The tax imposed on corporate income in Liechtenstein is at a flat rate of 12,5% and for companies whose revenues do not go beyond a certain amount, the law imposes a minimum of 1,800 Swiss francs which must be payed by businesses operating in this country. You may rely on the legal support provided by our law firm in Liechtenstein for tax planning issues in this country.
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Main provisions regarding corporate tax in Liechtenstein
Investors who open a company in Liechtenstein are subject to the corporate tax for the profit as well as for the revenues obtained worldwide. Whether a business is not owned by a resident of Liechtenstein, but it is managed from this country, then the income resulting in the company will also be subject to the corporate tax in Liechtenstein.
This tax is charged by the government of this state, except those entities whose profits in the last three years did not overpass the amount of 500,000 Swiss francs.
Special taxation regimes might apply to several domains of activity. We recommend you to ask our attorneys in Liechtenstein about the rate of corporate tax which applied to your business.
Entities subject to the corporate tax in Liechtenstein
According to the Company Law and tax legislation, there are several legal entities that must pay taxes on the profits and income they generate. This is why, not only companies are subject to the Liechtenstein corporate tax, but also other establishments and foundations must pay it.
While domestic businesses must pay the corporate tax on the income they generate in and outside Liechtenstein, foreign ones must pay the same levy on the profits they generate in this country. The same principle applies to foundations.
Starting with 2017, all legal vehicles are subject to the corporate tax with a minimum value of 1,800 Swiss francs. However, it can be credited against the profit tax in Liechtenstein. The same tax applies to foreign companies. There is also an exception to this rule – it does not apply on companies with assets valued at less than 500,000 CHF in the last 3 years.
The Liechtenstein corporate tax is one of the most important direct levies in the Principality and if you need information on the legislation.
Liechtenstein corporate tax liability
The corporate tax in Liechtenstein is levied on domestic and foreign companies with economic activities in this country. However, in order to determine how the tax will be imposed, there are various aspects to consider. Among these, the residency of the business is the most important.
Local companies will be imposed the Liechtenstein corporate tax on its worldwide profits. Foreign companies will pay the profit tax, however these will be taxed under specific conditions. There are also overseas entities that operate in the Principality under subsidiaries and branch offices, case in which tax liability is imposed differently.
For information on how to choose a business form as a foreign company seeking to operate in the Principality, you can rely on our lawyers in Liechtenstein.
Determination of the corporate tax base in Liechtenstein
As mentioned earlier, the Liechtenstein corporate tax is levied based on whether the company is a resident or non-resident entity of this country. This means that:
- a company is deemed a resident entity if it has a registered address or management place in Liechtenstein,
- a company that does not have a registered seat or management place here is deemed as a non-resident company,
- in the case of resident companies, their worldwide profits will be imposed the corporate tax,
- in the case of non-resident companies, the profits made here will be imposed the Lichtenstein corporate tax,
- there are also other legal structures, such as trusts, which have a limited tax liability for certain incomes.
The following types of incomes are deemed for taxation under the corporate levy in Liechtenstein:
- income from trading activities,
- income from real estate ownership,
- income from interest, dividend and royalties payments,
- income from real estate held for agricultural and forestry use,
- income earned by permanent establishments of foreign companies in Liechtenstein.
It should be noted that in the case of trusts created in Liechtenstein, these will be subject to a special tax treatment with respect to the incomes presented above. Our lawyers can offer detailed information on the taxation of trusts, and they can also help you set up such structures which provide many advantages to their settlors and beneficiaries.
The Liechtenstein corporate tax will be determined based on the financial statements filed by legal entities with the tax authorities in this country.
Taxation of foreign companies operating in Liechtenstein
As mentioned earlier, foreign companies can operate through branch offices and subsidiaries in the Principality. Before explaining how these are imposed the Liechtenstein corporate tax, investors should understand the main difference between the two legal forms from a taxation point of view. This consists in the subsidiary being treated as a domestic company, while the branch is deemed as a permanent establishment.
This means that the subsidiary will be taxed on its worldwide profits, while the branch office will be taxed only on the income it makes in Liechtenstein. When it comes to the parent company, the taxation of the subsidiary will not affect it, however, in the case of a branch office, the parent company will need to file its accounts and the permanent establishment’s financial statements with the Tax Administration in Liechtenstein, as this could affect them both from a double taxation point of view.
