Liechtenstein

Corporate - Deductions

Last reviewed - 18 June 2020

Depreciation and amortisation

Depreciation of tangible fixed assets and amortisation of intangible assets is allowed if it is 'commercially justified'. For tax purposes, either the straight-line (depreciation based on the acquisition value) or the declining-balance method (depreciation based on the book value) may be used. Depreciation and amortisation not recorded in statutory accounts are not deductible for tax purposes.

A special (higher) rate of depreciation may be allowed for assets used only for short periods or for assets for which a rapid decrease in value can be proved.

The depreciation/amortisation rate per annum of various property types are provided below. Note that these depreciation rates relate to write-downs on the book value. If the write-down is performed on the acquisition value, then the rates enumerated below should be reduced by half.

Property type Rate per annum (%)
Immovable assets:  
Real estate (dwelling houses, offices, shops, restaurant and hotel buildings, industrial buildings, factories, warehouses, and parking spaces) 5
Movable assets:  
Mobile structures, technical installations (air conditioning plant, gas and electricity mains for industrial purposes), elevators, investments in foreign real estate, high rack warehouses, and airplanes 15
Office furniture and machines, workshop, and storeroom equipment 20
Furniture used for the hotel and restaurant trade 25
Machines and accessories for production purposes, vending machines, telephone installations, and operating applications 30
Machinery used in more than one shift or used under heavy conditions, motor vehicles 35
Information technology (hardware and software), office furniture and machines, workshop and storeroom equipment, hotel and restaurant cookery, cutlery, and linen 50
Officially approved installations and equipment against water pollution, energy-saving equipment, and installations using solar energy 50
Intangible assets:  
Goodwill, patent, licence, and other rights of use 40

As of 2019, realised and unrealised losses from participations are no longer deductible.

Start-up expenses

In general, the expenses for a start-up are tax deductible as long as they are economically justified.

Please see Formation tax (Gründungsabgabe) in the Other taxes section.

Interest expenses

Interest paid by a corporation to a third party is a deductible business expense. Interest paid to related parties (affiliates or shareholder) has to reflect the fair market rate and has to be at arm’s length.

With respect to related parties, the tax administration of Liechtenstein annually issues safe harbour interest rates to be used on loans denominated in Swiss francs on the one hand and in foreign currencies on the other hand. The corporation may deviate from these safe harbour rates as long as it can prove that the rates are at arm’s length and more appropriate in the present case.

Safe harbour rates 2020

Loans in Swiss francs Minimum interest rate (%)
For loans made to related parties:  
Financed from equity and no interest-bearing debt capital 1.5
Financed from debt capital:  
Cost price + 0.5
At least 1.5
   
  Maximum interest rate (%)
For loans received from related parties 1.5

For loans in the following currencies, the same mechanism applies:

Currency 2020 (%) 2019 (%) Currency 2020 (%) 2019 (%)
EUR 1.50 1.75 USD 3.25 3.75
GBP 2.50 2.75 JPY 1.50 1.50
SEK 1.75 2.00 NOK 3.50 3.50
CZK 3.50 3.75 PLN 3.50 4.00
AUD 2.50 4.00 HKD 3.50 4.25
CAD 3.50 4.00 ZAR 8.75 9.50

Furthermore, the tax authorities ask for an economic justification if loans are not in the currency of the statutory accounts.

Notional interest deduction (NID) on equity

The NID on equity is a standardised deduction for interest on equity based on the multiplication of the ‘modified’ equity by the interest rate (according to the annual finance law). For 2018 and 2019, the equity interest rate is 4%. Losses due to the NID are not accepted; consequently, a negative result due to this deduction does not generate loss carryforward.

