Taxation of a beneficiary resident in Germany

Distributions made by a Liechtenstein foundation to beneficiaries who are not subject to unlimited tax liability in Liechtenstein remain tax-free in Liechtenstein. The distribution does not result in a limited tax liability and no withholding tax is levied. Distributions to beneficiaries resident in Germany are subject to 25 per cent capital gains tax in Germany. If the foundation is dissolved, the beneficiary is subject to capital gains tax or gift tax in Germany.

German income tax, capital gains tax

All payments made by the Liechtenstein foundation from the income to beneficiaries resident in Germany (beneficiaries) are subject to income tax in Germany as income from capital assets and are subject to 25 per cent capital gains tax.

If the founder is also the beneficiary, the same provisions apply.

German gift tax

Whether payments made by the Liechtenstein foundation to beneficiaries resident in Germany are subject to gift tax depends on whether the foundation’s assets are used in accordance with its articles of association. Statutory donations are not made voluntarily and therefore remain exempt from gift tax.

Disbursement of assets upon dissolution of the foundation

German income tax

In the opinion of the German tax authorities, payments from the income of the private-benefit Liechtenstein foundation to the founder, his relatives or their descendants on the occasion of the foundation’s dissolution are subject to income tax as income from capital assets and are subject to 25 per cent capital gains tax to the extent that they have a claim to the assets.

German gift tax

If, on the other hand, the distribution of assets on the occasion of the cancellation of the foundation is generous, the distribution of assets is subject to gift tax. For the purposes of determining the gift tax class, the founder is deemed to be the donor. Consequently, the tax class, including the associated tax rate and tax-free amount, is determined according to the more favourable relationship between the founder and the beneficiary.
However, if the assets are transferred back to the founder, the gift tax is subject to the less favourable gift tax class III.