Liechtenstein: Open to opportunity

By Andrew J Baker, Miselva Establishment, Vaduz, Liechtenstein (01/08/2007)

THE  PRINCIPALITY  OF Liechtenstein, with a population of approximately 35,000 is a constitutional hereditary monarchy having as its form of government a parliamentary democracy. The powers of the state are shared between the Prince and the Parliament and are conducted by both in accordance with the Liechtenstein constitution. As in most other modern states there is a separation of legislative, executive and judicial powers.

The Diet consists of 25 members and is elected for four years by general and secret ballot.  The government consists of the prime minister and four councillors.  The members of the government are appointed by the prince on the recommendation of the Diet.  Their term of office is four years.

The 11 communities in Liechtenstein are governed autonomously - though under supervision of the government - by mayors and local councils elected every four years.

Liechtenstein is a member of the Council of Europe, the United Nations, the European Free Trade Association (EFTA), the Wold Trade Organisation and the European Economic Area (EEA).

The official language is (high) German and the currency is the Swiss Franc (CHF).

Legal system

Being a continental European country, Liechtenstein is a so-called ‘civil law jurisdiction’, its laws being based in part on Austrian law and in part on Swiss law. The major exception is the Persons and Company Law 1926 (PGR), which was drafted in Liechtenstein.

There is a distinction between civil and criminal matters on the one hand, and administrative and constitutional matters (public law) on the other. Courts exercising jurisdiction in civil and criminal matters are the District Court (Landgericht), the Superior Court (Obergericht or OG) and the Supreme Court (Oberste Gerichtshof or OGH). Public law courts are the Administrative Court (VGH) and the Constitutional Court (STGH). The VGH hears appeals from governmental or local authorities and aims to protect the citizens against the might of the state. Its decisions are final. The STGH decides as the first and only instance with regard to appeals relating to the protection of the constitutionally guaranteed citizens’ rights and acts as a guarantor of the European Convention of Human Rights. It can overturn what would otherwise have been final judgments of the VGH or the OGH.

Further, the EFTA Court in Luxembourg and the European Court of Human Rights in Strasbourg have certain jurisdiction in Liechtenstein.

Legal entities

Liechtenstein offers not only a large quantity of different types of corporate and noncorporate entities, but also a very liberal legal framework in which to operate. The most popular vehicles used by practitioners and clients for offshore purposes are the trust, the family foundation, the establishment, the trust enterprise, the company limited by shares, the limited company, and the limited partnership. All of these vehicles can be used for onshore purposes too and are regulated by the PGR.

Offshore vehicles

The trust and the foundation are generally used as holding vehicles. The foundation, having its own legal personality, is more popular with clients from civil law countries, whereas clients from common law jurisdictions more often choose trusts.

The establishment appears to be unique to Liechtenstein. It is treated as a corporation with legal personality and is used as both a holding vehicle and for commercial purposes. The trust enterprise can, but need not, have legal personality. Based on the Massachusetts trust it is used principally for commercial transactions, although it can be used as a holding vehicle.

The PGR requires that at least one member of the board of directors, or board of foundation, or of the trustees must be resident in Liechtenstein with the appropriate professional qualifications (enabling them to possess the so-called ‘Art. 180a. permit’).


Liechtenstein is the only country in continental Europe to have adopted the common law trust. In doing so Liechtenstein has closely followed the Anglo-American model. In contrast to English and American trust law, Liechtenstein trust law does not restrict the accumulation of income (no rule against accumulation). This rule is a direct consequence of the fact that Liechtenstein law contains no rule against perpetuities. There is no fixed term and, therefore, a trust can be created for an unlimited duration.

With effect from 1 April 2006 Liechtenstein has implemented the Hague Convention on the Law Applicable to Trusts and their Recognition of 1 July 1985, which seeks to harmonise the private international laws of its signatories.

