Liechtenstein

Despite its small geographic area and limited natural resources, Liechtenstein currently is one of the few countries in the world with more registered companies than citizens; it has developed into a prosperous, highly industrialized, free-enterprise economy, and boasts a financial service sector as well as a living standard which compares favourably to those of the urban areas of Liechtenstein's large European neighbours.


Banking

The banking center is the actual nucleus of the Liechtenstein financial services sector.

The entire financial services sector has a share of 30% of the Liechtenstein gross domestic product (GDP). 14.3% of all people employed in the Principality of Liechtenstein work in the financial services sector. An assessment of these comparative values must take into consideration the mutual dependencies within the financial services sector.

As of the end of 2005, 16 banks were licensed in Liechtenstein. Of these 16 banks, 6 were economically dominated by Liechtenstein investors, 5 by investors from the EEA (Austria), and 5 by investors from third States (Switzerland). As of the end of 2005, they had a balance sheet total of 42.3 billion (thousand million) Swiss francs. Overall, 2,807 persons were employed in the banking sector as of that date. Client assets under management amounted to 148.7 billion (thousand million) Swiss francs.

Private banking, based on a comprehensive protection of bank client secrecy, is the focal point of banking activities. Banks operate in an environment characterized by high political and social stability and a legal structure that complies with international standards and is compatible with EU requirements. Banking supervision (FMA ), as part of overall financial market supervision, complies with internationally recognized principles, as the Report of the International Monetary Fund, Washington , published in September 2003, confirms.


Insurance center

After signing the EEA Agreement in 1995, Liechtenstein initiated the Liechtenstein Insurance Center Project, establishing insurance supervision legislation in conformity with European standards. The Law on the Supervision of Insurance Undertakings and the Ordinance on the Insurance Supervision Act entered into force on 1 January 1996 and 24 January 1997, respectively.

Insurance undertakings domiciled in Liechtenstein enjoy free access to the European market, which encompasses over 450 million inhabitants. Their business activities are subject to insurance supervision that is completely in conformity with European and internationally recognized standards.

Before Liechtenstein joined the EEA, only agencies of Swiss insurance undertakings were operating in Liechtenstein. In order to create the same conditions for them as for the EEA insurance undertakings, Liechtenstein and Switzerland concluded a Direct Insurance Agreement on the basis of reciprocity. Insurance undertakings domiciled in Liechtenstein and Switzerland are granted freedom of establishment and services with respect to direct insurance activities on the territory of the other State. This has made it possible to operate directly from Liechtenstein not only in the EEA, but also in Switzerland. This agreement has been in force since 1 January 1997.

Thanks to these three components (EEA membership, insurance agreement with Switzerland, and the newly created insurance supervision legislation), Liechtenstein has excellent perspectives to continue to establish itself as an insurance location as well.


Founding of businesses

Almost every establishment of a business in Liechtenstein and economic activity for profit requires approval. In addition to special requirements for self-employment and banks, insurance companies, and investment companies, most business establishments require approval according to the Business Act.

The Liechtenstein legislator has created legal forms which, in part, are distinct with respect to legal structure and application possibilities from comparable legislation in other countries. This brief summary comments on the company forms which are preferred in practice, i. e.

– the Company Limited by Shares
– the Establishment
– the Foundation

(designated by the legislator as «legal entities» resp. «juridical persons») and

– the Trust Enterprise
– the Trust Settlement
(designated by the legislator as «Special Asset Dedications»).

For the sake of simplicity all legal forms are referred to in the following as companies. In practice, the limited liability company (Gesellschaft mit beschränkter Haftung), the co-operative society (Genossenschaft) and the Association (Verein) are encountered in isolated cases; however, they are not dealt with here.

As a rule, a company is formed in Liechtenstein by a trustee admitted to practice in the country. He forms a company fiducially, in his name, but for the client’s account. Since the «Know your Customer Rule» has been introduced it is required to identify the economically entitled person when opening accounts with Liechtenstein banks.

