ATTORNEYS AT LAW LTD RECHTSANWÄLTE AG FL-9490 VADUZ MORITZ BLASY, DR. IUR., LL.M. 2, 3

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1 WALCH & SCHURTI ATTORNEYS AT LAW LTD RECHTSANWÄLTE AG ERNST J. WALCH, DR. IUR., MCJ 1 ZOLLSTRASSE 2 ANDREAS SCHURTI, DR. IUR. HSG, MCL, HEE 1 P.O.B ALEXANDER APPEL, DR. IUR., LL.M. 2 FL-9490 VADUZ MORITZ BLASY, DR. IUR., LL.M. 2, 3 LIECHTENSTEIN MARINA A. HAASE-SAIDANI 4 ANDREAS VOGEL, DR. IUR. 2 TELEFON WOLFGANG FÜRNSCHUSS, MAG. IUR MARION KRANZ, MAG. IUR. 2 BARBARA WALCH, DR. IUR., LL.M. 1, 2 TELEFAX also admitted to the New York Bar Handelsregister des Fürstentums Liechtenstein 2 also qualified in Austria Registernummer: FL also admitted as Solicitor (England and Wales) 4 Rechtsanwältin in Deutschland LIECHTENSTEIN TAX REFORM I. Introduction The former Liechtenstein Tax Act dated back to It was completely revised and the new Tax Act entered into force on 1 January 2011 (hereafter referred to as "Tax Reform"). The ratio for the year 2008 between the overall tax revenues in Liechtenstein and its GDP was 16.9%. In comparison, the equivalent figure in the USA was 20.3% and 23.1% in Germany. Liechtenstein has AAA rating and is totally debt free. On the contrary, its government has reserves which exceed its one year spending budget. Set against this background it is no surprise that, with the Tax Reform, the aim of strengthening and sustaining Liechtenstein's position in international tax competition was followed. In addition, it was also the aim of the

2 -2- Liechtenstein government to bring tax law into line with modern international trends and in conformity with European law. This, in order to prevent future attacks from other countries. Further, the Tax Reform facilitates the conclusion of bilateral double taxation agreements. For example, the Tax Reform provides that corporations are subject to tax based on their legal or effective place of management and their transactions are considered on an arm's length basis. Unusual and complicated provisions of the former law were replaced by new rules which are in conformity to the OECD model treaty. II. Taxation of Legal Entities a) Abolition of Capital Tax and Coupon Tax The former capital tax and the coupon tax of 4% on certain distributions (dividends) and interest payments are eliminated. As regards the coupon tax the Tax Reform provides for transitional provisions whereby old reserves can be distributed at a lower rate of 2% until 31 December Afterwards, the former rate of 4% will apply once again to distributions of old reserves. b) Abolition of Special Company Taxes The Tax Reform provides for the elimination of "Special Company Taxes" for domiciliary and holding companies, which shall prevent future reproaches by other countries of ringfencing. However, legal entities may qualify as Private Asset

3 -3- Structures ("Privatvermögensstruktur"; "PVS") which have to pay tax at the rate of CHF 1' annually. Existing entities benefiting from the former Special Company Taxes have a three year transitional period to adapt to the new rules. If such companies do not become compliant with the rules regarding Private Asset Structures, they will become subject to flat rate taxation (see below). c) Private Asset Structure ("Privatvermögensstruktur"; "PVS") Any Liechtenstein legal entity can qualify as a PVS upon application. Such status will be granted if an entity does not pursue economic activities, in particular if it only holds "bankable assets" (shares, bonds, other securities etc.) as defined by the EU Markets in Financial Instruments Directive (MiFID). It can also keep other assets, such as gold, art collections, liquid funds or participations if the PVS or its shareholders or beneficiaries do not exert actual control on the management of such entities by means of direct or indirect influence. Its shares or ownership interests (if any) may not be publicly placed or traded and its articles must provide for its treatment as a PVS and accord with the relevant restrictions. A PVS will be subject only to the minimum corporate income tax of CHF 1' per annum.

4 -4- d) Trusts Trusts are exclusively subject to the minimum corporate income tax of CHF 1'200.00, if they are domiciled or actually managed in Liechtenstein or receive earnings in Liechtenstein. The EFTA Surveillance Authority had ruled and approved that the taxation of PVS does not violate European law ( e) 12.5% Flat Rate Tax All legal entities (e.g. companies limited by shares, establishments and foundations) are subject to a flat rate tax of 12.5% on their taxable net corporate income if they do not apply for taxation as a PVS. f) Deductions and Loss Carry-Forwards Numerous changes have been implemented which aim to prevent the double taxation of corporate profits. Dividends arising from participations in domestic or foreign legal entities and capital gains from the disposal of participations in domestic or foreign legal entities or real estate, proceeds from foreign operations, and rental and lease income from foreign real estate are generally deductible. Further, a deduction of 4% on an entity's invested and needed capital may be made each year. Carry-forward losses which were formerly only capable of being carried forward for 5 years are now capable of being carried forward for an unlimited period.

5 -5- g) International Group Taxation Domestic and foreign subsidiaries of a Liechtenstein parent entity are allowed to apply for group taxation. Losses of group entities are attributed to the parent company, or, subject to the application of certain criteria, vice versa. h) Write-downs and Value Adjustment of Participations The Tax Reform provides for write-downs or value adjustments on participations if permanent depreciation is expected or if depreciation is realized. This is subject to recapture rules so that when the depreciation grounds no longer exist, a charge is made on the value of the appreciation. i) Intellectual Property 80% of the income from intellectual property rights (patents, brands, designs) are now considered a commercially justified expense and thus are capable of deduction. j) Investment Funds / Private Equity Vehicles Investment funds continue to be taxed based on the internationally accepted concept of fiscal transparency. Thus, not the investment funds but their unit holders are taxed in their countries of residence. Private equity companies, if they are legal entities, are subject either to income tax or can apply for taxation as a Private Asset Structure (PVS). If they are structured as a

6 -6- partnership ("Kommanditgesellschaft") only their partners are taxed. III. Taxation of Natural Persons a) Abolition of Inheritance, Estate and Gift Taxes The former inheritance, estate and gift taxes were abolished by the Tax Reform. b) Abolition of Capital Gains Taxation Capital gains are no longer relevant income for income tax purposes and thus not taxed. c) Partnerships Partnerships and similar entities are taxed based on the internationally accepted concept of fiscal transparency. The partners, but not the partnership itself, are subject to taxation. d) Combination of Wealth Tax and Income Tax Individuals continue to be taxed based on a combination of wealth and income tax. However, taxable wealth is now integrated into the income tax for taxation purposes. Net wealth is multiplied by a standard percentage rate, and the product of such calculation becomes a part of the taxable

7 -7- income. The tax is measured on taxable income plus the calculated income equivalent of wealth. e) Tax Rates Combined income is subject to seven different tax brackets (replacing the former progressive scale). The tax reform provides for a basic tax-free personal allowance of CHF 15' (for single persons) and CHF 30' (for married couples). Marginal rates start at 1% and end with the top marginal rate of 24.5% (for taxable income exceeding CHF 170' or CHF 340' respectively for single persons and married couples). However, the top possible marginal rate of 24.5% includes a municipal surcharge of up to 250%. The eleven municipalities in Liechtenstein mostly levy a lower municipal surcharge which reduces the actual marginal rate. March 2011 Disclaimer: This brochure is a summary aimed at giving an initial and basic understanding. It does not constitute specific legal advice. It does not deal with specific detailed situations nor exceptions to general principles. The legal position may change. No liability is accepted in respect of the contents nor consequences arising from reliance thereon.