It should be noted that in order to protect companies from paying the Lichtenstein corporate tax and the profits tax in a foreign company’s country of origin, the Principality has several double tax treaties. At the moment, Liechtenstein has 23 such agreements in place, however, more are under negotiations.
If you have any questions related to the tax legislation imposed on foreign entities in the Principality, do not hesitate to ask our Liechtenstein lawyers.
Indirect taxes that must be paid by companies in Liechtenstein
Apart from the Liechtenstein corporate tax, businesses here are subject to other taxes among which the following:
- the value added tax;
- customs duties;
- excise taxes;
- stamp duties;
- the security transfer tax.
The value added tax is the most important indirect tax and compared to the Liechtenstein corporate tax it is not paid by businesses, but it is included in the prices of certain goods and services and is collected from the final consumer and directed to the tax administration.
Customs duties are related to import-export activities completed by companies in Liechtenstein and imply registration with the Customs authorities. The excise tax is applied on certain goods, among which:
- petroleum;
- tobacco;
- car;
- beer;
- distilled alcoholic drinks.
The excise is included in the final price of these goods. It is important to mention them, as the corporate tax is not the only levy that need to be considered by Liechtenstein companies when operating in industries that relate to them. Also, the financial documents that need to be prepared and filed comprise statements that need to account for the payment or withholding of these levies.
Speaking of financial documents, in order to pay the corporate tax in Liechtenstein, companies must prepare several papers and submit them with the tax authorities in order to have the amount due calculated.
Financial reporting for Liechtenstein companies
In order to have the Liechtenstein corporate tax assessed, a company must file audited financial statements every year. The financial year in the Principality starts on January 1st and ends on December 31st, therefore, it corresponds to the calendar year.
At the end a financial period, a company is required to file the following documents:
- the balance sheet;
- the income statement;
- notes that need to be attached to the income statement;
- the annual report;
- the audit report.
Not all companies must file these papers, as small companies can file simplified financial statements.
In most cases, the financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) that are applicable on an international level, therefore they can be used when filing consolidated accounts in the case of holding companies with subsidiaries in Liechtenstein.
With respect to the determination of the size of a company based on which financial papers must be prepared for the payment of the Liechtenstein corporate tax, the following aspects must be clarified:
- there are very small companies with an average number of 10 employees, assets worth up to 450,000 CHF and an annual turnover of maximum 900,000 CHF;
- small companies with an average number of 50 employees, assets worth of 7.4 million CHF and an annual turnover of 14.8 million CHF.
These are subject to simplified financial statement filings.
There are also medium and large-sized enterprises that have an average number of 250 employees and higher annual turnovers and a significantly higher net value of the assets they hold. This can be the case of publicly traded companies.
All financial documents must be submitted electronically and will be published in the Official Gazette. There is also an exception that refers to companies trading shares or stock on the Stock Exchange and that are required to have their financial statements in printed forms.
If you need guidance on the tax regulations you need to respect, our tax lawyers in Liechtenstein can guide you. You can also rely on us if you want to open a business in this country.
More aspects regarding the corporate tax in Liechtenstein
The element which determines the amount of tax which has to be payed is the net profit of a company. Some tax minimization strategies, such as tax returns, might be effective in reducing the amount of money charged on your profits.
The double taxation treaties signed by Liechtenstein with other countries are very useful for companies who operate both in Liechtenstein and abroad. These treaties grant the avoidance of over taxation and help companies develop their business activities. Some of the expenses of the company might be deduced from the taxes payed to the Liechtenstein government, in order to be reinvested in the business.
The calculation of the corporate tax is done each year providing a safe commercial climate for companies. The low corporate tax rate in Liechtenstein is an encouraging element for those investors who consider opening a business in this country.
Other taxes to consider as a company in Liechtenstein
Apart from the Liechtenstein corporate tax which is the most important levy imposed on businesses operating in this country, there are also others that should be considered. Among these are:
- the value added tax (VAT) which is levied at a standard rate of 7.7%, (one of the lowest in Europe),
- reduced rates of 3.7% and 2.5% of the VAT are also available,
- a stamp duty of 1% can also be levied on companies for various transactions,
- company directors’ remuneration can also be taxed at a rate of 12% if their income exceeds a certain amount of money,
- companies are also subject to certain contributions as employers which exceed 50% in payments that must be made to various funds.
Don’t hesitate to contact one of our Liechtenstein lawyers for further details regarding the rate of the corporate tax in this country, for tax planning or other additional legal services in Liechtenstein.