Introduction
With a total land area of 160.4sq km, Liechtenstein is the smallest German-speaking country in the world. It is a constitutional monarchy divided into 11 municipalities. Its capital is Vaduz. Much of Liechtenstein’s terrain is mountainous, making it a winter sports destination. Many cultivated fields and small farms characterize its landscape both in the north (Unterland) and in the south (Oberland). The country has a strong financial sector and has been identified as a tax haven. It is a member of the European Free Trade Agreement. Liechtenstein is not part of the European Union and has shown no interest in joining.
Business Environment
Though a tiny market associated with financial services, Liechtenstein is in fact surprisingly industrialized, with several companies of global importance. Some (such as Hilti, who make power tools for the construction industry) are big investors in Britain, and opportunities for specific industrial suppliers should not be overlooked. Liechtenstein has a Customs Union with Switzerland and uses the Swiss Franc. Though, like Switzerland, not part of the European Union, it belongs, unlike Switzerland, to the European Economic Area. Living standards are very high, taxation is low and links with the financial centres of Zurich and London are strong. Liechtenstein has introduced wide-ranging new legislation in response to considerable recent pressure from outside to tighten defenses against money-laundering. English is widely spoken by business managers. A constitutional monarchy with a democratically elected government, Liechtenstein provides a stable business environment. As in any microstate, local knowledge and personal contacts are supremely important.
Economic Environment
Liechtenstein has turned into one of the most attractive economic locations in Europe since the early 50s. As a modern hub of business, Liechtenstein stands for innovation, development and stability.
With a population of 35′356 Liechtenstein employs over 32′435 persons. The Industry and goods production sector employ 43.5% of the workforce, the general services sector accounts for 38.6%. The financial services 16% and the household agricultural sector for 1.9 %
Taxation
The main taxes are levied on personal income, business income, and principal. Personal income tax rates are determined by taxable income and taxable wealth. The basic tax rate is 1.2% on income and 0.06% on wealth. However, the communes levy a communal tax of 200%, which brings the combined tax rates to 17.82% on income and 0.89% on wealth. In addition, a surcharge is levied on the basic tax on income and wealth at rates ranging from 5% to 395%. Thus, the totals of basic tax, communal tax, and surcharges results in the national tax due. Corporations pay income tax at a rate of 7.5% to 15%.
Other levies include a capital gains tax on the sale of real estate; death, estate, and gift duties; a motor vehicle registration tax; and a value-added tax on goods and services within Liechtenstein and Switzerland at a standard rate of 6.5%.
Firms domiciled in Liechtenstein but conducting no gainful pursuits there benefit from extremely favorable tax arrangements, a prime factor in the establishment of nominal business headquarters. Foreign clients pay 1% per year in capital taxes; and only 0.5% for foundations with taxable assets exceeding SwFr 10 million. The communes may impose property and income taxes.
Since joining the European Economic Area in 1995, Liechtenstein has not entered into any agreements covering double taxation, except for Austria.
Banking
Liechtenstein participates in a customs union with Switzerland and employs the Swiss franc (SwFr) as national currency.
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.
Offshore Banking
Private banking, based on a comprehensive protection of bank client secrecy, is the focal point of banking activities. Banks operate in an environment characterized by high political and social stability and a legal structure that complies with international standards and is compatible with EU requirements. Banking supervision, as part of overall financial market supervision, complies with internationally recognized principles.
The Liechtenstein Bankers’ Association with headquarters in Vaduz represents the interests of the banks.
