Company Formation Liechtenstein
Offshore Company Formation: Company Formation Liechtenstein
- Tax planning via a network of international tax advisers and attorneys
- Why form a company in a foreign country with a tax accountant specialized in international tax law?
- Basic Considerations regarding the Formation of Companies in „Zero-Tax Havens“ i.e. in countries that have not entered into Double Taxation Agreements with other countries
- Offshore Company Formation: Tax haven rankings
- Examples for the legal reduction of corporate taxes
- DTA permanent establishment concept – Our services and fees
- Parent companies and their subsidiaries in the European Union
- Beware of cheap founders!
Company Formation Liechtenstein: Complete packages (full service)
The following services are included in our complete packages:
Forming of the company, entry in the commercial register of the country, apostille, notarially certified translations of certificates into English, unless official language
- Nominee director: An attorney in the formation country will act as nominee director of the company (to the outside) and transfers all rights and obligations internally to the actual beneficiary (notarial deed of trust). The director does not have any account authority.
- Nominee shareholder: a tax office in the formation country will act as nominee shareholder (to the outside) of the company and transfers all rights and obligations internally to the actual beneficiary (notarial deed of trust).
- Domicile of the company in the formation country: deliverable postal address, availability by telephone, telephone and fax, mail forwarding service
- Account opening: bank account for the company at a renowned major bank in the formation country, internet banking, VisaCard and cheques. Only the founder of the company is authorized to have access to the account.
- General power of attorney to the founder: Only the founder receives a notarially certified general power of attorney for the company.
- Recommendation of a renowned tax office in the formation country, for book-keeping and accounting
Liechtenstein corporate bodies are formed under the Law on Persons and Companies 1926, known as the PGR Code. Trust Enterprises are formed under the Law Concerning the Trust Enterprise 1928. A wide variety of types of entity can be formed under the PGR Code, the most commonly used of which are described below; other possible forms include the limited partnership with a share capital, the company limited by quota shares, the association, the cooperative association and the company without juridical personality; but they are not commonly met with in offshore situations.
All corporate forms that are allowed under the Code, and the Trust Enterprise, can additionally be either ‘holding’ companies (companies that hold investments) or ‘domiciliary’ companies (not having trading activities inside Liechtenstein). Holding, domiciliary and non-resident entities are sometimes known as ‘exempt’, ie exempt from certain types of taxation.
No permits or licenses are required to do business, except for financial sector companies and professional services. It is a notable feature of the Liechtenstein PGR Code that there is very great freedom, within the basic forms it describes, to constitute corporate and share structures in a flexible way according to the particular purpose of the entity and its originators’ wishes. Therefore only rather general statements can be made about the rules governing the operation of the various forms; the rest will depend on circumstances. Corporate bodies formed under the PGR Code (not Trusts) share a number of characteristics:
- there must be written Articles of Association; they are deposited with the Registrar and are available on the public file, including details of capitalisation, share structure, registered office, etc;
- the corporate body does not come into existence until its details have been entered into the public register;
- the names of the directors, officers and shareholders are kept at the registered office;
- the corporate name can be in any language and must include the name of the type of body concerned (Limited, Foundation, etc), but some words are not permitted, mostly those with national or international territorial meanings (exemptions may be available);
Company Limited by Shares
The Company Limited by Shares is designed to be used as a public company, although it does not have to be public. There are founders who are (can be) distinct from the shareholders.
The Company Limited by Shares has a minimum capital of SFr 50,000, 20% of which must be paid up, with a minimum paid up of SFr 50,000. Bearer shares must be fully paid up, although the Articles can permit them to be 50% paid up; the minimum is still SFr 50,000.
If there is to be no public subscription, the company is formed ‘simultaneously’, in one legal act, and the founders are the shareholders. They create the company by entering into a Deed.
If there is to be a public subscription, the company is formed ‘successively’: first, the founders declare their intentions in general, then the subscription process takes places, and in a general meeting of subscribers (shareholders) the final details of the company’s constitution are ratified.
Shares can have variable voting rights (eg multiple votes, or restricted votes), but non-voting shares are not permitted. The appointment of an auditor, and the annual submission of audited accounts to the Registrar, are mandatory for the Company Limited by Shares.
