LIECHTENSTEIN

4. Taxation

A. Introduction And Developments

A new Tax Law came into force on 1 January 2011 and replaced the Tax Act that dated back to 1961. The changes are as follows.

I. Abolition Of The Special Company Tax (sct)

The minimum annual SCT of CHF 1,000 formerly paid by foundations, 'domiciliary' and holding companies will be abolished. For such entities, there is now a possibility to benefit from a new tax status if they fall within the definition of a 'Private Asset Structure' (PAS) as to which please see below.

Existing entities will continue to pay the SCT for a transitional period of three years after which they will either be reclassified as a PAS or will be taxed at the new 'flat rate' (see further below) of 12.5 per cent on income.

Ii. Private Asset Structures

In future, a corporate entity which does not carry out any commercial activity and that only holds 'bankable assets' within the meaning of the EU MiFiD (Markets in Financial Instruments Directive) may obtain a tax privilege as a PAS. Holding of gold, artwork, and other chattels is permissible for a PAS, as is the holding of a participation in other companies provided that neither the PAS nor its beneficial owner exercises any management control over the subsidiary in question.

A PAS will have to pay a fixed tax of just CHF1,200 per year.

Iii. Taxation Of Trusts

Trusts will also benefit from the minimum fixed tax rate of CHF1,200 as long as they are governed by Liechtenstein law or effectively managed from Liechtenstein or generate local income.

Iv. New Flat-rate Tax

For all other commercially active corporate entities, there will be a new flat-rate income tax of 12.5 per cent. In calculating the taxable income, it is noteworthy that dividends and capital gains on disposals of subsidiaries will be ignored, as will receipts from foreign branches and foreign real estate.

In addition, both domestic and foreign subsidiaries of a Liechtenstein parent company may opt to be taxed as a group in Liechtenstein.

V. Abolition Of Coupon Tax And Capital Tax

The 4 per cent coupon tax on profit distributions from legal entities has been abolished, as has the existing tax on authorised capital. There is a favourable transitional system to cover distribution of existing reserves.

B. Tax Information Exchange Agreements And Double Taxation Agreements

In the last three years Liechtenstein signed numerous OECD-compliant agreements on cooperation and exchange of information in tax matters (TIEA) and double taxation agreements (DTA). An updated overview of all existing agreements is available at www.regierung.li. For the time being, Liechtenstein has TIEAs and DTAs with the following countries:

  • USA – TIEA
  • UK – TIEA & MoU and JD (see below)
  • Luxembourg – DTA
  • Germany – TIEA
  • Andorra – TIEA
  • St Vincent – TIEA
  • Monaco – TIEA
  • Ireland – TIEA
  • France – TIEA
  • San Marino– DTA
  • Belgium – TIEA
  • Netherlands – TIEA
  • Antigua and Barbuda – TIEA
  • St Kitts & Nevis – TIEA
  • Hong Kong – DTA
  • Uruguay – DTA
  • Faroe Islands – TIEA
  • Greenland – TIEA
  • Island – TIEA
  • Norway – TIEA
  • Finland – TIEA
  • Sweden – TIEA
  • Denmark – TIEA

These TIEAs and DTAs are designed to regulate the exchange of information upon request in clearly justified cases.

I. The Special Tax Arrangement With The Uk

In August 2009, Liechtenstein and the UK signed a TIEA, as well as a MoU and a First Joint Declaration. A Second Joint Declaration was signed in 2010. The TIEA calls for an exchange of information upon request and in clearly justified cases according to the OECD standard. However, this TIEA foresees a unique protection from tax information exchange for UK tax periods until 31 March 2015 for Liechtenstein's clients. The MoU sets out the terms of a five-year taxpayer assistance and compliance programme and a special disclosure facility. The Joint Declaration sets out the context and development opportunities (Double Taxation Convention in the future) as well as the implicit recognition for Liechtenstein structures.

The special disclosure facility, the so called 'Liechtenstein Disclosure Facility' (LDF) offers UK residents with unpaid tax and investments or assets in Liechtenstein the possibility to regularise their tax affairs quickly and on favourable conditions. The LDF runs from 1 September 2009 to 31 March 2015.

Not only existing clients of Liechtenstein financial intermediaries can make use of the special disclosure arrangements agreed with the UK in the LDF, but also new clients who establish relevant connections with Liechtenstein.

The benefits of the LDF are:

  • interest and penalty of 10 per cent on unpaid taxes up to April 2009
  • the 'look back' period for undeclared tax will only go back to April 1999
  • the liability will be further limited for natural persons to 6 tax years as of the time of the disclosure application in cases of an 'innocent error'
  • no penalty in the case of an 'innocent error'
  • assurance to the UK taxpayer against criminal investigations in relation to the tax-related offence, in cases of full, accurate and unprompted disclosures, unless the funds originate from 'criminal property' (excluding tax evasion)
  • option either to pay a single composite rate of tax at 40 per cent for a UK tax year for each year up to April 2009 or to calculate actual liability using applicable tax rates
  • HMRC will accept reasonable offers for the payment of the tax where it is only possible to estimate the liability, and
  • exclusion of the UK taxpayer from the 'naming and shaming' procedure announced by HMRC.

Ii. Who Can Benefit From The Ldf?

UK taxpayers with assets or interests (relevant property) in Liechtenstein and undeclared UK tax liabilities can benefit from the LDF.

Iii. What Are The Consequences Of A Participation In The Ldf?

The UK taxpayer has to:

  • disclose to HMRC
  • declare all assets invested worldwide to the UK tax authorities
  • pay all outstanding tax obligations together with the appropriate interest and penalties.

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© 2012 Society of Trust & Estate Practitioners