Fiscal laws in Liechtenstein are adapted to meet economic and legal conditions within the Principality and abroad. This ensures that Liechtenstein continues to have an attractive and competitive taxation system now and in the future. One of the main concepts behind fiscal laws in the country is to maintan «decison neutrality», meaning that taxes should not be affected by decisions made on investments, financing, legal and organisational forms and the use of capital gained. Tax laws are simple, transparent and internationally compatible.
Natural persons resident in Liechtenstein are subject to capital tax and income tax. There is also a state tax and a municipal tax that varies according to the person's place of residence. The national tax comprises eight tax bands with a maximum of 8%. The municipal tax is based on the amount of national tax paid and lies between 150% and 250% of this national tax. Within these boundaries municipalities decide every year on the amount of municipal tax to levy.
Employees have their income tax automatically deducted and transferred to the tax authority. A tax declaration must be completed and submitted every year. This is then used to calculate the amount of tax that should have been paid in the previous year.
All persons working on a self-employed basis in Liechtenstein must pay income tax (withholding tax) on revenue from self-employed activity as well as on other revenue. Companies have a duty to deduct income tax from their employees' salaries and to transfer this income tax to the taxation authorities. The amount of tax due is determined by the taxation authorities. A certain amount of revenue per year is tax-free. Tax bands range between 3% and a maximum of 24%. At the end of each year, citizens must complete a tax declaration. This is then used to determine how much tax should have been paid in the preceding year. This tax declaration is relatively simple and quick to complete.
Workers living outside Liechtenstein
Some workers living outside Liechtenstein may be subject to limited taxation. In such cases income tax (withholding tax) is levied on:
- revenue from self-employed activities / substitute earnings
- attendance fees
- pensions and capital payments from the 1st and 2nd pillars
- revenue resulting from the dissolution of a vested benefits account and/or a vested benefits policy
Taxation provisions vary according to the place of residence. Workers living in Switzerland have the easiest system: they do not pay tax in Liechtenstein. All income is taxed in their place of residence in Switzerland. Workers living in Austria have to pay a set-rate withholding tax of 4% deducted from their salary. This sum can be deducted from income tax in Austria. Workers who live in Germany pay taxes in both countries. A set-rate withholding tax is levied in Liechtenstein regardless of the amount a person earns. This is deducted from the income tax to be paid in Germany.
Workers living abroad who are employed by the civil service or other public institutions are subject to different provisions. Their income, but not their assets, are taxed in Liechtenstein. Therefore, they must fill in a complete tax declaration and submit it to the taxation authorities in Liechtenstein. There are two different categories of civil servant depending on where the person has his place of residence:
- public authorities with sovereign powers
- public authorities without sovereign powers
Non-resident workers employed by public authorities with sovereign powers simply have to pay income tax in Liechtenstein. However, for non-resident workers employed by public authorities without sovereign powers the tax paid in Liechtenstein can only be deducted from tax in their country of residence.