Israel – Liechtenstein Tax Treaty

Business activity in Liechtenstein

The economy in Liechtenstein has grown and evolved significantly since the mid-20th century. Currently, the country has a rather successful, export-focused economy, with the US being its largest trading partner. The exports from Liechtenstein to the US account for over half a billion dollars annually.

Manufacturing accounts for 40% of the country’s GDP, followed by general services, which are 38.3% of the GDP. While Liechtenstein is mainly known as a financial center, financial services, including legal, insurance, and accounting, contribute only 21.3% to the GDP.

Since the 1960s the number of foreign workers in Liechtenstein has been larger than nationals. Liechtenstein companies employ over 80,000 employees, both within the country and abroad. Immigration to the country is limited, which leads to a high number of cross-border commuters, mainly from Austria and Switzerland.

Liechtenstein has been part of the European Economic Area (EEA) since the late 1990s, allowing it to freely offer services in all EEA countries. Additionally, close economic relations and treaties with Switzerland provide Liechtenstein companies with favorable access to the Swiss economic area. As a member of the EFTA, Liechtenstein enjoys benefits from an extensive network of global free trade agreements, including, as mentioned above, an agreement with Israel.

Applicability of the MLI

Both Liechtenstein and Israel have signed the MLI. Israel signed the agreement in June 2017 and ratified it in January 2019. Liechtenstein also signed the MLI in June 2017 but ratified it after Israel, in April 2020.

Residency for tax purposes in Liechtenstein

Residence of an individual

 An individual is considered a tax resident in Liechtenstein if they are domiciled or have permanent residence in the country.

To read about how an individual is considered a resident of Israel, click here.

Residency of a company

 A Company is considered a tax resident of Liechtenstein if was incorporated there or if it is the effective place of the company’s management.

To learn about how a company is considered a resident of Israel, click here.

The tax system in Liechtenstein

Liechtenstein Tax Authority is called the Liechtenstein Tax Administration

Income taxation: 0% – 8 %

Taxation of companies and branches: 12.5%

Vat: 8.1%

Capital gains tax: Generally tax-exempt

Withholding Tax

Inheritance tax and estate tax in Liechtenstein

Liechtenstein does not levy inheritance, estate, or gift taxes.

Relocation to Liechtenstein

Liechtenstein is one of the smallest and richest countries in the world. It offers a high quality of life, a favorable tax regime and political stability.

About a third of Liechtenstein’s population consists of foreign citizens, and the number of foreigners of working age is above average compared to other European countries.

Liechtenstein’s excellent quality of life is characterized by its commitment to security, pristine natural surroundings, abundant cultural offerings, diverse recreational opportunities, and a top-notch education system.

The country’s favorable tax regime and straightforward business incorporation roles have attracted many companies, specifically holding companies, to open offices there. Those offices account for about 30% of the country’s revenues.

Real estate taxation in Liechtenstein

Liechtenstein doesn’t impose a transfer tax or a real property tax.

Capital gains generated from the sale of real estate are subject to a real estate profit tax. The basic tax rate is the same as the income tax rate of a single individual with an additional surcharge. The surcharge is usually calculated for municipal tax, and is 200 percent, no matter where the taxpayer is located. The total maximum tax rate is 24%.

Transfer of funds from Israel to Liechtenstein

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. The tax authority can, under certain circumstances, reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our firm handles the requirements of foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

Banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Liechtenstein

Liechtenstein allows for a wide range of business entities, including:

1. The sole proprietorship – This type of business entity is the simplest business form. It can be registered by one member, whose liability is unlimited. While not commonly used, it suits professionals such as healthcare practitioners, lawyers, and accountants. The registration process for this entity is very simple and includes filling out a request with the trade register.

2. Limited company by shares (Aktiengesellschaft AG Ltd) – This type of legal entity is highly popular and common in Liechtenstein. A company limited by shares requires a minimum of two founders, with a share capital of at least 50,000 CHF. The capital is divided into shares, members are not personally liable for the company’s debts; only the entity’s assets are used in case of liquidation.

3. Private limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) – This type of business entity can be formed by one or more members, and their liability is limited. The share capital required is at least 10,000 CHF.

4. Holding company – This is one of the most popular entity types in the country. Its popularity can be mainly attributed to the tax benefits it provides and the possibility to register it as a limited liability company that holds shares or assets in one or more entities in the country.

Incentive laws in Liechtenstein

Lichtenstein offers a range of tax incentives, including:

• Exemption from profit tax for corporations with a permanent charitable, cultural, or non-profit purpose without commercial activity.
• Profit tax exemption for dividend income and capital gains on shares/participations, particularly beneficial for holding companies.
• Liechtenstein provides tax advantages for Private Asset Structures (PAS). A PAS is not allowed to engage in any business activities. Its purpose is restricted to acquiring, holding, managing, and selling financial instruments under Liechtenstein’s asset management law, along with handling cash and bank accounts for the investor’s benefit. The ownership of shares is permitted only if it can be shown that the shareholders or beneficiaries have no control over the management of the company.

Liechtenstein Double Tax Treaties: