Liechtenstein has decided to adopt 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 is also implementing the US Foreign Account Tax Compliance Act by passing the FATCA Law. At the same time, it is signed up to the Automatic Exchange of Information (AEOI) in tax matters and the applicable standards 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.
Automatic Exchange of Information (AEOI)
Liechtenstein was among the so-called Early Adopter Countries that entered the Agreement on the Automatic Exchange of Information (AEOI) on 29 October 2014. To date, 101 countries and financial centres have signed up to the AEOI. On 22 August 2016, Liechtenstein took another important step towards the implementation of its financial centre and tax strategy. The Government deposited its instrument of ratification for the Council of Europe and OECD Convention on Mutual Administrative Assistance in Tax Matters (MAC) at OECD in Paris.
Exchange of data in 2017 and 2018
The first exchange of bank data with EU countries (excluding Austria) will occur in 2017 for the 2016 fiscal year. On 1 December 2016, a Mutual Assistance Convention, which is a comprehensive multilateral instrument for tax matters, came into force. On the basis of this agreement, the Automatic Exchange of Information (AEOI) will be implemented with 32 other states from 2018.
AEOI Liechtenstein / Switzerland
Switzerland and the EU ratified the AEOI agreement on 26 September 2016. Swiss banks will collect data from 2017, which will be exchanged with the EU member states and ten other states as of 2018.
On 1 February 2017, the Swiss Federal Council decided to implement the Automatic Exchange of Information (AEOI) in tax matters with other partner countries. Liechtenstein is one of these planned partner countries.
In the coming months, Liechtenstein will determine its next AEOI partner states. To date, the Landtag (Parliament) has approved the adoption of the AEOI with 60 jurisdictions in all. The first automatic exchange of data with the EU states (excluding Austria) will occur in 2017. The AEOI shall come into force for the other countries on 1 January 2018, with the first exchange of data occurring in 2019. The implementation of the AEOI with Switzerland, as well as the the activation of the AEOI with other partner states, are subject to the approval of the Landtag (Parliament).
Liechtenstein is implementing the new international standards arising from the BEPS Project and has amended the tax law accordingly. BEPS stands for “Base Erosion and Profit Shifting”. In an effort to take action against tax avoidance in multinational enterprises, the OECD and the Group of Twenty (G20) countries have drawn up 15 recommendations.
The goal of the BEPS Project is to support countries in protecting their tax base and at the same time to ensure that legal certainty for taxpayers is guaranteed by internationally recognised rules. Liechtenstein emphasises here the importance of ensuring a level playing field among countries.
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 2016, tax information exchange agreements (TIEAs) were concluded with 27 countries, and double taxation agreements (DTAs) for cross-border administrative assistance in accordance with OECD regulations were concluded with 17 countries.
Liechtenstein / Switzerland
On 10 July 2015, Liechtenstein and Switzerland signed a new double taxation agreement (DTA). It came into force on 22 December 2016 and has been applied since 2017. The DTA is a comprehensive agreement which is based upon OECD recommendations and avoids the double taxation of income and capital. It replaces the agreement of 22 June 1995 between Switzerland and Liechtenstein on various tax issues, which only governed the taxation of certain income.
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
Due to the derogation granted to Austria applicable within the EU, the AEOI agreement will not be applied until 1 January 2017. Austria will exchange information on new clients from September 2017. Data collection started in October 2016 and an extended exchange to include existing clients will take place in September 2018.
To avoid duplication with the AEOI agreement, Liechtenstein and Austria signed on 17 October 2016 a Protocol of Amendment to the withholding tax agreement applicable since 2014. They thereby agreed upon the partial continuation of the withholding tax agreement which includes provisions on existing transparent and non-transparent asset structures as at 31 December 2016. All other accounts and custody accounts fall under the AEOI agreement with the EU in future.
On 16 May 2014, Liechtenstein and the USA concluded an agreement (Intergovernmental Agreement according to model 1) on the implementation of the Foreign Account Tax Compliance Act (FATCA). This US Act obliges financial institutions worldwide to identify their US 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 (QI) regime. The Liechtenstein FATCA Law ensures that Liechtenstein’s financial institutions can continue to operate in the US capital market.