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Liechtenstein: E-Commerce

Offshore Activities

The natural bonding of the Internet and Offshore stems from the fact that both, of their nature, manage to avoid tax. Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore jurisdictions; while business that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.

By locating websites in offshore jurisdictions to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.

In many countries, the distribution of goods from a warehousing facility does not constitute the carrying on of a trade or business in that jurisdiction, so that even for physical goods, in many case it will be possible to avoid a permanent establishment (taxable presence) altogether in many high-tax jurisdictions where trading activities currently take place.

When it comes to considering the future of Liechtenstein as an e-commerce centre, however, the position is not as simple as it is for out-and-out offshore jurisdictions, because the 'offshore' or 'low-tax' sector of the Liechtenstein economy, based on the 'holding' and 'domiciliary' company status, and on the special corporate forms of the establishment and the foundation, sits within a normal, moderately-taxed economy (see Offshore Legal and Taxation Regimes. In fact, most of the low-tax forms are specifically prohibited from local commercial and business activity, allowing only the holding of investments and related financial activity (this is defence of local, normally-taxed businesses).

It is not quite clear whether processing of international sales and distribution activity through a local server would be permitted to domiciliary companies - perhaps so, in which case Liechtenstein would be a favourable location for such businesses.

The situation is somewhat clearer for collective investment funds, since they can use e-commerce to market shares or units out of Liechtenstein without compromising their tax-exempt status. For banks, again, the situation is less clear.

As a major 'low-tax' jurisdiction with tens of thousands of enterprises already installed, including many collective investment funds, banks and other financial institutions, Liechtenstein certainly has the opportunity to become a centre of e-commerce activity. The country's geographical location, its good telecommunications links and its sophisticated business infrastructure add to its suitability as an e-ntrepot.

For information about the impact of e-commerce on a number of the main activities that take place offshore, click on a link below to go to our specialist E-commerce site Offshore-e-com.com

Sales and Distribution of Physical Products Sales and Distribution of Digital Products 
Banking and Financial Services (including Investment Funds) 
Corporate Support Functions

To see an analysis of the current state of legal and tax issues surrounding offshore e-commerce, click here.

 

 

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