Peculiarities of the Liechtenstein jurisdiction and court system

By Marcus Wanger, Wanger Advokaturbüro, Liechtenstein (16/01/2008)



In Liechtenstein, all jurisdiction is exercised by regular judges (Art. 99 VfG1). Within the limits of the law, all courts are independent from any influence by the government. The courts have to provide grounds for their decisions and judgments (Art. 99 VfG). Court proceedings are oral, immediate, and characterised by the free evaluation of evidence. In penal proceedings, the principle of ex officio prosecution applies (Art. 102 VfG). Jurisdiction is exercised by the Fürstliches Landgericht (Princely Court of First Instance) in Vaduz in the first instance, the Fürstliches Obergericht (Princely Court of Appeal) in the second instance, and the Fürstlicher Oberster Gerichtshof (Princely Supreme Court) in the third instance (Art. 101 VfG).


In civil cases, jurisdiction is exercised in the first instance by one or several single judges (Art. 102(1) VfG). The Court of Appeal and the Supreme Court are collective courts whose members are appointed by the Prince by mutual agreement with the Landtag (Parliament) based upon the latter’s proposal (Art. 102 (3) VfG). Jurisdiction in penal cases is exercised by the Court of First Instance in the first instance, in certain cases by the Schöffengericht (Magistrates’ Court with lay assessors), the Kriminalgericht (Criminal Court), and the Jugendgericht (Juvenile Court) (Art. 102(4) VfG). The organisation of the courts is regulated in the Gerichtsorganisationsgesetz (GOG)2 in accordance with the Constitution (Art. 101 VfG). In the Court of First Instance, jurisdiction is exercised by several single judges, at the Court of Appeal by two senates of five judges each (consisting of one chairman and four Appellate Judges), and at the Supreme Court by a panel of five judges (consisting of one chairman and four judges) (§ 2 GOG ). The judges are nominated by a commission (including the Prince) and appointed on proposal by the Landtag.


Language of Court Proceedings


The language before the Liechtenstein Courts is German. All documents must be presented in German or certified translations. This applies also to supporting documents.


Service of Foreign Documents


Service of foreign documents in Liechtenstein is regulated by the Liechtenstein Code of Civil Proceedings and international treaties. According to the law, a Liechtenstein lawyer, trustee, or any other person would not be entitled to undertake the function as a stakeholder or escrow agent for foreign courts or governmental bodies. Such undertaking is punishable, as such an activity would be regarded as acting for a foreign government.


Consequently, service must be undertaken by the Liechtenstein Courts whereby the applicant must file a motion of service of documents. All such documents have to be presented in the German language.


Enforcement of Foreign Judgments


Foreign judgments can not be enforced directly in Liechtenstein, as Liechtenstein did not enter into bilateral enforcement treaties with foreign countries, with the exception of Austria and Switzerland. Liechtenstein neither ratified the Lugano nor the New York enforcement treaties.






Not least thanks to the close cooperation and inter-connection with Switzerland, Liechtenstein is politically and economically stable and has a strong currency, the Swiss Franc.


As a result of the Customs Treaty concluded with Switzerland in 1923, Liechtenstein basically adopted the Swiss taxation system. The basis for the levying of taxes is the Act on State and Municipal Taxes (Steuergesetz / Tax Act dated 30 January, 1961, as amended, LG Bl. [legal gazette] 1961 no. 7).


Specific low tax rates apply for persons with their place of abode, permanent residence, or domicile in Liechtenstein, as well as for Liechtenstein companies domiciled in the country, and there are special tax privileges for domicile and holding companies.


Taxation of legal entities (juridical persons)


One of the main reasons for operating an enterprise in the form of a legal entity is taxation. Juridical persons have a number of advantages over individually-owned enterprises, such as the classification of capital and profit tax as expenses.


The profit of a juridical person is not subject to social charge as is that of a standard sole trader. Profit received by a participant of a juridical person is not subject to gains tax. However, in the following year, it is subject to property tax.


On the other hand, there is the disadvantage of the double taxation of assets. Owners and other major participants must receive a wage that is comparable to the general level. Also, there is still the coupon tax on the distribution of profits, although there are plans to cancel this taxation within the next few years.


Capital and profit tax


Capital and profit tax is payable by all corporations, associations, public limited companies, partnerships limited by shares, juridical persons whose assets are divided  into quotas, private limited companies, co-operative societies, mutual insurance companies and the like, establishments, and foundations, provided that these societies or companies do commercial business in Liechtenstein (Art. 73(a) Tax Act).


Trust enterprises with or without a legal personality are also subject to capital and profit tax, provided that they do commercial business in Liechtenstein (Art. 73(b) Tax Act).


The tax is also payable by legal entities equivalent to companies with a legal personality, provided that they engage in commercial activities in Liechtenstein (Art. 73(c) Tax Act).


Capital tax


Capital tax is calculated on the paidup capital stock, nominal capital, share capital, or invested capital and on the open or hidden reserves that form a separate part of the company’s assets (Art. 76 Tax Act). Assessment is performed as of the end of each business year. The increase in assets during a year, be it by an increase in capital or by making a profit, must be deduced (Art. 73 Tax Act).


The rate of capital tax is 2 per cent (Art. 79(2) Tax Act).


Profit tax


Profit tax is levied on the annual net profit (Art. 77 Tax Act).


The taxable net profit consists of the revenues minus business expenses plus capital gains and liquidation surplus (Art. 77 Tax Act).


Taxes paid (with the exception of the coupon tax paid by owners or shareholders) are regarded as business expenses, and can be deducted accordingly (Art. 77(3) Tax Act).


The tax rate for the profit tax is half of the percentage of the net profit that is taxable capital. There is a minimum of 7.5 per cent and a maximum of 15 per cent of the net profit. For calculating the tax rate, fractions must be rounded up to the nearest one-half per cent (Art. 79(2) Tax Act).


