Employers in Liechtenstein have significant responsibilities towards the country's social security system. These responsibilities include contributions to various insurance and compensation funds.

Social Security Contributions

Employers contribute to the following main components:

• Old Age, Survivors, and Disability Insurance (AHV/IV/FAK): Employers are required to contribute 4.9% of an employee's gross salary.
• Family Compensation Fund (FAK): This requires employers to contribute 1.9% of an employee's gross salary.
• Unemployment Insurance (ALV): Employers contribute 0.5% of an employee's gross salary.
• Occupational Accident Insurance: This contribution is approximately 0.1% of an employee's gross salary and is fully borne by the employer.

Occupational Pension Scheme (2nd Pillar)

Employers also have responsibilities towards the Occupational Pension Scheme, also known as the 2nd Pillar. They are generally required to contribute to this scheme on behalf of their employees. The specific contribution rates vary depending on the company's chosen pension plan.

In Liechtenstein, the income tax system is progressive, with national tax rates ranging from 2.5% to 8%. On top of this, communities levy surcharges between 150% to 250% of the national tax rate, resulting in a total income tax rate ranging from 2.5% to 22.4%.

Social Security Contributions

Employees also contribute to various social security funds. For Old Age, Survivors, and Disability Insurance (AHV/IV/FAK), employees contribute 4.7% of their gross salary. For Unemployment Insurance (ALV), employees contribute 0.5% of their gross salary.

Other Possible Deductions

Employee contributions may apply to the Occupational Pension Scheme (2nd Pillar) depending on the pension plan chosen by the employer. It's important to note that the specific deductions may vary depending on an employee's individual circumstances.

Liechtenstein has a standard Value Added Tax (VAT) rate of 7.7%, which is applicable to most services provided within the country.

Reduced VAT Rates

In Liechtenstein, certain services qualify for reduced VAT rates. Hotel accommodations and other lodging services are taxed at a reduced rate of 3.7%. Certain necessities such as food, medicine, newspapers, and books are taxed at an even lower rate of 2.5%.

VAT Exemptions

There are also services in Liechtenstein that are entirely exempt from VAT. These include healthcare services, educational services, financial and insurance services, cultural services, and social care services.

VAT Registration and Compliance

Businesses in Liechtenstein that exceed a certain turnover threshold are required to register for VAT. Once registered, these businesses are obligated to charge VAT on their sales, file VAT returns, and remit the collected VAT to the tax authorities.

Liechtenstein offers a competitive corporate tax rate of 12.5%, with an annual minimum corporate tax of CHF 1,800, providing relief for smaller companies.

Dividend and Capital Gains Exemptions

Dividend income and capital gains derived from the sale of qualifying shareholdings are generally exempt from taxation. This makes Liechtenstein highly attractive as a holding company location.

Notional Interest Deduction (NID)

Businesses can benefit from a notional interest deduction on their adjusted equity (approximately 4%). This deduction lowers the taxable income base.

Tax Incentives for Innovation

The Liechtenstein IP Box Regime offers significantly reduced taxation on income generated from qualifying intellectual property (IP) assets. A substantial portion of such income (up to 80%) is treated as a notional expense, leading to a very low effective tax rate.

Private Asset Structures (PAS)

Private Asset Structures offer income tax exemption, subject to certain conditions.

Double Taxation Treaties

Liechtenstein maintains an expanding network of double taxation treaties (DTTs). These treaties help prevent double taxation of income and can provide additional benefits such as reduced withholding tax rates on dividends, interest, and royalties.

Additional Information and Considerations

Besides the federal corporate income tax, businesses may be subject to additional cantonal and communal taxes. For the optimal utilization of these incentives and the overall structure of your business in Liechtenstein, obtaining professional tax advice is strongly recommended.