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Liechtenstein

Financial Year – 1 January – 31 December
Currency – Swiss Francs (CHF)

Corporate Tax Summary

Residence – A company is resident in Liechtenstein if it is incorporated in Liechtenstein or if the place of effective management is situated in Liechtenstein.

Basis of Taxation – Resident companies are taxed on worldwide income. A non-resident company generally pays taxes only on income derived from Liechtenstein sources and any permanent establishment situated in Liechtenstein. The tax rates and treatment are the same for companies and branches of foreign companies.

Reference
Corporate Income Tax Rate (%) 12.5%
Branch Tax Rate (%) 12.5%
Withholding Tax Rate: N/A (a)
Capital Gains Tax exempt (b)
Dividend Income Tax exempt (b)
Interest Income and other income Taxable with a safe harbour rule (c)
Notional Interest Deduction 4% of the equity deductible as operating expenses (d)
Income from foreign permanent establishments Tax exempt (e)
Rental Income from foreign immovable property Tax exempt (e)
Losses Carry forward (f)
Private Investment Structure Special Tax Regime (g)

(a) No withholding taxes on dividend payments, licence payments, interest payments, etc.

(b) Dividends and capital gains on the sale of shareholdings in foreign legal entities are tax exempt if the total return of the foreign legal entity consists of not more than 50% passive income and the net profit is not subject to low-taxation abroad.

(c) Interest income is taxable at the ordinary tax rate of 12.5%. In the case of loans granted to associated companies or persons, a tax administration safe harbour regulation applies. The safe harbour regulation provides minimum interest rates for loans granted to associated companies. Within the minimum rates the tax administration accepts the interest rates as arm’s length. The valid interest rates are published annually. For 2020 the following rates apply: for loans in CHF 1.5%, EUR 1.5%, GBP 2.50%, USD 3.25%. All transactions between related parties must be concluded on an arm’s length basis. There are no thin capitalisation rules, or controlled foreign corporation legislation.

(d) The notional interest deduction (NID) is a tax measure allowing a tax-free return on qualified equity by allowing a deemed interest deduction calculated as the qualifying equity multiplied by the applicable NID rate of 4%.

(e) Resident companies are subject to corporate income tax on their worldwide income, with the exception of income from a permanent establishment or immovable property located abroad. Capital gains on domestic immovable property are exempt from corporate income tax but are subject to real estate gains tax.

(f) Losses may be carried forward for an unlimited time. Conversely, there is no possibility to carry losses back. Please note that losses can only be offset against 70% of taxable corporate income in one year. If any losses remain, they can be carried forward to future tax years.

(g) Legal entities situated in Liechtenstein can apply to the tax administration for taxation as a Private Investment Structure (PIS) according to Art. 64 of the Tax Act. An entity that qualifies as a PIS must only pay the minimum tax amount of CHF 1,800 per year and does not have to submit tax returns. The disadvantage of PIS qualification is that such legal entities will usually not be covered by Liechtenstein’s double tax treaties.

Individual Tax Summary

Individuals, along with their entire wealth and income, are taxable without restrictions if:

(a) their residence or habitual abode is in Liechtenstein or
(b) their residence or habitual abode is in a foreign country and, due to an employment relationship with the State, they are exempt from taxes in that foreign country under a treaty or international law (diplomats).

According to Article 2 (1) lit. b of the Tax Act, “residence” refers to the place where a person abides with the intent of staying permanently.

The income of spouses is assessed jointly for tax purposes. Notwithstanding this general rule, spouses may assess separately, upon joint application. In general, the wealth and income of a minor child must be taxed by the parents. Where a type of income from the minor child exceeds the subsistence level, this type of income must be taxed by the minor child in its own tax return.

Resident individuals are generally subject to unlimited income tax liability on their worldwide income.

Taxable income includes the following categories:
(a) Salaries, wages, benefits in kind and other remuneration earned from employment
(b) Income derived from self-employment (business/professional)
(c) Benefits from social security/insurance
(d) Income from other sources, e.g., alimony and maintenance payments, income from agriculture and forestry

The following types of income are exempt from income tax:
(a) Income from investments (mainly dividends, capital gains, interest, rental income), provided that the underlying assets are subject to net wealth tax
(b) Income from a business carried out by an individual abroad
(c) Proceeds from private redeemable lump-sum insurance policies (vested pension benefits policies and blocked accounts excluded)
(d) Amounts received as damages for mental or physical suffering
(e) Various social distributions (e.g., remunerations for voluntary work)

Personal Income Tax Rates

Individual income tax begins with a marginal tax rate of 0%, the top rate is 24%.

Value Added Tax

Rate 7.7% ordinary tax rate, 3.7% or 2.5% special tax rates
Taxable Transactions VAT is transaction based.
Registration An enterprise – irrespective of its legal form – must to register for VAT if its annual turnover is at or above the registration turnover threshold. The current threshold is CHF 100,000 worldwide.
Special Legal Situation The Principality of Liechtenstein and the Swiss Confederation form a customs union in accordance with their Customs Treaty of 29 March 1923

Within the customs union, one VAT law applies in both countries.

Other Taxes Payable

Payroll Tax Payroll tax is levied on employers by the states and territories, with the amount based on salaries, wages and benefits paid to employees.
Stamp Duty (Transfer Tax) Pursuant to the Customs Treaty concluded with Switzerland in 1923, the Swiss regulations on stamp duties (Swiss Federal Act on Stamp Duties) are also applicable in Liechtenstein. A difference is made between security issue tax, security transfer tax and tax on insurance premiums.
Real Estate Gains Taxes Capital gains derived from immovable assets located in Liechtenstein are subject to a separate real estate gains tax. The taxable base is the amount by which the proceeds exceed the invested cost, i.e. an officially assessed value plus any excess of original purchase cost over the assessed value.

Last update: 19.06.2020