| 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 contains the essential
guidelines and basic ideas for a reform of Liechtenstein tax
law. Concrete draft amendment proposals were expected to be
published by the end of 2007.
The
goal of the planned tax reform is to adapt the existing tax
law so that Liechtenstein will continue to have a tax system
in the future that is attractive both nationally and internationally
taking the current and future demands of the economy and society
into account.
The
FL Tax Roadmap sets out a framework for tax reform, but it
does not contain any further details. The constitutional preconditions
and the tax policy principles of the Government serve as the
foundation. However, the Government's tax policy principles
include the criteria of "revenue and decision neutrality,
competitiveness and performance, conformity with European
law, and international compatibility."
The
tax reform criteria stipulate that simplicity and transparency
be the over-arching objectives, meaning that the number of
taxes in Liechtenstein could be reduced.
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
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.
Profits Tax
Profits
Tax is levied on taxable income at a basic rate 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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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 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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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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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 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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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 varies between 0.15% and 0.30%.
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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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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% for food,
printed matter and medicines. Exports are exempt, as are
medical and educational services, and most real estate transactions.
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). 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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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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