D2 Taxation of donations from the private-benefit Liechtenstein foundation to beneficiaries resident in Germany (beneficiaries)

Distributions made by the Liechtenstein foundation to beneficiaries who are not subject to unlimited tax liability in Liechtenstein remain tax-free in Liechtenstein. The distribution does not result in a limited tax liability and no withholding tax is levied.

German income tax

All benefits paid by the Liechtenstein foundation from the income to beneficiaries resident in Germany (beneficiaries) are subject to income tax in Germany as income from capital assets and are subject to the 25 percent final withholding tax.

If the founder is also a beneficiary, the same provisions apply.

German gift tax

Whether benefits provided by the Liechtenstein foundation to beneficiaries resident in Germany are subject to gift tax depends on whether the foundation’s assets are used in accordance with the articles of association. Contributions in accordance with the articles of association are not made voluntarily and thus remain free of gift tax.

Disbursement of assets in the event of dissolution of the foundation

German income tax

In the opinion of the tax authorities, payments from the income of the private-benefit Liechtenstein foundation to the founder, his relatives or their descendants on the occasion of the dissolution of the foundation are subject to income tax as income from capital assets. They are subject to the 25 percent final withholding tax.

German gift tax

The distribution of assets on the occasion of the dissolution of the foundation is subject to gift tax. For the purpose of determining the gift tax class, the founder is deemed to be the donor. Consequently, the tax class together with the associated tax rate and allowance is determined according to the more favourable relationship between the founder and the beneficiary.
However, if the assets are transferred back to the founder, the gift tax is subject to the less favourable gift tax class III.