Liechtenstein: not for emigrating to – but for structuring

Anyone who spends time on international structuring inevitably runs into Liechtenstein sooner or later.

Low corporate taxes, a highly developed financial centre, political stability and one of the most interesting company and foundation laws in Europe make the small Principality look, at first glance, like a downright ideal location for entrepreneurs and high-net-worth individuals.

There is just one catch:

You cannot simply move there.

And that is precisely why Liechtenstein occupies a special position in our country series.

Liechtenstein belongs to the European Economic Area.

Anyone who concludes from this that a German or Austrian national could, thanks to European freedom of movement, simply relocate their residence to Vaduz or Schaan, overlooks one crucial peculiarity.

Owing to its particular geographic and demographic situation, Liechtenstein maintains special rules governing immigration.

Residence permits are subject to quotas.

This applies even to nationals of the EEA. For Swiss nationals, separate rules apply in turn.

The consequence can be observed every working day:

People drive each morning from Switzerland or from Vorarlberg across the border into Liechtenstein, work there in banks, industrial companies, law firms or their own businesses – and drive back again in the evening.

The cross-border commuter model is not a stopgap; it is a fixed feature of the Principality's economic reality.

This produces an unusual situation:

You can work in Liechtenstein.

You can found or own a company there.

You can structure assets there.

But none of that entails any entitlement to actually live there.

For international structuring purposes, a country need not necessarily be the place where you actually live.

This is precisely where Liechtenstein's real significance begins.

The Principality has legal forms that in some respects go well beyond what one is familiar with from Germany, Austria or Switzerland.

Three of these are especially relevant to our purposes:

the stock corporation (Aktiengesellschaft, AG),

the Anstalt (establishment),

and the foundation.

They can hold similar assets and, in some respects, take on similar tasks.

Legally, however, they pursue very different concepts.

And it is precisely these differences that determine which instrument is suited to which purpose.

Of the three constructs, the Liechtenstein stock corporation is the one whose basic principle will be most familiar to entrepreneurs.

It is a legal person.

Its capital is divided into shares.

The shareholders hold interests in the company, while the company's assets are generally liable for its obligations.

Under the Persons and Companies Act (PGR), the statutory minimum capital is CHF 50,000, or the equivalent amount in euros or US dollars.

The AG may pursue commercial as well as non-commercial purposes, making it particularly suitable for operating businesses, holding companies and shareholding structures.

Its real distinctiveness therefore lies less in the legal form itself.

What is interesting, rather, is the environment in which it is deployed:

an established financial centre,

an internationally oriented company law,

Liechtenstein's integration into the EEA,

and a standard corporate income tax rate for legal persons of, in principle, 12.5 percent.

Anyone who looks solely at that tax rate, however, is again only seeing part of the picture.

Because with international structures, the taxation of the company alone never determines how the overall structure is treated for tax purposes.

Considerably less familiar is the Liechtenstein Anstalt.

The name initially leads German-speaking readers in the wrong direction altogether.

It has nothing to do with a public-law "Anstalt" in the German or Austrian sense.

The Liechtenstein Anstalt is an independent legal person.

And it has one particular feature that makes it unusually flexible by international standards:

depending on its specific structuring, it can combine corporate-like and foundation-like elements.

In a classic Anstalt, founder's rights (Gründerrechte) may exist. Their holder possesses the corresponding powers as set out in the statutes.

Alongside this, constructions are possible in which beneficiaries are designated, or the arrangement more closely resembles a foundation.

An Anstalt can pursue commercial as well as non-commercial purposes.

It can, for example, hold shareholdings, manage assets, or – with the appropriate structuring – engage in commercial activity.

The minimum capital is, in principle, CHF 30,000, or the equivalent amount in euros or US dollars.

Where the Anstalt's capital is divided into shares, the minimum capital is 50,000.

This very flexibility explains why the Anstalt can sometimes be hard to classify outside Liechtenstein.

And that is at once its advantage and its risk.

Because for an international structure it is not enough to ask how Liechtenstein treats the Anstalt.

At least as important is the question:

How does the state in which the founder, holder or beneficiaries are tax resident classify this construct?

The Liechtenstein foundation follows yet another concept again.

It is not a company with shareholders or members.

The founder dedicates assets to a specified purpose.

These assets become legally independent and are held by the foundation as its own separate legal person.

The minimum capital is CHF 30,000, or the equivalent amount in euros or US dollars.

The foundation's assets are, in principle, liable for the foundation's obligations.

The conceptual difference from the stock corporation is fundamental:

A shareholder owns shares in their AG.

A founder, by contrast, owns no shares in their foundation.

The assets were dedicated to the foundation.

This opens up structuring possibilities for which an ordinary capital company is frequently not the right instrument.

