Switzerland and Liechtenstein have strong economic ties, as the Principality has adopted the Swiss franc as a national currency, but also because Liechtenstein shares a large portion of its borders with Switzerland. In order to regulate the taxation of income of individuals commuting from one state to the other for employment, Liechtenstein and Switzerland signed a double taxation treaty in 1995. A new agreement was signed in 2015 with the aim of broadening its scope. The current agreement for the avoidance of double taxation between Liechtenstein and Switzerland covers the following taxes:
- – the income, the real estate income, the property and the coupon taxes in Liechtenstein;
- – the income taxes levied at federal, cantonal and municipal level and the taxes imposed to assets held by individuals or companies in Switzerland.
Our company registration agents in Liechtenstein can help foreign citizens who want to open companies here.
What does the new Liechtenstein – Switzerland double tax treaty provide for?
The double taxation treaty signed by Liechtenstein and Switzerland applies to individuals with a place of residence in one of the two states, but also to companies which have a place of management in the other country. Branch offices, factories and other types of offices or associated enterprises are considered permanent establishments and will be taxed in the country where they are operating provided that they have been set up there for a minimum period of 12 months.
The avoidance of double taxation will occur by grating a credit or a tax exemption in the case of Switzerland, while Liechtenstein will offer tax deductions or partial exemptions on the taxes levied twice.
New tax rates in the Liechtenstein – Switzerland double tax agreement
The most significant changes brought to Liechtenstein’s double taxation agreement with Switzerland refers to the reduced tax rates applied to dividends, interests and royalties. The new tax rate for dividend payments was reduced from 35% to 15%, while interest and royalties payments will be subject to a 0% tax rate.
It should also be noted that the double taxation treaty between Liechtenstein and Switzerland was enforced at the beginning of 2016.
The 2017 Liechtenstein – Switzerland double tax treaty
Liechtenstein and Switzerland are continuously trying to improve their relations, which is why the double taxation treaty which was amended in 2016 suffered new alterations in 2017. Among the new clauses introduced in the agreement, the most important one is related to making a clear distinction between the income tax and the wealth tax. This is because Liechtenstein and Switzerland have common customs and VAT systems. The amended agreement follows the OCED model.
The new tax treaty also contains a special clause related to foundations, as the notion is different in the signatory countries. While the Liechtenstein law is more relaxed about the taxation of sale of assets in a foundation and the taxation of the beneficiaries of such entity, the Swiss law considers foundations as legal entities, therefore these are taxes as such. Under the new double tax convention between Liechtenstein and Switzerland, the taxation of foundations will be assessed on a case-by-case basis.
The 2017 Liechtenstein – Switzerland double tax agreement also contains a clause related to the exchange of tax information.
You can obtain more information on the agreement by contacting our company formation consultants in Liechtenstein.