Doing Business In: Liechtenstein
Gasser Partner Attorneys at LawView firm profile
Liechtenstein is a microstate located in the heart of Europe counting not more than 38,000 inhabitants. It is Europe’s third tiniest state – after the City of Vatican and San Marino – but nonetheless a thriving country enclosed between Switzerland and Austria. It provides an excellent business environment for foreign investors by benefitting from both neighbouring countries as well as its access to both the Swiss market as well as the European Economic Area. It is a highly developed spot for specialised industries, sophisticated banking and financial services for international clients.
Although well-known for its banking and financial sector, Liechtenstein is an innovative and export-oriented industrial location. Liechtenstein’s liberal approach allows low-hassle cross-border trade for most entrepreneurs. The legal system makes the most of various agreements to provide an excellent environment for exporters, with entrepreneurs’ and multinationals’ work further simplified by public investment in innovation and export. Latest statistical data indicate that export has risen up to 11% compared to 2017.
The main reason for Liechtenstein’s thriving economy is its liberal economic order. The generated income has been invested into building a swift bureaucracy and solid financial policy without any national debt. Liechtenstein’s economic data shows promising development and strong underlying conditions. Most particularly, strong industrial and financial sectors have led to above-average growth in employment, resulting in an unemployment rate of 1.6%. The unique economic success combined with the geographical location is responsible for the fact that Liechtenstein companies offer more jobs than people live in the country. In 2017, 55.1% of the workforce were daily commuters, mostly coming from Switzerland and Austria.
Business environment and economy
The most well-known part of Liechtenstein’s economy is its financial service sector. Liechtenstein is home to 15 banks managing a total of CHF 294.3 billion and registered a net new money inflow of CHF 39.8 billion in 2017. This shows that Liechtenstein’s financial sector is continuously growing and offers well-demanded services to clients and investors from all over the world. In recent years, Liechtenstein banks particularly increased their international cooperation with U.S., China and India based partners.
Nonetheless, the financial sector is facing substantive challenges. Financial service providers such as banks and trustees are faced with more and more compliance duties, because Liechtenstein is committed to implement necessary changes regarding the latest European anti-terrorist-funding and anti-money-laundering standards. Such changes ensure the integrity and the reputation of Liechtenstein’s financial services, which will eventually lead to a safe and reputable environment the clients can get invested in.
The Liechtenstein legislator undertakes any effort to avoid a shady flavour when investing in Liechtenstein. Due to the fact that Liechtenstein’s financial service providers are able to offer a legal optimum regarding tax liability and asset protection while still ensuring full compliance with relevant regulatory rules, the financial instruments enjoy a clean and reputable prestige vis-à-vis both investors and authorities. The continuing business success of Liechtenstein’s financial service providers proves this approach right.
Another big part of Liechtenstein’s economy is its thriving industrial sector. World-wide active companies such as Hilti AG, Ivoclar Vivadent AG and the Liechtenstein branch of ThyssenKrupp Presta AG develop and produce highly specialised goods. Over 37 % of Liechtenstein’s jobs are within the industrial sector, a figure which is unusually compared to other well-developed countries in Central Europe.
Current opportunities & future prospects
Latest data from the Office of Statistics show that Liechtenstein is experiencing an economic upturn. Low taxes, a liberal legal system and swift bureaucracy ensure a good environment for investments. Parallel to the world-wide upswing, Liechtenstein’s economy is gradually growing. Entrepreneurs in the country are confident about the future development: a survey conducted amongst them show a continuously high confidence, even though the value has decreased slightly in the third quarter of 2018.
As mentioned above, already, the current situation is best reflected by the performance of financial service providers as one of Liechtenstein’s driving force. Despite the fact that recent European legislation has dimmed investors’ grasp for tax and estate planning, Liechtenstein could use the current momentum. Tough legislative and regulatory efforts in the last couple of years now pay off and Liechtenstein is seen as serious and promising country.
Liechtenstein is also growing into a crypto-hub for Central Europe. The tiny country is already home to more than 100 companies offering blockchain related services. In 2018, Liechtenstein was awarded the “Blockchain Ecosystem of the Year” award by the Crypto Challenge Forum in London and providing a legal framework for this new entrepreneurial spirit has been a major effort of Liechtenstein over the last couple of months. The long-awaited Blockchain Act is currently in parliamentary consultation process and is expected to be passed soon.
Potential investors find themselves in a country that satisfies international regulatory standards while still preserving a high level of discreetness and bureaucratic efficiency. From Liechtenstein, any entrepreneur has unrestricted access to the Swiss as well as to the European markets. Paired with Liechtenstein’s relatively low taxes, a pool of highly qualified employers, and a fast and non-bureaucratic administration, investors will get the most out of their investments.
Legal system and investment vehicles
People investing in Liechtenstein and willing to establish a business will find several legal forms to serve their entrepreneurial needs. Entrepreneurs may act as natural persons overseen by the most liberal regulations but with full liability towards third parties, or choose to establish a legal entity with full legal personality and capacity. Legal persons generally consist of stock corporations (Aktiengesellschaft), establishments (Anstalt), limited liability companies (GmbH) and the single company.