Liechtenstein trusts are now used and accepted the world over as effective, efficient vehicles for a myriad of purposes. A Liechtenstein trust is indistinguishable from and interchangeable with trusts set up in other trust jurisdictions. However, the trust instrument can override provisions in the PGR “if the trust instrument so provides”. Further the settlor continues to have certain rights and liabilities even after the trust has been set up (unless the trust instrument provides otherwise).

The fully discretionary trust is the most popular type. The trustee has overriding discretion as to the appointment of beneficiaries and distribution of trusta ssets. It is not unusual for trusts to have a protector without whose consent the trustee may not appoint or remove beneficiaries or make distributions. Often, the initial settlor will be a nominee. Thus, the protector is often given the power to appoint and remove trustees.

Other forms of trust include:

  •   life interest or interest in possession trust, where trustees may be required to maintain a fair balance between capital and income beneficiaries;
  •   asset protection trusts (the PGR permits a clause to be inserted into the trust instrument prohibiting a beneficiary’s creditors from claiming against the beneficiary’s beneficial interest); and
  •   trusts for pension schemes or for collective investment purposes (unit trusts).


The principal fiscal statute is the Tax Act 1961 (SteG) which regulates taxation on both a national and a community level. Value added tax (VAT) was introduced in 1995. The general rate of VAT is 7.6 per cent of the price of goods and services. The aggregate tax rates in Liechtenstein are between 0.162 per cent and 0.851 per cent for wealth tax, and between 3.24 per cent and 17.01 per cent for income tax. Companies pay capital tax of 0.2 per cent and earnings tax between 7.5 per cent and 15 per cent of net earnings, the latter being subject to a surcharge depending on the ratio of capital to distributions, which can in certain circumstances increase the maximum rate to 20 per cent.

Holding and domiciliary companies

Holding companies (companies that hold only investments), domiciliary companies and trusts (not having trading activities in Liechtenstein) are subject to capital tax at a preferred rate. The annual capital tax is 0.1 per cent of the capital paid in and of all invested assets and reserves with a minimum of CHF 1,000 per year. This tax is reduced for foundations with assets of more than CHF 2 million to 0.075 per cent, and for those with assets in excess of CHF 10 million to 0.05 per cent for the exceeding amount.

However, as a general rule, they must pay only the minimum capital tax of CHF 1,000 annually. The same is true of trusts of foreign property.

Anti-money laundering

The Liechtenstein Due Diligence Law (SPG) was overhauled in 2004 to meet ever-increasing requirements in the fight against money laundering. The new law came into effect on 1 February 2005. A new Due Diligence Ordinance (SPV) followed in January 2005 and also came into force on 1 February 2005.

Suspicious transactions must be reported to the Financial Intelligence Unit . The SPG covers financial intermediaries which include banks, finance companies, fiduciaries, lawyers, investment and insurance companies, the Post Office, and bureaux de change. The SPG requires for each new mandate the identity of a contractual partner, the identity of the ultimate beneficial owner(s), and a client profile with details as to the source of assets being brought into the vehicle, the use to which they are to be put, and an estimate as to the amounts and currencies involved.

Client confidentiality

Bank and professional secrecy is anchored in the tax law and the law governing savings and loans institutions, both dating from 1923, the SPG, the Law Governing Legal Assistance in Criminal Matter 2000, and the Banking Law 2001. Clients of Liechtenstein banks can therefore be assured of a high level of secrecy. A workable compromise has been found between protecting the legitimate interests of bona fide clients and co-operating with relevant authorities in the battle against money laundering and organized crime.

Asset management

The asset management profession has been regulated for the first time with the Law Governing Asset Management and the Asset Management Ordinance which entered into force on 1 January 2006. Now all asset management companies have to be in possession of a licence from the Financial Market Authority (FMA) and are subject to their prudential supervision.

Investment companies

In 2005 Liechtenstein passed a law and an ordinance governing investment companies which entered into force on 1 September 2005. Investment companies and investment company managers are now regulated and under the supervision of the FMA.