Tax Residency Criteria in Liechtenstein
Liechtenstein's tax residency criteria are outlined in the Tax Act (SteG), specifically in Article 3. According to the Act, an individual is considered a tax resident if they meet any of the following conditions:
- Domicile: An individual is considered domiciled in Liechtenstein if they have their permanent home there.
- Residence: An individual is considered resident in Liechtenstein if they reside there for more than 183 days in a calendar year.
- Economic activity: An individual is considered resident in Liechtenstein if they carry out a substantial part of their economic activity there.
The rationale behind these criteria is to ensure that individuals who have a significant connection to Liechtenstein are subject to taxation on their worldwide income. By establishing clear criteria for tax residency, the legislation aims to prevent tax evasion and ensure that individuals contribute to Liechtenstein's tax revenues in line with their economic activities within the country.
Impact of International Tax Treaties
Liechtenstein has entered into numerous tax treaties (Double Taxation Treaties or DTTs) with various countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For instance, under the Liechtenstein-Switzerland tax treaty, an individual is considered a resident of Liechtenstein if they are liable to tax in Liechtenstein because of their domicile or residence there. However, if an individual is considered a resident of both Liechtenstein and Switzerland under their respective domestic laws, the treaty provides tie-breaker rules to determine their tax residency.
These treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Liechtenstein and the other treaty partner to facilitate tax compliance and enhance economic cooperation between the two countries.
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