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LOWTAX OFFSHORE

LIECHTENSTEIN: OFFSHORE BUSINESS SECTORS


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BACK TO LIECHTENSTEIN INFORMATION: BUSINESS, TAXATION AND OFFSHORE

On this Page:

- LIECHTENSTEIN INTERNATIONAL HOLDING COMPANIES
- LIECHTENSTEIN BANKING
- LIECHTENSTEIN TRADE, MARKETING AND DISTRIBUTION
- LIECHTENSTEIN TRUST MANAGEMENT


Banking, especially private banking, is Liechtenstein's flagship financial service, although its trust regime, modelled on common law precedents, is unique among civil law jurisdictions, and is widely used. The variety and great flexibility of the corporate forms available in Liechtenstein, coupled with excellent tax-saving possibilities, has encouraged an inflow of holding and investment management companies. See Offshore Legal and Tax Regimes for details.

Early figures suggested that the EU's Savings Tax Directive, which forced Liechtenstein to impose a withholding tax on returns from savings paid to citizens of EU Member States, has had little impact on the country's highly successful private banking sector.

The administration has recently been developing legislation for captive insurance and collective investment sectors.

By the end of the third quarter 2007, a total of 35 insurance undertakings were domiciled in Liechtenstein. The direct insurance companies operate almost exclusively pursuant to the free movement of services in the EEA area and Switzerland.

A Law on Asset Management (Asset Management Act, AMA) entered into force on 1 January 2006. This Act lays the foundation for asset management companies as new, internationally recognized financial intermediaries. The Financial Markets Authority supervises implementation of the Asset Management Act and related ordinances as well as compliance with regulations.

At the end of the third quarter 2007 there were 63 fund management companies and 379 investment funds operating in Liechtenstein. At the end of 2006 assets under management in Liechtenstein stood at CHF 219.4 billion, 20% higher than a year earlier.

This section of the site describes the most important types of offshore business activity carried out from the island.

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Liechtenstein International Holding Companies

The structure of Liechtenstein company and tax legislation makes it a very suitable place in which to base various types of holding company. See Offshore Legal and Tax Regimes for a more detailed description of tax aspects of holding companies. They are exempt from most normal taxes.

In Liechtenstein, a holding company is recognised as such, but does not have a special legal form: it can take any of the forms permitted under the Law on persons and Companies 1926 (PGR Code), including a company limited by shares, a private limited company, a foundation, a trust enterprise (not a trust) or an establishment (see Types of Company).

The objects of holding companies are described in the tax legislation as 'exclusively or predominantly the management of assets, participation in other enterprises, or the permanent management of holdings in other enterprises'. Holding companies are permitted to own and manage movable and immovable property whether inside or outside Liechtenstein, including real estate and the various types of intellectual property.

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Liechtenstein Trade Marketing and Distribution

Situated in the centre of the EU, but not being part of it, and with a well-developed banking sector, not to mention the presence of Switzerland alongside, Liechtenstein's offshore taxation regime is very inviting to companies with cross-border European trading, marketing and distribution operations.

The 'domiciliary' entity is suited to external trading operations. It is not a separate corporate form as such, but is a status that can be adopted by any of the corporate forms permitted by the PGR Code, including the company limited by shares, the private limited company, the foundation, the trust enterprise (not the trust) and the establishment (see Forms of Company).

Domiciliary companies are defined as 'juridical persons. . . . . which have only their domicile in Liechtenstein whether an office is kept or not and carrying on no commercial or trading activities in the country'. They are largely exempt from local taxes. See Offshore Legal and Tax Regimes for further details of their taxation.

In practice, the tax authorities intepret the legislation very flexibly, as long as a domiciliary company doesn't use its tax advantages to compete against local, more highly taxed companies. Thus, the domiciliary company can have an office from which it manages import/export operations, purchase services, employ free-lance agents who act as local sales-people for foreign customers, etc.

Along with other offshore jurisdictions, Liechtenstein is a suitable place in which to base e-commerce services for retail or wholesale distribution of material or non-material goods: see Offshore-e-com.com for extended descriptions of how such businesses can take advantage of the combination of offshore and e-commerce.

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Liechtenstein Banking

A substantial banking sector has developed in Liechtenstein, particularly in private banking, due to a combination of factors, including a relatively relaxed but still highly respected regulatory regime, the very flexible company legislation, and strict banking privacy.

The Liechtenstein banking sector is regulated under the Law on Banks and Finance Companies 1993; this law was substantially amended following Liechtenstein's entry into the EEA in 1995, through the Law on Banks and Finance Companies 1998. The Act concerning Banks and Savings Funds 1960 imposes heavy penalties for breaches of professional secrecy. Other recent legislation dealt with due diligence on the part of bankers accepting deposits or assets, installing 'know your customer' rules.

The "know your customer" system is now legally compulsory (from 1 October, 2000) for all banks that belong to the Liechtenstein Bankers' Association. This means that banks in Liechtenstein, previously known as one of Europe's most secretive tax havens, can no longer guarantee anonymity for new and existing account holders, although further account details will remain under normal banking secrecy agreements.

Liechtenstein private banks are able to offer highly tax-efficient asset management services to clients, using one or other of the forms available under the PGR Code, so that income received in Liechtenstein from international assets can be forwarded or reinvested with minimal or no local taxation.

There are a total 16 banks in Liechtenstein, with 12 of them having been granted licences in the last four years alone. Collectively they have some SFr120bn (US$70.3bn) under management (which equates to a staggering SFr3.7m for every man, woman and child in the principality). However, this total has tended to stay static in recent years.

In March, 2006, Prince Alois, ruler of the Principality, said that Liechtenstein is unlikely to dispense with its coveted banking secrecy laws any time soon because such a measure would probably not be approved if put to a referendum.

Prince Alois told Bloomberg News that banking secrecy is "very firmly anchored" in Liechtenstein and any proposed watering down of current laws to satisfy the OECD and the FATF would therefore be rejected when put to a referendum - a necessary measure under the Principality's constitution.

"I don't think a draft law or international accord proposing to scrap bank secrecy would be successful in the foreseeable future. The people would reject it in a referendum," Prince Alois stated.

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Liechtenstein Trust Management

As a civil law jurisdiction, Liechtenstein did not have trust legislation, until it was included in the PGR Code in 1926. This far-sighted action has led to the development of a thriving business in trust management; although other local corporate forms offer partial substitutes for the trust, it remains a highly effective means of asset protection, and non-anglo-saxon clients are often more comfortable with Liechtenstein as a jurisdiction than they might be with, for instance, an ex-British colony. Unlike common law trusts, Liechtenstein trusts can accumulate income, and are subject to no rule against perpetuities. The trust law generally is extremely flexible as regards the powers of settlors (trustors).

As long as the original trust documentation is deposited with the Registrar of Trusts within 12 months, there is no public information about the trust, and later trust documention, eg naming beneficiaries, does not have to be deposited; the level of confidentiality is therefore very good. Trust documents can be in any language.

See Law of Offshore for details of the legal regime for trusts, and see Offshore Law and Taxation Regime for details of their taxation.

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