However, discretion is not affected by this requirement because Liechtenstein banks and their employees are subordinated to Liechtenstein’s strict banking secrecy. Moreover, the professional bearer of secrets must make sure, particularly having regard to the new Due Diligence Law, that the assets to be contributed have not been acquired in a criminal manner, and he personally must identify or establish the identity of the persons involved and in his regard must also obtain the appropriate documentation and provide a compehensive profile of the business relationship.

Liechtenstein offers advantages regarding the formation and administration of companies, but resists all inadmissible misuse of anonymity and requires a high ethical and professional standard where the acceptance of mandates and the implementation of transactions are concerned.




Company Limited by Shares

Provided the somewhat higher tax burdens and, in certain cases, the stricter formal provisions are acceptable, the company limited by shares is suitable for all economic objects, in particular for active international commercial transactions, as a holding organization for subsidiary companies, etc. However, for the regulation of private asset relationships and for straightforward asset administration/asset security other organizational structures are preferable.

Nominal Capital: The minimum capital must be CHF 50 000.–, EUR 50 000.— or USD 50 000.—.

Shares: Bearer or registered shares are admissible; the minimum nominal value is not stipulated. It is also possible to issue voting shares. It is not required to observe any procedure in the transfer of bearer shares. The law does not prescribe any obligatory qualifying share for the administration.

Governing Bodies: The general meeting is the supreme authority and must be summoned at least once a year to approve the annual account and deal with any other duties as provided for by law and in the articles. The board of directors conducts and manages the company business. It is the duty of the audit authority to examine the annual account and report to the general meeting.

Submission of Balance Sheet: The annual account examined by the audit authority is required to be submitted to the Liechtenstein Tax Administration.

Taxes: Basically, in the case of this form of company, the special corporation tax (capital tax) amounting to 0.1% of the capital and visible reserves, at least, however, CHF 1000.– is payable annually. Coupon tax amounting to 4% of the distributed profits is also payable. The profit actually achieved is not subject to tax. Please refer to the heading «Fees and Taxes», under «General».


Establishment and Trust Enterprise (Trust reg.)

These two legal forms, of purely Liechtenstein coinage, are extremely versatile. The scope for determining the organization is very wide. They may be stuctured in the manner of a corporation, or their main characteristics may be foundation-like and thus, depending upon the structure, may provide an instrument for commercial objects or for the administration of assets.

Nominal Capital: The minimum capital must be CHF 30 000.– or the equivalent value in any desired legal currency and may be divided into units of shares (with or without the character of securities).

Governing Bodies: In the case of the normally encountered structure the governing rights are due to the supreme authority (founder). As a rule, the said right is transferred by means of an instrument of assignment (that is documentary evidence concerning ownership). The property rights may also be assigned to persons other than the bearer(s) of founder’s rights (please refer to the heading «Beneficiaries»).

The administration is undertaken by the board of directors in the case of the establishment and by the board of trustees in the case of the trust enterprise. In so far as commercial activities are undertaken or the articles make provision for such activities, an audit authority must be appointed as a third governing body. Otherwise, as in the case of the foundation, further governing bodies may be considered.

Beneficiaries: Where reference to the determination of the economic benefit is lacking, it may be presumed that the bearer of founder’s rights (in the case of the establishment) or the settlor (in the case of the trust enterprise) personally is the beneficiary. Otherwise, please refer to the comments under «General».

Submission of Balance Sheet: In so far as commercial activities are undertaken or, pursuant to the articles, such activities are possible, the annual account examined by the auditor must be submitted to the Liechtenstein Tax Administration.

Declaration: The obligation to declare (please refer to the comments under «General») exists when commercial activities are not undertaken and the articles do not make provision for such activities.

Taxes: In Liechtenstein, the profit achieved as well as the distributions to the beneficiaries are neutral with respect to taxation. Basically, the capital tax of 0.1% of the capital as determined in the articles, and the visible reserves, but at least CHF 1000.– per annum, must be observed. Further information is provided under «General», heading «Fees and Taxes».


