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- LIECHTENSTEIN
TABLE OF STATUTES
- LIECHTENSTEIN
TRUST LAW
- LIECHTENSTEIN BANKING
LAW
In
November, 2004,
Liechtenstein's Financial Services Authority announced
that following Parliament's approval in June of
the new Law (Organization Act) on Supervision
of the Liechtenstein Financial Market, the new,
independent, and integrated Financial Market Authority
created by the Act would commence operations on
1 January 2005.
The
new single authority assumed the functions and
responsibilities of the three existing regulatory
bodies, namely the Financial Services Authority,
the Due Diligence Unit, and the Insurance Division
of the Office of Economic Affairs. The FMA also
took over the existing staff of the three authorities.
Under
the auspices of the legislation, the Financial
Market Authority assumed responsibility for safeguarding
the stability of the Liechtenstein financial market,
the protection of customers, the prevention of
abuses, and the implementation of and compliance
with recognized international standards.
The
core responsibilities of the FMA encompass the
supervision and regulation (on behalf of the Government)
of the Liechtenstein financial market, although
the FMA is independent of the Government and of
the financial market participants under its supervision.
The 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 FMA supervises implementation
of the Asset Management Act and the related ordinances
as well as compliance with regulations.
The
government of Liechtenstein announced on March
12, 2009, that it would commit to the Organisation
of Economic Cooperation and Development's (OECD)
standard on exchange of information for tax purposes,
and stood ready to enter into bilateral tax agreements
with individual states.
Under
immense pressure from neighbouring Germany to
dispense with banking secrecy laws following the
previous year's highly publicized tax scandals,
and with the Obama administration in the US demonstrating
an equal level of hostility towards what it considers
to be offshore 'secrecy' jurisdictions, then Prime
Minister Otmar Hasler said that the jurisdiction
has become "aware of [its] responsibility
as part of a globally integrated economic area."
"With today's declaration,
we are making our contribution to a joint solution
that will make an effective enforcement of foreign
tax claims possible and takes account of the legitimate
interests of the clients of our financial centre
at the same time," Hasler announced.
However, Liechtenstein,
one of only three jurisdictions to remain on the
OECD's original 'blacklist' stemming from the
first offshore crackdown by onshore governments
a decade ago, has no plans to discard banking
secrecy just yet and, with its declaration, is
attempting to "ensure legal certainty and
conformity" while at the same time "preserving
privacy and bank client confidentiality."
"Our bank secrecy
has always served to ensure the legitimate protection
of the privacy of the citizen, which we will continue
to retain. With this declaration, however, we
want to make clear that bank client confidentiality
in future cannot be misused to facilitate tax
crime," said Hasler.
It emerged in November
2009 that the OECD has recognized Liechtenstein's
implementation of the agreed international tax
cooperation standard, and has removed the jurisdiction
from its “grey list”.
"The removal from
the so-called 'grey list' is a milestone in the
reorientation of the Liechtenstein location,"
announced Liechtenstein’s Prime Minister
Klaus Tschütscher. He added: "I took
office to restore the reputation of our country
with the steadfastness demanded by the situation.
This is the only way we can do justice in the
long term to the full potential of our businesses
and service providers."
Angel Gurría, Secretary-General
of the OECD, welcomed the news: "Liechtenstein
has demonstrated that it honors its commitments
and is actively contributing to the international
dialogue on tax cooperation."
Liechtenstein Table of Statutes
Liechtenstein is the only civil law jurisdiction
which has adopted largely anglo-saxon trust legislation
(contained in the PGR Code), although, unlike
the common law trust, there is no bar against
accumulation of income, nor against perpetuities.
A
Liechtenstein Trust is set up by a written agreement
(Trust Deed) between the trustor (settlor) and
trustee(s), or by a written Declaration of Trust
by the trustor, matched by a written Acceptance
of Trust by the trustee. The legislation in fact
does not speak of 'trusts' but of 'trusteeship'.
The
Trust Deed does not have to contain the names
of beneficiaries. If the Trust Deed is deposited
with the Registrar of Trusts, it will not be publicly
available, and later instruments (eg naming beneficiaries)
will not have to be revealed; if the Trust Deed
is not deposited within 12 months, details of
the trust must be placed on the public register,
comprising:
- a
description of the trust;
- the
date of formation;
- the
duration of the trust;
- the
name (or trade name) and address of the trustee.
A
registration fee of US$200 (at the time of writing)
is payable on registration.
The
trustor can make quite specific arrangements in
the Trust Deed covering the identification of
beneficiaries, and future procedures of various
types; the trust property must be separated from
the trustor's other assets, and the trustee can
take action to enforce this against the trustor
under contract law. The Deed must not bind the
trustee to the trustor's continuing directions,
or the trust will lapse into ordinary contract
law.
