This country-specific Q&A provides an overview to tax laws and regulations that may occur in Liechtenstein.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
Resident individuals are taxed on their worldwide income. If wealth is subject to wealth tax, effective income on wealth is tax exempt with the exception of property capital gains on Liechtenstein properties. However income from foreign businesses and foreign immovable property is tax exempt.
Non-residents are taxed on Liechtenstein employment income and Liechtenstein income such as income from Liechtenstein business and Liechtenstein immovable property. If gross income is higher than CHF 200'000 non-residents will get taxed as residents.
Residence is given either in case of domicile in Liechtenstein or in case of staying in Liechtenstein permanently (habitual abode).
Married couples are assessed jointly. However upon application a separate assessment is possible.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Tax rates are different for singles and married couples and are increasing depending on income. Maximum rates for resident individuals are between 20% and 22.4% depending on the commune in which they live. Maximum rates for non-residents and for property capital gains are 24%.
The tax year is the calendar year. In case one is relocating to Liechtenstein, the liability starts and that date and ends at year end. Tax returns must be submitted between April and September of the following year.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Employers are required to withhold wage tax. Rates are different for singles and married couples and are increasing depending on income.
Payments to board members of Liechtenstein entities are subject to 12% WHT.
No WHT on interest, dividends and royalties.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Resident individuals are taxed on their worldwide wealth. However wealth from foreign businesses and foreign immovable property is tax exempt.
Non-residents are taxed on wealth of Liechtenstein immovable property.
Wealth tax – total assets (movable and immovable) less debts at the beginning of the tax year is the base of wealth tax. However, foreign immovable assets and assets of foreign permanent establishments (less pro-rata debts) are to be taken into account only with regard to the tax rate. The assets are included in the taxable income with a nominal yield of 4% and subject to income tax.
Maximum rates for residents are between 0.8% and 0.9% depending on the commune in which they live.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
No inheritance and gift tax exists in Liechtenstein.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
See above, not relevant.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Donations to qualified charities are tax deductible up to 10% of the annual taxable income per year.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Non-residents are taxed based on a notional income of 4% on the tax value of the respective property. The maximum rate is 24%.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
Lump sum taxation: This is possible instead of wealth and income tax for persons who (i) reside or habitually abode in Liechtenstein for the first time or after at least 10 years of absence from Liechtenstein, (ii) are not Liechtenstein citizens and (iii) do not work in Liechtenstein. For EU/EEA citizens the minimum tax per year in case of lump sum taxation is CHF 300'000 and for non-EU/EEA citizens it is CHF 350'000.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
As a first step the assets and income of the individual have to be determined. Depending on which income the individual predominantly earns, advantageous structures may be available from Liechtenstein tax perspective.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
The law is based on the principle of family succession (§§ 727ff. Civil Code) and follows the system of succession per stirpes. Consequently, the intestate heirs are the spouse and closest relatives in the following order:
(1) first line: the decedent’s descendants (whether legitimate or illegitimate or adul-terine children);
(2) second line: the decedent’s parents and their descendants (the decedent’s brothers and sisters);
(3) third line: the decedent’s grandparents and their descendants;
(4) fourth line: the decedent’s great-grandparents, but not their descendants.
The surviving spouse is entitled to a part of the inheritance together with these lines. If the first line exists, the surviving spouse inherits one-half of the entire estate. Where the second line or the grandparents but no children of the decedent exist, the surviving spouse’s portion is two-thirds, in any other case it is the entire estate. The entitled line inherits only the remaining part of the estate.
As a result of the principle of family succession, the testator/trix is obliged to leave the forced heirs a compulsory share (§§ 762ff. Civil Code). The forced heirs are the testator/trix’s descendants and spouse/registered partner, each in the amount of one-half of their statutory share. If the testator/trix dies without issue, his or her ancestors in the direct line (parents, grandparents) are entitled to one-third of their statutory share. Other persons (such as brothers and sisters) are not entitled to a compulsory share. If there has never been a close family relationship, e.g. between a father and his illegitimate child, the testator/trix may order a reduction of the compulsory share to one-half (§ 773a ABGB). The spouse/registered partner is entitled to the double of the compulsory share if (i) he or she has significantly contributed to the increase of assets of the testator/trix and (ii) the testator/trix obtained the majority of assets during the marriage or registered partnership (§ 765 (2) Civil Code).
