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Liechtenstein Extolled As 'Attractive' Tax Location

by Ulrika Lomas, Tax-News.com, Brussels

15 September 2011


In a recent article, KPMG Switzerland praises the principality of Liechtenstein, describing the state as ‘an attractive tax location' for both German and Swiss businesses, following entry into force of its new tax law on January 1 of this year.

According to KPMG, reform of the existing tax law was both unavoidable, given such intense international competition, and vital to ensuring the competitiveness of the principality as a location.

Liechtenstein’s new tax law, extolled as one of the most modern and attractive in the world, contains many changes in the area of corporate taxation, KPMG notes, which undoubtedly serve to significantly increase the attractiveness of the tax location in international comparison. The new, competitive and attractive tax system is both internationally compatible and in accordance with European law.

As regards changes to and improvements in corporate taxation in Liechtenstein, resulting from the reform, the new tax law provides crucially for a new flat-rate of tax of 12.5% for all companies, designed to increase transparency, for the abolition of capital tax, a particular advantage for financing companies, as well as for the abolition of coupon tax, KPMG explains.

Other key changes include a provision granting the full deduction of participation, irrespective of the amount or the holding period of the participation, dividends, or capital gains from the sale of participation in either domestic or foreign legal entities, in contrast to provisions in Germany and in Switzerland, KPMG reveals. Changes to loss carry forward provisions, enabling losses to be offset against future taxable profits for an unlimited period, as well as the introduction of group taxation and the company own-capital interest deduction, also serve to improve the attractiveness of Liechtenstein as a location, KPMG adds.

Commenting on the principality’s new law back in January, Liechtenstein’s Prime Minister and Finance Minister Klaus Tschütscher emphasized the fact that the government had created a modern, attractive, competitive and efficient tax law, which is compatible with European law, and which also meets the demands of the 21st century. Consequently, Liechtenstein will be able to respond successfully to global tax competition, Tschütscher noted, adding that the principality had once again underlined its political credibility, its consistency and ability to reform and to strengthen itself in the ongoing drive towards globalization. The new tax law will at the same time also serve to significantly improve the attractiveness and stability of Liechtenstein’s financial centre, he added.

At the time, Prime Minister Tschütscher highlighted the fact that the newly introduced 12.5% flat-rate of tax will ensure that in future all companies will be taxed equally. A single, and by international comparison, lower rate of tax is an attractive signal for companies both at home and abroad, he stressed, noting that the unequal treatment of foreign and own-capital has been removed with the introduction of the company own-capital interest deduction. Provisions on group taxation are also now included in the new law, Tschütscher continued, concluding that, as a result of the changes, as of January 1 it has become an even more attractive proposition to establish a new company in Liechtenstein.

TAGS: tax | investment | business | tax incentives | interest | law | corporation tax | Liechtenstein | group taxation | tax rates | Germany | Switzerland | dividends | tax reform

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