ARTICLE
2 August 2011

Liechtenstein Update In A More Transparent World

The recent developments and changes in the last two years in the Principality of Liechtenstein underline the attractiveness for international asset protection for international clients.
Liechtenstein Wealth Management

Article by Dieter Roth and Roger Frick

The recent developments and changes in the last two years in the Principality of Liechtenstein underline the attractiveness for international asset protection for international clients. Until these changes are fully recognised by the international community and the reputation of Liechtenstein is adapted it will of course take quite some time. Nevertheless, I am fully convinced that Liechtenstein can offer a very interesting set-up for a comprehensive asset protection approach.

Enforcement privilege for Liechtenstein family foundation

This rule was also valid before the implementation of the totally revised Foundation Law entered into force 1 April 2009. In the articles, it can be validly foreseen that the creditors of beneficiaries (founder included) shall not be permitted to deprive the beneficiaries of their entitlement to a beneficial interest or prospective beneficial interest acquired without valuable consideration, or individual claims arising from such an interest, by way of safeguarding proceedings, compulsory enforcement or bankruptcy (see now in Art. 552 § 36 Persons and Companies Act in the New Foundation Law)

Forced Heirship Rule

Together with the implementation of the totally revised Foundation Law entered into force 1 April 2009, Art. 29 International Private Law Act was amended with para. 5. The Liechtenstein lawmaker decided that the privacy of a founder has a higher value than the protection of forced heirs by limiting their rights:

By claiming their rights, it is not only the applicable Law of the country with respect to the estate but ADDITIONALLY the applicable Law of the country with respect to the transfer of assets – which is Liechtenstein Law when establishing a Liechtenstein entity – decisive when judging whether or not such a claim is granted (donation law applicable if foreseen in documents and thus reducing to two years).

  • By limiting the claiming period therefore to two years after the death of the founder as such a transfer is treated as a donation based upon Liechtenstein Law.

Charitable Foundations / Philanthropy

With the implementation of the totally revised Foundation Law entered into force 1 April 2009, a legal definition of charitable (see Art. 107 para. 4 Persons and Companies Act attached) can be found and a supervision by the Foundation Supervisory Authority was established (see Art. 552 § 27 ff. Persons and Companies Act)

No enforcement of foreign judgements in Liechtenstein

As Liechtenstein is not member of the Lugano Treaty, foreign judgements are not enforced

Taxation with New Tax Law

The new Tax Law entered into force 1 January 2011. With these rules, new properly established foundations (control of founder limited or even excluded after formation) and trusts are ordinarily taxed (no ring-fencing and state aid issue any more) with a flat rate of 12,5 % of the net earnings (mainly interest income above 4 % is taxed); Interest on equity capital (2011: 4 %) is deductible; Participation and foreign real estate income /gain is tax-exempted; Already existing entities can continue with the old taxation regime until 31 December 2013 (transitional provisions).

EC European Savings Directive (ESD)

Ordinary taxed and properly established foundations are basically accepted as separate entity (not treated as disregarded entity) and does therefore not fall within the scope of the ESD which means that no withholding tax of 20 % resp. 35 % as of 1 July 2011 in place of exchange of information will be levied on interest payments for accounts in Liechtenstein

DTA Lux – Liechtenstein: Dividends, Royalties

Based upon the OECD Model Double Tax Treaty, Liechtenstein and Luxembourg entered into a DDT which could be interesting for holding structure purposes as there is no withholding tax for dividends under certain (in comparison to the Model better) conditions. A foundation paying ordinary taxes in Liechtenstein is a valid holding entity. A holding foundation will therefore mainly pay taxes on financing income (interest), but never on dividends and capital gains on participations.

This  DTT is more favourable than other OECD double taxation treaties and of course with regard to other offshore jurisdictions like BVI, Panama, Bahamas etc. where you would be subject to withholding tax issues. If you chose a Liechtenstein entity (juridical person) as holding of a LUX-Co instead of a company domiciled in another offshore jurisdiction as mentioned, you would have a benefit by not being subject to withholding tax while sending dividends from LUX-Co to the LI-holding if the term dividends as legal definition in the DTT is fulfilled,

  • the beneficial owner is a entity which holds directly at least 10 % of the capital of the company paying the dividends and
  • the participation is hold for a period of at least 12 months.

Furthermore, please note that in the DTT Luxembourg – Liechtenstein, Luxembourg has no right to tax royalties on one hand and based on national Liechtenstein Law such income is privileged with a deduction of 80 % which is not taxable pursuant to the New Tax Law.

All these relevant points become even more attractive on the ground that in the MoU and its joint declarations entered between Liechtenstein and the UK, Liechtenstein entities are fully accepted by the UK authorities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.



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