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
In principle, marriage does not have any effect with respect to property: each spouse keeps his or her sole property and everything obtained during marriage only belongs to the spouse who acquired it (§ 1237 Civil Code; in the event of divorce, other rules apply). It is, however, possible that the spouses contractually agree on joint property ("Gütergemeinschaft"). If joint property is contractually agreed on (usually only for the event of death), the surviving spouse gets half of the joint property and the succession law only applies with respect to the other half of the joint property (§§ 1233 ff. Civil Code).
Furthermore, the surviving spouse can claim the statutory advance bequest ("gesetzliches Vorausvermächtnis") that is not included in the intestate share. This includes the right to continue residing in the matrimonial home and using the household effects (§ 758 Civil Code). Finally, under certain circumstances, the surviving spouse may have a maintenance claim against the heirs to the extent of what he or she was entitled to while married to the deceased, limited, however, to the value of the estate (§ 796 Civil Code). If the spouse marries again, the heirs’ obligation to pay maintenance terminates. Everything that the spouse has received out of a compulsory share, out of intestate succession, or any other bequest is taken into account when calculating a possible maintenance claim against the heirs.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
As a basic principle, any legal succession upon death is determined by the decedent’s personal statute at the time of death (Art. 29 (1) Act on International Private Law). The personal statute is the law of the country of which the person concerned is a national, and if a person has no nationality, the law of the country of his or her habitual residence ("gewöhnlicher Aufenthalt"; actual place of living) (Art. 10 Act on International Private Law). Thus, Liechtenstein law is applicable if the decedent was a national of Liechtenstein.
Furthermore, Liechtenstein law is generally applicable when probate proceedings take place in Liechtenstein (Art. 29 (2) Act on International Private Law). If the decedent, however, was a foreign national or if he or she was a Liechtenstein national but living abroad, he or she can choose the applicable succession law in a will or a contract of inheritance. The only options are the succession law of his nationality or of his last domicile.
With regard to compulsory shares against a third party (e.g. a foundation) special rules apply (Art. 29 (5) IPRG). The compulsory share can only be successfully asserted against a third party in a Liechtenstein court if the applicable succession law as well as the law applicable to the acquisition of the assets through the third party provide for the compulsory share.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
If the law of the jurisdiction which would be applicable according to the Liechtenstein Act on International Private Law refers back to Liechtenstein succession law, Liechtenstein succession law is applicable (Art. 5 (1) Act on International Private Law).
Liechtenstein courts are always competent in probate matters regarding real estate located in Liechtenstein, but never regarding foreign real estate.
If there are no assets in Liechtenstein, the court will not grant an order of probate or succession.
In any case, the scope of Liechtenstein probate proceedings is confined to those parts of the estate over which the courts can exercise control. In so far as such parts are located outside Liechtenstein, this rule refers to whether the outcome of Liechtenstein probate proceedings will be recognized by a foreign court as a matter of law or practice. It is fair to say that such recognition will be granted more often in a case where the deceased is a Liechtenstein national.
Most foreign decisions are not recognised in Liechtenstein. Apart from conventions on the maintenance and custody of children, Liechtenstein concluded only two treaties regarding the recognition of foreign court decisions, one with Switzerland and another one with Austria, whereby the treaty with Austria does not apply to succession matters.
Liechtenstein has not concluded treaties or conventions with respect to succession law: neither with respect to the applicable law nor with respect to jurisdiction.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
Dying without having made a will has the consequence that intestacy rules apply.
A last will is defined as an instruction by the person testating on who shall receive his or her estate. This instruction is unilateral, revocable at any time, does not require receipt and must meet the formal requirements as set out under §§ 577 ff. Civil Code.
In Liechtenstein different forms of wills exist:
- holographic wills (entire will is written and signed by hand);
- allographic wills (a will written by another person, the testator/trix must sign it with his or her own hand and three witnesses must confirm that the testator/trix declared this to be his/her last will);
- public wills (wills declared before court – written or oral).
