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Liechtenstein: Law of Offshore

Banking Law

This page was last updated on 28 May 2020.

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 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 €4-5 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 scandal had repercussions throughout the world, and in February 2008, US Senator Carl Levin (Democrat - Michigan), 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.

President Obama’s tenancy in the White House saw the proposal of several anti-offshore initiatives, including the Foreign Account Tax Compliance Act, which gave 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 11 August 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 1 September 2009 to 31 March 2015, will find their Liechtenstein accounts closed down. They may also face penalties on any unpaid tax of up to 100%.

During 2013, Liechtenstein and Austria agreed a withholding tax agreement which will provide for the taxation of undeclared and untaxed assets held by Austrian nationals in Liechtenstein. A one-off payment to the Austrian authorities for each account held by one of its nationals is based on the value of assets between 1 January 2012 and 31 December 2013. The general withholding tax rate is set at 15% with a maximum rate of 30%. However, if assets involved are of very high value, the top rate may rise to 38%.

 

 

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