Some
of the characteristics of Liechtenstein Trusts
are as follows:
-
a trustee can be an individual or a corporation
or association; one trustee must be a Liechtenstein-resident
individual with appropriate professional
qualifications; trustees have various specified
duties of care towards the trustor and the
trust property; trustees who carry on business
as such must keep an inventory of their
trusteeships and must keep each trust's
assets separate from other assets; if trust
assets are deposited with banks they must
again be kept separate;
-
trustees
are liable for breach of trust to the full
extent of their assets; joint trustees must
normally act jointly and are jointly liable;
supervision of the trust is ultimately under
the Court, even if the Trust Deed specifies
alternative supervision;
-
the
trustee must keep a schedule of trust assets
and update it yearly, submitting trust accounts
as specified in the Trust Deed or to the
Court;
-
the
interests of named beneficiaries can be
embodied in trust certificates, which if
registered are transferable securities;
-
being
a civil law jurisdiction, trust assets are
vulnerable to forced heirship provisions,
although there are time limitations on such
claims;
-
in
general, there is a limitation of one year
on creditors' claims; the trustee's creditors
have no access to the trust assets; the
trustor's creditors have access to trust
property only under certain defined circumstances,
one of which is under law of succession;
the beneficiaries' creditors have access
to the trust assets only if the beneficiary
has a claim to payment, and if the trust
deed does not bar distraint; the trust property's
creditors have limited access to the trustee
but only to the trust property if the trustee
enjoys specific liability cover from the
property.
-
trust
documents, including the Trust Deed, can
be in any language.
Trusts
may be set up under foreign law, but may not
have more favourable treatment than would apply
under Liechtenstein law. A trust under foreign
law is a Liechtehnstein Trust and subject to
local taxation. Liechtenstein law applies to
a foreign trust if the trustee, or more than
half of the trustees, are resident in Liechtenstein,
if the trust property is in Liechtenstein, or
if the Trust Deed says so
In
response to its inclusion on the FATF money
laundering blacklist in 2000, Leichtenstein
enacted new money laundering legislation, including
a new regulation in relation to the law on the
duty of care, which had been passed by parliament
in its September 2000 session and came into
force on January 1 2001. The government also
abolished the existing privilege of trustees
and lawyers by which they did not have to disclose
the identity of their clients to banks where
funds are invested.
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Liechtenstein
Banking Law
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 legally
compulsory (and has been since 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.
In
December, 2000, Liechtenstein signed the United
Nations Convention Against Transnational Organised
Crime in Palermo, Sicily, to demonstrate the
country's commitment to stamping out money laundering.
Also
in December of that year, Liechtenstein announced
that it had issued a new regulation in relation
to the law on the duty of care, which had been
passed by parliament in its September 2000 session.
The revised law on the duty of care and the
associated regulation came into force on 1 January
2001.
Late
in 2003, Parliament approved the adoption of
EU Directive 2001/97/EG, which amended the existing
Directive on the prevention of the use of financial
systems for money laundering purposes.
Vice
Parliamentary President, Peter Wolff complained:
"The report and motion of the government doesn't
mention that this regulation opens up the issue
of fraudulent tax evasion. I gained the impression
that the government intends to sweep the critical
points in the directive under the carpet."
In
August 2004, the Government decided on a total
revision of the Due Diligence Act; the revised
Due Diligence Act entered into force on 1 January
2005.
Prime
Minister Otmar Hasler explained that: 'In order
to enhance the efficiency and attractiveness
of the Liechtenstein financial center, due diligence
provisions must be further developed and modernized
in accordance with the changed European guidelines.'
In
addition to implementing the 2nd EU Directive
on Money Laundering, the goal of the revision
of the Due Diligence Act was to create a modern
law that takes into account the newest developments
and international standards in the prevention
of money laundering, organized crime, and terrorist
financing.
'For
the benefit of the international community,
Liechtenstein has been and continues to be willing
to take action against such grave abuses,' Prime
Minister Hasler explained. 'Against this backdrop,
the Government endeavors to maintain the 'high
level of compliance' ascertained by the International
Monetary Fund with respect to the suppression
of money laundering, organized crime, and financing
of terrorism. In the context of international
recognition, due diligence legislation will
also take into account the 40 revised recommendations
and the 8 special recommendations on terrorist
financing of the FATF and the recommendations
arising from the MONEYVAL and IMF assessments.'
In
2008, the banking sector became the centre of
an international row over tax evasion, which
was sparked by the use by German taxpayers of
Liechtenstein entities to duck their tax liabilities
in their home country.