To determine the modified equity, the following terms have to be considered:

  • Paid-in capital and open reserves plus taxed hidden reserves, such as:
    • Deduction of own shares.
    • Deduction of participations/shares.
    • Deduction of non-operating related assets.
    • Deduction of 6% of total assets (except the above mentioned assets).
  • Equity increases and decreases, based on the capital at the beginning of the business year.
  Example 1 Example 2 Example 3 Example 4 Example 5 Example 6
Modified equity 1,000,000 500,000 500,000 1,000,000 1,000,000 1,000,000
Loans 0 500,000 500,000 0 0 0
Profit 100,000 100,000 200,000 1,000,000,000 30,000 60,000
Interest on loans (4%) 0 (20,000) (20,000) 0 0 0
             
Profit 100,000 80,000 180,000 1,000,000,000 30,000 60,000
Interest on equity (4%) (40,000) (20,000) (20,000) (40,000) (40,000) (40,000)
Taxable profit 60,000 60,000 160,000 999,960,000 0 20,000
Profit tax rate 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%
Tax burden 7,500 7,500 20,000 124,995,000 0 2,500
             
Effective tax rate 7.50% 9.38% 11.11% 12.50% 0.00% 4.17%

According to the Liechtenstein Tax Act, modified equity is defined as the equity amount minus own shares, participations in corporations, and assets not operationally necessary.

In addition, modified equity must be further reduced by 6% of all assets qualifying for the NID. This means that, after deducting non-qualifying assets (own shares, participations, non-operating assets), an additional deduction of 6% on the remaining assets has to be made.

Furthermore, if a related-party loan has an interest rate below the level of the NID of 4%, the difference in the amount has to be deducted from the modified equity. However, no deduction has to be made if the loan arises from the operating business of the company.

As of 2019, the NID for transactions between related parties will be restricted. The NID will be added to the taxable income if the investment is not financed by equity in the parent company or if transactions with related parties are purely tax motivated.

Provisions

Bad debt provision

It is admissible to set up an accounting provision for specific impaired debt; additionally, it is possible to account for a general bad debt provision of up to 10% on receivables from Liechtenstein and Switzerland and up to 15% on receivables from any other country if no specific provision has been accounted for the corresponding debt. These provisions are not accepted regarding receivables to corporations and institutions under public law, banks, or for inter-company receivables.

Inventory provision

See Inventory valuation in the Income determination section for a description of the inventory provision regime.

Provisions on financial investments

Provisions on financial investments are possible but must be proved by an established corporate evaluation method or other suitable documents.

Other provisions

Provisions at the expense of the profit and loss statement are admissible for obligations during the business year whose amount is not yet determined or for other immediately imminent losses during the business year.

Charitable contributions

Charitable contributions to legal persons and special asset dedications with domicile in Liechtenstein, in another country member of the European Economic Area (EEA), or in Switzerland, which are exempt from tax liability in light of exclusively and irrevocably common-benefit purposes, are deductible, up to the amount of 10% of the taxable corporate net income.

Deduction for income from intellectual property (IP)

With the tax law amendments that entered into force on 1 January 2017, the Liechtenstein IP box regime was abolished with a phase-out period for existing IP boxes until 2020.

Prior to 1 January 2017, a deduction of 80% was allowed on the net income from IP rights that was created or acquired after 1 January 2011. IP rights, in the sense of the tax law, consisted of patents, supplementary protection certificates, utility models, trademarks, and designs, which must be protected by registration in a national, foreign, or international Register, as well as software and technical/scientific databases.

The Liechtenstein IP box was approved by the European Free Trade Association (EFTA) Surveillance Authority (ESA).

Fines and penalties

Fines and penalties are not tax deductible, provided the penal nature predominates.

Taxes

Taxes are not deductible in Liechtenstein.

Net operating losses

A loss can be carried forward and offset against the profits for future years. There is no time limitation of loss carryforwards as well as loss offsetting. Losses cannot be carried back.

The loss carryforward is limited to 70%. The other 30% can still be carried forward indefinitely. As a consequence, 30% of the taxable profit is subject to annual taxation even if corresponding losses from previous years exist.

Losses from foreign PEs and group loss offsetting

Losses from a foreign PE can be offset with taxable net corporate income to the extent these losses were not already taken into account in the country where the PE is situated or in another country. If that PE records profits in the following years, these profits need to be added to taxable net corporate income again. The period a loss can be carried forward is limited up to five years. Afterwards, the losses will be added if not yet added to the taxable profit due to foreign loss offsetting. The same limitation of loss carryforward applies to group taxation as well.

Payments to foreign affiliates

Interest, royalties and licences, and other fees to foreign affiliates are allowed as deductions to the extent that they meet the arm’s-length test (i.e. equivalent to charges that would be made by an unrelated third party).

For interest payments between affiliated companies or between shareholders and companies, Liechtenstein tax authorities publish safe harbour rules annually (i.e. generally accepted interest).