Tax compliance strategy
Liechtenstein pursues a financial centre strategy that is based on client tax compliance. The Government Declaration of 14 November 2013 signalled Liechtenstein’s strong commitment towards its tax compliance strategy heralded by the Liechtenstein Declaration of 12 March 2009. Liechtenstein thereby confirms its endorsement regarding the applicable standards on information exchange on tax matters of the Organisation for Economic Co-operation and Development (OECD).
The Liechtenstein banks and Bankers Association expressly and actively support the financial centre’s tax compliance strategy. On 1 September 2013, they passed guidelines setting minimum standards. In 2015, Liechtenstein’s banks are preparing themselves and their clients for the automatic exchange of information (AEOI). To this end, they have extended their tax compliance guidelines and have committed the Liechtenstein banking centre to a standard of practice by means of self-regulation. In order to ensure tax compliance the banks have been applying a risk-based approach since February 2015 to clarify the tax status of existing clients, whom they assist, if necessary, in meeting tax compliance.
The LLB Group plays a pioneering role in this process and has taken measures to achieve the strategic goal of a tax compliant financial centre. As early as 1 October 2012, it declared a risk-based approach with voluntary tax disclosure as the standard in the acquisition of new clients and has been implementing comprehensive measures for its clients to meet tax conformity since 1 February 2014.
Double taxation agreements and tax information exchange agreements
Bilateral, long-term cooperation agreements form the basis of Liechtenstein’s financial policy. By the end of 2014, tax information exchange agreements (TIEA) or double-taxation agreements (DTA) for cross-border administrative assistance in accordance with OECD regulations were concluded with 26 countries. As at 1 January 2015, a series of these agreements was in force, including the DTAs with Great Britain and Austria.
Liechtenstein / Switzerland
On 2 February 2015, Liechtenstein and Switzerland concluded their negotiations in Berne on a new double-taxation agreement (DTA). It is planned that the agreement will come into force on 1 January 2017. The DTA is a comprehensive agreement to avoid the double taxation of income and capital based upon the recommendations of the OECD Model Tax Convention on Income and on Capital. It replaces the previous agreement of 22 June 1995 between Switzerland and Liechtenstein on various tax issues, which solely regulates the taxation of particular incomes.
The DTA now also includes the taxation of AHV pensions. These can be taxed solely in the state of residence. The respective country of domicile will continue to retain the right of taxation in the case of cross-border commuters. Benefits from occupational pensions are subject to taxation in the recipient’s country of domicile. The taxation of dividends, interest and royalty payments is now also governed by this new agreement.
Liechtenstein / Austria
On 29 January 2013, Liechtenstein and Austria signed a withholding tax agreement to regulate previously untaxed assets. At the same time, the existing DTA was amended and aligned with the international standard. Both agreements came into force on 1 January 2014. The withholding tax agreement goes further than that between Switzerland and Austria, which has been in force since 1 January 2013 and served as a model. Accordingly, Austrian clients of Liechtenstein banks were given the possibility to regularize their assets without any limitation on the amount. The tax agreement provides for the subsequent taxation of previously untaxed assets, on the one hand, and a withholding tax on future capital gains, on the other hand. The LLB Group concluded the disclosure process at the end of June 2014.
Liechtenstein / Great Britain
The topic of untaxed offshore assets had already been treated in an exemplary fashion with the United Kingdom of Great Britain and Northern Ireland (UK) as early as 11 August 2009. This agreement also includes a bilateral disclosure programme that only applies to the Liechtenstein financial centre. The “Liechtenstein Disclosure Facility” (LDF) has been in force since 1 September 2009 and offers persons with undeclared assets who are liable to taxation in the United Kingdom the opportunity to regularize their tax affairs in relation to the UK quickly and on favourable terms. Liechtenstein and Great Britain also signed a double taxation agreement on 11 June 2012, which came into force on 1 January 2013. Furthermore, the agreement to legalize the financial assets of British citizens in Liechtenstein was extended in London to 5 April 2016.
Automatic Exchange of Information (AEOI)
On 21 November 2013, Liechtenstein signed the Joint Council of Europe / OECD Convention on Mutual Administrative Assistance in Tax Matters at the Global Forum on Transparency and Exchange of Information for Tax Purposes in Jakarta, Indonesia. Liechtenstein also counts amongst those 52 countries that entered the Agreement on the Automatic Exchange of Information (AEOI) on 29 October 2014. The members of the G20 (group of the twenty most important economies and emerging economies), the OECD and further important financial centres committed themselves to applying the AEOI. It is planned that as early as 2017 they will commence transmitting detailed bank data of foreign clients for the 2016 fiscal year to states with which – in a second step – they are now concluding bilateral agreements. On 19 November 2014, Switzerland approved a declaration on its joining the multilateral Agreement on the Automatic Exchange of Information in tax matters. Switzerland will exchange data for the first time in 2018.
On 16 May 2014, Liechtenstein signed an agreement on the implementation of the “Foreign Account Tax Compliance Act” (FATCA) according to model 1. Model 1 (EU5 model) – information exchange between two states – provides for a treaty and automatic exchange of information between tax authorities. For this purpose, FATCA has to be adopted into national law by each of the partner countries of the U.S.A. The Landtag of the Principality of Liechtenstein (Parliament) passed the FATCA Law on 4 December 2014, which ensures that Liechtenstein’s financial institutions will continue to be able to operate in the U.S. capital market.
The U.S. “Foreign Account Tax Compliance Act” (FATCA) obliges financial institutions worldwide to identify their U.S. clients and to disclose their assets and revenues to the Internal Revenue Service (IRS) of the United States. The information goes beyond the applicable provisions of the “Qualified Intermediary Regime” (QI).
Government entities, central banks and international organizations as well as particular pension fund accounts and pension fund products are treated as exempt. Banks with a mostly local client base are considered to be FATCA compliant under certain conditions and are only required to register. Bank Linth does not come into this category since it belongs to the LLB Group. The same applies to LLB (Österreich) AG.