The
scandal first broke after it emerged that the
home of Klaus Zumwinkel, Chief Executive of
Deutsche Post, one of Germany's largest companies,
had been raided by police as part of a tax evasion
investigation. He was accused of hiding about
EUR1 million from German tax collectors in Liechtenstein.
Zumwinkel
was subsequently forced to resign by Deutsche
Post, but the affair did not end there. On Monday,
it was reported that several more homes and
offices in the Frankfurt area and in southern
Germany have been raided, after the intelligence
services received information from a former
employee of a Liechtenstein bank about hundreds
of wealthy German clients.
The
informant, an ex-employee of LGT, Liechtenstein's
largest bank, was said to have handed over a
disc to the German intelligence service, the
BND, containing confidential information on
more than 1,000 clients. The BND was believed
to have paid the informant a sum of between
EUR4 and EUR5 million for the disc.
Following
the revelation, Prince Alois reiterated his
message that the jurisdiction would continue
to improve its financial sector regulation,
but that this would not come at the expense
of an erosion in individual privacy.
"The
Liechtenstein financial centre has already undertaken
considerable reform efforts in recent years,
but more reforms will be necessary, not only
to ensure the competitiveness of the financial
centre for the future, but also to enhance it,"
the Hereditary Prince told Parliament.
"Other
financial centres have caught up by creating
new, attractive business environments, while
the international pressure has risen on locations
offering a high level of protection of privacy,"
he observed.
The
scandal had repercussions throughout the world,
and in February 2008, US Senator Carl Levin
(D-MI), announced that he intended to investigate
whether US citizens may have had dealings with
the Liechtenstein bank at the centre of the
row over tax evasion and offshore secrecy laws.
Levin,
who had long campaigned for legislation to prevent
Americans from moving money offshore, recently
revealed that the Senate Permanent Committee
on Investigations, which he chairs, would launch
a probe into reports that the stolen computer
disc containing details of clients of Liechtenstein's
LGT Bank also included several American names.
It
also emerged that month that the Internal Revenue
Service had initiated enforcement action involving
more than 100 US taxpayers, to ensure proper
income reporting and tax payment in connection
with accounts in Liechtenstein.
The
national tax administrations of Australia, Canada,
France, Italy, New Zealand, Sweden, United Kingdom,
and the United States of America, all member
countries of the OECD's Forum on Tax Administration
(FTA), had also announced that they were working
together, following revelations that Liechtenstein
accounts were being used for tax avoidance and
evasion.
"Combating
off-shore tax avoidance and evasion are high
priorities for the IRS," explained IRS
Acting Commissioner Linda Stiff.
“We
are determined to protect the United States
tax system from abuse and ensure that taxpayers
pay what they owe. We will use all our authority
to fairly and effectively enforce our tax laws.
It should be clear from recent events that there
is no safe hiding place for the proceeds of
tax avoidance and evasion. Anyone with hidden
income and gains would be well-advised to make
a prompt and complete disclosure to the Internal
Revenue Service," she added.
The
arrival of President Obama in the White House
has seen the proposal of several anti-offshore
intiaitives, including the Foreign Account Tax
Compliance Act, which has given the US Internal
Revenue Service new tools to "detect, deter
and discourage offshore tax abuses." The
legislation, approved by Congress in March 2010:
imposes a 30% withholding on US source payments
to foreign financial institutions, foreign trusts,
and foreign corporations that do not agree to
disclose their US account holders and owners
to the IRS; requires taxpayers to disclose their
foreign accounts on their US tax returns; increases
the statute of limitations to six years for
failure to report certain offshore transactions
and income; clarifies when a foreign trust is
considered to have a US beneficiary; and treats
substitute dividend and dividend equivalent
payments to foreign persons as dividends for
purposes of US withholding.
In
August 2009, the UK government announced details
of the “groundbreaking” disclosure
agreement with Liechtenstein that gives UK taxpayers
with undisclosed accounts in the Alpine jurisdiction
the opportunity to disclose income at a reduced
penalty, or face having their accounts shut
down.
The
so-called Liechtenstein Disclosure Facility
(LDF) agreement, signed by the two governments
on August 11 along with a broader Tax and Information
Exchange Agreement, will allow penalties on
unpaid tax to be capped at 10% of tax evaded
over the last 10 years providing that the account
holder makes a full disclosure to HM Revenue
and Customs (HMRC).
However,
those who do not make a full disclosure by the
end of the program, which runs from September
1, 2009 to March 31, 2015, will find their Liechtenstein
accounts closed down. They may also face penalties
on any unpaid tax of up to 100%.
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