LIECHTENSTEIN Law and Practice Contributed by: Andreas Schurti and Simon Oberhofer, Schurti Partners Attorneys at Law Ltd
6.2 Non-Deductible Local Expenses Expenses that are proportionally attributable to for - eign income that is not subject to tax in Liechten - stein are not deductible. However, losses from foreign permanent establishments can be taken into account under certain circumstances. 6.3 Dividends From Foreign Subsidiaries In general, dividends from the foreign subsidiaries of local corporations are not taxed. However, following the implementation of BEPS Action 5, dividends are taxable if the foreign subsidiary is subject to no or low taxation and generates mainly passive income (see 2.7 Capital Gains ). 6.4 Taxation of Intangibles Developed by Local Corporations There are no specific regulations governing the taxa - tion of income from intangible assets, so income from intangible assets is subject to normal income tax. Non-local subsidiaries are not subject to Liechtenstein taxation, including in relation to the intangibles devel - oped by local entities. However, based on the arm’s length rule, the tax authority could tax the local entity that developed the intangible, and attribute a respec - tive royalty fee to its profits. 6.5 Controlled Foreign Corporation-Type Rules CFC Rules Liechtenstein has not implemented BEPS Action 3 and therefore has not established CFC-type rules. Earnings from foreign subsidiaries are not attributed to the Liechtenstein entity. Instead, dividends and capital gains from foreign low-taxed companies with income derived primarily from passive income are taxable (see 2.7 Capital Gains ). Place of Management Entities that are registered abroad but are effectively managed in Liechtenstein are subject to Liechtenstein income tax. Branches Non-local branches are treated the same as non-local subsidiaries.
6.6 The Substance of Non-Local Affiliates There are no rules regarding substance for affiliated companies. 6.7 The Sale of Shares in Non-Local Affiliates Dividends and profits from the sale of non-local affili - ates are tax-free, provided that anti-avoidance rules do not apply (see 2.7. Capital Gains ).
7. Anti-Avoidance Provisions 7.1 Overarching Provisions General Rules
Legal or factual arrangements are deemed to be abu - sive if they appear to be inappropriate in the economic circumstances and if their sole economic purpose is to obtain tax advantages. If there is an abuse, the inappropriate arrangement is disregarded for tax purposes and taxes are levied as if the inappropriate arrangement would not exist. Arm’s Length Principle The arm’s length principle must be observed in all transactions between related parties. If a taxpayer’s income or expenses from a business relationship with related parties or with a permanent establishment are changed by applying different terms and conditions to those with unrelated parties, such different terms and conditions are not acceptable for tax purposes. Documentation Taxpayers must document that the transfer prices of material transactions with related parties and perma - nent establishments are reasonable.
8. Audit Cycles 8.1 Regular Routine Audit Cycle Income Tax
Tax returns, including annual financial statements and various details, are submitted online. The tax authority checks each tax return based on the submitted docu - ments and requests further documents if necessary. In-person tax inspections are very rare compared to regular audits. If there are no reasons or indications
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