Foundation

The foundation may be formed as a pure family foundation (for the defrayal of expenses for upbringing and education, outfitting and equipping, etc.), as a non-profit making foundation (support and promotion, e. g. of a charitable, artistic, scientific, social nature) or as an ecclesiastical foundation. The establishment of a foundation as a purely maintenance foundation may also be considered.

The foundation is not suitable for the pursuit of commercial objects. Commercial activities may only be undertaken when such activity serves to achieve the foundation’s non-commercial purpose or the type and scope of the participations held require the facilities provided by a commercial undertaking. Only the non-profit making foundation is subject, under certain circumstances, to official supervision.

Formation: Upon formation, the founder donates assets definitively for a certain specific purpose and regulates the beneficial interest. To a justifiable extent the founder may reserve certain rights by occupying a position (as a member of the foundation council, curator, protector) or by the inclusion of an appropriate provision in the articles/by-laws/regulations.

Existence: The foundation that is not under obligation to register comes into existence with the preparation of the deed of foundation, that which is under obligation to register, only upon entry in the Public Register.

Registration or Deposition: All foundations that undertake commercial activities in order to achieve their noncommercial purpose (e. g. youth hostel, old people’s home, welfare foundation in association with an enterprise) are under obligation to register.

The mere obligation to deposit the foundation documents with the Public Register Office (without by-laws or regulations) is applicable to ecclesiastical foundations, pure and mixed family foundations (maintenance foundations, for instance) as well as foundations whose beneficiaries are specifically designated or definable. In this case evident existence of the foundation is not provided by any register and inspection is subject to approval of the foundation. Nominal Capital: The minimum capital (foundation fund) must be CHF 30 000.– or the equivalent value in any desired legal currency. Governing Bodies: The supreme authority is the foundation council, which conducts the foundation’s business within the intendment of the articles, by-laws and regulations. The founder may designate other bodies as, for example, the auditor, to investigate the activities of the foundation council or limit these activities by means of the rights of protectors, curators or collators to instruct, check or veto. The appointement of an auditor is mandatory for registered foundations with a business conducted in a commercial manner. Beneficiaries: Basically, beneficiaries must be designated in some way (for example, by reference to descent, sex, etc). Please refer to the comments under «General». Submission of Balance Sheet: In so far as the registered foundation undertakes commercial activities or the articles provide for such activities, the annual account, examined by the auditor, must be submitted to the Liechtenstein Tax Administration, Vaduz. Declaration: Voluntarily registered foundations that do not undertake commercial activities and whose purpose as determined in the articles does not provide for such activities are under obligation to declare (please refer to the comments under «General»). The deposited foundation is not required to declare. Taxes: Assets donated by persons domiciled abroad are not subject to the Liechtenstein gift tax. In Liechtenstein, the distribution of beneficial interest to recipients living abroad is neutral with respect to tax. Basically, the capital tax of 0.1% of the foundation fund and the visible reserves (net assets), but at least CHF 1000.– per annum, must be observed. Net assets of CHF 2 million and above are taxed at the rate of 0.75‰ and net assets of CHF 10 million and above at the rate of 0.5‰. There are further comments under «General», heading «Fees and Taxes».


Trust Settlement

The trust settlement is based on the Anglo-American model. This legal instrument may be used in a similar manner to the foundation, its structure, however, is somewhat less hampered, because there is no restriction of purpose as provided for in the foundation law.

The settlor transfers a movable or immovable asset or right (as trust property) to the trustee with the obligation to hold or make use of this as trust property against all others in his own name as an independent legal owner for the benefit of one or more third parties (beneficiaries).

In contrast to the foundation, a juridical person is not involved, but a kind of contractual relationship.

Formation: The participants are:
– The settlor; the contractual relationship (trust deed = act of creation) must be drawn up in writing,
– the trustee(s) (the acceptance of the office must ensue in writing),
– the beneficiary (beneficiaries).

