On 1 January 2017 the new double tax treaty between Switzerland and Liechtenstein (“DTT CH-FL”) entered into force. This treaty facilitates access of Swiss based companies to the EU market (because Liechtenstein is part of the European Economic Area “EEA”) and makes it much more attractive for Liechtenstein based holding companies and individuals to own shares in Swiss companies (due to a reduction of WHT to 0%/15%).
There is an increasing interest in Liechtenstein also as a holding location for companies based in other countries, in addition to the new DTT CH-FL, mainly due to the following characteristics:
- 0% WHT on dividend, interest and royalty payments paid by Liechtenstein companies based on unilateral Liechtenstein law
- 12.5% corporate income tax rate, participation exemption and 4% notional interest deduction
- No CFC-regulation, however correspondence principle for hybrid financing
- Application of EU fundamental freedoms (goods, persons, services and capital)
- BEPS conformity (minimum standards implemented on 1 January 2017)
- Growing network of double tax treaties with major economies (UK, Germany, Austria, Luxembourg, Malta, Singapore, Hong Kong, etc.)
Furthermore, please note that due to the EEA agreement (i.e. the 4 freedoms) and the tax information exchange agreements (TIEAs) with various EU member states no withholding tax should be applied on dividends, interests and royalties received from a subsidiary established in these EU member states.
Due to the on-going BEPS discussions, traditional holding company locations such as Luxemburg, Netherlands and the UK face challenges that were also addressed in Liechtenstein. This is how Liechtenstein meets the challenges:
- Substance: There is a consensus that local substance will be key to apply double tax treaties. Because Liechtenstein is close to Zurich (approx. 90 min), qualified employees can relatively easy be recruited or shared between Swiss and Liechtenstein based group companies (e.g. with split working contracts). Creating financial substance (i.e. equity financing) is highly attractive for Liechtenstein based companies in the current low-interest environment due to a 4% notional interest deduction.
- Hybrid mismatch: Because Liechtenstein does not levy WHT on dividends, interest and royalties, there is no need to employ hybrid instruments. With the implementation of the correspondence principle for hybrid financing, Liechtenstein meets the BEPS minimum standard (BEPS action 2)
- CFC-rules/Substantial interest rules: Liechtenstein does not have CFC regulation.
- Black Lists: Liechtenstein’s efforts in tax transparency (implementation of AEOI, TIEAs with 27 countries etc.) have led to Liechtenstein being removed from the most prominent black lists (e.g. FATF-blacklist and Italian financial transaction tax black list)
- EU State aid: Since its inception in 2011, the goal of the Liechtenstein tax law has been compliance with EEA regulations. In fact, the EFTA-supervisory authority reviewed certain elements of Liechtenstein tax law in 2011 and 2012 and qualified them as EEA-compliant
In short, Liechtenstein becomes more attractive as an alternative holding structure compared to traditional holding locations. Especially by combining resources already available in Swiss group companies, a robust (i.e. BEPS-compliant) and tax efficient holding company structure can be established in Liechtenstein. There is a so-called “principle purpose test” embedded in the new DTT CH-FL similar to the principal purpose test provision (i.e. general anti-abuse rule) recommended by the OECD. There is not yet any practice available in this respect but we expect the same substance requirements for Liechtenstein holding companies as required by the ESTV for other known holding jurisdictions.
In case of any questions please contact us:
PwC | Partner
Office: +41 58 792 72 66
Mobile: +41 79 676 40 63
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Austrasse 52 | Postfach | FL-9490 Vaduz