Taxation of the Liechtenstein Foundation

Liechtenstein has no substitute inheritance tax, no capital tax, no estate tax and no exit tax. Even inheritance tax and gift tax have been abolished and withholding tax is not levied. The formation tax amounts to 0.2 per cent of the statutory capital. The income tax rate is a uniform 12.5 per cent (flat rate).  

Foundation levy and fees

Foundations must pay a foundation tax of 0.2 per cent of the statutory capital upon formation, but at least CHF 200 with an exemption limit of CHF 1 million. Subsequent additional or subsequent foundations are tax-free, provided that the

statutory capital is not increased. Administrative fees are CHF 700 for entry in the commercial register and CHF 300 for deposit.

Dedication tax

Foundation level: Donations to irrevocable foundations in Liechtenstein do not constitute taxable income at the foundation level.
Contributions of assets to revocable foundations are attributed to the founder with tax payable by the founder if the right of revocation is explicitly stated in the articles of association. Contributions of assets are not subject to Liechtenstein dedication tax.

Founder level: Donations to irrevocable foundations only lead to a Liechtenstein dedication tax of 3.5% at founder level if the donated assets were subject to wealth tax in Liechtenstein prior to the transfer of assets. In practice, the dedication tax only affects the very rare cases of real estate located in Liechtenstein or business assets located in Liechtenstein.

Income tax standard taxation

Liechtenstein private-benefit foundations (family, maintenance and corporate foundations) are generally subject to unlimited tax liability on their entire income if their registered office or place of effective management is in Liechtenstein.

The assessment basis for income tax is the taxable net income resulting from the annual financial statements.
The income tax rate is a standard 12.5% of net income (flat rate). The possibility of deducting interest on equity capital of currently around 3.75% as a justified expense leads to an effective reduction in the tax rate.

Irrespective of the annual result, taxable foundations in Liechtenstein are subject to a minimum income tax of CHF 1,800, which is fully creditable against income tax.

Revocable foundations do not have to submit a tax return for investment income and only have to pay a minimum income tax. Other income must be declared and is subject to income tax.

Tax exemptions from income tax

Liechtenstein tax law grants the following tax exemptions to legal entities and therefore also to Liechtenstein foundations:

1. Income from the cultivation of foreign agricultural and forestry land and from any other agricultural and forestry production abroad;
2. Foreign permanent establishment profits;
3. Rental and lease income from properties located abroad;
4. Domestic property gains, insofar as these are subject to property gains tax in Germany, as well as capital gains from the sale of foreign properties;
5. Profit shares due to participations in legal entities;
6. Distributions from foundations, foundation-like organisations and special asset dedications with personality;
7. Capital gains from the sale or liquidation and unrealised increases in the value of participations in legal entities;
8. Income from the assets under management of undertakings for collective
   investments in securities in accordance with the UCITSG, from
   investment undertakings in accordance with the IUG, alternative
   funds in accordance with the AIFMG or from comparable undertakings for collective
   investments established under the law of another state;
9. Income from the net assets of legal entities subject to the Pension Fund Act, provided that these assets are exclusively and irrevocably allocated to the company pension scheme;
10. Capital gains from inheritance, legacy or gift.

Taxation of the beneficiary contribution (distribution)

Natural persons are subject to unlimited wealth and income tax in Liechtenstein, provided they have their domicile or habitual residence in Liechtenstein. The unlimited tax liability covers all worldwide assets and all worldwide income.
If an individual is neither domiciled nor ordinarily resident in Liechtenstein, they are subject to limited wealth tax or income tax on their domestic assets and domestic earnings. Only properties located in Liechtenstein, including land used for agriculture and forestry, as well as permanent establishments are deemed to be domestic assets.

Distributions made by the 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.
No withholding tax is levied in Liechtenstein.

Tax measures against profit shifting

Dividend distributions from a low-taxed subsidiary with passive income are taxed at the Liechtenstein parent company (foundation) at the income tax rate of 12.5%

Group taxation

A Liechtenstein foundation can also benefit from Liechtenstein group taxation rules, particularly in the case of multi-level, international holding structures in connection with loss equalisation options.

Taxation on dissolution of a foundation

The dissolution of a Liechtenstein foundation does not trigger any taxes on the Liechtenstein side.
As there is no exit taxation in Liechtenstein, no hidden income tax reserves are recognised within the foundation when the final distribution is made.
The final distributions also do not give rise to any limited tax liability in Liechtenstein and no withholding tax is levied.

Other tax exemptions relevant to foundations

Substitute inheritance tax

Liechtenstein does not recognise substitute inheritance tax.

Capital tax

Capital tax has been abolished without replacement in Liechtenstein.

Estate tax

Liechtenstein has no estate tax.

Inheritance tax

Liechtenstein has abolished inheritance tax.

Gift tax

Liechtenstein has abolished gift tax.

Exit tax

Liechtenstein has no exit tax.

Tax comparison with foundations in Germany, Austria

Tax comparison Tax law in DE, AT

DE: corporation tax; standard rate 15%, trade tax if applicable; substitute inheritance tax
AT: corporation tax; standard rate 25% with special provisions for private foundations, withholding tax rate 5% according to DTA DE-AT

Tax comparison Taxation of liquid bank assets in DE, AT

DE: Taxation of capital gains on portfolio investments 0.79% effective
Taxation of dividends received 0.79% effective; plus reduced withholding tax of generally 15% in the source country based on applicable DTA
Taxation of interest received 15% corporation tax
AT: Taxation of capital gains on portfolio holdings 0% outside the speculation period of one year, otherwise 25%
Taxation of dividends received 0% plus reduced withholding tax of generally 15% in the source country based on applicable DTA
Taxation of interest received 25% interim tax