The corporate profit tax is determined according to the taxable corporate net income, which is based on the financial statements under consideration of the following provisions.
Inventories must be stated at the lower of cost or market. Cost is generally determined by the first in first out (FIFO) or by the average cost method. The tax authorities permit a general reserve against stock contingencies of up to one-third of the inventory cost or market value at the balance sheet date without inquiry into its justification, provided a detailed record of inventory is available for review by the tax authorities. The need for a reserve in excess of this amount (e.g. for obsolescence, slow-moving-stocks) must be substantiated to the satisfaction of the tax authorities.
Capital gains derived from the sale of shares are tax-exempt. Capital gains from the sale of real estate are subject to a separately assessed real estate profit tax (see the Other taxes section for more information).
As of 13 July 2018, new anti-abuse rules have been introduced with regard to the taxation of capital gains. Capital gains deriving from investments in foreign legal entities are not tax-exempt for income tax purposes anymore if more than 50% of the total income of the foreign legal entity consists of passive income and its taxable income is subject, directly or indirectly, to low taxation. This new rule is applicable as of 2019 for participations established as of 2019 and as of 2022 for participations established before 2019.
Dividend income and liquidation proceeds are generally tax-exempt for corporate investors (shareholders or beneficiaries). For such payment from 25% (or greater) participation, exemption only applies if such dividend is not tax deductible in the source country.
As of 13 July 2018, new anti-abuse rules have been introduced with regard to the taxation of dividend income and liquidation proceeds. Dividend income and liquidation proceeds deriving from investments in foreign legal entities are not tax-exempt for income tax purposes anymore if more than 50% of the total income of the foreign legal entity consists of passive income and its taxable income is subject, directly or indirectly, to low taxation. This new rule is applicable as of 2019 for participations established as of 2019 and as of 2022 for participations established before 2019.
Interest income is taxable and must be at arm’s length if it is in respect to related parties (for safe harbour rates, see Interest expenses in the Deductions section).
Royalty income is subject to ordinary income taxation at 12.5%.
Income from investment funds
For corporate investors, income from investment funds is subject to corporate profit tax at a rate of 12.5%. Since units in investment funds do not constitute participations in legal persons, to the extent that investment funds in turn invest in participations in legal persons, dividends and capital gains (including non-realised capital gains) from such investments are tax-exempt. Since investment funds are subject to proper accounting rules, the net income shown in the financial statements provides for the taxable basis. If in practice, however, based on proper accounting, it is not possible to differentiate between income from dividends, capital gains, or interests, a simplified approach can be used to calculate the taxable basis for the fiscal year 2014 going forward. The simplified approach will be guided by the equity exposure of investment funds. Accordingly, the higher the investments in participations in legal persons are, the higher the lump sum tax exemption for dividends and capital gains will be.
Resident corporations operating locally are generally taxed on their worldwide income. However, income from foreign real estate and PEs situated abroad is exempt from taxation in Liechtenstein.