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The Smaller The Better

Freemont Group
02 September, 2013

To those who believe decentralized government is preferable over centralised decision making it should come as no surprise it is the small countries in Europe, none of which are part of the EU, that offer the highest standards of living.

According to the OECD standards, the European microstates Liechtenstein, Monaco, San Marino and Andorra are considered tax havens. All these countries have indeed low taxes, and also a very high GDP per capita (all fit in top 15 in the world).


Andorra (84,000 inhabitants)

Out of the four countries, Andorra has the largest population. Mostly Spanish, French and Portuguese live here. Andorra's landscape is rather mountainous and it is a popular skiing center. The currency is the euro. With regards to taxation, the main features are:

  • Andorra does not levy any direct personal income taxes (income or wealth). Unfortunately it is set to introduce a personal income tax of 10% in 2016.
  • No inheritance tax nor capital tax.
  • Government expenditures are financed from indirect taxes, which are levied on the production, processing goods and import of all products.
  • Other sources of national budget are the electricity tax and telephone charges.
  • The employees pay only 5% of their wages for the social insurance, the employer pays 13%.
  • Since 2012 Andorra has a corporation tax of 10%.


Liechtenstein (35,000 inhabitants)

Since 1924, Liechtenstein has been connected with Switzerland by the monetary and customs union and is a member of the United Nations and the European Free Trade Association (EFTA). Lots of Swiss, Austrians and Germans live here. The national economy of Liechtenstein is built around a strong banking sector. The bank secrecy and anonymity offered by local banks in combination with low tax resulted in approximately 74,000 registered companies. Basic tax rates are:

  • Corporate tax is paid only on profit ranging from 7.5% to 20%.
  • Income tax is between 3.24% and 17.10%.
  • VAT has three tax rates (baseline 7.6%, decreased 3.6% and 2.4% super reduced).
  • Wealth tax ranges from 0.06 to 0.89%.


Monaco (33,000 inhabitants)

With area covering merely 2 km², Monaco is the second smallest country in the world after the Vatican. The unrealistic number of inhabitants causes the largest population density in the world. The state of Monaco is basically only one city, which consists of a narrow rocky peninsula and the coastal strip. Monaco is a member of the United Nations and has an office in Brussels. The currency is the euro. Domestic policy is closely linked to France, which ruled Monaco in the past. Basically, there are no taxes in Monaco but fees that apply are as follows:

  • No income tax or capital gains tax or wealth tax but:
  • Tenants must pay 1% of the rent. Due to lack of real estate, purchasing is almost impossible so the most wealthy residents live in rented properties. The rental price is very high, so even at a low rate of tax this represents a significant source of financing for the state budget. One can say that Monaco is financially dependent on property ownership.


Tags: Euro

About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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