Although being one of Europe’s tiniest states, Liechtenstein is a unique place for business. Located in the alpine Rhine valley between Switzerland and Austria, this micro-state counting almost 38,000 inhabitants is home to a globally active and highly specialised industry and offers sophisticated financial services to clients all around the world.
With an average income of CHF133,220.00 in 2014, it is one of the most developed countries in the world. Approximately 38% of the workforce is employed in industry, 61% in the service sector and only less than 1% in agriculture, many of which are daily commuters from neighbouring Switzerland and Austria.
Liechtenstein's economy is export-oriented. The country’s small market allows low-hassle cross-border trade for most entrepreneurs. Through various agreements, Liechtenstein has created excellent conditions for export not only to Switzerland and Europe, but also the USA and Asia which is reflected by fast growing exports to these regions. There are numerous entrepreneur and international business services in Liechtenstein to assist both local and international undertakings in export and import matters.
Clearly, economic policy has become an increasingly challenging issue for the country. Liechtenstein has adopted a liberal economic order. It provides swift bureaucracy and solid financial policy without national debt. Liechtenstein's economic data shows promising development and strong underlying conditions. In particular, its strong industrial and financial sectors have led to above-average growth in employment. Half of the workforce are commuters from abroad, mainly from the neighbouring countries of Switzerland and Austria, as well as from Germany. Even in recent years, the unemployment rate has been low at 1.6%–2.8%. In September 2018 the unemployment rate was 1.6%.
Around 60% of employees work in the tertiary sector and within this tertiary sector predominantly in financial, insurance, legal and tax advisory services. Another important aspect of the economy lies in manufacturing, which accounts for 39% of employees. Within manufacturing, there is a particular emphasis on high-quality, specialised production in the mechanical engineering, tools, dental technology, food industry and building materials sectors.
In these fields, Liechtenstein boasts a number of leading international companies. However, Liechtenstein's economy does not only consist of these major producers. It is equally characterised by small and medium-sized businesses, which underlie a sustainably strong economy.
Although conditions for financial service providers remain difficult, Liechtenstein's financial market transformation is starting to show results. Turnover for the largest financial providers has been increasing since early 2012 and the total sum of client assets administrated by Liechtenstein banks rose to CHF234.8 billion in 2016. Another outstanding feature is the high capitalisation of the 16 Liechtenstein banks. Its average equity ratio of around 20% is noted as one of the best in Europe. Furthermore, the banks have not needed government support during the financial crisis.
Overall, the success of the Liechtenstein economy is based on several different factors and not simply the diversifications made in the financial market. The stability of the social, legal and financial systems of Liechtenstein and neighbouring countries are important factors. The other significant contributing factors to the health of its economy are its customs and monetary union with Switzerland, its membership of the European Economic Area (EEA), the country's "triple A" rating and its long tradition and expertise within the banking sector.
To retain and increase its international competitiveness, Liechtenstein is continually adapting and developing its legal system. To name but a few examples, corporate law, tax law, arbitration law, IP law and trust law have been updated within the last couple of years. With low tax rates and a simple taxation system drafted according to the latest European standards, the country is seeking to remain attractive to international companies. The latest effort in this area is Liechtenstein’s commitment to foster blockchain technology, which is why in 2018 it was awarded the prize ‘Blockchain Ecosystem of the Year’ from the Crypto Challenge Forum in London.
People investing in Liechtenstein and willing to establish a business will find several legal forms to serve their entrepreneurial goals. Entrepreneurs often act as natural persons, for example as a so-called single company (Einfache Gesellschaft), overseen by the most liberal regulations but with full liability towards third parties. Legal persons generally consist of stock corporations (Aktiengesellschaft), establishments (Anstalt) and limited liability companies (GmbH).
Another speciality of Liechtenstein law is that it accepts the legal capacity of all foreign legal forms according to their own personal statute. Besides the possibility to use foreign legal forms, Liechtenstein law provides multiple legal forms that allow investors and entrepreneurs to choose whatever fits their needs best:
(A) Single company
o No minimum capital, low start-up costs
o Private property is liable without limitation
o Accountancy obligation for gross sales above CHF10,000
o Quick foundation and low regulatory requirements
(B) Limited liability company
o Minimum capital CHF30,000
o Shareholders are liable up to a pre-determined amounto Accounting obligations
o Internationally familiar legal form
o Publicly registered shareholders
(C) Stock corporation
o Minimum capital CHF50,000
o Liability according to the assets of the company
o Accounting and auditing
o Annual financial statements
o Internationally familiar legal form
o Minimum capital CHF30,000
o Liability limited to capacity
o Accounting obligations
o Non-public financial statements
o Not an internationally familiar legal form
In tax matters, Liechtenstein is continuing with its tax compliance strategy. FATCA has been fully implemented in Liechtenstein. Liechtenstein’s financial institutions have made notable efforts to comply with international reporting standards, and the government strengthened its determination to maintain OECD standards in the long term. To this day Liechtenstein has signed over 30 TIEAs and DBAs, which fulfil the required OECD standards. The government signed important tax treaties with Switzerland and Italy in 2015 and showed a clear willingness to sign further tax treaties with countries significant to the Liechtenstein economy. Furthermore, a specific Act on the Automatic Exchange of Information (AIA), on the basis of which the automatic exchange occurs with the European Union and further countries worldwide, has come into force.
Although banking secrecy, in line with international trends, is undergoing a process of transformation, this applies only to tax matters. Liechtenstein remains a safe haven for both asset protection and strict professional confidentiality.In the light of this, Liechtenstein is also about to implement the Fourth Anti-Money-Laundering Directive establishing a register for ultimate beneficial owners (UBO). In order to fight money laundering and to omit attempts of financing terrorism, financial service providers will need to register the UBO with said register within 30 days. However, according to the latest developments in the legislative procedure, Liechtenstein will used the leeway the Directive grants and exempt beneficiaries of foundations and trusts from being registered as long as the nomination of beneficiaries lies within the trustee’s or the foundation board’s own discretion (so-called discretionary beneficiaries).
Liechtenstein’s progressive mind-set is further reflected in the fact that it is home to already more than 100 companies offering blockchain related services. Providing a legal framework has been a major effort of Liechtenstein over the last couple of months. The long-awaited Blockchain Law is currently in parliamentary consultation process and is expected to be passed soon.