Posted: 23 May 2022

Corporate group financing from Liechtenstein

Liechtenstein as business location

Liechtenstein is a small country in the heart of Europe, which offers a broadly diversified and stable business location with more than 4,800 active companies.

In the last ten years, Liechtenstein has successfully positioned itself as an onshore location for international groups. This can be seen, for example, in the proactive adoption by Liechtenstein of international developments in the tax area as part of its early adopter strategy and in the growing network of double taxation agreements. Nevertheless, Liechtenstein has managed to continue to offer favorable tax planning options in selected areas.

Taxation of interest income

With the notional interest deduction (NID) on equity, Liechtenstein offers an attractive solution for the financing of international groups.

The interest income of a Liechtenstein financing company is generally subject to corporation tax at a rate of 12.5%. Further, Liechtenstein grants an NID to avoid tax discrimination of equity (so-called financing neutrality). The amount of the NID is annually reviewed based on market interest rates. Since 2011 the NID rate has been unchanged at 4%.

Sample calculation

The attractiveness of NID on equity can be illustrated using the following example calculation, where a Liechtenstein company grants equity financed loans to other group companies:

Interest income                100,000 (5% of 2,000,000)

./. NID on equity                  80,000 (4% of 2,000,000)

Taxable profit                      20,000

Profit tax                              2,500 (12.5% of 20,000)

In the above example, the effective tax rate on interest income is 2.5% (2,500 profit tax on 100,000 income).

With an interest rate of less than 4%, the effective profit tax burden can also be 0.

Other considerations

Due to the attractive overall tax conditions, the financing structures via Liechtenstein are enjoying growing popularity. When planning such structure, the following points should be considered:

  • Creation of equity in the Liechtenstein financing company (issuance stamp tax)
  • Determination of the appropriate interest rate (transfer pricing)
  • Required substance in Liechtenstein and its documentation
  • Tax framework in the source countries of the interest payments (interest deductibility, withholding tax on interest)

If you would like to know more on this topic, please reach out to our key contacts below.

Authors

Thomas Ingold

Assistant Manager, Corporate Tax

tiingold@deloitte.ch

Salvatore Marino

Senior Consultant, Corporate Tax

salvatoremarino@deloitte.ch