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Liechtenstein: Country and Foreign Investment

Executive Summary

Liechtenstein is in the EEA but Not In the EU

Liechtenstein is a constitutional monarchy, has a land area of about 160 sq km (60 sq m), a population of 37,009 (July 2013 est), and is sandwiched between Switzerland and Austria. It has a customs union and a monetary union with Switzerland. Liechtenstein belongs to EFTA, and since 1995 to the EEA; it is not a member of the UN. The official language is German; English and French are also spoken, with a local dialect used in everyday life.

A referendum held in March 2003, gave the ruling Prince Hans-Adam II sweeping new powers, including the right to veto parliamentary bills, sack the entire government and introduce emergency rule.

Economy Buoyant Based on Industry and Financial Services

Liechtenstein was primarily an agrarian country until its economic union with Switzerland (1922 and reinforced in 1980) propelled it into rapid industrial and financial development. The princely family is highly active in leading the country economically. GDP per capita is just over USD181,780 (2010). GDP per capita for Liechtenstein does not reflect the general wealth of the nation, as many individuals working in the country commute from neighbouring nations. Inflation is low and unemployment is low at around 2.4%. The currency is the Swiss Franc, and there are no exchange controls. Membership of the EEA gives Liechtenstein access to the single market of the EU in most respects.

In October, 2003, in a dramatic development, Liechtenstein refused to sign an agreement to expand the EEA to incorporate the ten nations due to accede to the EU in 2004, apparently in order to get back at the Czech Republic and Slovakia for the 'Benes' decree in the 1940s which resulted in the expulsion of Liechtenstein nationals and the expropriation of their property. But at the end of November Liechtenstein gave in and signed up.

Liechtenstein's Lowtax Specialisations

Liechtenstein has moderate domestic taxes, but has specialised and very flexible types of 'holding' and 'domiciliary' company as well as 'establishments' and 'foundations' which were tax-exempt until the end of December 2010. They cannot usually trade inside the country. Since January 1, 2011, all formerly tax-exempt entities are subject to the minimum annual tax currently set at CHF1,200. There are more than 30,000 of these 'offshore' entities, which provide around 30% of state revenues. There is also a trust regime based on common law, although Liechtenstein is a civil law jurisdiction. The headline Liechtenstein product is private banking, although holding companies must run it close in terms of asset value; trusts have also been successful.

After the EU reached final agreement on its Savings Tax Directive, under which an information-sharing regime was initiated by 12 out of 15 existing member states in 2005, Liechtenstein chose, like Switzerland, to impose a withholding tax on returns on savings paid to citizens of EU member states, rather than compromise banking secrecy. Liechtenstein also gave those affected the option of full disclosure.

FAFT Blacklist

In June 2000, Liechtenstein was identified by the FATF as a non-cooperative and harmful tax haven. The result of this is that Liechtenstein was one of fifteen tax jurisdictions placed on an FATF blacklist. Each 'harmful' tax haven had a year in which to correct its tax regulations and legislation, once it has done so the tax haven will be removed from the list. Liechtenstein was removed from the list in 2001 after tightening up its money laundering legislation.

By mid-2002, the FATF was able to say that Liechtenstein was 'off its radar screen'.

The OECD

In 2009, Liechtenstein was identified as a territory which had committed to, but not substantially implemented the internationally agreed standard on tax transparency. In the intervening months Liechtenstein has concluded 24 Tax Information Exchange Agreements, including with France, Germany, the UK and the US, and has subsequently been elevated to the OECD's 'white list of compliance jurisdictions.

Plenty of Lowish Taxes in Liechtenstein!

In May 2010, Liechtenstein’s government approved plans for creating a new tax act, designed to modernize the existing Liechtenstein Tax Act of 1961 and including a 12.5% flat rate of corporate tax. The Act came into force on January 1, 2011.

Historically, profits tax on business and income tax on individuals, were both at 18% on higher incomes. There was also a net worth tax of 2% for business and around 1% for indivduals, which could be expensive. There is no separate capital gains tax (they are taken into income) but a property profits tax applies to real estate gains above CHF15,000. VAT is 8%. There are seven double tax treaties, two of which (Germany and Uruguay) are yet to enter into force

Immigration Controlled by Residence and Work Permits

EEA nationals have some qualified freedom of movement in Liechtenstein, but in practice non-nationals need residence and work permits. There is a substantial commuting population from Austria and Switzerland.

 

 

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