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Under Liechtenstein law, the main administrator of the estate is the court. But prior to the devolution of the estate an heir may request that the court shall entrust him or her with the administration of the estate. If the heir is able to sufficiently prove his or her right to the inheritance, the court has to comply with this request. If the administration of the estate cannot be entrusted to an heir (or several heirs) due to a lack of confidence or because opposing declarations of inheritance are deposited, a curator must be appointed by the court. Likewise, if no heir exercises his or her right to administer the estate, the court must appoint a curator for this task, but only if an administration of the estate is necessary. In cases of inheritance by testamentary instrument, it is possible to appoint a testamentary executor who supervises the implementation of the last will.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Liechtenstein laws allow the creation of private foundations ("Familienstiftungen") as well as trusts. Besides, Liechtenstein law provides for further legal entities which may be used for the same or similar purposes: e.g. establishments ("Anstalten") or trust enterprises ("Treuunternehmen").
A foundation is used to make assets legally independent from the founder by transferring them to a legal entity in its own right. The Liechtenstein foundation is wide-spread and an excellent tool for estate planning and asset protection. Unlike a corporation, a foundation has no members but does have beneficiaries who are entitled to enjoy the foundation assets and/or income according to the will of the founder.
Liechtenstein has regulated the Anglo-Saxon institution of the trust (common law trust) by statute. The trust, in its form as express family trust, is often used instead of a foundation for the administration of assets for the benefit of family members, because it allows to freely structure the beneficial interests and, in contrast to the law on foundations, there are no limitations on its objects and purposes. In general, the institution of a trust is better known to persons from Anglo-American jurisdictions than, for example, a foundation.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
A foundation is set up either inter vivos by the so called «declaration of establishment» or upon death by means of a testament or inheritance contract. The declaration of establishment is a declaration of intent by the founder to set up a foundation.
Private foundations need not be entered in the Commercial Register. They acquire legal personality immediately once the declaration of establishment has been made. Nevertheless, a so-called «notification of formation» must be deposited with the Commercial Register ("Handelsregister"). This notification must contain the foundation's name and purpose as well as the identity of its representative and the members of the foundation council.
The trust comes into existence at the time of formation. Where a trust is created with a term of more than twelve months, it must be registered in the Commercial Register or the trust deed must be deposited with the Commercial Register within twelve months from its formation. It should be set out in the trust deed whether the trust is to be registered or deposited.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
The foundation's name and purpose as well as the identity of its representative and the members of the foundation council must be deposited with the Commercial Register.
In relation to a trust the Commercial Register includes the name of the trust, the date of its creation and its term as well as the names of the trustee(s).
Everybody may obtain an extract from the Public Register containing the above data in relation to registered trust. The data in relation to deposited foundations is available to the depositor and public authorities while third persons only can receive a confirmation of office ("Amtsbestätigung") if they have a legitimate interest (Art. 955a Persons and Companies Act).
Concerning the information on beneficial ownership the Liechtenstein parliament has passed a new law in December 2018 which provides for a register of beneficial owners of domestic legal entities. This register shall be kept by the Office of Justice. Disclosure of the data contained in the register to third persons may be requested against payment of a fee if they have a legitimate interest in the combat against money laundering, predicate offences of money laundering and terrorist financing. A special commission has been introduced to decide on such disclosure requests. Public authorities responsible for combating money laundering have full access to the register.
The law has not yet entered into force; it shall enter into force upon the adoption of Directive (EU) 2015/849 by the EEA Joint Committee (presumably in spring 2019).
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
- Revocable trusts/foundations: income and wealth is attributed to the settlor and taxed at the settlor's level. No taxes are levied on endowments/distributions.
- Irrevocable fixed interest trusts/foundations: income and wealth is attributed to the beneficiaries and taxed at the beneficiaries' level. No taxes are levied on endowments/distributions.
- Irrevocable discretionary trusts/foundations: income and wealth cannot be attributed to settlor or beneficiaries.
