Skip to content

Liechtenstein

General Information

Country Name: Liechtenstein
Currency: Swiss Franc (CHF)
Primary Tax Authority: Steuerverwaltung Liechtenstein

Key Legislation:

  • Tax Act 2010 (Steuergesetz 2010): Primary law governing income tax, corporate tax, and other taxes in Liechtenstein.
  • Liechtenstein Constitution 1921: Establishes the general legal and governance framework, including fiscal matters.

Fiscal Authority Allocation

Centralized System:
Taxation in Liechtenstein is managed at the national level, though municipalities have some discretion to set tax rates within central government guidelines, particularly for personal income tax and property taxes.

Taxes Collected by Central and Local Authorities:
The central government collects corporate income tax, VAT, and wealth tax, while municipalities have the authority to impose local income tax surcharges and property taxes.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 12.5%.
  • Taxable Income: Corporate entities are taxed on worldwide income. However, foreign income can benefit from certain exemptions depending on double tax treaties.
  • Loss Carryforward/Carryback: Losses can be carried forward for an unlimited period, but no carryback is allowed.
  • Tax Incentives: Certain tax privileges exist for holding companies, investment vehicles, and entities engaged in research and development.

Value-Added Tax (VAT)

  • Standard VAT Rate: 8.1%.
  • Reduced Rates: 3.8% for hotels and lodging, and 2.6% for essential goods (e.g., food, medicine).
  • Exemptions: Certain financial services, healthcare, and education services are VAT-exempt. Liechtenstein applies Swiss VAT rules due to its customs union with Switzerland.

Personal Income Tax (PIT)

Progressive Tax Rates: Liechtenstein uses a combination of central government and municipal tax rates. The maximum tax burden for individuals is approximately 28%.

  • Taxable Income: Residents are taxed on worldwide income, with exemptions for foreign income under certain circumstances.
  • Deductions and Credits: Deductions are available for dependents, healthcare, charitable contributions, and pension contributions.
  • Municipal Surcharges: Each municipality can impose its own surcharge on the central government’s income tax, ranging from 150% to 250% of the basic income tax.

Additional Mandatory Contributions

Social Security Contributions:
Both employers and employees must contribute to Liechtenstein’s social insurance system.

  • Employer Contributions: Approximately 5.8% of gross salary.
  • Employee Contributions: Approximately 5.1% of gross salary.
  • Self-Employed Contributions: 10.9% of net earnings.

Withholding Taxes

  • Dividends: 0% withholding tax.
  • Interest: 0% withholding tax.
  • Royalties: 0% withholding tax.
    This favorable withholding tax regime makes Liechtenstein an attractive jurisdiction for multinational corporations and investment structures.

Transfer Pricing Rules

  • Documentation Requirements: Liechtenstein follows OECD guidelines for transfer pricing and requires that transactions between related parties be conducted at arm’s length.
  • Penalties: Adjustments to taxable income and financial penalties can be applied for non-compliance with transfer pricing rules.

Special Tax Regimes

  • Private Asset Structures (Privatvermögensstrukturen): These are eligible for favorable tax treatment, with an effective annual tax of CHF 1,800, regardless of income or assets.
  • Holding Companies: Entities that primarily hold participations in other companies can benefit from a reduced tax rate or exemptions on dividend income and capital gains.
  • Trusts and Foundations: Trusts and foundations registered in Liechtenstein enjoy specific tax privileges, particularly in relation to asset management and estate planning.

Other Taxes

  • Wealth Tax: Individuals and corporations are subject to an annual wealth tax. For individuals, the rate is 0.5% on net assets, with certain exemptions. Corporations pay 0.1% on net wealth, subject to a minimum annual payment.
  • Property Tax: Local municipalities levy property taxes based on the value of real estate.
  • Stamp Duty: Applies to the issuance and transfer of certain securities and documents.

Double Taxation Agreements (DTAs)

Extensive Treaty Network:
Liechtenstein has signed numerous double taxation treaties (DTTs) with countries worldwide, including Germany, Austria, the UK, Switzerland, and Luxembourg. These agreements reduce or eliminate double taxation on income and provide reduced rates of withholding taxes on cross-border transactions.

Local Taxes

Municipal Income Tax Surcharge:
Municipalities levy surcharges on top of the national personal income tax, making local tax rates variable depending on the municipality of residence.

Compliance and Reporting

  • Corporate Tax Filing Deadlines: Corporate tax returns must be filed by June 30 for entities with a financial year ending on December 31.
  • Personal Tax Filing Requirements: Individuals must submit their tax returns by April 30 following the tax year-end.
  • Penalties: Late filings, underreporting, or non-compliance may lead to penalties, interest charges, and, in serious cases, criminal proceedings.

Recent Developments

EU Compliance and Transparency:
Although not an EU member, Liechtenstein has aligned itself with EU directives on tax transparency and anti-money laundering regulations. It has also implemented OECD guidelines on automatic exchange of information (AEOI) to combat tax evasion.

Digital Economy and Blockchain Initiatives:
Liechtenstein has positioned itself as a hub for digital economy and blockchain technologies. The Blockchain Act introduced in 2020 provides a regulatory framework for blockchain-based companies, aiming to attract fintech startups and businesses operating in decentralized finance (DeFi).

Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.

Tags: