Tapuriah Jain & Associates

Income Tax in Liechtenstein

Personal Income Tax:

In principle, tax is levied on the resident taxpayer’s worldwide earned income and net wealth. However, there are important items that are exempt from income tax, as described in other sections.

Individuals without permanent or habitual residence within Liechtenstein can be subject to Liechtenstein income taxes only with respect to income from certain Liechtenstein sources. Important examples are:

·Permanent establishments (PEs).

· Real estate.

· Income from employed or self-employed activity.

· Attendance fees.

· Rental income.

Tax Rate:

National tax rate	Single person’s income (CHF*)	Deduction from result (CHF)	Single parent’s income (CHF)	Deduction from result (CHF)	Married couple’s income (CHF)	Deduction from result (CHF)
Personal exemption	15,000	0	22,500	0	30,000	0
1% up to	20,000	150	30,000	225	40,000	300
3% up to	40,000	550	60,000	825	80,000	1,100
4% up to	70,000	950	105,000	1,425	140,000	1,900
5% up to	100,000	1,650	150,000	2,475	200,000	3,300
6% up to	130,000	2,650	195,000	3,975	260,000	5,300
6.5% up to	160,000	3,300	240,000	4,950	320,000	6,600
7% up to	200,000	4,100	300,000	6,150	400,000	8,200
8% above	200,000	6,100	300,000	9,150	400,000	12,200

Communal tax:

Communal tax is a surcharge on the national income tax due. Communities levy a surcharge of between 150% and 250%. The surcharges are fixed annually by the local governments.

For individuals with a limited tax liability who are ordinary tax-assessed, a general municipal multiplier of 200% will be applied.

Lump sum taxation (tax based on expenditure):

In the case of persons who, for the first time or after at least ten years away from the country, take up residence or habitual abode in Liechtenstein, are not Liechtenstein citizens, do not work in Liechtenstein, and finance their costs of living through the income from their wealth or other funds received from abroad, a tax based on expenditure may, upon application, be levied in lieu of the wealth tax and income tax. Real estate situated in Liechtenstein is subject to the wealth tax.

Residency Rule:

Individuals are regarded as resident in Liechtenstein if they are residing within Liechtenstein with the intention of staying there permanently (domicile in Liechtenstein). In addition, individuals with habitual residence within Liechtenstein are deemed to be resident for tax purposes if they are residing in the country for more than six months.

Taxable Income:

Generally, all income is subject to annual income tax.

In particular, the following income is taxable:

· Income from agricultural/forestry activity.

· Income from self-employed activity.

· Income from employed activity.

· Income from unemployment, accident, life, and health insurance.

· Income from lottery if this income is not subject to special tax for lottery or a foreign tax.

· Proceeds from gambling, unless a gambling tax pursuant to the Gambling Act or a foreign tax has been paid on such proceeds.

· Compensation for the surrender, severance, or non-performance of an activity or right.

· Support payments received by a taxpayer upon divorce or legal or actual separation for oneself, as well as support payments received by a parent for children in one’s care.

· Contributions received by a taxpayer as a beneficiary, to the extent the privilege is not subject to wealth tax.

· Nominal income arising from taxable wealth.

Employment income:

An employee resident in Liechtenstein is principally taxed on any salary and any other monetary benefits (including reimbursements of living expense) received from the employer, regardless of where the work has been performed or where the payment is made.

Capital gains:

Capital gains from disposal of shares in domestic or foreign corporations are tax-exempt. In return, capital losses cannot be deducted.

Dividend income:

Liquidation proceeds are tax-exempt. Dividend income is tax-exempt for individual investors (shareholders or beneficiaries) provided that the payment from ≥ 25% participations held as business assets is not tax deductible in the source country. The correspondence principle, however, does not apply for dividends received from participations that are held as private assets.

Deductions from Income:

Employment expenses:

Individuals with income from employment are entitled to a deduction, generally CHF 1,500 (CHF 1,000 for travelling/CHF 500 for education), as compensation for outlays relating to employment. If effective expenses exceed the amounts mentioned above, these costs can be deducted additionally.

Personal deductions:

· CHF 9,000 for every minor child as well as per full-aged child in education if taxable person is responsible for maintenance.

· Support paid to a spouse from whom the taxpayer is divorced or legally or actually separated, as well as support paid to a parent for children in that parent's care as well as for every person whom the taxpayer supports pursuant to a legal obligation.

· Own contributions made by the taxpayer to Old Age, Survivors' and Disability Insurance, Family Compensation Fund, Unemployment Insurance, and to compulsory accident insurance.

· Deductible expenses include premiums for life, sickness, and accident insurance up to a maximum of CHF 7,000 per married couple, CHF 3,500 per single taxpayer, and CHF 2,100 per child.

·Tax deductibility of single and recurring contributions to pension fund schemes has been capped at 18% per year of the income of employed respectively self-employed individuals or jointly assessed married couples in case of ongoing contributions and premiums.

· Cost for higher education for children, up to CHF 12,000 per child.

· Medical expenses, as well as expenses for dentistry borne by taxpayer, up to CHF 6,000 per person.

·Voluntary donations to Liechtenstein/Swiss or European non-profit organisations, up to 10% of taxable income.

Tax Period & Return:

The tax returns are filed on a calendar-year basis.

Returns must be filed annually, normally. Employees must enclose a certificate of remuneration issued by their employers.

Payment of tax:

The tax liability is definitive when the tax assessment has been delivered. Taxable persons can either pay the taxes within 30 days or make an objection against the tax assessment.

Employers need to deduct a withholding tax (WHT) from the salary of their employees. Employees do not need to pay a provisional tax bill.

The income tax of self-employed persons (as well as of legal entities) needs to be paid provisionally, based on the taxable income of the last tax return. Provisionally paid taxes are credited to the definite tax due.

Corporate Income Tax:

The current Liechtenstein tax law entered into force on 1 January 2011. Certain tax favorable situations may result by applying deemed deductions to taxable income (see Notional interest deduction and Patent box regime for intellectual property companies). 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.

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 was 4% for 2015 and 2016. The notional interest deduction on equity can reduce taxable income only to CHF0. As a result, loss carryfowards cannot be generated as a result of the notional interest deduction.

Patent box regime for intellectual property companies. Intellectual property (IP) companies may reduce taxable income by a deemed deduction of 80% on qualifying income from intellectual property (referred to as patent income). As a result of this regime, an effective tax burden of less than 2.5% may be feasible. As a result of BEPS Action 5, this patent box regime is abolished, effective from 1 January 2017. A transition period until 2020 applies 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.

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.

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).

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.