Liechtenstein has signed an additional DTA with Monaco

On 29 June 2017 the Government of the Principality of Liechtenstein issued a press release stating that Liechtenstein has signed an additional Double Taxation Agreement (DTA) with Monaco. The DTA between Liechtenstein and Monaco is intended to increase the legal certainty for investors and strengthen the close cooperation between the two countries.

The DTA is based on the current international OECD standard. It takes into account the results of the OECD/G20 BEPS project, which is intended to prevent tax avoidance in a cross-border context. The exchange of information is regulated based on international standards, whereby the automatic exchange of information (AEOI) will be carried out in accordance with the framework of the Multilateral Competent Authority Agreement (MCAA).

We assume that the new DTA with Monaco will be approved this year by the Landtag of the Principality of Liechtenstein, which would allow it to enter into effect as of 1 January 2018.

Contacts

Martin_Meyer_09723
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

 

 

Bieri_Ralph_70735
Ralph Bieri
PwC | Senior Manager
Office: +41 58 792 72 76
Mobile: +41 79 643 14 37
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

Poland removes Liechtenstein from its black list

On 9 June 2017 the Government of the Principality of Liechtenstein issued a press release stating that Liechtenstein has been removed from the Polish black list of low-tax countries.

Removing Liechtenstein from the black list is a consequence of the signing of the agreement between Liechtenstein and the EU Member States to exchange information on tax matters automatically and upon request. This agreement is in force since 1 January 2016.

The removal from the Polish black list further contributes to strengthening Liechtenstein as a business location. In particular, it helps Liechtenstein based companies in the areas of transfer pricing documentation and controlled-foreign-company regulation. Liechtenstein based companies no longer automatically fall within the scope of these anti-abuse rules. Thus, anti-abuse rules only apply if the specific preconditions based on Polish legislation are fulfilled.

Contacts

Martin_Meyer_09723
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

 

 

Bieri_Ralph_70735
Ralph Bieri
PwC | Senior Manager
Office: +41 58 792 72 76
Mobile: +41 79 643 14 37
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

Liechtenstein – The fund location

A modern fund location in the very heart of Europe

The financial world order is in a state of upheaval. Established financial centres are being challenged by regulatory and political developments. Financial centres must transform to stay competitive. This influences fund providers and asset managers in their choice of location. In this way, the Principality of Liechtenstein has moved increasingly into the foreground. It has succeeded by creating an internationally recognised regulatory framework, combined with an attractive and compliant tax system, and full access to the key financial markets.

Read more…

In case of any questions please contact me:
Martin_Meyer_09723
Claudio Tettamanti
PwC | Partner | Market Leader Liechtenstein
Office: +423 233 10 02
Mobile: +41 79 696 45 89
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

Double Tax Treaty between Switzerland and Liechtenstein

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.

Blog LI - DBA

In case of any questions please contact us:

Brunner_Roman_09544Roman Brunner
PwC | Partner
Office: +41 58 792 72 66
Mobile: +41 79 676 40 63
Email
PricewaterhouseCoopers AG
Vadianstrasse 25a | Neumarkt 5 | 9001 St. Gallen

 

Meyer_Martin_09723_01
Martin Meyer
PwC | Director
Office: +41 58 792 42 96
Mobile: +41 79 348 36 13
Email
PricewaterhouseCoopers GmbH
Austrasse 52 | Postfach | FL-9490 Vaduz

Private banking in Switzerland and Liechtenstein: are its days numbered?

CyberThreatLandscapeSwitzerlandAre the days of private banking in Switzerland and Liechtenstein numbered? If you’re to believe what many experts and the media have been claiming recently, they are: with the advent of the process to regularise untaxed client money from abroad, there have been various horror stories predicting heavy outflows of assets from Switzerland and Liechtenstein. But the reality is that most players in both financial centres adopted a clean money strategy some time ago already, and have managed to largely rid themselves of past burdens. So it’s gratifying to note that the process of regularisation has not led to significant outflows of client money from the banks. Total client assets under management in Switzerland and Liechtenstein are currently running at almost the same levels as in 2007, a record year. Even in the era of automatic exchange of information (AEOI), both countries have been able to defend their position as important offshore wealth management centres.

Download the full report here.

Liechtenstein plans to extend its CRS network with 32 further juristictions

The Liechtenstein government plans to extend its CRS network with 32 further countries based on the MCAA. Please find below the link to the document “Bericht und Antrag” (in German) published by the Liechtenstein Government on 13 October 2016. The Liechtenstein parliament has to decide at its next session.

http://www.llv.li/files/srk/bua-139-2016-web.pdf

There is a list of the 32 countries included in the report. Besides several financial centres and offshore jurisdictions (e.g. Jersey, Guernsey, Bermuda, Monaco etc.), also large countries (e.g., Argentina, Australia, Chile, China, India, Japan, Canada, Korea, Malaysia, Mexico, New Zealand or South Africa) and the two other EEA countries (Norway and Island) are on the list.

