Liechtenstein Financial Overview

Overview The Principality of Liechtenstein is a constitutional monarchy with a land area of about 160 sq km (60 sq m). It has a population of 34,500 and is sandwiched between Switzerland and Austria. Financial services are an important economic sector in Liechtenstein, but not the largest. The close treaty relationship with Switzerland, the introduction of the Swiss franc as legal currency and the passing of the 1926 Act on Persons and Companies, that allowed for a broad selection of company forms, as well as an investor friendly tax system, are the foundation on which Liechtenstein's financial centre is built. In recent years, the accession of Liechtenstein to the European Economic Area (EEA) in 1995 has acted as a catalyst for a series of fundamental changes and facilitated access to the markets of other countries making the last 10 years a particular dynamic period for the Liechtenstein financial centre. Nearly 14% per cent of persons employed in Liechtenstein work in the financial sector. The services offered include, in particular, asset management, international asset structuring, investment funds as well as insurance and re-insurance business. As at the end of 2004 there were fifteen banks, 405 asset managers and trust companies, 30 Liechtenstein insurance companies, 185 insurance companies from abroad engaging in free movement of services (within the EEA), nine investment companies and 17 fund management companies with 300 investment funds operating in Liechtenstein. Liechtenstein banks manage assets in the amount of 107 billion Swiss francs as of end 2004. The assets in Liechtenstein investment funds currently amount to 34 billion Swiss francs.

Current Time Motto: None

Online News Sources

Liechtenstein News: www.news.li

Business Environment

Liechtenstein and Switzerland signed a tariff and trade agreement in 1924, which has evolved into an economic, monetary and postal union. As a result, the border between Switzerland and Liechtenstein is open and the Swiss franc is Liechtenstein’s legal currency. Liechtenstein joined the Council of Europe in 1978, the UN in 1990, the European Free Trade Association (EFTA) in 1991 and the European Economic Area (EEA) in 1995. The EEA allows Liechtenstein to participate to a limited extent in the EU internal market and excludes agriculture, the customs union and monetary union.

Liechtenstein offers an extremely stable and efficient business environment with modern infrastructure and excellent telecommunications. There is a wide variety of corporate forms available for most purposes and the legislative structure is flexible and liberal. Although Liechtenstein is a 'civil code' jurisdiction, legislation has created a trust regime which is widely used.

Liechtenstein was blacklisted by the Financial Action Task Force (FATF) as ‘noncooperative’ in the fight against money laundering in June 2000. Following significant changes to Liechtenstein’s legislation and supervision of the financial sector the FATF removed the country from its blacklist in June 2001. In 2002, Liechtenstein underwent an Offshore Financial Centre Assessment by the IMF. In their report of September 2003, the IMF experts attested Liechtenstein's preventive measures against money laundering and financing of terrorism a "high level of compliance with international standards", including, a high degree of implementation of the FATF (Financial Action Task Force) recommendations on combating money laundering as well as the 8 special recommendations of the FATF on combating the financing of terrorism

T he International Monetary Fund (IMF) also recommended in their report that Liechtenstein undertake to strengthen its financial market supervision. The Government succeeded in drafting a law on independent and integrated financial market supervision within a year and in undertaking the necessary legislative amendments. Parliament adopted the Financial Market Supervision Act on 18 June 2004. On 1 January 2005, the new supervisory authority began its work. The responsibilities of Liechtenstein’s Financial Market Supervisory Authority (FMA) integrates the supervisory tasks that were previously assumed by the government, the Financial Services Authority, the Office of Economic Affairs (Insurance Division), and the Due Diligence Unit namely, the supervision of banks, lawyers, professional trustees, investment undertakings, and insurance companies. A five-person Board under the direction of René H. Melliger is responsible for overall management, supervision, and oversight, but also advises the Government on questions concerning the financial center. Various powers that special laws had previously assigned to the Government, such as granting and revoking concessions, have now been transferred to the Board. The FMA operates as an autonomous institution under public law. The organs of the FMA are The Board, the General Management, and the Auditing Office.

