Liechtenstein - New tax structure

Determined to increase the attractiveness of Liechtenstein as a finance centre,

the principality’s state parliament has adopted the government’s bill for a comprehe
nsive reform of taxation, and has given the green light for the law to enter int
o force as planned on January 1, 2011. According to the government, the modern,
competitive new tax system fulfils current requirements for legislation that is
both internationally compatible and in accordance with European law.
Designed to be more transparent, the new simplified tax law retains the traditio
nally low tax rates to prevent an increased fiscal burden on individuals, except
ing those with particularly high income. Indeed, as a result of the new tax stru
cture, the tax burden will be reduced for families and taxpayers on low income.
Following the state parliament’s meeting, Liechtenstein’s Prime Minister Klaus Tschüts
cher welcomed the decision to adopt the historic reform of the country’s taxation
after almost 50 years of the existing law. According to Tschütscher, the adoption
of the modern tax law once again reinforces Liechtenstein’s political credibility
and its ability to reform. The new law will serve to strengthen the principality
in the current drive towards globalization and to improve the attractiveness an
d stability of Liechtenstein’s financial centre, he added.
An attractive system of personal income taxation
The reforms usher in a simplified system for individuals calculating their own t
axes. As regards the taxation of real estate and land, this will follow the same
practice as before.
Abolition of inheritance and gift tax
Inheritance and gift tax will be abolished for individuals to avoid multiple tax
ation. Currently, inherited or donated money is already subject to wealth and ac
quisitions tax. In general, however, the principle is that acquired income shoul
d basically only be taxed once during the course of an individual’s lifetime.
Benefits for companies in Liechtenstein
The government’s tax reform aims to strengthen Liechtenstein’s position in terms of
international competition, as it is all too aware that tax rates are one of the
key factors in business location.
Consequently, the new tax law, which was developed in close cooperation with ind
ustry, is designed to provide companies located in Liechtenstein with better opp
ortunities to structure themselves and to adapt to global competition. The intro
duction of the new flat rate tax of 12.5% for all companies will ensure that all
companies are taxed equally. With only a few exceptions, all businesses will be
required to pay a minimum income tax of CHF1,200 (EUR908).
According to the government, the unequal treatment of foreign and own-capital wi
ll also be removed thanks to the introduction of the company own-capital interes
t deduction. Provisions on group taxation will also be included in the new law.
As a result of these changes, the government believes that it will be even more
attractive to set up a new company in Liechtenstein.
Abolition of coupon and capital tax
As regards legal entities, coupon tax and capital tax will be abolished, althoug
h coupon tax will still apply to any reserves as at December 31, 2010. However,
in the first two years following entry into force of the new law, there will be
the possibility to calculate this tax at a reduced rate of 2%. Thereafter, the t
ax will be calculated at a rate of 4%. The government’s decision is designed to en
able a company to re-invest its capital and will serve to further increase Liech
tenstein as a business location.
Measures to strengthen Liechtenstein as a centre for philanthropy
As under the existing law, legal persons that exclusively pursue charitable goal
s, will be exempt from tax. In the areas of both civil and tax law, the same con
cept of charitable status will also apply.
Attractive taxation for private asset structures
The tax law provides that legal persons can be used to manage wealth as an indep
endent legal person and indeed as a private asset structure (Privatvermögensstrukt
ur – PVS), provided that the PVS is exclusively active in wealth management and do
es not engage in any other economic activity.
Modern and compatible law
The government maintains that by making the new tax law compatible with European
law, this has increased legal certainty, in particular for financial intermedia
ries and for their customers. The tax policy now complies with European standard
s.
Commenting on the reform, Prime Minister Tschütscher stated that it is a big step
towards a successful future and has served to dramatically increase the economic
location of Liechtenstein as a result.