LIECHTENSTEIN: An introduction to Private Wealth Law

A strong international reputation

With a population of approximately 40,000, Liechtenstein is one of the smallest countries in Europe, yet it has established a strong international reputation as a premier jurisdiction for private wealth structuring. For decades, it has been a preferred location for the establishment of various structures such as foundations, trusts, establishments, and companies limited by shares.

A robust and dynamic corporate landscape

While the number of legal entities and trusts has adjusted in line with global regulatory developments, Liechtenstein still maintains a robust and dynamic corporate landscape, with approximately 23,000 currently registered or deposited with the Commercial Register. Owing to its legal stability, strong investor protection, and adherence to international compliance standards, Liechtenstein remains one of the most attractive jurisdictions for international clients seeking to transfer assets for long-term asset protection and succession planning. The following provides a concise overview of three legal structures often selected by international clients:

Foundations

Foundations are legally and economically independent special-purpose assets established as legal entities. Typically, a foundation is created by a founder who allocates assets to the foundation, defines its purpose, and designates its beneficiaries. Unlike corporations, foundations do not have shareholders or owners. Instead, beneficiaries are appointed who may be designated to receive distributions as defined by the foundation documents.

The minimum foundation capital amounts to CHF 30,000 which may also be contributed in USD or EUR. A foundation can be established either as a public-benefit foundation or as a private-benefit foundation. Private-benefit foundations may also be structured as family or enterprise foundations. Foundations that engage in commercial activities or pursue primarily charitable purposes must be entered in the Commercial Register. All other foundations may either opt for voluntary registration or, alternatively, be deposited with the Register. In the latter case, only limited information, such as the foundation’s name, registered domicile, purpose, date of formation, and members of the foundation council, is submitted to the Commercial Register.

Upon its establishment, the foundation acquires legal personality and becomes the legal owner of the assets allocated by the founder. In order to ensure asset protection, it may be advisable to strictly separate the foundation’s assets from the founder’s personal estate and to limit the founder’s control rights over the foundation. The administration and representation of the foundation are the responsibility of the foundation council, which must consist of at least two natural or legal persons, one of whom must be a Liechtenstein fiduciary or a person with equivalent qualifications (so-called “180a persons”). In addition, supervisory bodies such as protectors are often appointed to oversee the activities of the foundation.

The foundation’s income is generally subject to corporate income tax at a rate of 12.5%. Certain types of income are tax-exempt, including income from foreign business operations, rental and leasing income from foreign real estate, dividends from participations in legal entities, and capital gains from the disposal of such participations. Alternatively, foundations that do not engage in commercial activities and exclusively manage their own assets may qualify as Private Asset Structures (PVS). PVS are exempt from the ordinary corporate income tax regime and instead are subject only to the annual minimum income tax of CHF 1,800, without any obligation to file tax returns.

Trusts

Trust relationships in Liechtenstein are commonly used by individuals from the Anglo-American legal sphere, who are generally more familiar with this legal institution than with foundations. Trusts are established when a settlor transfers assets to a trustee, who is obligated to administer or use the trust assets in accordance with the settlement, in the trustee’s own name as an independent legal owner. Unlike foundations, a trust does not constitute a legal person.

A trust is legally created by a written agreement between the settlor and one or more trustees, followed by the transfer of assets. If a trust is formed for a period exceeding 12 months, it must be registered or deposited with the Commercial Register. Trustees may be Liechtenstein or foreign nationals. Where the trustee is not resident or domiciled in Liechtenstein, a legal representative must be appointed.

Upon establishment, the trustee manages and uses the trust property in its own name for the benefit of one or more beneficiaries, which may include the settlor. Generally, the settlor has no right to issue instructions to the trustee but may provide a letter of wishes outlining the settlor’s intentions. Letters of wishes are not binding on the trustee but may be taken into account when interpreting the settlor’s intent. It is possible for a settlor to reserve powers in the trust deed, such as a power of revocation or a power of amendment, but such reserved powers may affect asset protection purposes and the taxation of the trust’s assets and income. Additional governing bodies, such as protectors, may be appointed by the settlor in the settlement.

Trusts are subject to an annual tax of CHF 1'800, regardless of their income.

Establishments

The establishment is a unique legal form distinctive to Liechtenstein and is not commonly found in other jurisdictions. It constitutes a legally autonomous and organised permanent undertaking, which must always be entered into the Commercial Register. Establishments require a minimum capital of CHF 30,000, which may also be contributed in USD or EUR. The executive body of an establishment consists of the board of directors, which may comprise one or more natural or legal persons. Additional governing bodies, such as protectors, may be provided for in the articles.

One of the main advantages of the establishment is its structural flexibility, as it may be organised as (i) a typical establishment, (ii) an establishment structured similarly to a company limited by shares, or (iii) a foundation-like establishment.

In the case of typical establishments and establishments structured similarly to a company limited by shares, the supreme body is the bearer of the founder’s rights, typically represented by the founder or another person designated in the articles. Unless otherwise provided, this bearer is the sole beneficiary of the entity. Founder’s rights may be transferred by way of assignment. In the case of establishments organized similarly to a company limited by shares, the founder’s rights are divided into shares.

In the case of foundation-like establishments, no founder’s rights exist. The board of directors acts as both the supreme and executive body. These establishments typically issue by-laws to determine their beneficiaries.

Establishments are generally subject to corporate income tax at a rate of 12.5% but may also opt for the PVS system as outlined above.