Liechtenstein offshore tax and legal regimes

The term 'offshore' is not used in Liechtenstein legislation or in describing company forms. Use of special 'holding' or 'domiciliary' company forms is the key criterion for obtaining offshore tax treatment for limited companies; alternatively, non-residence, the trust, the trust enterprise, the establishment and the foundation forms also offer tax benefits.

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 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 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.

These plans were formally adopted by Liechtenstein's government in May 2010 and are expected to go before parliament later in the year.

Along with Switzerland, in 2004 Liechtenstein accepted the EU's Savings Tax Directive, and has imposed a withholding tax on interest and other savings returns paid to citizens of the member states of the EU from 1st July 2005. Initially, this tax was at the rate of 15%, of which 75% was handed over to the member states concerned. The 15% rate was increased to 20% for three years from 2008, and will remain at 35% thereafter.

The country also agreed, along with Switzerland, to provide mutual assistance in cases of tax fraud, although the legislation to allow this was controversial.

Liechtenstein Tax Treatment of Offshore Operations

See Domestic Corporate Taxes for the general principles of Liechtenstein taxation; these apply to offshore entities unless otherwise mentioned.

'Offshore' ('low tax' would be a better expression) entities are taxed as follows:

Holding and domiciliary companies (often called exempt companies) do not pay profits or property tax; the net worth tax is 0.1% of taxable capital subject to a minimum of SFr 1,000. This tax is payable annually, in advance. Holding or domiciliary status precludes a company from taking advantage of the double tax treaty with Austria, unless 51% of its capital is held by Liechtenstein citizens.
The Establishment (Anstalt) is taxed on the same basis as holding and domiciliary companies, if it has similar types of activity. Stamp duty is reduced to 0.5% for capital exceeding SFr 5m, and 0.3% for capital exceeding SFr 10m.
The Foundation (Stiftung) and the Trust are taxed on the same basis as holding and domiciliary companies, but the rate of tax is 0.075% if capital is between SFr 2m and 10m, and 0.05% if capital is over SFr 10m. Payment to non-resident beneficiaries of a Stiftung or Trust are free of withholding tax. Family foundations pay a reduced rate of stamp duty of 0.2% on their formation capital.
Non-resident companies, which are companies active only outside Liechtenstein, even though they may have a Liechtenstein headquarters (not always easy to distinguish from domiciliary companies) are taxed in the same way as holding and domiciliary companies; income remitted to Liechtenstein may be taxable, however.

Liechtenstein's Inclusion on FATF Blacklist

In June 2000, Liechtenstein was identified by the FATF as a non-cooperative and harmful tax haven. The FATF released its next annual report in June 2001, in which the organisation revised its list of countries and territories deemed non-cooperative. Only four were removed from the list, including Liechtenstein (the other three being the Cayman Islands, the Bahamas and Panama). Liechtenstein was praised by the FATF for its substantial efforts to conform to forty recommendations set out by the FATF in a code of good practice governing money laundering.

By July, 2002, the FATF was able to say that Liechtenstein was 'no longer on its radar'.

On the issue of 'lists,' Liechtenstein was elevated from the OECD's 'grey list' to its 'white list' after signing a number of Tax Information Exchange Agreements in 2009, meaning that it complied with internationally agreed standards of tax transparency and information exchange.

Liechtenstein Taxation of Foreign and Non Resident Employees

In Liechtenstein the taxation of individuals is based entirely on the concept of residence, regardless of nationality. See Domestic Personal Taxes for the general principles of individual taxation in Liechtenstein, which also apply to the resident employees of non-resident entities, with the difference that a non-resident employer will not operate the 'PAYE'-style withholding system of employment taxation, so that the resident employee will need to pay taxes directly to the tax authorities.

Generally, individuals are considered to be resident when they maintain a residence in Liechtenstein with the intention of remaining other than temporarily, or if they are residing in Liechtenstein and performing an activity for gain, whether employed or self-employed.

Non-resident employees of Liechtenstein employers are liable for tax only on income arising in Liechtenstein or recieved in the country.

Liechtenstein Exchange Control

Liechtenstein Offshore Activities

'Offshore', ie low-tax, activity in Liechtenstein is possible only through the various specialised forms and statuses listed above. Broadly speaking, commercial activity (ie non-investment activity) is not permitted within Liechtenstein to any of the 'offshore' entities.

The 'holding' entity is not limited as to where it holds assets, and can therefore operate within Liechtenstein as long as it sticks to holding activities.

The 'domiciliary' entity is limited to external trading operations, but is permitted certain internal activities, as explained in Offshore Business Sectors.

The establishment (Anstalt) can operate freely within Liechtenstein on an exempt basis as long as it sticks to (non-commercial) holding and investment-type operations.

The foundation (Stiftung) and the Trust are not limited from a tax point of view as regards holding and investment activities, and can carry these out in Liechtenstein as well as outside.

Liechtenstein Employment and Residence

There are no special privileges or disabilities for the employees of non-resident or offshore operations as such. Non-Liechtenstein citizens require residence and work permits for any extended stay in the country. Liechtenstein's membership of the EEA gives additional rights for freedom of movement and work to EEA citizens.