Liechtenstein is a central European country bordering Switzerland to the west and south and Austria to the east. The small Alpine town of about 39,000 inhabitants is divided into 11 municipalities. Its capital is Vaduz and the official language is German. Liechtenstein has a parliamentary democracy under a constitutional monarchy. The country uses the Swiss franc (CHF) as its national currency.
CIT = Corporate Income Tax - corresponding to IRPEG
SSC = Social Security Contribution - corresponding to the Social Contribution (Employee + Employer)
Liechtenstein was founded within the Holy Roman Empire in 1719. Occupied by French and Russian troops during the Napoleonic wars, it became a sovereign state in 1806 and joined the Germanic Confederation in 1815. Liechtenstein became fully independent in 1866 when the Confederation it melted. Until the end of the First World War it was closely linked to Austria, but the economic devastation caused by that conflict forced Liechtenstein to enter into a customs and monetary union with Switzerland. Since 1995, Liechtenstein has also been a member of the European Economic Area (EEA) and therefore closely associated with the single market of the European Union (EU).
Since World War II (in which Liechtenstein has remained neutral), the country's low taxes have spurred exceptional economic growth. Despite its small size and limited natural resources, Liechtenstein has developed into a prosperous, highly industrialized and free enterprise economy with a vibrant financial services sector and the highest per capita income in the world. Liechtenstein's economy is widely diversified with a large number of small businesses.
Taxation of individuals
The taxation of individuals in Liechtenstein is mainly based on wealth tax and income tax. This last tax is applied to resident subjects in relation to the income produced wherever they are. A natural person is fiscally resident in Liechtenstein if he resides there with the intention of staying there permanently, or if he stays there for more than six months (short interruptions are not relevant for the purpose of calculating the six months). Non-resident persons are taxed in relation to income produced in Liechtenstein such as, for example, income from employment and income deriving from real estate located in the territory of the State.
Capital gains, rents deriving from leases made by individuals and foreign source capital income are in any case exempt.
Employee income is taxed net of the costs incurred by the employee (including transport and training costs).
Individual income tax rates are progressive, based on 8 income brackets, with the provision of a maximum rate of 8% (for incomes above 200,000 CHF) _cc781905- 5cde-3194-bb3b-136bad5cf58d_ The incomes of individuals also discount a municipal surcharge (decided annually by each of the eleven municipalities into which Liechtenstein is divided) in an amount between 150 and 250% of the income tax payable by the taxpayer.
Property tax applies to real estate located in Liechtenstein and to all movable property of a resident, including cash, securities, bank deposits, precious metals and other personal assets. Assets invested in commercial activities are exempt. The tax base of the property tax is given by the fair market value of the asset at the beginning of the year, to which the rate of return set year by year by Parliament (currently equal to 4%) is applied to calculate an income presumed, which is in addition to the actual one subject to income tax. Individuals who transfer their assets to a foundation or non-profit organization, thus subtracting them from the application of the property tax, discount a tax equal to 3.5% of the net taxable value of the asset (in addition to the municipal surcharge).
In any case, the overall tax rate on the income of individuals, taking into account the municipal surcharge and the property tax, cannot exceed 28%.
Individuals who are self-employed in Liechtenstein are subject to income tax, through the application of withholding tax on income deriving from self-employment and on other income (there is an annual non-taxable threshold). There are three brackets, whose tax rates vary from 3% to 24%.
Some workers living outside Liechtenstein may be subject to limited taxation. Tax provisions vary according to the place of residence. For workers living in Switzerland, the simplest system is provided: they are not subject to the payment of taxes in Liberghi, as the taxation takes place entirely in their place of residence, i.e. in Switzerland. Workers living in Austria are subject to a 4% withholding tax on their salary, which can be deducted from income tax in Austria. Workers living in Germany pay taxes in both countries. A withholding tax is levied in Liechtenstein regardless of the person's income and this withholding tax can be deducted from the income tax payable in Germany.
Foreign residents who are employed in the public administration or other public institutions are subject to different provisions in relation to the taxation of their income, but not of assets, in Liechtenstein. In the case of non-resident workers employed by public authorities with sovereign powers, the payment of taxes in Liechtenstein is foreseen. In the case of non-resident workers employed by public authorities without sovereign powers, the tax paid in Liechtenstein can only be deducted from taxes in their country of residence.
The Liechtenstein social security system is based on three pillars: the occupational and state pension as well as the private pension. The first pillar safeguards the basic means of subsistence of all employed persons with old-age and survivors' insurance, invalidity insurance, family compensation fund and unemployment insurance.
Compulsory state insurance is the first pillar of the Liechtenstein social security system. All persons residing or employed in Liechtenstein are compulsorily insured. If a person is gainfully employed in Liechtenstein and a neighboring state, social security contributions are payable on the entire income received in the country of residence.