Distributions to Liechtenstein tax residents are taxed with income tax at the individual tax rate. Donations are taxed at a rate of 10.5%. Trusts/foundations can opt-in for wealth tax and donations and distributions are consequently tax exempt.
- trustees are not taxed as the tax law follows an economic approach.
Are foreign trusts, private foundations etc recognised?
Yes, foreign trusts and private foundations are recognised in Liechtenstein.
Liechtenstein is a party to the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition (‘HTC’).
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Like domestic structures.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
By using Liechtenstein foundations and trusts as estate planning tools a very comfortable level of asset protection can be obtained.
Creditors of a settlor/founder who cannot recover damages against him because he has transferred assets to a foundation/trust may dispute this endowment according to the Liechtenstein Legal Remedies Code. The general limitation period under the Legal Remedies Code is 5 years after the endowment.
In addition, creditors of a settlor/founder may, in very exceptional cases, gain access to the assets of the structure by way of "reverse piercing" if they are able to prove intended abuse of the structure by the settlor or founder and the factual control by the settlor or founder over the structure.
Creditors of discretionary beneficiaries of a trust/foundation can only be indemnified out of distributions which have already been made to the beneficiaries.
What provision can be made to hold and manage assets for minor children and grandchildren?
In the context of a trust/foundation the settlor/founder has complete freedom regarding whom he wants to appoint as the beneficiary of the structure. Subject to limitations which might arise out of forced heirship rules, he is also free to shape the respective beneficial interests.
Thus it is possible to appoint minor children and grandchildren as beneficiaries of a trust/foundation and to determine the amount and timing of distributions and to set terms and conditions. For example, it is possible to make distributions dependent on the beneficiaries' reaching a certain age.
In case of inheritance, the testator may appoint an executor (which can be a person other than the minor's parents) for his estate who shall manage the assets for minors until they reach a certain age.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Individuals are advised to issue a healthcare proxy (Vorsorgevollmacht). A healthcare proxy is a power of attorney which shall, according to its content, become effective if the principal loses the required legal capacity or mental capability or his capability of expression. Matters for which power of attorney is granted have to be specified.
If the healthcare proxy shall also include consents to certain medical treatments or decisions as to the management of assets which are beyond the ordinary course of business, it has to be established, expressly referring to such matters, before an attorney or court.
A healthcare proxy can be revoked at any time.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Charitable trusts and charitable foundations (whether purely or preponderantly charitable) are the most common legal forms used for the pursuit of charitable purposes in Liechtenstein. Besides these, other legal forms (in particular, establishments or trust enterprises) may also be considered for charitable purposes. Under Liechtenstein law, purposes are regarded as charitable if the intended activities of the trust or foundation foster the public benefit in charitable, religious, humanitarian, scientific, cultural, moral, social, sporting or ecological fields, even if the activities are only in favour of a determined circle of persons.
The minimum statutory capital for a charitable foundation is CHF 30,000. Charitable foundations must have an auditor who is appointed by the court upon proposal by the founder. Charitable foundations come into existence upon entry in the Commercial Register and are subject to supervision by the Foundation Supervisory Authority ("Stiftungsaufsichtsbehörde").
As opposed to charitable foundations, there is no minimum capital or minimum trust fund required for charitable trusts. A charitable trust is created by
- a written instrument (trust deed) between the settlor and the trustee;
- a written unilateral declaration by the settlor, which must be followed up by a written acceptance by the trustee; or
- a will;
and, in each case, the transfer of the trust property to the trustee.
The trust comes into existence at the time of formation. Where a trust is created with a term of more than twelve months, it must be registered in the Commercial Register or deposited with the Commercial Register within twelve months from its formation. The Liechtenstein courts as the supervisory authority have jurisdiction over a trustee of a Liechtenstein trust (whether charitable or not).
What important legislative changes do you anticipate so far as they affect your advice to private clients?
We do not expect important changes in the near future which will influence our advice to private clients. However, a working group of the Institute of Professional Trustees and Fiduciaries is currently discussing some amendments to the law of trusts regarding the rights to information of discretionary beneficiaries and other aspects with the government.