LIECHTENSTEIN Law and Practice Contributed by: Thomas Plattner and Fabian Jenny, Ospelt & Partner Attorneys at Law Ltd.
1.3 Income Tax Planning Liechtenstein does not levy capital gains tax. Capital gains are tax free. Liechtenstein acknowledges income tax planning. One main principle is the decision neutrality of taxa - tion, ie, taxation shall be neutral towards economic or business decisions. Specific tax planning provisions are the PAS (see 1.1 Tax Regimes ) and lump-sum- taxation on expenditures. Lump Sum Taxation Liechtenstein offers an appealing flat tax based on expenditure for natural persons. This tax on expend - iture is levied instead of income tax and wealth or property tax. Individuals considering this tax regime must meet the following requirements: • foreign citizenship; • taking up residence or habitual residence for the first time or after a period of ten years of absence; • no engagement in any gainful activity in Liechten - stein; • living off the gain of global personal property; and • application approved by the tax authority. The tax base is the overall and global expenditure from maintaining the individual’s living standard. The following expenses are typically taken into account: • housing; • leisure activities, including ownership or special expenses for holiday residences, yachts and air - planes, respectively. The effective tax rate applied to the overall sum is 25%. A further advantage of the tax on expenditure is that the tax can be fixed for several years in advance, therefore, an individual does not have to meet any other reporting obligations except considerable alter - ations on the expenditures themselves. • wages for employees; • further education; and
• equipment and tools required for the exercise of an agricultural or commercial gainful activity or anoth - er profession under the total value of CHF2,000; • collections of artistic, historical or similar impor - tance made accessible to public viewing, educa - tional purposes or promoting tourism; • assets in agricultural products such as hay, grain and fruit; • real estate located abroad; and • business premises located abroad. Tax Exemption on Dividends/Switch-Over-Clause In principle, dividends and profits deriving from share - holdings in domestic or foreign legal persons are exempt from income tax. However, shares in profits/ dividends due to participations in or distributions of foreign legal entities are not exempt from income tax if the following cumulative conditions are fulfilled: • the total income of the foreign legal entity paying the dividends/shares in profits (ie, distribution) is sustainable to more than 50% from passive income (exemption: the income is generated within the framework of an actual economic activity by the foreign legal entity making the distribution); and • the net profit of the distributing foreign legal entity is directly or indirectly subject to low taxation. A low rate of taxation is understood as either: • deduction of corporate earnings tax at a rate that is less than half the rate of taxation in Liechtenstein (in case of holdings of less than 25%); or • an effective deduction of corporate earnings tax of less than 50% of the corporate earnings tax charge in an equivalent situation in Liechtenstein (in case of holdings of more than 25%). In principle, capital gains from the sale or liquida - tion and unrealised increases in value of holdings in domestic or foreign legal persons are tax-exempt. Consequentially, capital losses cannot be deducted. Such capital gains and unrealised capital gains are not exempt from income tax if they relate to participations in foreign legal entities whose profit shares would also not be exempt from income tax.
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