Current applications to set up a business are made to government's department for the national economy. All documents must be submitted in German. Documents submitted as part of the application must be translated and officially certified. Corporate bodies are formed under the Law on Persons and Companies 1926, as amended. The legislation allows the formation of a limited company by shares (AG/Ltd.), a limited company by shares (AG/Ltd.) structured as an offshore company (minimum fully paid up capital Sfr50,000 and the minimum annual capital tax is Sfr1,000. Companies formed as joint-stock companies must have an initial capital of at least Sfr50,000 -- divided into either bearer or registered shares. Companies formed as establishments, trust corporations or foundations must have initial capital of at least Sfr30,000. Establishments do not have to have their initial capital to be divided into shares. Companies formed as foundations may be family foundations and ecclesiastical foundations. There are an estimated 73,700 holding companies registered in Liechtenstein.

Taxes

Commercial operations in Liechtenstein are subject to capital and profits taxes. A formation tax (stamp duty), payable on formation of a company and on a capital increase is assessed at 1% or with a tax-free allowance of Sfr250,000. Foreign companies operating a branch in Liechtenstein are also subject to the capital and profits tax requirement. The tax rate for capital taxes is 0.2%. Profits taxes are assessed on the entire annual net profit. The profits tax rate depends on the ratio of net profit to capital and lies between 7.5% and 15%. The tax rate may be increased by 1% to at most 5% depending on the relation between distribution and taxable capital. The maximum profits tax is therefore 20%. Holding companies, domiciliary companies, and investment companies (investment funds) domiciled in Liechtenstein pay no profits taxes, but pay capital taxes of 0.1% of the paid-up capital or assets invested in the company or Sfr1000 annually, whichever is higher. For foundations, the capital tax for the amount of assets including reserves exceeding Sfr2 million is reduced to 0.075% and for the amount of assets including reserves exceeding Sfr10 million to 0.050%. For Liechtenstein investment companies (investment funds), the tax is also reduced to 0.040% for the amount of assets including reserves exceeding Sfr2 million. Insurance companies under the Insurance Supervision Act exclusively operating as captives pay a capital tax of 0.1% on the company's equity. The tax rate for equity exceeding Sfr50 million is reduced to 0.075% and for equity exceeding Sfr100 million francs to 0.050%. Insurance companies operating both as captives and also for third parties are subject to the capital and profits taxes for the part arising from the insurance of third parties.

Indirect taxes include estate, inheritance, and gift tax, value added tax, stamp duties and a coupon tax. Coupon tax, levied on capital interest coupons from legal persons, bonds and other entities is payable at a rate of 4%. The stamp duty on domestic equities is usually 1% with a tax-free allowance of Sfr250,000. The  transaction duty on transfers of securities is 1.5 or 3%. Residents and those employed in Liechtenstein are required to pay property and income taxes. General partnerships and limited partnerships are also subject to property and income taxes, as well as legal entities and trusteeships not subject to company taxes (capital and profits taxes and special company taxes). There is also a municipal tax surcharge. When calculated along with the average municipal tax surcharge, the minimum property tax rate is currently 0.162% and the maximum is 0.8505%. The minimum Income tax is currently 3.24% and the maximum is 17.01%. Employers are required to deduct a basic amount of the income tax from an employee's monthly salary and wage payments and forward it to the Liechtenstein Tax Authority.

Along with Switzerland, in 2004 Liechtenstein accepted the EU's Savings Tax Directive, andsince 1 July 2005 has imposed a withholding tax on interest and other savings returns paid to citizens of the member states of the EU.

Key Contacts

FMA Financial Market Authority Liechtenstein
Heiligkreuz 8
P.O. Box 684
LI-9490 Vaduz
Principality of Liechtenstein
Phone: 423 236 73 73
Fax: 423 236 73 74
E-Mail: info@fma-li.li

Department for National Economy (Amt für Volkswirtschaft Wirtschaft.)
Gerberweg 5
9490 Vaduz
Tel: ( 423) 236 64 59
Fax: ( 423) 236 68 89
E-mail: info.wirtschaft@avw.llv.li

Liechtenstein Investment Fund Association
Herrengasse 21 A, PF 1507
FL-9490 Vaduz
Telephone 423/791 07 91
Fax 235 07 78

Chamber of Trade and Commerce of the Principality of Liechtenstein
Zollstrasse 23, 9494 Schaan
Liechtenstein
Tel: ( 423) 237 77 88
Fax: ( 423) 237 77 89
E-mail: gwk@gwk.li
Internet: www.gwk.li

Liechtenstein Investment Fund Association (LAFV)
Herrengasse 21 A
P.O. Box 1507
9490 Vaduz
Liechtenstein
Tel: ( 423) 791 07 91
E-mail: info@fondsverband.li
Internet: www.lafv.li

Key Stats

Country Description
Official name: Principality of Liechtenstein. German is the national and official language. English is widely spoken in business.

