Due to its very favorable financial policies for foreign investors, Liechtenstein is one of the countries where it’s worth doing business, as there are many financial advantages involved.
A company is considered a tax resident in Liechtenstein if it has its office or effective pace of business in the country. If a business is based in Liechtenstein, it is taxable on its worldwide income, but non – resident companies are taxed only on the income generated in Liechtenstein, for example permanent company branch or subsidiary and immovable property located in the country.
Taxable period and tax returns
The taxable period for a company in Liechtenstein, is the calendar year starting on January 1 and ending on December 31. Every company needs to submit an annual tax return with Liechtenstein tax authorities, by July 1 of the following tax year. However, group tax returns are not allowed in Liechtenstein.
The Liechtenstein tax authorities have at their disposal a period of 5 years to issue an assessment if they consider that the tax return is incorrect.
Corporate taxation in Liechtenstein
Corporate tax is levied at the flat rate of 12.5% and a minimum annual tax of 1,200 CHF is applied for small businesses.
However, using a PVS (Private Vehicle Solution) makes it possible to acquire, hold, administer and sell financial instruments, cash and bank accounts. This type of structure is a private structure defined as a legal entity that has no economic activity. Participations in other legal entities may only be held if it can be proved that the shareholders or the beneficiaries have no influence in the administration of this company.
The investors of a PVS must be individuals, who administer their own assets, or structures that act in the interest of individuals.
A PVS is a subject to the minimum corporate income tax of 1,200 CHF and not a subject of any tax assessment.
Taxes on dividends, interests and royalties
Dividend income from foreign investments is not a subject to tax in Liechtenstein. There is no withholding tax imposed on dividends to local or foreign recipients for distributions of reserves, according to the new legislation changes made in 2011. However, undistributed reserves of prior years and up to 2010 are subject to a withholding tax upon distribution at the rate of 2% for distributions made until 2012 and 4% for distributions made starting with 2013.
The interest income is taxable under income tax, but interest expense is generally tax deductible as a business expense. There is no withholding tax on interest payments to local or foreign recipients.
Royalty income is taxable under the income tax, however a deemed deduction of 80% qualifying income from intellectual property is granted. There is also no withholding tax on royalty payments to local or foreign recipients.
Tax losses in Liechtenstein
Ordinary tax losses can be carried forward indefinitely. Utilization of tax losses is limited to 70% annually. Ordinary tax losses cannot be carried back.
The Liechtenstein tax system allows companies to form a group for tax purposes and the current year ordinary tax losses may be transferred between the members of a tax group. To create a tax group, a company must own 50% of the capital and 50% of the voting rights of another resident or foreign company. The group leader must be a Liechtenstein company.
VAT in Liechtenstein
VAT is levied on the supply of goods and services, just like in any other country. The standard VAT rate is of 8% in Liechtenstein. A reduced VAT rate of 3.8% is applied to the hotel and lodging industry, and of 2.5% for food deliveries, medication, magazines, newspapers and books. Health services, social insurance, education services and banking insurance are exempt from VAT in Liechtenstein.
The registration threshold for VAT purposes in Liechtenstein is 100,000 CHF. Filling of VAT returns and the payment of VAT liability is made every three months.
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