Worldwide Corporate Tax Guide 2021
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Liechtenstein ey.com/GlobalTaxGuides
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Street address: Marktgass 21 FL-9490 Vaduz Liechtenstein International Tax and Transaction Services – International Corporate Tax Advisory Roger Krapf (resident in St. Gallen, Switzerland)
+41 (58) 286-21-25 Mobile: +41 (58) 289-21-25 Fax: +41 (58) 286-20-23 Email: roger.krapf@ch.ey.com
A. At a glance Corporate Income Tax Rate (%) Capital Gains Tax Rate (%) Branch Tax Rate (%) Withholding Tax (%) Dividends Interest Royalties from Patents, Know-how, etc. Branch Remittance Tax Net Operating Losses (Years) Carryback Carryforward
12.5 (a) 24 (b) 12.5 (a) 0 0 0 0 0 Unlimited (c)
(a) The minimum corporate income tax is CHF1,800 per year. (b) This is the maximum rate. See Section B. (c) The amount of the offsetting loss is limited (see Section C).
B. Taxes on corporate income and gains Corporate income tax. The current Liechtenstein tax law en-
tered into force on 1 January 2011. Certain tax-favorable situations may result by applying the notional interest deduction (see Notional interest deduction). 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). Further amendments were enacted, effective from 2017, to incorporate the Base Erosion and Profit Sharing (BEPS) measures into the Liechtenstein tax law. In 2017, the European Union (EU) Code of Conduct group published a review of Liechtenstein’s tax system and requested amendment of the country’s corporate taxation regime. To avoid inclusion on the EU’s list of non-cooperative tax jurisdictions, Liechtenstein revised its tax law in June 2018 and introduced anti-avoidance rules generally applicable as of the 2019 tax year. The new rules have implications for dividend income
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and capital gains derived from participations in foreign entities as well as for the 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 CHF1,800 per year, effective from 1 January 2017. 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 is 4% for 2021. The notional interest deduction on equity can reduce taxable income only to CHF0. As a result, loss carryforwards cannot be generated by the notional interest deduction. The 2018 tax law revision provided new anti-avoidance rules in connection with intercompany relationships and transactions. Interest payments for debt capital at the level of the parent company may no longer be fully tax-deductible if the parent company invests such debt capital to acquire a subsidiary and if the respective subsidiary is entitled to a notional interest deduction. In addition, the deduction is restricted for intercompany transactions that are performed for the reason of tax avoidance only (for example, cash or in-kind contributions of related parties, acquisitions of businesses held by related parties and intragroup transfers of participations). Patent box regime for intellectual property companies. As a result of BEPS Action 5, the patent box regime was abolished, effective from 1 January 2017. A transition period until 2020 applied for companies that took advantage of the patent box rules for the 2016 fiscal year. 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, subject to the rule described in the next sentence. Under the 2018 tax law revision, the tax exemption for capital gains derived from participations in foreign entities generally applies only if at least one of the following circumstances exists: • The total gross revenue of the foreign subsidiary derived from passive sources is less than 50%. • The net profits of the foreign subsidiary are not subject to overall low taxation (including potential foreign taxes).
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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 if the provisional invoice for such fiscal year is paid). 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 generally not included in the taxable income of companies subject to tax. However, in the course of the incorporation of the BEPS measures, a correspondence principle was introduced. Under this principle, income, such as dividend income received by a Liechtenstein parent from investments of at least 25% in the capital of a company, may be reclassified to taxable income if such a payment qualifies as tax-deductible expense at the level of the paying subsidiary. In addition to this already established exception, the 2018 tax law revision further limits the application of the tax exemption by also applying the new rule described in Capital gains to dividends.
Distributions of Liechtenstein 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).
C. Determination of trading income General. Taxable income is accounting income, subject to adjust-
ments for tax purposes and excluding income from capital gains from sales of shares or similar equity instruments, dividends on investments 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 records 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. However, depreciation of participations is not
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tax-deductible. 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 (corpora-
tions) 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.
