Liechtenstein overhauls its tax regime
This year has seen a complete redrawing of Liechtenstein’s Tax Act, resulting in a single Act regulating the taxation of individuals, as well as corporations.
Under the new Tax Act, which became effective on 1 January 2011, legal persons taxable in Liechtenstein and engaged in economic activities are only subject to tax on income at a rate of 12.5%.
The existing capital tax has been abolished. Income and gains from participations will be tax-free, and losses carried over will no longer be subject to a time limit. In addition, an equity interest deduction has been introduced.
Other important reforms designed to make Liechtenstein attractive as a location for business include group taxation for affiliated companies and provisions for the treatment of patent income. The new Tax Act also contains provisions on the tax treatment of national and cross-border restructurings.
Special Company Taxes and the new ‘PVS’
The tax reforms provide for the elimination of Special Company Taxes for domiciliary and holding companies, which is intended to prevent future reproaches for ring-fencing by other countries. However, legal entities may qualify as Private Asset Structures (Privatvermögensstruktur or ‘PVS’) if they exclusively manage assets according to their purpose and do not engage in any economic activity.
PVS are subject only to a minimal tax of CHF 1,200. Some limits are imposed with respect to asset management. However PVS may acquire, hold, manage and sell only financial instruments, holdings in legal persons, liquid assets and bank account balances. This rules out the acquisition and management of art, real property and precious metals, among others, as well as direct investments in, for example, limited partnerships. In principle, holdings in legal persons are permissible, but the legislative text provides that the domain of asset management is overstepped if the PVS itself, its shareholders or beneficiaries in any way influence the management of the company beyond pure shareholder rights.
Existing entities benefiting from the former Special Company Taxes have a three-year transitional period to adapt to the new rules. If such companies do not become compliant with the rules regarding PVS, they will become subject to flat rate taxation.
Trusts having no legal entity are exclusively subject to the minimum corporate income tax of CHF 1,200, if they are domiciled or actually managed in Liechtenstein or receive earnings in Liechtenstein.
The new Tax Act provides for elimination of the coupon tax, with the exception of old reserves. Old reserves can be distributed in the first two years after the new Tax Act came into force at a lower tax rate of 2%. Subsequently, the tax on distributed old reserves will again be 4%.
Individuals looking for tax structures to administer their own assets are advised to look into the possibilities offered by the PVS structure. All existing Liechtenstein holding and domicile companies should also check the tax status that will apply until 31 December 2012.
For further information, contact:
Tel: +423 237 42 42