Many clients are not aware that Liechtenstein also has lump-sum taxation, as exists for example in Switzerland, Italy (since 2017) or Greece (since 2020). Lump-sum taxation means that a taxpayer does not have to pay tax on their income and assets according to the regular rate, but that the tax is assessed as a lump sum for all income and assets.
The “taxation according to expenditure”, as the Tax Act calls the lump-sum taxation (formerly “pensioners’ tax”), provides that persons who establish their domicile or habitual residence in the Principality for the first time or after at least ten years’ absence from the country, do not have Liechtenstein citizenship, do not pursue gainful employment in Liechtenstein, and live from the income of their assets or other emoluments accruing to them from abroad may be taxed on a lump-sum basis upon application (Art. 30 SteG). Liechtenstein citizens are therefore not eligible for lump-sum taxation. This obstacle for own citizens also exists in Switzerland, whereas in Italy, for example, it is perfectly possible and permissible for an Italian citizen to be taxed on a lump-sum basis, provided that all other requirements are met.
However, there is no entitlement to lump-sum taxation. The tax administration decides upon application and at its own discretion.
While the tax rate for lump-sum taxpayers is set by law at a binding 25% (Art. 33 SteG), the taxable base is set as the total, i.e. worldwide, expenditure of the taxpayer and can therefore vary. However, in official practice a minimum expenditure is assumed, which in turn leads to a minimum tax burden in the six-digit range.
The person subject to lump-sum taxation may not carry out any domestic gainful activity in Liechtenstein, i.e. may not generate any income through work performed in Liechtenstein. However, the exercise of executive functions in Liechtenstein legal entities such as family foundations without receiving a fee or other remuneration is not considered as domestic gainful activity and is therefore compatible with the lump-sum taxation.
Not covered by the flat-rate tax is domestic real estate, whether held personally or by a legal entity, which is consequently subject to wealth tax and, in the event of sale, to capital gains tax. Indirect taxes such as VAT, motor vehicle tax, dog tax, etc. are also not covered by the flat-rate tax.
The lump-sum taxation is granted for a limited period of time, usually 5 years, and can be extended accordingly. It ends at the time of the death of the person subject to lump-sum taxation. If the person subject to lump-sum taxation (had) their last domicile or habitual residence in Liechtenstein at the time of death, their estate is subject to ordinary Liechtenstein wealth tax.
An annual control statement, as is customary in Switzerland for lump-sum taxpayers, is not required in Liechtenstein.
The Liechtenstein double taxation agreements do not contain LOB clauses (Limitation of Benefits) with regard to lump-sum taxpayers, which is why a lump-sum taxpayer resident in Liechtenstein is considered a resident within the meaning of Art. 4 OECD-Model Treaty in the same way as a regular taxpayer, receives a tax residence certificate and can consequently use Liechtenstein’s DTT network.
The granting of lump-sum taxation requires a residence permit in Liechtenstein. Therefore, parallel to the tax planning, residence planning must also be provided, which may be sometimes challenging, especially for non-EEA citizens.
The number of lump-sum taxpayers in Liechtenstein is not published, but according to tax statistics, tax revenues from lump-sum taxation in 2020 amounted to “only” CHF 10,400,000 (in comparison: revenues from motor vehicle tax in the same year amounted to CHF 15.4 million). Therefore, although just a small number of lump-sum taxpayers can be assumed overall, lump-sum taxation can still be a very interesting and advantageous option for individual cases.