The first automatic exchange of information should already start in 2018 for the fiscal year 2017.

Status Quo of Switzerland’s Journey towards an AIFMD passport

A few days ago, Liechtenstein announced that after a rather significant delay it is finally able to offer its Alternative Investment Fund Managers (AIFMs) and their Alternative Investment Funds (AIFs) access to the EU passport system provided by the EU Alternative Investment Fund Managers Directive (AIFMD). Where does Switzerland stand in this regard?

As a non-EU country, Switzerland can only hope to gain competitive third country access based on regulatory equivalence. In recognition of this principle, Switzerland has made great efforts to align its relevant regulatory framework with the new rules created by the AIFMD by partially revising its Collective Investment Schemes Act (CISA) and associated ordinances.

Last year, the European Securities and Markets Authority (ESMA) evaluated a number of countries (including Switzerland) to form an opinion as to whether the AIFMD passport should be extended to these countries as required by the AIFMD. In July 2015, ESMA published its Advice on the application of the AIFMD passport in six non-EU countries (Guernsey, Hong Kong, Jersey, Switzerland, Singapore and the USA). In this document, ESMA finds no major obstacles for the cases of Switzerland, Jersey and Guernsey. But rather than at least grant the passport to these three countries, ESMA was tasked with assessing an additional six countries to determine whether there are significant obstacles regarding investor protection, competition, market disruption and the monitoring of systemic risk which would impede the utilisation of the AIFMD passport.

On 19 July 2016, ESMA published a second opinion on the extension of the AIFMD passport to non-EU countries. In it, ESMA finds, in particular, that there are only minor obstacles impeding the application of the AIFMD passport in Canada, Guernsey, Japan, Jersey and Switzerland. Additional comments and qualifications were provided with respect to Hong Kong, Singapore, Australia and the USA. For Bermuda and the Cayman Islands, ESMA was unable to provide definitive advice as these countries are currently in the process of implementing new regulatory regimes. Similarly, ESMA found it difficult to assess the Isle of Man, for currently there is no AIFMD style regime in place there.

ESMA’s Advice will now be considered by the European Commission, Parliament and Council, as required by the AIFMD. Therefore, in essence Switzerland is still waiting to gain access to the EU-AIFMD passport for its AIFMs, which would grant them the ability to offer their services and products competitively across the harmonised EU market. But things are clearly moving forward, and seemingly in the right direction, which is good news for many Swiss players. The AIFMD passport has become even more important to many of these entities following the Brexit vote, for up until now they had relied on the UK for access into the EU.

The Esma advice can be found here.

 

Please do not hesitate to contact us if you require further guidance or have questions on any of these topics.

 

AIFM and AIF Pass for Liechtenstein

The EU Directive on Alternative Investment Fund Managers (AIFMD) is undoubtedly one of the most important regulations in recent years and has made a lasting impression on the industry it concerns.

The Principality of Liechtenstein anticipated this development in its earliest stages and not only promptly implemented these new provisions into its national law but also seized the opportunity to provide the market with a differentiated product and offer for institutions.

According to information from the Liechtenstein government, the EEA Joint Committee has also adopted the so-called AIFMD into the EEA Agreement. This means that beginning 1 October 2016, Liechtenstein alternative investment funds (AIFs) and alternative investment fund managers (AIFMs) have efficient and equal access via the so-called passport system to the EEA Internal Market, or to the 28 EU member states and the EEA/EFTA states Norway and Iceland.

Hitherto, Undertakings for Collective Investment in Transferable Securities (UCITS) could already be sold within the European Internal Market from Liechtenstein. Beginning 1 October 2016, this authorization also extends to AIFs.

With the successful adoption of the AIFMD, Liechtenstein now enjoys the same possibilities as EU member states of accessing both UCITS and AIFs and is, thanks to its internationally-oriented activities and unique advantages vis-à-vis other locations in Europe for financial institutions from non-EEA states, an ideal gateway to the European market. Even companies from EU countries are keen to benefit from the outstanding conditions offered by Liechtenstein, and many have already created funds in accordance with Liechtenstein law, taking advantage of Liechtenstein’s quick and efficient licensing process, attractive tax system for funds and corporations, high level of investor protection, well-funded and secure banks and simplified interaction between investment companies, service providers and supervision agencies.

