Corporate tax in Liechtenstein

Summary

Corporate Income Tax Rate (%) 12.5 (a)
Capital Gains Tax Rate (%) 24 (b)
Branch Tax Rate (%) 12.5 (a)
Withholding Tax (%)
Dividends 0
Interest 0
Royalties from Patents, Know-how, etc. 0
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited (c)

a) The minimum corporate income tax is CHF1,200 per year.

b) This is the maximum rate. See Section B.

c) The amount of the offsetting loss is limited (see Section C).

Taxes on corporate income and gains

Corporate income tax. The current Liechtenstein tax law entered into force on 1 January 2011. It no longer contains provisions re­garding special tax status (domiciliary company or holding com­pany status). Certain tax favorable situations may result by apply­ing deemed deductions to taxable income (see Notional interest deduction and Patent box regime for intellectual property com­panies). In June 2013 and September 2014, parliament passed amendments of the Liechtenstein tax law to reduce the budget deficit (for example, changes to notional interest deduction; see Notional interest deduction).

Resident corporations carrying on activities in Liechtenstein are generally taxed on worldwide income other than income from foreign real estate. Income from permanent establishments abroad is exempt from income tax.

Branches of foreign corporations and nonresident companies own­ing real property in Liechtenstein are subject to tax on income attributable to the branch or real property.

Rates of corporate tax. Companies resident in Liechtenstein and foreign enterprises with permanent establishments in Liechten­stein are subject to income tax. The corporate income tax rate is 12.5%. The minimum corporate income tax is CHF1,200 per year.

Notional interest deduction. Deemed interest on the equity of the taxpaying entity may be deducted from taxable income. Parlia­ment sets the applicable interest rate annually in the financial law, based on the market development. The rate was 4% for 2014 and 2015. The notional interest deduction on equity can reduce tax­able income only to CHF0. As a result, loss carryfowards cannot be generated as a result of the notional interest deduction.

Patent box regime for intellectual property companies. Intellectual property (IP) companies may reduce taxable income by a deemed deduction of 80% on qualifying income from intellectual prop­erty (referred to as patent income). As a result of this regime, an effective tax burden of less than 2.5% may be feasible.

Capital gains. Capital gains, except those derived from the sales or liquidations of investments in shares or similar equity instru­ments and from the sales of real property, are included in income and subject to tax at the regular rate.

Capital gains derived from sales, liquidations or unrealized appre­ciations of investments in shares or similar equity instruments are not taxed in Liechtenstein.

Real estate profits tax applies to capital gains from the sale of real property. The tax rate depends on the amount of taxable profit. The maximum rate is 24%.

Administration. The tax year for a company is its fiscal year.

Companies with operations in Liechtenstein must file their tax return and financial statements no later than 1 July of the year following the end of the fiscal year (extension of the filing dead­line of up to six months is possible in specific cases). The tax authorities issue a tax assessment, generally in the second half of the calendar year, which must be paid within 30 days of receipt. If they obtain approval from the tax administration, companies may pay their tax in installments.

Dividends. Dividends are not included in the taxable income of companies subject to tax.

Distributions of stock corporations (and other companies with capital divided into shares) are generally not subject to a with­holding tax (the so-called coupon tax was abolished, effective from 1 January 2011).

Determination of trading income

General. Taxable income is accounting income, subject to adjust­ments for tax purposes and excluding income from capital gains from sales of shares or similar equity instruments, dividends on in vestments in shares or similar equity instruments, foreign real property and income from permanent establishments located abroad.

Expenses related to the company’s business are generally deduct­ible. Taxes are not deductible.

Nondeductible expenses include hidden distributions to share­holders or related persons and excessive depreciation.

Inventories. Inventories must be valued at the lower of cost or market value, with cost calculated using the first-in, first-out (FIFO) or average-cost method. Companies may establish a gen­eral inventory reserve of up to one-third of the inventory cost or market value at the balance sheet date if detailed inventory re cords are available for review by the tax authorities. The need for a reserve exceeding this amount must be documented to the satisfaction of the tax authorities.

Depreciation. Depreciation of fixed assets that is commercially justified and recorded in the statutory accounts may be deducted for tax purposes. The straight-line and declining-balance methods are acceptable. The following are acceptable declining-balance rates:

  • 5% for industrial buildings
  • 20% for office equipment and furnishings
  • 30% for machinery, equipment, computers and vehicles other than automobiles
  • 35% for automobiles

Relief for losses. Losses may be carried forward to offset income for an unlimited number of years following the year of the loss. Losses may not be carried back.

The offsetting loss is limited to 70% of taxable income (even if unused loss carryforwards exist). Consequently, at least 30% of the positive taxable income is taxed. In addition, the notional interest deduction on equity can only reduce taxable income to a minimum of CHF0. This means that loss carryforwards cannot be generated as a result of the notional interest deduction.

Groups of companies. On request, associated companies (corpora­tions) may form a group for tax purposes. Under group taxation, losses of group members may be credited against profits of other group members within the same year. To apply for group taxa­tion, the following conditions, among others, must be met:

  • The parent company must have its legal seat in Liechtenstein.
  • The parent company must hold at least 50% of the voting rights and the capital of the subsidiaries as of the beginning of the respective year.

For purposes of group taxation, the subsidiaries in a group may be located in foreign countries.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax
Standard rate 8
Hotels and lodging services (overnight
stays only)
3.8
Basic necessities, such as food and
medicine
2.5
Stamp duty on capital; imposed on
incorporations and increases in capital;
the first CHF1 million is exempt
1
Payroll taxes
Social security contributions, on gross salary, paid by
Employer 5.2204
Employee 4.55
Accident insurance, imposed on gross salary; rates vary depending on the extent of coverage On the job, paid by employer; rate depends on
class of risk and insurance company
Various
Off the job, paid by employee (approximate rate) 1.5
Unemployment insurance; paid by
Employer (yearly maximum, CHF630) 0.5
Employee (yearly maximum, CHF630) 0.5
Company pension fund, imposed on gross
salary; minimum contribution (approximate
rate, depending on plan); paid by
Employer (approximate rate) 4
Employee (approximate rate) 4
Child allowance, imposed on gross salary;
paid by employer
1.9
Health insurance, imposed on gross salary;
paid in equal amounts by employer and
employee; rate depends on the contribution
of the mandatory insurance company
Various

Transfer pricing

Intercompany charges should be determined at arm’s length. It is possible to reach an agreement in advance with the tax authorities concerning arm’s-length pricing.

Treaty withholding tax rates

The rates shown are the lower of the treaty rates or the normal domestic rates.

Dividends

%

Interest

%

Royalties

%

Austria 0 0 0
Germany 0 0 0
Guernsey* 0 0 0
Hong Kong SAR 0 0 0
Luxembourg 0 0 0
Malta 0 0 0
San Marino 0 0 0
Singapore 0 0 0
United Kingdom 0 0 0
Uruguay 0 0 0
Non-treaty countries 0 0 0

* This treaty entered into force on 30 April 2015 and is effective from 1 January 2016.

Liechtenstein has signed double tax treaties with the Czech Republic, Georgia and Hungary, but these treaties have not yet been ratified. Liechtenstein and Switzerland have signed a revised double tax treaty, which covers a much broader range of taxes than the existing treaty between the countries, including withhold­ing taxes. The revised treaty is expected to enter into force on 1 Janu ary 2017.