Worldwide Personal Tax and Immigration Guide 2020–21
904
Liechtenstein ey.com/globaltaxguides
Vaduz EY Mail address: P.O. Box 555 FL-9490 Vaduz Liechtenstein
GMT +1 Street address: Lettstrasse 5 FL-9490 Vaduz Liechtenstein
Executive and immigration contact Roger Krapf (resident in St. Gallen, Switzerland)
+41 (58) 286-21-25 Fax: +41 (58) 286-20-23 Email: roger.krapf@ch.ey.com
A. Income tax Who is liable. Under Liechtenstein’s tax system, the national gov-
ernment and regional communities levy income and net worth taxes. The regional communities levy surcharges on the taxes of the national government. Income tax is levied on all forms of income. As a result of the tax reform that entered into force on 1 January 2011, the net worth tax is no longer calculated separately but is integrated into the income tax. All resident or domiciled individuals are subject to income tax on worldwide income, with the exception of income from real estate located abroad and income from either a fixed place of business or a permanent establishment located abroad. In addition, all resident or domiciled individuals are subject to income tax based on the standardized return level of worldwide net assets other than real estate and business premises located abroad. Nonresidents are subject to tax if they are employed in Liechtenstein, if they own real property in Liechtenstein or if they have business premises in Liechtenstein. Nonresidents are subject to tax on income derived from Liechtenstein sources including Liechtenstein real estate, owned or leased, and business premises. In addition, nonresidents are taxed on income from self-employment and business activities carried out in Liechtenstein. Individuals are considered resident or domiciled in Liechtenstein if they meet any of the following conditions: • They maintain a legal residence in Liechtenstein. • They have a “customary place of abode” in Liechtenstein. This means that they are present in Liechtenstein for at least six consecutive months. Income subject to tax
Employment income. Taxable income includes compensation from employment, self-employment and income from secondary employment. In general, retirement benefits in Liechtenstein are also included in taxable income. Retirement benefits are derived from the following sources:
L I E C H T E N S T E I N 905
• Mandatory social security system (old-age and survivors’ insurance). Pensions are based on premiums paid and on the number of years employed. Benefits generally satisfy minimum cost-ofliving requirements. • Company pension plans. • Individual savings. At least 30% of old-age and survivors’ pension benefits and disability insurance benefits is taxable. Self-employment and business income. In general, income taxes are levied on individuals who earn self-employment or business income in Liechtenstein. However, for nonresident partners of companies domiciled in Liechtenstein, the companies are subject to taxes on profits. Self-employment and business income is taxed with other income at the rates set forth in Rates. Investment income. Rental income and investment income from dividends, interest, royalties and licenses are not taxed based on the amount of effective income. Instead, they are taxed based on the application of the standardized return rate to the net market value of all movable and immovable assets (see Section B). Directors’ fees. Resident directors are subject to tax on directors’ fees from companies in Liechtenstein together with other income at the rates described in Rates. A 12% withholding tax is imposed on directors’ fees paid by companies in Liechtenstein to nonresident directors. Capital gains and losses
Movable assets. Capital gains derived from transfers of participations (business assets) and personal movable assets are generally exempt from income tax. For capital gains derived from the transfer of participations (business assets), Liechtenstein introduced anti-avoidance rules, applicable from the 2019 tax year (for entities, the 2019 tax year is the reporting period ending in the 2019 calendar year). Under these anti-avoidance rules, capital gains deriving from the sale of a foreign participation are no longer tax exempt from tax if the revenue from the participation mainly results from passive sources and if the net profit of that participation is low-taxed. Immovable assets. Capital gains derived from transfers of personal and business immovable assets are subject to a separate capital gains tax on real estate. The gains are taxed at the same rates as the income tax rates applicable to unmarried persons, which are progressive rates with a maximum rate of 24%. Recapture of depreciation of immovable business assets is treated as ordinary income and taxed at the ordinary tax rates (not at the rates applicable to capital gains). Deductions
Deductible expenses. Employees may deduct necessary expenses incurred in connection with their employment, including travel expenses, meals and education.