D. Other significant taxes The following table summarizes other significant taxes. Nature of tax
Value-added tax Standard rate Hotels and lodging services (overnight stays only) Basic necessities, such as food and medicine Stamp duty on capital; imposed on incorporations and increases in capital; the first CHF1 million is exempt Payroll taxes Social security contributions, on gross salary; paid by Employer (including child allowance) Employee 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 Off the job, paid by employee
Rate (%)
7.7 3.7 2.5 1
7.1910 4.7
Various Various
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Unemployment insurance; paid by Employer (yearly maximum, CHF630) Employee (yearly maximum, CHF630) Company pension fund, imposed on gross salary; minimum contribution (approximate rate, depending on plan); paid by Employer (approximate rate) Employee (approximate rate) Child allowance, imposed on gross salary; paid by employer Health insurance, imposed on gross salary; paid in equal amounts by employer and employee; rate depends on the contribution of the mandatory insurance company
Rate (%)
0.5 0.5
4 4 1.9
Various
E. 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. Following the recommendations of the Organisation for Economic Co-operation and Development (OECD) on BEPS Action 13, on 1 January 2017, Liechtenstein introduced the legal basis for a three-tiered approach to transfer-pricing documentation consisting of a Master File, a Local File and the Country-by-Country Report (CbCR). Companies must provide on request of the tax authorities (no general filing obligation) documentation regarding the adequacy of transfer prices of transactions with related companies or related permanent establishments. If a company is part of a group with consolidated revenue exceeding CHF900 million, it is required to apply internationally recognized guidelines on transfer pricing (that is, a Master File and a Local File) for its documentation. Companies not part of such a group must meet certain, less complex documentation requirements if they are considered large according to Liechtenstein company law. Under such law, they are considered large if all of the following criteria are exceeded: • Total assets of CHF25,900,000 • Net revenue of CHF51,800,000 • Annual average of 250 full-time employees For smaller companies, lower documentation requirements apply (principle of reasonableness). Liechtenstein-headquartered multinational groups with annual consolidated group revenue of at least CHF900 million must file CbCRs. The Country-by-Country (CbC) legislation closely follows the model legislation related to CbC reporting outlined in BEPS Action 13 and contains a secondary filing mechanism as well as the possibility to appoint a surrogate entity for filing purposes. The CbC legislation entered into force as of 1 January 2017 and, consequently, only covers tax periods beginning in or
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after 2017. However, for tax periods beginning in 2016, a voluntary filing is generally possible if requested by the taxpayer. In addition, groups with consolidated group revenue of less than CHF900 million may also file CbCRs on a voluntary basis.
F. Treaty withholding tax rates The rates shown are the lower of the treaty rates or the normal domestic rates. Dividends %
Andorra Austria Czech Republic Georgia Germany Guernsey Hong Kong SAR Hungary Iceland Jersey Lithuania Luxembourg Malta Monaco San Marino Singapore Switzerland United Arab Emirates United Kingdom Uruguay Non-treaty jurisdictions
0 0* 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Interest %
Royalties %
0 0* 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
* Under the tax cooperation agreement between Austria and Liechtenstein, companies from Liechtenstein may be required to deduct 25% of dividend and interest payments made to parties in Austria and transfer such amounts to the Austrian tax authorities as tax from the parties in Austria.
Liechtenstein has initialed, but not yet signed, double tax treaties with Bahrain and Italy. A double tax treaty with the Netherlands was signed on 3 July 2020 but has not yet entered into force. In addition, Liechtenstein has entered into tax information exchange agreements with various jurisdictions, including Andorra, Antigua and Barbuda, Australia, Belgium, Canada, China Mainland, Denmark, the Faroe Islands, Finland, France, Germany, Greenland, Iceland, India, Ireland, Italy, Japan, Mexico, Monaco, the Netherlands, Norway, Sweden, St. Kitts and Nevis, St. Vincent and the Grenadines, South Africa, the United Kingdom and the United States. In 2019, the Liechtenstein government approved for ratification the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which Liechtenstein signed in 2017. For Liechtenstein, the MLI entered into force as of 1 April 2020, and the following covered agreements (tax treaties) have been adapted thereby: • Andorra • Czech Republic
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• Georgia • Germany • Guernsey • Hong Kong Special Administrative Region (SAR) • Hungary • Luxembourg • Malta • San Marino • Singapore • United Arab Emirates • United Kingdom • Uruguay