Two Countries, Two Companies – One Tax Complexity
Many entrepreneurs choose to establish separate companies both in Liechtenstein and Switzerland to optimize their business operations from a legal and tax perspective. However, this comes with its own set of tax challenges—particularly when services are exchanged intra-company across borders. Structured tax planning and thorough documentation are essential to mitigate risks—especially in the case of sister companies operating in Switzerland and Liechtenstein.
Liechtenstein and Switzerland, together with Austria and Germany, form a dynamic economic region around Lake Constance. Economic borders in this region are fluid: businesses operate across national borders, employees commute between countries, and customers are internationally connected. For businesses, this often results in complex tax issues—especially when a company maintains legal entities in Switzerland and Liechtenstein. Different tax systems, cross-border operations, and intercompany service relationships all play a critical role.
1. Directly held sister Companies – cost-efficient, but risky
In many cases, the entrepreneur holds these parallel companies directly as part of their personal assets. While this can reduce structural costs, it also entails significant tax risks—for both the company and the individual entrepreneur.
2. Cross-Border Service Transactions
Particularly problematic is the provision of services between directly held sister companies in Switzerland and Liechtenstein. This includes situations where one entity assumes key functions for the entire group, such as procurement, administration, finance, or marketing.
Regardless of the type of cross-border services provided, tax authorities expect that these are compensated at arm’s length prices. This requirement is based on the OECD Transfer Pricing Guidelines, which are embedded in Liechtenstein tax law (Article 49) and equally applied by Swiss tax authorities. Even small and medium-sized enterprises (SMEs) are subject to documentation requirements, and the burden of proof for demonstrating compliance with the arm’s length principle lies with the taxpayer.
3. Tax Implications and Risks of Cross-Border Structures
The double taxation agreement between Switzerland and Liechtenstein is designed to prevent double taxation of the same tax base for the same taxpayer. However, if transfer prices are not in line with market rates, tax adjustments can still result in significant tax consequences.
This is especially critical for personally held companies in Switzerland. If Swiss tax authorities determine that an inadequate intercompany pricing constitutes a hidden profit distribution, this may lead not only to retroactive corporate taxation but also to the imposition of withholding tax at a rate of 35%. For entrepreneurs residing in Liechtenstein, a refund is limited to a maximum of 20%. Insufficient structuring or a lack of contractual documentation can therefore become costly.
Another risk is that tax authorities may reassess these issues in each tax period. A previously unchallenged assessment offers no guarantee for the future. Moreover, a subsequent tax due diligence by a prospective buyer could reveal existing risks, potentially resulting in unexpected financial exposure.
Conclusion: A clear structure prevents unpleasant surprises
Cross-border business activities between Switzerland and Liechtenstein offer great opportunities, but they also require thorough tax planning. Through in-depth analysis and an adequate corporate structure, potential risks can be minimized. The right group structure and accurate documentation of cross-border transactions are critical success factors in avoiding tax pitfalls.
Published in the “Tax Special” section of Wirtschaftregional on February 7, 2025.