Limited Liability Company
The Limited Liability Company (Aktiengesellschaft) is formed by two or more members and has a minimum capital of SFr 30,000. The minimum subscription amount from any one shareholder is SFr 50. Further amounts need not be paid up unless the Articles provide for it; but the joint liability of the shareholders on liquidation or withdrawal is the amount of the registered capital.
- Various types of share can be issued, including preference, registered, voting, no-par-value and bearer shares; only registered shares can be issued at below par value;
- voting rights can be allocated or not freely to all types of shares, and voting rights can be limited according to defined circumstances or occasions;
- a minimum of one director is required, who may be corporate; secretaries are not required; an exempt company needs to have a local professional as an agent;
- audited annual accounts have to be filed.
The Establishment (Anstalt)
The Establishment, or Anstalt, is a corporate form that is peculiar to Liechtenstein. It has no members or shareholders. It is an autonomous fund with beneficiaries. It is often used as a holding company for patents or royalties, or for estate assets. It has a founder or founders, who are not necessarily the same as the beneficiaries; the founders’ rights can be transferred, if the capital is not divided into shares, giving the current tenants of the founders’ rights considerable powers over the Establishment. In this respect, the Establishment is similar to the Foundation.
- The minimum capital, if not divided into shares, is SFr 30,000; and if higher, at least half (minimum SFr 30,000) must be paid up;
- the minimum capital, if divided into shares, is SFr 50,000 (but this form is never nowadays used);
- a minimum of one director is required; it is normal to delegate substantial powers of management to the director(s);
- if the Establishment has commercial objects, audited annual accounts must be filed; but note that the management of investments or other assets is not deemed ‘commercial’
The Foundation (Stiftung)
A foundation exists to give effect to the stated, non-commercial wishes of its founder, as set out in a foundation deed and the Articles of Association (Statutes). In effect, the assets with which the foundation is endowed become a separate legal entity. The Foundation has no members or shares; it is set up by a founder (or founders). Most often, this is the form that is used for the continuation of family assets. The Foundation has beneficiaries, who may be identified in a variety of ways.
- No public registration is necessary, except that a copy of the Foundation Deed is lodged with the authorities. It need contain only very general statements about the purpose of the Foundation, while detailed rules are set out in private bye laws.
- Founder’s rights are transferable, and they normally include the right to terminate the Foundation or amend the bye laws.
- Commercial activities are not permitted except in so far as they are in pursuit of the Foundation’s non-commercial goals. The minimum assets of a Foundation are SFr 30,000, which can not be divided into shares; the assets do not necessarily have to pass to the Foundation on formation;
- A Foundation is normally administered by what amounts to a board of trustees.
The Trust Enterprise
The Trust Enterprise is set up by a Trustor (settlor) through a Deed of Trust which is equivalent to Articles of Association, and must specify the name and purposes of the Enterprise, the identity of the trustees, the composition of the trust fund, and (if the purposes are commercial) the identity of the auditors. As usual, ‘commercial’ does not include asset management or holding operations. The Deed of Trust is filed with the Registrar of Trusts. The minimum trust fund is SFr 30,000. The participants in a Trust Enterprise are largely shielded from creditors of the Enterprise, who have access only to its own assets.
A Trust Enterprise can be created either without legal personality, and is then called an ‘active trust’ (eigentliche Geschaftstreuhand), or with legal personality, in which case it is called a ‘non-active trust’ (uneigentliche Treuunternehmen). Only non-active trusts have gained currency in Liechtenstein, and they are frequently used to hold investment assets, for instance in merger situations, and for the distribution of income from real estate holdings. The legal form of the Trust Enterprise is close to that of the American ‘Massachusetts Trust’.
One of the trustees must be a resident of Liechtenstein holding a recognised professional or other qualification. In the case of a non-commercial (ie unaudited) Trust Enterprise, this person certifies to the Registrar that the Trust has kept proper books and that no commercial activities have been carried out.This is the only reporting that is required. Trusts
Liechtenstein is the only civil law jurisdiction which has adopted largely anglo-saxon trust legislation (contained in the PGR Code), although, unlike the common law trust, there is no bar against accumulation of income, nor against perpetuities.
