A flat corporate tax rate of 12.5% was among the key elements of the package, which takes effect on 1 Jan 2011. Currently the top corporate rate is 20%.
Liechtenstein prime minister Klaus Tschütscher said the new tax package represented “an important step toward enhancing the attractiveness of our location.”
“Through rapid implementation of this tax reform, we will give more transparency to our citizens and a framework for sustainable growth."
In a statement on its website, the Liechtenstein government said the goal of its tax overhaul was to “modernise” the country’s existing, 49-year-old regime, “which no longer meets the demands of a simple, transparent and competitive tax law, and to make it compatible with European law”.
Of possible interest to fund managers is a plan to eliminate an existing “special company taxes” provision for domiciliary companies – which the Government notes violates European regulations on state aid to businesses – with a structure the Government says is designed to “strengthen” Liechtenstein’s appeal “as an attractive location for asset management”.
Liechtenstein is a member of the European Free Trade Association and European Economic Area but not of the European Union.
Maximum 12.5% personal income tax
Also as part of the changes, an existing, progressive personal tax formula is being replaced by what is described as a more transparent and simpler, seven-bracket schedule. Under the new arrangement, legal Liechtenstein residents “engaged in economic activities” will be subject to a maximum 12.5% tax on their income, and an existing capital tax will be eliminated, the government said. The current top rate of personal income tax is 17%.
Income and gains from participations will be tax-free, and losses carried over will no longer be subject to a time limit, under the new package. Coupon tax, estate tax, inheritance and gift tax will all be abolished.
In addition, an equity interest deduction will be introduced.
Additional revenue in 2011, 2012
The changes are expected to result in additional tax revenue of SF66m ($59m, €46m, £39m) in 2011 and SF54m in 2012, compared with the current budget plan, the Liechtenstein Government said. It added that the revenue will be SF4m and SW8m lower in 2013 and 2014 respectively.
London-based PKF tax investigations partner John Cassidy, who in recent months has been helping UK taxpayers with undisclosed offshore assets to take advantage of an HM Revenue & Customs ‘tax amnesty’ programme known as the Liechtenstein Disclosure Facility (LDF), believes today’s announcement “is all part and parcel of Liechtenstein becoming more open, in tax terms, and acceptable to the EU”.
“Liechtenstein is already off the EU’s ‘lack of tax transparency’ blacklist, and party to the EU money laundering regulations,” Cassidy noted.
“I don’t think they want individuals to move there — from my discussions it is very hard to find anywhere available to live — but [they] may want to attract some business relationships/deals, perhaps using a local branch staffed by locals, or even by Swiss, Germans or Austrians, [many of whom] already travel the few minutes across the border into Liechtenstein each day.”
Other elements of the new regime include:
• A group taxation option for affiliated companies
• Provisions for the treatment of patent income
• New provisions for dealing with the tax treatment of national and cross-border restructurings
