without domestic gainful employment have the possibility to file an application for flat rate taxation. This can lead to a substantial reduction in the personal tax on assets and earnings. However, flat rate taxation within the framework of the pensioner’s tax in Liechtenstein is only worth it for foreigners with a very large amount of assets.
Compared with the majority of the Swiss cantons and based on the total tax income the pensioner’s tax in Liechtenstein is of lesser significance.

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3. The property gains tax

Anyone who generates a profit when selling properties located in the country must pay the property gains tax on these profits. The seller of the property is liable to tax. Deemed as sales proceeds is the purchase price including all other payments. If for example it is agreed that the buyer will pay the property gains tax then the property gains tax amount is to be included in the purchase price.

Duration of ownership minimum rate             Maximum rate
Up to 3 years                                       6.48 % 34.02 % (from CHF 165,000)
Between 3 and 5 years                         5.40 % 28.35 % (from CHF 200,000)
Between 5 and 10 years                        4.32 % 22.68 % (from CHF 245,000)
More than 10 years                               3.24 % 17.01 % (from CHF 326,000)

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4. The corporation taxes
4.1 Capital and income tax

According to Art. 73 SteG corporate bodies (AG, GmbH [Private Limited Company], cooperatives, etc.), institutions, foundations and trust companies with or without a legal character are subject to capital and income tax insofar as they operate a trade which is managed in a commercial manner in Liechtenstein. Foreign companies are subject to the capital and income tax with regard to their domestic plant or their domestic trade.

The tax rate for the capital tax is 2 ‰. The income tax rate depends on the ratio between the taxable net income and taxable capital (income intensity) and is at least 7.5 % and a maximum 15 %. The determined (simple) income tax rate can increase by a distribution surcharge of a maximum of 5 %. The distribution surcharge depends on the ratio between distribution and taxable capital. The tax rate of the income tax can thus be a maximum 20 %.

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4.2 Special corporation taxes

Regulations relating to foreign insurance companies and captives (own insurance companies), the holding and offshore companies including foundations as well as investment companies can be found under the title “Special corporation taxes“ in Articles 82 to 88 SteG.
Holding companies are exempted from tax on assets and earnings or income tax and merely have to pay a capital tax of 1 ‰ of the deposited capital or the assets invested in the company and of the reserves, at least however CHF 1,000 per annum.
As the holding companies, offshore companies are exempted from tax on assets and earnings or income tax and also merely have to pay a capital tax of 1 ‰, at least however CHF 1,000.

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5. Coupon tax

Liechtenstein charges a tax on the coupons of the securities issued by a national resident and on certificates which are deemed equivalent to these. A national resident is a person or entity who has his domicile, permanent place of stay or seat according to the statutes in Liechtenstein or is registered as a company in the public register of the country.
The coupon tax is a tax which is to be assessed by the taxpayer himself. He must submit the stipulated settlement with the receipts to the tax authorities within 30 days from due date without request and at the same time pay the tax. The tax claim shall arise with the due date of the coupon or the taxable benefit.
The debtor of the coupon or the taxable benefit is liable to tax. Domestic companies are subject to the obligation to pay the coupon tax with a capital which is broken down into shares. Moreover, the debtors of bonds, long-term loans and debentures are also subject to the coupon tax.
Institutions and trust companies with capital which is not broken down into shares are not subject to the coupon tax with regard to their monetary value benefits to owners or beneficiaries to the same extent as foundations.
The tax is 4 % and is respectively to be paid by the company, however to be borne by the recipient of the benefit, i.e. the gross benefit (distribution) is to be reduced irrespective of the person and nationality of the creditor through which he receives 96% of the original benefit as a net remuneration. The remaining 4 % are to be remitted to the tax authorities.

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6. The estate and inheritance tax

Acquisition of assets by will in two stages.
In a first stage the estate (real estate, cash, etc.) which has become due upon the death of a person in the country is taxed through the estate tax. In a second stage the respective part of the estate which relates to the individual heirs, the so-called inheritance, is taxed.

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6.1 Tax subject of the estate and inheritance tax

The heirs, who are jointly liable for the whole tax claim, are obliged to pay the estate and inheritance tax. The estate tax is progressive, depending on the amount of the bequeathed assets. The tax rate of the estate tax is between 0.5 % and 5 % of the pure estate. The amount of the rate of the inheritance tax is assessed according to the degree of kinship between the testator and heirs. The greater the close relationship, the lower the rate of the inheritance tax. The tax rate of the inheritance tax is between 0.5 % (for spouses, parents, children and grandchildren) and 18 % (for non-related persons) of the inheritance.
If the acquisition of assets by will (or through a gift) exceeds CHF 20,000 a surcharge will be charged on the tax amounts which are calculated according to Art. 97 SteG which is assessed according to the amount of the inherited assets.
The inheritance tax is for example for spouses and children at least 0.5 % and a maximum of
0.75 % (0.5 % + 50 % surcharge) and for non-related persons at least 18 % and
a maximum of 27 % (18 % + 50 % surcharge).

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7. The gift tax

The person receiving the gift is obliged to pay the gift tax. The donator of the gift is jointly liable with the person receiving the gift for the payment of the gift tax.
The gift tax is assessed according to the degree of kinship of the person receiving the gift to the donator of the gift and the amount which is granted. The tax rate is the same as with the inheritance tax between 0.5 % for spouses, parents, children and grandchildren and 27 % for non-relatives of the value of the gift.

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8. The municipal authority taxes
8.1 Municipal authority surcharge to the tax on assets and earnings

According to Art. 129 SteG the municipal authorities are entitled to charge a surcharge to the tax on assets and earnings of the state as a municipal authority tax.
The municipal authority surcharge is currently between 150 % and 200 % depending on the municipal authority (e.g. Vaduz and Planken 150%, Schaan 170 %, Triesenberg 200%).

8.2 Ticket tax

Aside from the fees which are to be paid for the police approval shows and performances, for the visit of which a payment is requested in any kind of form, are subject to the ticket tax. The ticket tax is principally no longer taken into consideration in practice.

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8.3 Dog tax

All dog owners are subject to the dog tax. This is respectively charged annually by the municipal authority and serves as contribution to the costs for the contamination and damages caused by the animals.

8.4 Household allocation

The municipal authorities are authorised to charge an annual household allocation in order to cover the requirements for churches, schools and the public health system. The household allocation may not amount to more than 20 Francs insofar as the municipal authority does not charge a surcharge of 200 % on the tax on assets and earnings. The amount of the household allocation may in no case amount to more than 50 Francs.

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