A Liechtenstein Trust is set up by a written agreement (Trust Deed) between the trustor (settlor) and trustee(s) which does not have to contain the names of beneficiaries. If the Trust Deed is deposited with the Registrar of Trusts, it will not be publicly available, and later instruments (eg naming beneficiaries) will not have to be revealed; if the Trust Deed is not deposited within 12 months, details of the Trust must be placed on the public register. A registration fee of US$ 200 is payable on registration.
Some of the characteristics of Liechtenstein Trusts are as follows:
- a trustee (apart from the Liechtenstein professional mentioned above) can be an individual or a corporation or association;
- trustees are liable for breach of trust to the full extent of their assets; joint trustees are jointly liable; supervision of the trust is ultimately under the Court, even if the Trust Deed specifies alternative supervision;
- the interests of named beneficiaries can be embodied in trust certificates, which if registered are transferable securities;
- being a civil law jurisdiction, trust assets are vulnerable to forced heirship provisions, although there are time limitations on such claims;
- in general, there is a limitation of one year on creditors’ claims;
- trust documents, including the Trust Deed, can be in any language.
Trusts may be set up under foreign law, but may not have more favourable treatment than would apply under Liechtenstein law. A trust under foreign law is a Liechtenstein Trust and subject to local taxation. Liechtenstein law applies to a foreign trust if the trustee, or more than half of the trustees, are resident in Liechtenstein, if the trust property is in Liechtenstein, or if the Trust Deed says so.
In Liechtenstein taxes are levied under the Act relating to National and Local Taxation 1961, as qualified in yearly Finance Acts. The main taxes impinging on businesses are Corporation Taxes (Profits Tax and Net Worth Tax), Capital Tax, Value Added Tax and Coupon (Withholding) Tax. There is no separate capital gains tax as such; capital gains are treated as taxable income unless they are from real estate, when Property Profits Tax applies.
The domestic taxation regime described here applies to resident companies, meaning those that have their registered office in Liechtenstein, or which are managed and controlled from Liechtenstein. However, ‘holding’ companies (companies that hold investments) or ‘domiciliary’ companies (not having trading activities inside Liechtenstein), have a separate taxation regime, as do Establishments, Foundations and Trusts.
In December, 2004, Liechtenstein signed an agreement with the EU by which the country joins EU and non-EU states implementing the Savings Tax Directive as from 1st July 2005. Liechtenstein will impose a 15% withholding tax on the returns from individuals’ savings.
Profits Tax is levied on taxable income at a basic rate between a minimum of 7.5% and a maximum of 15% according to a formula. The percentage rate is X, where
X = (Taxable Income x 100) / (Taxable Capital x 2).
It will be evident that a reasonably profitable company will always qualify for the maximum rate.
In addition, if dividend distribution exceeds 8% of Taxable Capital (same definition) there is a surcharge of up to 5% of Taxable Income in the year in which the dividend is declared, as follows:
|Dividend as % of Taxable Capital||Profits Tax Surcharge, %|
|> 8 up to 10||1.0|
|> 10 up to 12||1.5|
|> 12 up to 14||2.0|
|> 14 up to 16||2.5|
|> 16 up to 18||3.0|
|> 18 up to 20||3.5|
|> 20 up to 22||4.0|
|> 22 up to 24||4.5|
Thus, the maximum rate of profits tax is 20%, likely to be incurred by a company which makes a decent profit without much capital employed. Calculation of Taxable Base
According to the legislation, profits tax (and capital tax, see below) are levied only on the proportion of income (or capital) that the Liechtenstein operation bears to the company’s world-wide operations; plus, in the case of profits tax, any profits that are remitted to Liechtenstein. The interpretation of this rule is complex and cannot be simply explained here.
The following are some of the main provisions affecting calculation of the taxable base for the profits tax:
- Inventories are to be stated at the lower of cost or market value; FIFO is usually applied. General reserves up to one third of of value are usually accepted without demur.
- Capital gains, otherwise than from real estate, are treated as taxable income.