Existence: In particular, the trust comes into existence with the signing of the agreement (trust deed) by settlor and trustee or by means of a trust letter. The optional entry in the Public Register (instead of deposition) does not have a constitutive effect.

Registration or Deposition: In so far it is desired to register in the Public Register the following information must be provided: Date of formation, designation of the trust settlement, duration (may be indefinite), name and domicile of the trustees (not, however, the beneficiaries and the settlor). As an alternative to registration it is possible to deposit the trust deed with the Public Register Office. In this case, the existence of the trust settlement is not evident in any register and inspection is subject to approval of the trustee(s).

Trust Property: There is no stipulation concerning minimum trust property (donation of assets).

Administration: It shall be incumbent upon the trustee(s) to attend to the administration. The trustee shall administer the assets in his own name, with personal responsibility, for the benefit of the beneficiaries.

Beneficiaries: The settlor may be a beneficiary, but the trustee may not be the sole beneficiary.


Strong Growth Of The Financial Center

The Financial Market Authority registered more assets under management and more financial market participants

The Liechtenstein financial center is characterized by continuing growth. In its 2006 Annual Report, the Financial Market Authority (FMA) registered a strong increase in assets under management. The number of financial market players also rose again relative to the preceding year. The FMA expects the growth to continue in the current year as well.

The integrated and independent Financial Market Authority (FMA) began its work on 1 January 2005. According to René H. Melliger, Chairman of the Board, the second business year was shaped by consolidation. The design of the FMA as a lean and client-oriented supervisory authority has proven itself, and the further development of the FMA is on course, Melliger states.

As the FMA Annual Report shows, the Liechtenstein financial center was again characterized by strong growth. The assets under management increased to CHF 219.4 (182.6 in the previous year) billion. Compared with the previous year, the increase was 20.2%. Client assets managed by the banks grew disproportionately, by 26.6% to CHF 173.4 (148.7 in the previous year) billion. The active securities sector showed a growth of 29.1%, considerably higher than the previous year. Investment undertakings held assets in the amount of CHF 26.6 (20.6) billion in numerous funds. Insurance undertakings were able to increase their capital investments to CHF 16.2 (10.2) billion, which represents an increase of 58.8% relative to the previous year.

Also with respect to the financial market participants, 2006 was shaped by growth. In total, the FMA registered an increase of 2.7% to 3,208 financial market actors, of which the focus of growth was largely in the asset management and investment undertaking sectors. The 3,208 players on the Liechtenstein financial market supervised by the FMA in 2006 are broken down into 1,864 (1,815 in the previous year) domestic financial market participants and 1,344 (1,097 in the previous year) companies offering services in Liechtenstein by virtue of free movement of services from abroad. Due to the pending applications and the announced new formations, the FMA expects the growth to continue in the current year.

Because of the consistent supervision of the financial center, the FMA recorded a decrease in cases of abuse in the year 2006. The exposed cases primarily concern persons and undertakings that offered activities on the financial market without the proper license. While 69 cases were registered in 2005, the number of cases of abuse sank to 33 in the reporting year. Administrative assistance granted to foreign authorities was at roughly the same level as in previous years, with 15 requests.

In his presentation of the 2006 Annual Report, Stephan Ochsner, CEO of the FMA, emphasized the increase in regulation. In Ochsner's view, one means of alleviating the impact of the regulatory burden is the transition from a rule-based approach to principle-based regulation. The FMA believes that there is still more room for this variant, which offers more flexibility for the benefit of sensible solutions. According to Stephan Ochsner's explanations, making use of this room requires the willingness of the financial industry and the authorities responsible for legislation and implementation of the EU standards to refrain from the urge to regulate every detail. "If this willingness exists," Ochsner emphasized, "this will lead to an improvement of competitiveness, both for the Liechtenstein financial market and for the European financial market."

Government of Liechtenstein Liechtenstein Bankers’ Association Liechtenstein Investment Fund Association (LAFV) Liechtenstein Association of Professional Trustees

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