906 L I E C H T E N S T E I N
Premiums for old-age and survivors’ insurance, disability insurance and unemployment insurance are fully deductible from taxable income. Contributions and premiums payable to pension funds are deductible, up to a maximum of 18% of taxable income. Personal deductions and allowances. A limited amount may be deducted for premiums paid for life, accident and health insurance, for expenditure for medical and dental treatment, and for costs related to children’s education. No specific personal allowances are granted to individual taxpayers. Business deductions. Individuals may deduct all business expenses and 4% (standardized return rate) of the amount of their business working capital (anti-avoidance rules applicable as of the 2019 tax year should be considered). Income taxes and net worth taxes are not deductible. Rates
Income tax. The progressive income tax rates for 2020 range from 2.8% to 22.4% (for a commune applying a communal surcharge of 180%, which is the maximum surcharge in 2019). Income from foreign assets, including real property and business premises, and other foreign income is considered in calculating the progressive tax rate. The tax levied by the state consists of income tax and the surcharge. Communities impose an additional surcharge on the state tax at rates ranging from 150% to 180% (for 2019), resulting in a maximum income tax rate of 22.4%. Lump-sum taxation. Instead of net worth and income tax, lumpsum taxation may apply to individuals who meet all of the following conditions: • They are domiciled or reside in Liechtenstein and they are not citizens of Liechtenstein. • They are not employed in Liechtenstein. • They live on income from assets or other payments received from sources abroad. Lump-sum tax is assessed on the living costs of the taxpayer. For the sake of convenience, the living costs are usually a multiple of the annual rent. The taxable amount results from multiplying the living costs by the applicable tax rate of 25%. According to the practice of the tax administration of Liechtenstein, the lump-sum tax must be a substantial amount. Otherwise, the regular tax regime applies. Relief from losses. Business losses of self-employed individuals
may be carried forward for an unlimited period. However, the offsetting loss is limited to 70% of taxable income (even if unused loss carryforwards exist). Consequently, at least 30% of the positive taxable income is taxed. No carrybacks are allowed.
B. Other taxes Net worth tax. Because the net worth tax is integrated into the
income tax through the calculation of the standardized return,
L I E C H T E N S T E I N 907
wealth is not taxed separately. The determination of the amount of the taxable assets is relevant only for the purpose of determining the standardized income that is subject to income tax. The annually determined standardized return rate, which is applied to the net market value of all movable and immovable assets, is 4% in 2020. In addition, the surcharges described in Rates may apply. Real estate and business premises abroad are not subject to taxation. Liabilities and any increase in assets during the year may be deducted. Inheritance and gift taxes. As part of the 2011 tax reform, the
inheritance and gift tax was abolished.
C. Social security Contributions
Employees. Liechtenstein’s contribution rate for old-age and survivors’ insurance and for family pension funds for 2020 is 11.79% of total (unlimited) salary. The employer pays 7.09%, and the employee pays 4.7%. The employer withholds the employee’s share monthly. In addition, contributions of 1%, on annual salary of up to CHF126,000, must be made to the unemployment insurance fund. The cost is divided equally between the employer and the employee. All employees who pay into the Liechtenstein social security system must contribute to a pension plan. The employer’s contribution must equal at least the employee’s mandatory 4% contribution, resulting in total contributions of at least 8% for each employee. Self-employed. In 2020, self-employed individuals must make social security contributions at a rate of 11.79% of their income from a business or profession. The 11.79% rate also applies to partnership profits. Self-employed persons are not required to be members of a pension plan. Totalization agreements. Liechtenstein has adopted European
Regulation 883/04 concerning the application of social security schemes. The regulation applies to all European Union (EU) and European Free Trade Association (EFTA) countries.
D. Tax filing and payment procedures The tax year in Liechtenstein corresponds to the calendar year. Liechtenstein has a self-assessment tax system. All taxpayers must prepare and file tax returns in April of the year following the tax year. Employers must withhold income from their employees’ salaries and wages. Married individuals are taxed jointly on all income (individual tax assessment may be requested).
E. Double tax treaties Liechtenstein has entered into comprehensive double tax treaties with the following jurisdictions.
908 L I E C H T E N S T E I N
Andorra Austria Czech Republic Georgia Germany Guernsey Hong Kong Special Administrative Region (SAR)
Hungary Iceland Jersey Lithuania Luxembourg Malta Monaco San Marino
Singapore Switzerland United Arab Emirates United Kingdom Uruguay
It has initialed double tax treaties with Bahrain, Croatia, Greece, Indonesia, Ireland, Italy, Japan, the Netherlands, Poland, Romania and Ukraine. Liechtenstein’s treaties follow the draft model of the Organisation for Economic Co-operation and Development.
F. Residence visas The government has limited immigration to Liechtenstein, making it difficult for foreign nationals to immigrate to the country. Limited exceptions are made for citizens of Switzerland and of EU and European Economic Area member countries.