Liechtenstein: Tightening of the equity capital interest deduction

From the 2019 tax year onwards, Liechtenstein holding companies will be subject to tax offsets in the area of equity interest deduction if the subsidiary is not fully financed with equity, i.e. the equity of the holding is less than the carrying amount of shareholdings.

The offsetting is automatically made in the tax return in the amount of 4% on the "tax negative" equity. However, this automatism entails the risk that more offsetting is provided than required by law. In order to ensure that only the envisaged addition is made, the holding itself must enter the corresponding adjustment in the tax return.

If the holding company is over indebted in its balance sheet, interest on borrowed capital can also be offset. This occurs regardless of whether there are hidden reserves or subordinated loans. In practice, a combination of these two disadvantageous situations can occur. Whether the tax administration also refused to accept interest expense on the loan, if an offsetting of the equity interest deduction is made, will first be shown in practice.