Population (May 2005)
34,500 of which about 34 % are foreigners, mainly Swiss, Austrians and Germans.

Capital: Vaduz

Currency: Swiss franc. US$1 = Sfr1.24 Swiss franc (September 2005)

Legal System
Liechtenstein law incorporates aspects of both Swiss and Austrian law with variations. The court system consists of a district court (Landgericht), a court of appeals (Obergericht), and a supreme court (Oberste Gerichtshof). The State Court deals with rights under the constitution and decides on conflicts of jurisdiction between the law courts and the administrative authorities. The State Court also acts as a disciplinary court for members of the government. Criminal cases first go through the regional court, made up of a magistrates court, the criminal court and the juvenile court.

Government
The principality is a constitutional, hereditary monarchy with representative democracy through a parliament. The 1921 constitution introduced the concept of two 'sovereigns': the people and the reigning prince. Both sovereigns, the people and the prince, have to agree on important decisions like a change of the constitution, a new law, the formation of the government or the appointment of the judges. The prince is head of state and may introduce bills to be considered by parliament.  On 15 August 2004, Liechtenstein's ruler, prince Hans-Adam II, turned over the day-to-day running of the principality to his eldest son, Alois, who has the authority to dismiss governments, veto new laws and cast the deciding vote for appointing judges. The parliament (Landtag) is made up 25 deputies elected for a four-year term by proportional representation in two multi-seat constituencies (the 15-seat Oberland and the 10-seat Unterland). Under the constitution, government is a collegial body consisting of five ministers including the prime minister. Each minister has an alternate minister. The prime minister, ministers and their alternates are appointed by the reigning prince on the recommendation of parliament. The constitution allows citizens the right to call a referendum (backed by a specified number of signatures collected within a time limit) whenever parliament takes a decision on a new law or on a change of the constitution. Voters also the right of initiative on introducing a new law or changing the constitution by collecting a specified number of signatures within a time limit. Parliament must then decide during its next session if it accepts or rejects the initiative. If parliament rejects the initiative a popular vote must be held on the initiative to determine whether it is accepted or not.

Executive
Reigning Monarch and head of state: Prince Hans Adam II
Prince Alois: Reigning Monarch's Representative (appointed 15 August 2004 to take over day-to-day running of government)
Politics: In the elections of March 2005 the the Fortschrittliche Bürgerpartei (FBP) won 12 seats (with 48.7% of the vote), the Vaterländische Union (VU) won 10 seats (38.2%) and the Freie Liste (FL) three seats (13%). The government is formed by the FBP. The next election is due to be held in 2009). 

Economy
Manufacturing accounts for about 45% of GDP and services 55%. About 40% of exports go to European Union countries. Switzerland accounts for an additional 12% of exports. The financial services sector employs about 2,000 people and accounts for about 30% of government revenues.

Inflation Rate
0.6% (2003)

Labour Force: Unemployment: 2.2% (2004). 35% of the resident population and more than 60% of the working population are not Liechtenstein citizens, most coming from EU countries

Government Accounts (2001)
Revenues: Sfr804.1 million. Total expenditures: Sfr751.4 million.

Public Holidays (2005)
1 January (New Year's day); 2 January (St Berchtold's Day); 6 January (Epiphany), 2 February (Candlemas); 15 February (Shrove Tuesday); 19 March (St Joseph's day); 25 March (Good Friday); 28 March (Easter Monday); 1 May (Labour day); 5 May (Ascension Day); 15 May (Whit Sunday or Pentecost); 16 May Whit Monday); 26 May (Corpus Christi); 15 August (Assumption); 8 September (Nativity of Our Lady); 1 November (All Saints' day); 8 December (Immaculate Conception); 24 December (Christmas Eve); 25 December (Christmas day); 26 December (St. Stephens day); 31 December (New Year's eve).

Time Zone
GMT 1. The clock goes forward one hour at 1:00 on the last Sunday in March and back to normal time at 1:00 on the last Sunday in October.

Restaurant Guide

We recommend:

Restaurant Torkel
Rolf and Edith Berger
Hintergasse 9
FL-9490 Vaduz
Tel: 423 232 44 10
Fax 423 232 44 05
Email: office@torkel.li

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