The pitfalls of private asset structures (PAS)
With the introduction of the new Tax Act, Liechtenstein created a special tax status for legal entities: the private asset structure (PAS). The PAS offers tax and administrative advantages, particularly for legal entities that exclusively manage assets and do not perform any active economic activity. For instance, entities structured as a PAS are required to pay only the minimum annual corporate income tax and are not subject to further tax assessment. However, despite its benefits, the PAS status also has its pitfalls that should not be underestimated in the practice of management bodies, professional trustees, and advisors.
One of the pitfalls is revealed when considering whether it is possible for a PAS to be entered in the VAT register.
In practice, it often turns out that entry in the VAT register has considerable advantages, in particular through the possibility of claiming input VAT paid, thus reducing the total VAT burden. In principle, this deduction of input tax also extends to the import of services from abroad that are subject to service import tax.
To better understand the VAT registration for a PAS, we must first outline the requirements for obtaining PAS status and VAT registration.
Requirements for obtaining PAS status
The most important requirement for obtaining PAS status is that no active economic activity is carried out. An information sheet published by the Tax Authority provides essential guidelines detailing the limited activities permitted under PAS status. Consequently, the activities of a PAS are primarily limited to the passive management and utilisation of its assets in the interests of authorised investors.
In the case of investments, for example, this means that the acquisition, holding, management, and sale of such investments do not qualify as active economic activities if neither the PAS nor its shareholders or beneficiaries (investors) exercise control by directly or indirectly influencing the management of an economically active company in which the investment exists. If such influence is exerted, however, this could compromise the PAS status, as the requirements would no longer be fulfilled.
Requirements for entry in the VAT register
A key requirement for VAT tax liability and entry in the VAT register is demonstrating economic activity. Pursuant to the Value Added Tax Act (MWSTG), holding companies that are primarily engaged in holding and managing investments in other companies are generally considered to be engaged in economic activities. This classification allows holding companies to be entered in the VAT register and thus benefit from broader input tax deductions. For the purposes of the MWSTG, holding companies are generally regarded as engaging in an economic activity when their investments are permanent and grant shareholders significant influence.
From this, we can conclude the following: In VAT terms, holding companies demonstrating significant influence in their investments are considered to be engaged in economic activity. However, such influence is deemed to compromise the PAS status of legal entities, which bars them from carrying out active economic activities as a holding company. Consequently, legal entities with PAS status are not eligible for entry as ordinary taxable persons in the VAT register due to their lack of economic activity. Nonetheless, they still face limited VAT liability if they purchase services from abroad that are subject to service import tax.
Therefore, it is essential to assess on a case-by-case basis, especially when considering the potential of input tax deductions, whether having PAS status or being entered in the VAT register is more advantageous.
Our tax team would be delighted to provide you with individual advice and support on these and other tax-related issues.
Disclaimer: The content is for general information purposes only and is incomplete. Furthermore, this presentation does not contain any legal advice and any liability with regard to the content is rejected.
Please note that the original text has been written in German. This is merely an English translation.