New tax relief for families in Liechtenstein
On 6 December 2018, the Parliament of the Principality of Liechtenstein submitted a postulate on tax relief for families to the Government. The Government's response of 7 May 2019 (Report and Motion 52/2019) includes three proposals that might take effect as early as the 2019 tax year.
An overview of the proposed changes to relieve the tax burden of families:
- Increase of the child deduction to 12,000 Swiss francs
- Deductibility of costs for second courses of study – if borne mainly by the parents
- Expansion of deductibility of basic and continuing training expenses, even where there is no nexus with the person's existing occupation
1. Increase in child deduction
The current tax relief amounts to 9,000 Swiss francs per child (Article 16(3)(a) of the Tax Act, SteG) and has remained unchanged at that level since 2007. The drafters of the postulate proposed a new, staggered rule. The Government rejected this solution, and instead it is proposing to increase the rate to 12,000 francs per child. In doing so, it has analysed the rules in force in the Swiss cantons of St. Gallen and Zug, where the deductions vary from 7,200 to 17,000 Swiss francs. According to the Government, it is not possible to make a direct comparison.
In families where both parents have to work, expenses must also be borne for child care outside the home. According to the Government, partial compensation for this additional burden might be achievable by way of the child deduction.
2. Deductibility of second courses of study
A distinction is made between first and second courses of study in both schooling and occupational training. A first course of study is completed when – in theory – a person is capable of earning their own living for the first time. A second course of study is when a person pursues a second scholastic or occupational qualification that would have been available as a first course of study as well. Continuing training is defined as a deeper pursuit of professional knowledge and competence. These terms are defined in Article 6 of the Stipend Act.
Second courses of study and continuing training are, according to current practice of the Fiscal Authority, non-deductible education costs for parents. The Government is now proposing to adjust this practice, allowing second courses of study to be deducted by parents (or a parent), provided that they are primarily responsible for the child's upkeep.
The drafters of the postulate criticised that, according to the Fiscal Authority's practice, the (temporary) interruption of a course of study for more than one year would mean that basic and continuing training and education expenses would be reclassified, so that parents would no longer be able to deduct them. According to the drafters, this rule is contrary to Liechtenstein's dual system of education. This practice is to be corrected already for the 2019 tax year and incorporated into the Fiscal Authority's guidance.
3. Career-oriented basic and continuing training
Under current practice, a nexus must exist between basic and continuing training expenses and the person's existing occupation in order for the expenses to be tax-deductible. The Government believes it makes sense to eliminate this nexus, as is already the case in Switzerland. The condition for this decoupling of training from the existing occupation is that the training must be in aid of furthering a career, rather than simply a passion project or hobby. This requires an adjustment of Article 16(3) SteG and Article 15 of the Tax Ordinance (SteV).
As a next step, the Government will present a consultation report on the amendments outlined above. The new rules are expected to be implemented by 2020, with effect for the 2019 tax year.
IFA tax law events
The IFA general meeting will be held prior to the upcoming professional symposium on June 6th (in the SAL in Schaan) on the changes to Liechtenstein tax law. The Young IFA Network will meet on June 26th at a luncheon focusing on the taxation of sportspersons. The agenda and registration form are available on the website of IFA Liechtenstein: www.ifa-fl.li.
*) Dr. oec. HSG Marcello Scarnato, LL.M. (Int. Taxation Uni.li), is a Member of the Executive Board of IFA Liechtenstein
**) Dr. iur. Marco Felder, M.Sc. M.B.L.-HSG LL.M., is President of IFA Liechtenstein