- Capital gains from real estate are taxed at between a minimum of 1.2% and a maximum of 35.64% (sic) depending on the amount of the gain, the length of time the property was held, etc etc.
- Foreign dividends after taxation are included in taxable income (but in the case of foreign subsidiaries, this interacts in a complicated way with the ‘proportion’ rule stated above, especially because there is no group relief in Liechtenstein).
- Companies may capitalise reserves or undistributed profits, but any resulting increase in the carrying value of shareholders’ interests will be counted as taxable income for the company.
- Either straight-line or declining balance depreciation methods are allowed. Higher rates may be permitted on occasion. There are detailed schedules of depreciation rates applicable to various types of asset. It may be worth noting that goodwill can be depreciated at 25% per annum (declining balance) or 12.5% (straight-line).
- Gains on realisation of assets are taken to taxable income.
- Trading losses can be carried forwards for two years, but not backwards.
- There is no group relief.
- All taxes paid, including profits tax, are deductible from income in the accounting period in which they are paid (the year after the fiscal year, usually).
Net Worth Tax
The net worth tax is levied on the share capital of a company (original capital plus subsequent increases) plus open and hidden reserves, in so far as these form part of the company’s net worth.
In this calculation, reserves might for instance include retained earnings brought forward, provisions for income and capital taxes, disallowed inventory and depreciation reserves, and any other disclosed or undisclosed reserves; deductions might include any current year loss, a net deficit brought foward, dividends in excess of the current year’s net profit, and any capital increase in the current year. Other items might also be involved depending on circumstances.
The rate of net worth tax applying to a resident company is 0.2% of taxable net worth.
Stamp Duty in Liechtenstein is levied according to Swiss legislation, which was substantially amended by the Swiss Federal Law on Stamp Duty 1993. There is a liability to stamp duty on the issue of shares and bonds. Zero rates apply to mergers and other corporate transformations. Issuance of foreign securities was relieved from stamping in 1993, but turnover tax applies (see below).
As of 1998, the rate of stamp duty on shares (the issue of capital in a corporation) is 1%; but the first SFr 250,000 of any issue of capital (initial or subsequent) is exempt.
The issue of corporate bonds attracts stamping at 0.12% for each year of the term of a long-term bond; the rate is 0.06% per year for medium- and short-term bonds.
Turnover Tax is payable by securities dealers and traders (Effektenhandler), which includes banks, financing companies, investment funds, and other entities or persons whose business is focussed mainly on securities dealing, trading or broking. It also applies in general to companies whose assets include taxable securities valued at more than SFr 10 million.
The rate of turnover tax varies between 0.15% and 0.30%.
Property Profits Tax
The Property Profits Tax applies to any individual or corporate person who gains from a real property transaction. The taxable profit is the amount by which the proceeds of sale exceed the invested cost. ‘Invested cost’ is an officially-assessed value plus any excess of original purchase cost and subsequent capital additions (less maintenance costs) over the assessed value.
The rate of property profits tax is set annually by Parliament, and is usually equal to the rate of the general Profits Tax. Value Added Tax
Alongside the entry of Liechtenstein into the EEA, Value Added Tax was introduced under the Law on Value Added Tax 1995. The law is very similar to the equivalent Swiss law.
The rate of VAT is 6.5%, with a reduced rate of 2% for food, printed matter and medecines. Exports are exempt, as are medical and educational services, and most real estate transactions.
Withholding (Coupon) Tax applies to companies whose capital is divided into shares, and is levied at the rate of 4% on any distribution of dividends or profit shares (including distributions in the form of shares). Generally, there is no withholding tax on interest or royalty payments, but it does apply to interest from bonds, to interest from time deposits with domestic banks in excess of 12 months, and to interest on some commercial loans over SFr 50,000 with a minimum term over 2 years. Most normal inter-company loans are not caught by the coupon tax.
Filing Requirements and Payment of Tax
Entities subject to Profits Tax must file a return within six weeks of the shareholders’ meeting which adopts the financial statements, and no later than 1st July in the calendar year following the end of the company’s fiscal year.
The tax assessment is then normally received in the autumn, and the tax due is payable within one month of receipt of the assessment. Instalment payment can sometimes be agreed with the tax authorities.