The following issues should be considered in order to choose the legal form fitting the investment’s needs best:
A. Limited liability Company (“Gesellschaft mit beschränkter Haftung”)
The limited liability company, or “Gesellschaft mit beschränkter Haftung”, is a legal form found in nearly all jurisdictions. The minimum capital needed is CHF 10,000 and any natural or legal person can be a shareholder. Shareholders are publicly registered in the share register. The shareholders’ liability is limited to the share capital, but enjoys personal immunity regarding any form of enforcement against the company. As a legal person, the company is obliged to file annual accounts. The LLC is one of the least common legal forms in Liechtenstein.
B. Stock Company (“Aktiengesellschaft”)
The more complex legal form is the stock company. Due to its international recognition and flexibility, it is the most common legal form used for entrepreneurial activities in Liechtenstein. 17% of all legal entities in Liechtenstein are stock companies (a figure surpassed only by the Establishment and Foundations, both of which usually do not perform entrepreneurial activities). The minimum share capital is CHF 50,000 and liability is limited to the assets of the company. In contrast to the limited liability company the stock corporation is obliged to file audited annual accounts.
C. Establishment (“Anstalt”)
An establishment is a legal form similar to a limited liability company. The law on establishments allows for a flexible design of the Anstalt’s statutes, which makes it an attractive alternative to the limited liability company (LLC). It may even change its business type to a foundation-like legal structure if so desired by the stockholder or the holder of the founder’s rights. Indeed, the latter is not uncommon. The most important disadvantage of the establishment is that it is not common in international business. An internationally active firm in the legal form of an Anstalt would most likely face difficulties regarding its legal capacity more regularly than the Stock Company or the LLC. It may be of good service for local undertakings familiar with the legal form of an Anstalt or as holding company that remains in the background of a company group.
D. Single company
The single company has no minimum capital and only low start-up costs. Private property is liable without limitation. However, an accountancy obligation exists only for businesses with gross sales above CHF 10,000. The single company is quick and easy to establish and has minimal regulatory requirements.
All legal entities are subject to a profit tax of 12.5%. The companies described in A), B) and C) may qualify as “Private Asset Structure” when acting exclusively as a holding company. This means that their tax liability is cut down to a yearly flat tax of CHF 1’800.00. Using a Liechtenstein holding company may therefore be a very attractive option, but needs to be elaborated and evaluated very carefully. In an international environment, it is not always the case that other states accept such minimal taxation. It is well advisable to consult an experienced Liechtenstein tax lawyer, trustee or law firm to work out a possible solution.
In order to maintain and increase its international competitive edge, Liechtenstein is continually adapting and developing its legal system. To name but a few examples, tax law, arbitration law, IP law and trust law have been updated within the last couple of years. Since early 2018, Liechtenstein is also working on a new Blockchain Act with the goal to make this new technology usable in a safe and regulated legal environment.
With tax low rates and a simple taxation system drafted according to the latest European standards, the country seeks to remain attractive to international firms.
As of 1 October 2016, the AIFM-Directive was fully transposed into Liechtenstein law, bringing increased transparency for investors and increased supervision of the activities of Alternative Investment Fund Managers (AIFM) and Alternative Investment Funds (AIF). Liechtenstein subsumed this directive into national law on 19 December 2012. One noteworthy characteristic is the introduction of partial licences concerning permits to work as administrators, risk managers and distributors. This offers additional opportunities for market participants.
In October 2016, the joint EEA Committee decided to integrate the AIFM Directive into the EEA treaty. As of 1 October 2016, the passporting system has brought Liechtenstein AIFs and AIFMs access to the EEA internal market of the 28 EU states plus the EEA/EFTA states of Norway and Iceland.
The distribution of Liechtenstein Undertakings for Collective Investment in Transferable Securities (UCITS) within the European internal market was already possible and the same will apply to the AIF sector. This integration provides Liechtenstein with the same market access opportunities as the EU member states, rendering it an ideal gateway to the European market, particularly when allied to its particular advantages for non-EEA financial institutions and its strong focus on cross-border fund sector activities.
The new Liechtenstein Act on Investment Undertakings (IUG) came into effect on 1 October 2016. It provides four specific categories of investment vehicles, supervised by the Financial Market Authority, which offer excellent opportunities to structure corporate and private assets for particular investors. The fast time-to-market via the so-called certification procedure (“Bescheinigungsverfahren”), in addition to low costs, provide these vehicles with special advantages. The four categories of the new investment undertaking (Investmentunternehmen – IU) are (i) investment undertakings for single investors, (ii) investment undertakings for families, (iii) investment undertakings for interest groups and (iv) investment undertakings for affiliated groups.
In tax matters, Liechtenstein is continuing with its tax compliance strategy. FATCA has been fully implemented and Liechtenstein’s financial institutions have made noteworthy efforts to comply with international reporting standards. The government has strengthened its determination to maintain OECD standards in the long term. To date 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) came into force as of January 1, 2017, providing for such automatic exchange with the European Union and further countries worldwide.
Liechtenstein is also about to transpose the Fourth EU 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 use 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).
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 both for asset protection and for strict professional confidentiality.
Especially prominent or very wealthy people may find a discreet and cost-efficient solution in Liechtenstein, be it to invest or be it in order to secure their (family) wealth against fragmentation.