Taxation of foundation assets of a Liechtenstein foundation in Germany
Under the double taxation agreement between Germany and Liechtenstein, the Liechtenstein private-benefit foundation (family foundation, corporate foundation) is deemed to be a resident company within the meaning of the agreement and is therefore generally covered by the agreement on condition that it is organised in a non-transparent manner, assets have been made independent and there is no abuse of rights and the legal form is a PAS.
The real economy clause does not apply to foundations.
Expertise
Taxation of dividends and interest
The German dividends can be taxed in Liechtenstein as the foundation’s country of residence. Germany can only deduct withholding tax to a very limited extent.
If there is a direct holding of at least 10% of the voting shares in the German corporation for an uninterrupted period of at least twelve months, the German withholding tax is reduced to 0% of the gross income from the dividends.
If there are at least 10% voting shares, but the minimum holding period of twelve months is not met, the German withholding tax deduction is reduced to 5%.
If the minimum holding of over 10% is not reached, the withholding tax is only reduced to 15%.
Under the double taxation agreement between Germany and Liechtenstein, German interest can only be taxed in Liechtenstein.
German interest from public bonds is subject to income tax of 12.5% at the Liechtenstein foundation. No withholding tax is levied in Germany.
Taxation of capital gains from the sale of significant participations in a German corporation
As a rule, capital gains are tax-free in both Germany and in Liechtenstein.
Profits from co-entrepreneur share in German partnership / permanent establishment capital gains
Liechtenstein fully exempts the German permanent establishment profits of a Liechtenstein foundation from taxation in Liechtenstein.
The foundation has a limited corporation tax liability in Germany of 15% plus trade tax.
The same applies to capital gains on German business co-entrepreneur shares.
In accordance with the double taxation agreement between Germany and Liechtenstein, the country in which the permanent establishment is located has taxation law applying the exemption method. As a rule, the tax payable in Germany remains the same (15% German corporation tax plus trade tax).
Legal comparison: Taxation of co-entrepreneur shares in German partnerships in DE, AT
DE: Taxation of current profits 15% German corporation tax, plus trade tax up to 31.5% if applicable
Taxation of realised gains on the participation 15% German corporation tax, plus trade tax up to 31.5% if applicable
AT: Taxation of current profits 25% Austrian corporation tax, against which 15% German corporation tax and German trade tax is offset. If applicable, trade tax overpayment
Taxation of realised gains on the participation 25% Austrian corporation tax, against which 15% German corporation tax and German trade tax is credited. Possible trade tax surplus
Taxation of real estate located in Germany
In principle, the acquisition of real estate located in Germany by a foreign legal entity is subject to real estate transfer tax.
Foreign foundations are subject to limited corporation tax in Germany on their German income (15%).
In Liechtenstein, foreign rental and lease income and proceeds from the sale of real estate are exempt from income taxation, so that the tax burden remains in Germany.
Ownership of real estate in Germany does not generally constitute a permanent establishment and therefore does not establish trade tax liability in Germany, provided the foundation only manages assets in Germany.
Legal comparison: Taxation of German real estate in DE, AT
DE: Taxation of rental and lease income 15% German corporate income tax
Taxation of realised capital gains on the property after dedication 15% German corporate income tax; tax-free outside a holding period of 10 years
AT: Taxation of rental and lease income 15% German corporate income tax
Taxation of realised capital gains on the property after dedication 15% German corporate income tax; tax-free after a holding period of 10 years
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