From Agricultural Roots to an Export-Oriented Manufacturing Sector and a Financial Center in Economic History
For centuries, Liechtenstein was a small, isolated country whose economy was based on its small agricultural sector and limited textile manufacture. Following WWII, however, Liechtenstein transformed itself from a largely agricultural state to a highly developed, export-oriented industrial nation with manufacturing as its primary industry.
Many Liechtenstein enterprises have risen to become leaders in their sectors over the last 75 years. This was accomplished with very little government assistance, as Liechtenstein has no economic sectors that receive government subsidies other than agriculture.
Liechtenstein has also experienced economic integration with Switzerland since 1923, thanks to a customs union. Furthermore, Liechtenstein’s economy has benefited enormously from its regional and global integration as a result of membership in multilateral organizations such as the European Free Trade Associations (EFTA), the European Economic Area (EEA), and the World Trade Organization (WTO).
Industry
Although Liechtenstein is best recognized for its financial hub, manufacturing is the largest contributor to the country’s GDP. Industry contributes 45.8% of the country’s gross domestic product (GDP).
Machine and tool engineering, plant building, precision instruments, and the dentistry and food sectors are the most important branches of Liechtenstein’s export-oriented industrial sector. Companies have shifted their attention away from mass-market and low-cost products and toward generating high-tech, high-quality products in all of these areas.
What accounts for Liechtenstein’s high GDP per capita?
The tiny nation of Liechtenstein was ravaged by two world wars and spent much of the first part of the twentieth century in dire financial straits. Because the European country’s economy was primarily based on agriculture, its ruling family was obliged to sell off its Old Master paintings to the highest bidder.
Now, Liechtenstein, which is celebrating the 300th anniversary of its founding today (Jan. 23), is thriving. The country is the world’s richest country per capita, thanks to a corporate tax rate of 12.5 percent, which is among the lowest on the continent, and lax incorporation regulations, which have led to many holding firms establishing offices in Vaduz, the country’s capital.
Liechtenstein is a tax shelter for a reason.
Hundreds of thousands of euros belonging to German people were funneled into the LGT Bank and other banks in Liechtenstein, using Liechtenstein-based trusts to avoid paying taxes in Germany. These trusts were “clearly founded primarily to escape paying taxes,” according to the prosecutor’s office. Such trusts, according to Liechtenstein law, allow the separation of monetary assets from their owners while remaining anonymous. Liechtenstein trusts, unlike those in most other nations, can be cancelled at any moment and the assets restored to the owner. Furthermore, such trusts and the shell businesses they maintain are only charged 0.1 percent (minimum 1,000 Swiss francs) every year. As a result, Liechtenstein is recognized as a tax haven.
Is Liechtenstein a wealthy nation?
Only Monaco, the lavishly affluent city-state on the French Riviera, has a higher GDP per capita than it, with a per capita GDP of $166,726 and an estimated one-third of the population being millionaires.
Liechtenstein’s financial services industry is thriving, while the country’s other important businesses include electronics, metal fabrication, dental items, optical equipment, and pharmaceuticals.
What is Liechtenstein’s most important export?
Metal by-products accounted for 22% of total exports, followed by equipment, apparatus, and electronics (22%), precision instruments, watches, and jewelry (12%), vehicles (11%), pharmaceutical and chemical products (10%), and precious metals, jewels and gemstones (10%). (8 percent).
What is Liechtenstein’s per capita income?
It is regarded as a crucial indication of a country’s economic strength, with a positive change indicating economic growth. Liechtenstein’s GDP per capita was predicted to be around 175,813.9 US dollars in 2019.
What is Liechtenstein’s most famous feature?
The Principality of Liechtenstein, a tiny autonomous state nestled between Switzerland and Austria, is one of Europe’s most beautiful Alpine countries. Despite its small area of 160 square kilometers and population of only 38,000 people, Liechtenstein is an economic powerhouse because to its favorable tax regulations.
It is also the world’s most industrialized country (despite its forested hillsides and Alpine meadows would have you believe otherwise). It has been inhabited since the Early Stone Age and was important during Roman times until becoming the Imperial Principality of Liechtenstein in 1719 and being fully autonomous in 1806.
Because of its beautiful mountain backdrop, the country is now a famous tourist destination. The numerous great hiking trails (check out the routes around Falknis and Naafkopf, two of the country’s highest peaks), as well as the numerous ski and winter activities, are also important draws.