The rate for profit tax thus calculated increases by between 1 and 5 per cent if the distributed amount is more than 8 per cent of the taxable capital.


The maximum increase of 5 per cent applies if distribution is more than 24 per cent of the taxable capital. A distribution is defined as any performance of the company in monetary value to the owners of the participation rights in the company (or persons close to them) that can not be considered a repayment of the paid-up capital stock or invested capital. Examples for such performances would be dividends, bonuses, liquidation surpluses, hidden distributions of profit, or participating certificates (Art. 79(3) Tax Act).


Assessment and receipt


Six weeks after the annual accounts have been approved, and until 1 July of the next year at the latest, the taxable person must submit its tax return to the Tax Administration on an official form, and enclose the company’s profit and loss account. Capital and profit tax is assessed and will be received by the Tax Administration (Art. 81(1) Tax Act).


For taxable persons that fail to submit the required documents within the provided or extended time-limits, the Tax Administration may assess the taxable capital at its free discretion, application of the Tax Act’s penal provisions being reserved.


Special company taxes Insurance companies


Insurance companies pay 1 per cent of premium revenues from life or annuity insurances, and 2 per cent of all other premium revenues.




Insurance companies that exclusively perform captive insurance only have to pay a capital tax on 1 per cent on the equity capital in the company. For equity capital in excess of CHF50 million, that rate is reduced to 3/4 per cent, and for equity capital in excess of CHF100 million, it is 1/2 per cent (Art. 82a(1) Tax Act.


Holding companies


Juridical persons entered in the Public Register, as well as unregistered foundations whose only or prevalent objective is the management of assets, the participation in, or the permanent management of participations in other companies are exempt from property tax, gains tax, or profit tax, and only have to pay a capital tax of 1 per cent of their paid-up capital or the assets invested in the companies, including reserves.


Capital tax is 1 per cent, with a minimum amount of CHF1,000 p.a. This tax is assessed and received by the Tax Administration, and must be paid in advance every year.


Submission of annual accounts


Juridical persons and trust enterprises that engage in commercial activities, or whose objects as defined in their articles permit such activities, have to submit their audited annual accounts to the Tax Administration every year within six months after the end of each business year. The Tax Administration monitors compliance with that obligation.


Domicile companies


Domicile companies are defined as juridical persons entered in the Public Register that only have their domicile in Liechtenstein (with or without office premises), and do not engage in commercial or business activities in Liechtenstein.


Juridical persons that meet the requirements for domicile companies are exempt from property, gains, or profit tax. They only have to pay a capital tax of 1 per cent of the paid-up capital or the assets invested in the company, including reserves (Art. 84 Tax Act in the wording of LG Bl. 1963 no. 19).


The Liechtenstein legislator has given such companies a status equal to that of trust funds, unless they are subject to the provisions of Article 31(1)(e) in the Tax Act. That article applies to trustees of trust funds, unless it can be proven that the assets come from abroad. This means that domestic trust funds are subject to property and gains tax.


Tax benefits for foundations and investment companies


For foundations whose assets plus reserves exceed CHF2 million, capital tax is reduced to 3/4 per cent, and if assets plus reserves exceed CHF10 million, it is 1/2 per cent (Art. 85 (1) Tax Act in the wording of LG Bl. 1996 no. 88). For investment companies whose assets plus reserves exceed CHF2 million, capital tax is reduced to 0.4 per cent (Art. 85 (1) Tax Act in the wording of LG BI. 1996 no. 88).


Coupon tax


The Liechtenstein coupon tax was introduced in 1966. The coupon tax of 4 per cent is levied on every distribution from available profit or reserves for companies with subdivided capital. Coupon tax is only levied on the coupons of securities issued by domestic public limited companies, private limited companies, partnerships limited, and on documents equivalent to these.


Stamp duty


The basis for this tax is formed by the Swiss regulations on stamp duty, which are applicable also in Liechtenstein. Stamp duties are taxes on transactions involving certain documents, in particular securities. The subject of taxation is certain transactions, mainly increases in capital and the sale of documents (securities) (Swiss Federal Act on Stamp Duties). The stamp duty is calculated on the amount a taxable legal entity receives as a consideration for the participation rights. The minimum basis is formed by the nominal value, and if there is no consideration, by the amount of the contribution.


Value-added tax


With effect from January 1st, 1995, Liechtenstein and Switzerland together introduced value-added tax. The value-added tax replaced the former tax on goods, and applies not only to goods, but also services.


The current tax rate is 7.6 per cent, with various everyday necessities are subject to a rate of 2 per cent.


Various goods and services are exempt from VAT, mainly in the fields of health care, education, art and culture, insurances, renting of real estate, creation and assignment of rights in rem and land, as well as financial and capital trade. However, asset administration and collection business are not exempt.


Everyone is taxable who performs selfemployed trade or professional activities connected with the receipt of revenues. No intention of making a profit is required.

In addition to that, the total domestic services and own consumption of that person must exceed CHF75,000. “Domestic” is understood as referring to the territories of the Principality of Liechtenstein and of Switzerland.


Holding and domicile companies pursuant to Art. 83 and 84 of the Tax Act, as well as trusts pursuant to Art. 897 et sqq. are exempt from taxation. However, this does not apply to their taxable domestic turnover (Liechtenstein/ Switzerland).


Double taxation treaties


Liechtenstein has concluded a double taxation treaty with Austria, although this treaty does not apply to domicile and holding companies. Further double taxation treaties with respect to employed persons have been agreed with several cantons of Switzerland, namely Grisons, St. Gallen, Schaffhausen, and Freiburg,


1 Verfassungsgesetz (Constitution Act)

2 Court Organization Act