Tax reform approved in Liechtenstein to make the state more attractive as a financial centre

Written by Ray Clancy

Thursday, 30 September 2010 09:15

The state parliament of Liechtenstein has given the green light to comprehensive tax reform allowing a new government bill to become law next January.

It is the latest move in a plan to increase the attractiveness of Liechtenstein as a finance centre and ‘the modern, competitive new tax system’ will fulfil current requirements for legislation that is both internationally compatible and in accordance with European law, it is claimed.

Designed to be more transparent, the new simplified tax law retains the traditionally low tax rates to prevent an increased fiscal burden on individuals, apart from those with particularly high incomes.

The reforms will create a simplified system for individuals calculating their own taxes. But there is no change regarding the taxation of real estate and land.

Inheritance and gift tax will be abolished for individuals to avoid multiple taxation. Currently, inherited or donated money is already subject to wealth and acquisitions tax. In general, however, the principle is that acquired income should basically only be taxed once during the course of an individual’s lifetime.

The government’s tax reform aims to strengthen Liechtenstein’s position in terms of international competition, as it is all too aware that tax rates are one of the key factors in business location.

The new tax law, which was developed in close cooperation with industry, is designed to provide companies located in Liechtenstein with better opportunities to structure themselves and to adapt to global competition.

The introduction of the new flat rate tax of 12.5% for all companies will ensure that all companies are taxed equally. With only a few exceptions, all businesses will be required to pay a minimum income tax of CHF1,200, around €908.

According to the government, the unequal treatment of foreign and own-capital will also be removed thanks to the introduction of the company own-capital interest deduction. Provisions on group taxation will also be included in the new law. As a result of these changes, the government believes that it will be even more attractive to set up a new company in Liechtenstein.

Coupon tax and capital tax will be abolished, although coupon tax will still apply to any reserves as at December 31, 2010. However, in the first two years following entry into force of the new law, there will be the possibility to calculate this tax at a reduced rate of 2%. After that the tax will be calculated at a rate of 4%.

The government’s decision is designed to enable a company to re-invest its capital and will serve to further increase Liechtenstein as a business location.

The tax law also provides that legal persons can be used to manage wealth as an independent legal person and indeed as a private asset structure (PVS), provided that the PVS is exclusively active in wealth management and does not engage in any other economic activity.

The government maintains that by making the new tax law compatible with European law, this has increased legal certainty, in particular for financial intermediaries and for their customers.

Liechtenstein’s Prime Minister Klaus Tschütscher welcomed the decision to adopt the historic reform of the country’s taxation after almost 50 years of the existing law. He said it improves the attractiveness and stability of Liechtenstein as a financial centre.