It’s simple to see why Liechtenstein is one of the best places to visit in Europe when you consider its many spectacular points of interest and tourist attractions, such as museums, galleries, and castles.
With this list of the top tourist sites in Liechtenstein, you can discover the best sightseeing options in this little country.
Due to recent global health and safety challenges, certain businesses may be temporarily shuttered.
Is Liechtenstein considered developed?
Liechtenstein has grown into a successful, highly industrialized, free-enterprise economy with a key financial services industry and one of the highest per capita income levels in the world, despite its tiny size and lack of natural resources. The economy of Liechtenstein is diverse, with a considerable number of small and medium-sized firms, especially in the services sector. Low business taxes (a flat rate of 12.5 percent on income) and simple formation regulations have prompted numerous holding corporations to create nominal offices in Liechtenstein, which provide 30 percent tax relief.
Why is Liechtenstein not a member of the European Union?
Liechtenstein is not a member of the European Union, despite its location in the heart of Europe. However, through a number of other supranational accords and organisations, the affluent micro-state maintains tight links with its European neighbors. We’ll look at these various accords and what they mean for conducting business in and with Liechtenstein in this blog.
The European Free Trade Association (EFTA)
This trade group of geographically European countries that are not members of the European Union consists of Liechtenstein, Iceland, Norway, and Switzerland. In addition to the European Union, the association has negotiated 25 free trade agreements with additional countries and customs unions.
The European Economic Area
The European Economic Area governs the relationship between the EU and EFTA (excluding Switzerland). Despite its separation from the EU, Liechtenstein, along with Norway and Iceland, is a member of the European single market. As a result, cross-border transfers of goods and services between Liechtenstein and the European Economic Area are as straightforward and inexpensive as intra-EU transactions.
The Schengen Area
Liechtenstein entered the Schengen Area as part of its EEA membership. The Schengen countries enable citizens of any nationality to freely travel across their borders for up to 90 days every six months. This means that anyone can travel to Liechtenstein for up to 90 days without requiring a separate visa from another Schengen nation. Because the Principality does not issue its own visas, we recommend that you obtain a Schengen visa from a neighboring nation such as Austria or Switzerland before visiting.
Liechtenstein’s connection with European institutions resembles that of Norway the most (Wikimedia Commons)
Is Liechtenstein a good place to start a European business?
Liechtenstein benefits from reduced obstacles to exchanging products and services with the EU as an EEA member. Because it is not a member of the EU, it is not subject to EU tax controls. This means the corporation tax rate is only 12.5 percent, while the VAT rate is merely 8%.
Liechtenstein, on the other hand, is not a member of the VAT Information Exchange System because it is not a member of the European Union (VIES). This makes charging VAT in business-to-business transactions more difficult, as commerce with EU businesses may not be zero-rated in the same way that trade between EU companies is. For more information on how VAT works in the EU, see our article on EU directives.
There are other practical reasons to avoid establishing a commercial firm in Liechtenstein as your European headquarters. The restricted population from which to pull labor (Liechtenstein having less than 40,000 citizens) is one of them, and this scarcity, combined with their high education and skill levels, makes hiring staff in Liechtenstein expensive. Staff from neighboring countries may be hired, but they will need cross-border commuting licenses and will come from countries with similar high income levels, such as Switzerland and Austria. Because the Principality lacks an airport, international transportation is similarly limited.
Additionally, prior clearance from Liechtenstein’s government is required before forming a firm, and the company’s managing director must be able to communicate in German. Unless direct access to the Liechtenstein market is critical to your firm, there are certainly better European jurisdictions to establish a commercial corporation in. For your European headquarters, we propose businesses in Ireland and the United Kingdom, and Luxembourg is a wonderful jurisdiction for holding companies.
Why might you set up a legal entity in Liechtenstein?
Although Liechtenstein may not be the finest site in Europe to set up a business, it offers a fantastic set of rules for trusts, foundations, and other asset management vehicles. Because of the repeal of inheritance and gift taxes, foundations have become popular for managing a family’s fortune for future generations. Instead, capital contributions are taxed at a rate of 0.2 percent at the time of incorporation. Another tax-efficient vehicle for holding or investing in assets is the “establishment.”
On our website, we offer a comparison of several types of entities in Liechtenstein; click the link to discover more about foundations, establishments, and commercial corporations.