Tax treatment of employee participation plans in Liechtenstein

Employee shares for employees resident in Liechtenstein

If an employer transfers employee shares to employees with tax residence in Liechtenstein on preferential terms, the corresponding pecuniary benefit represents income from gainful employment. A distinction is made between “free” employee shares and “restricted” employee shares with a vesting period.

Free employee shares are taxed on allocation in the difference between the market value and the lower allocation price. Restricted employee shares are also taxed upon allocation. However, a discount of 6% is granted on the market value per full year of blocking period up to a maximum of three years blocking period. The corresponding discounts are defined as follows:

In the case of listed shares, the stock market price at the time of allocation is the applicable market value. In the case of unlisted shares, the market value must be determined based on valuations of third-party transactions or otherwise based on a recognized valuation method. It is advisable to discuss the valuation method with the tax administration in advance.

Tax treatment of employee participation plans at the employer level in Liechtenstein

For companies tax resident in Liechtenstein, capital gains and capital losses on treasury shares are considered tax-free or non-tax-deductible expenses for corporate income tax purposes. The discount on the company‘s own shares for the purposes of employee participation is treated as a loss of capital in accordance with the practice of the tax administration and not as a business-related personnel expense.

This has the following tax implications:

• A capital gain on own shares due to a change in market value between the purchase of the shares and the allocation to the employee is tax-free for the employer;
• A capital loss on own shares due to a change in market value between the purchase of the shares and the allocation to the employee is not a tax- deductible expense for the employer;
• The difference between the market value and the allocation price, which is due to the vesting period, is considered a capital loss and not a tax- deductible expense.

For employers based in Liechtenstein and restricted employee shares, attention must be paid to the corresponding declaration in the corporate income tax return.

The practice of the tax administration is applicable from the 2019 financial year and onwards.