The pension scheme is administered by an independent agency under public law controlled by the government. Employees and employers pay part of their salary into the scheme. The employer is obliged to deduct the respective sums from the salary and pass them on to the pension fund. Self-employed workers pay contributions on the basis of gross income brackets. Non-gainfully employed persons pay an annual contribution which depends on their assets, retirement income and other factors.
The total of social contributions, divided between the various forms, is equal to 7.68% payable by the employer and 5.2% payable by the worker.
Taxation of legal persons
Corporate tax payers are corporate legal persons, including “Anstalt” (establishments) and foundations (“Stiftung”), investment firms and “trusts” with legal personality (Treuhandverhaeltnis). Partnerships are fiscally transparent and, therefore, are not subject to corporation tax.
For corporate income tax purposes, a company is resident in Liechtenstein if it has its registered office or place of effective management. Resident companies are subject to tax on profits wherever they are produced, with the exception of profits deriving from a permanent establishment abroad or from real estate located abroad. Dividends distributed to resident and non-resident entities are exempt, as are share capital gains. Real estate capital gains are subject to an ad hoc tax.
A nominal interest equal to 4% of the company's capital is deducted from the profit. The income deriving from some intellectual property rights (essentially, trademarks, licenses and registered patents) benefit from a reduction of 80%.
The tax rate is 12.5%. There is a minimum tax of CHF 1,800, fully deductible from corporate tax, however not applicable to small commercial enterprises.
Companies whose only activity consists in the management of private assets, including shareholdings (so-called private asset structures, PAS), and "trusts" (Treuhandverhaeltnis) only pay the minimum tax and are not subject to assessment. A loss consolidation regime is envisaged for companies belonging to the same group.
With reference to non-resident companies, the income produced by permanent establishments / branches and from those deriving from real estate located in Liechtenstein are subject to taxation.
Value added tax
Liechtenstein applies VAT jointly with Switzerland with which a customs union was signed in 1923. Taxable persons are natural and legal persons carrying on an economic activity, provided that the taxable turnover achieved in Switzerland and Liechtenstein is greater than 100,000 Swiss francs per year. Taxable transactions include the supply of goods and services in Switzerland and Liechtenstein, as well as imports of goods and services. Exports are subject to a zero rate (which is equivalent to the tax exemption regime applied in the European Union).
The ordinary rate is 7.7%. There are two reduced rates: one, equal to 3.7%, applies to hotel room rentals, holiday homes, etc .; the other, equal to 2.5%, applies to sales of foodstuffs, soft drinks, newspapers, books (including e-books), medicines, etc. A VAT exemption is envisaged for annual business volumes of less than 100,000 CHF.
There is a real estate capital gains tax, applicable to anyone who makes a profit from the sale of real estate located in Liechtenstein. The tax base is given by the difference between the proceeds of the sale (which includes the price and all ancillary costs) and the cost invested in the property (and, that is, the official value of the asset plus any revaluations and improvements). The tax base is subject to the same progressive rates as for income tax.
As of 1 January 2011, the inheritance and gift tax and the real estate tax, as well as the coupon tax on distributions, have been repealed.
The coupon tax, however, continues to be applied to distributed profits from existing reserves as at 31 December 2010. A first in, first out criterion is applied to identify profits subject to coupon tax. Distributions made up to 31 December 2012 are discounted at the rate of 2%; for those effected starting from January 1, 2013 the rate is 4%. Taxpayers can release the existing profit reserves as at 31 December 2010, requesting the application of the coupon tax even in the absence of distributions.
A tax on capital is envisaged in the event of the establishment of a company or an increase in the share capital. The ordinary rate is equal to 1%, but reduced rates of 0.5 and 0.3% are also envisaged. Foundations are subject to capital tax of 2%, with a minimum of CHF 200.
The transfer of shares is subject to stamp duty equal to 0.3% for foreign securities and 0.15% for domestic ones (Liechtenstein and Switzerland).
Declarations, instrumental obligations
Resident natural persons must submit their tax return by the end of April of the year following the tax period in question. Married couples file a joint declaration, unless the spouses ask to be able to file the declaration separately.
Self-assessment is not envisaged: the tax authorities issue, on the basis of the data contained in the returns, an assessment decree indicating the tax base, the applicable rate and the tax to be paid. The tax becomes due when the decree is issued, and must normally be paid within 30 days.
For companies, on the other hand, the fiscal year corresponds to the financial year. Consequently, the applicable accounting period, which can end on any date in the calendar year, forms the basis for corporate taxation.
Companies resident in Liechtenstein or with a permanent establishment in Liechtenstein must file a tax return by 1 July of the calendar year following the end of the tax year.
Following a reasoned written request, the Revenue Agency may extend the submission deadline by six months. An extension of the deadline requires payment of provisionally settled taxes. In particularly justified cases, the submission deadline can be extended again. This request must be submitted before the expiry of the first extension.
The assessment issued by the tax administration is based on the company's tax return, including the attachments and the financial statements filed. the taxes must be paid within 30 days of receipt of the liquidation notice by the Tax Authorities.
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