Contact:

Dr. Günther Dobrauz
Partner
+41 58 792 14 92
guenther.dobrauz@ch.pwc.com

The board: duty calls

The international tax landscape in flux: what a member of the board needs to know

This brochure is designed to help you as you steer your organisation through a complex tax landscape.

the boardWith growing calls for transparency and tax justice vying with the demands of intense tax competition, the Swiss economy and the players within it face major challenges. In this brochure we review the most important tax developments in Switzerland and internationally and summarise those we consider to be very relevant for a member of the board.

We wish you stimulating reading!

Access the brochure here

If you have questions, please contact Andreas Staubli or Urs Brügger.

 

Implementation of BEPS minimum standards in Liechtenstein

flaga-liechtensteinu-70-x-110-cmOn 3 May 2016 the government of the Principality of Liechtenstein published a consultation report on the amendment of the tax law. The proposed changes are expected to enter into force as of 1 January 2017.

With the changes Liechtenstein intends to implement the minimum standards by the OECD and G20 on Base Erosion and Profit Shifting (BEPS). The proposed changes include measures to avoid double non-taxation (Action 2), measures to avoid harmful tax practices, including the exchange of tax rulings (Action 5) and measures to improve tax transparency through the introduction of a mandatory transfer pricing documentation (Action 13).

Additional minimum standards such as Country-by-Country reporting (also Action 13) and the introduction of anti-abuse measures in double tax treaties (Action 6) shall be implemented in autumn 2016 in a separate law and the revision of double tax treaties, respectively.

Please read below how the proposed changes may affect our clients:

Introduction of the correspondence principle for dividends to avoid double non-taxation (Action 2)

Dividend income from domestic and foreign participations in corporations as well as capital gains on such participations are generally tax exempt in Liechtenstein. Under certain conditions, also income received from indirect participations in corporations (i.e. fund investments and investments in partnerships) may be tax exempt.
With the proposed changes, investors in Liechtenstein (shareholders or beneficiaries) shall only benefit from the participation exemption on dividend income if the payment is not tax deductible in the source country.
The introduction of the correspondence principle leads to a number of implementation issues for our clients (e.g. burden of proof regarding taxation in source country) that are currently discussed in the consultation process.

Abolishment of IP-box regime (Action 5)

In 2011 Liechtenstein introduced an IP-box regime in connection with the complete revision of its tax law. The current IP-box regime does not comply with the modified nexus approach by the OECD. Therefore, the Liechtenstein government decided to abolish the current IP-box regime with a phasing-out period of 4 years (i.e. until end of tax period 2020).
Whether a new (BEPS-compliant) IP-box regime shall be introduced subsequently is subject to further analysis by the government and not yet clear.

Spontaneous exchange of tax rulings (Action 5)

The draft legislation introduces the definition of the term “tax rulings” and describes the process of obtaining and the effect of a tax ruling.
The legal basis for the exchange of tax rulings will be article 7 of the Convention on Mutual Administrative Assistance in Tax Matters (MAC) which is currently subject to the national ratification procedure in Liechtenstein. The exchange of the tax rulings as such shall be regulated in the Act on International Administrative Assistance in Tax Matters or a separate law. Based on the current state of knowledge, we understand that the following categories of tax rulings may be exchanged:

  • Rulings related to preferential tax regimes;
  • Unilateral advance pricing agreements or other unilateral cross-border rulings in respect of transfer pricing;
  • Cross-border rulings providing for a downward adjustment of taxable profits;
  • PE (permanent establishments) rulings;
  • Related party conduit rulings;
  • Any other type of ruling agreed by the Forum on Harmful tax practices giving rise to BEPS concerns.

The consultation report does not specify whether tax rulings issued on or after 1 January 2010 that were still in force at 1 January 2014 will be subject to the ruling exchange (as foreseen in the OECD Report on Action 5). Practical questions affecting our clients are currently discussed in the consultation process (e.g. based on which criteria Liechtenstein will judge whether a tax ruling is still in force).

Mandatory transfer pricing documentation (Action 13)

Until now companies in Liechtenstein were not obliged to prepare a transfer pricing documentation. Based on the draft legislation, in future all companies will be obliged to provide upon request by the tax authority (i.e. no periodical filing) documentation regarding the adequacy of transfer prices of transactions with related companies or permanent establishments.
Large companies have to prepare the transfer pricing documentation based on an internationally accepted standard. If a company exceeds the following three criteria, it qualifies as a large company (based on Liechtenstein company law):

  • Total assets CHF 25.9 Mio.
  • Net revenue CHF 51.8 Mio. and
  • Annual average of 250 full time employees.

Other Amendments

The draft legislation also contains other changes that are not linked to the implementation of BEPS. In particular, compensations paid to foreign corporations in accordance with their role as a member of the board of directors or management of a Liechtenstein entity shall be subject to withholding tax (i.e. foreign corporations will be subject to limited tax liability in Liechtenstein).

Draft consulation report

Click here to see the draft consultation report.

If you have any questions, please contact me.