It can pool family wealth over the long term.

It can define beneficiaries and classes of beneficiaries.

It can institutionalise succession arrangements.

And it can prevent a wealth structure built up over decades from inevitably having to be redivided at every generational transition.

That is precisely why foundations play an important role especially for larger family fortunes and long-term succession planning.

In connection with foundations, the buzzword "asset protection" quickly comes up.

That is not fundamentally wrong.

It is simply, and frequently, misunderstood.

Anyone who, in good time and in a legally effective manner, removes assets from their personal ownership and transfers them into a long-term structure changes their legal allocation.

This can have significant effects on succession, governance and the continuity of wealth.

What it does not mean, however, is this:

Set up a foundation today, and tomorrow creditors, forced heirs or other claimants are powerless.

In cross-border structures, rights of avoidance, creditor protection, forced-heirship law, inheritance law and tax rules of several states can all become relevant.

Arrangements become particularly problematic, as a rule, when assets are transferred only after claims have already arisen or become concretely foreseeable.

To this day, Liechtenstein is associated with an image that belongs to another era.

Numbered accounts.

Anonymous foundations.

Assets whose very existence is unknown to anyone outside Vaduz.

That Liechtenstein no longer exists.

The Principality participates in international automatic exchange of information and implements the relevant OECD standards.

Depending on classification and the facts of the case, information on beneficial owners or controlling persons can become relevant for the corresponding structures.

For a foundation, this can include, for example, the founder, members of the foundation council, protectors or beneficiaries.

This does not mean that all the information relating to a private Liechtenstein wealth structure is publicly available on the internet.

There is a considerable difference between public disclosure and access by authorities.

But that is precisely why a clean distinction must be drawn between two concepts:

privacy

and concealment from tax authorities.

This distinction shows up particularly clearly in the case of private-benefit foundations.

A typical private-benefit Liechtenstein foundation need not, in every case, be publicly entered in the commercial register the way an ordinary capital company is.

Under the statutory conditions, a deposit with the Office of Justice (Amt für Justiz) can be made instead.

This can allow for a considerable degree of corporate-law discretion.

It does not follow, however, that the foundation exists outside regulatory or tax transparency obligations.

Commercial-register publicity, the determination of beneficial owners, and international tax information exchange are different levels altogether.

Anyone who conflates them inevitably arrives at the wrong conclusions.

At the latest by this point, conversations about Liechtenstein tend to produce a particular figure:

1,800 Swiss francs.

It belongs to the Private Asset Structure, or PVS for short (Privatvermögensstruktur).

And here, too, a closer look is worthwhile.

Under the Tax Act, legal persons in Liechtenstein are in principle subject to a corporate income tax of 12.5 percent as well as a statutory minimum income tax.

Certain legal persons, however, can qualify as a Private Asset Structure under the statutory requirements.

Such a PVS is not subject to regular corporate income taxation, but in principle merely to the minimum income tax of CHF 1,800.

That sounds spectacular.

So are the requirements.

A PVS specifically may not engage in commercial activity at will.

Its purpose lies essentially in the acquisition, holding, management and disposal of certain assets for private wealth interests.

This can include, in particular, financial instruments, shareholdings, liquid funds and bank balances.

In the case of shareholdings, additional limits apply regarding actual control over and influence on the management of the investee company.

This defeats one of the most popular shorthand formulas:

"I'll pack my operating company into a Liechtenstein entity and pay only 1,800 francs there."

That is not how the PVS works.

One further conceptual distinction matters here.

The PVS is not a fourth legal form alongside the AG, the Anstalt and the foundation.

It describes a tax qualification.

Under the statutory requirements, a suitable legal person can be granted the corresponding status.

The examination must therefore proceed in the correct order:

First comes the question of which legal form suits the economic and legal purpose.

Only after that comes the question of how this particular structure is treated for tax purposes and whether it meets the requirements for PVS status.

Anyone who reverses that order and sets up a structure purely because the figure of 1,800 francs appears somewhere is starting their planning at the wrong end.

Take a Liechtenstein foundation that, as a PVS, pays only the minimum income tax.

Does that make the assets of the founder or the beneficiaries tax-free?

No.

Liechtenstein's taxation initially answers only a single question:

How does Liechtenstein treat the Liechtenstein structure?

For international planning, further questions arise.

Where does the founder live?

Where do the beneficiaries live?

To whom are the assets and income attributed under the tax law of those states?

How are distributions treated?

Do gift or inheritance tax consequences arise?

How does the respective state of residence classify the Liechtenstein legal form in the first place?

A construct can be entirely proper and tax-attractive in Liechtenstein and still trigger substantial tax consequences for the founder or beneficiary at home.

Liechtenstein today has a considerably expanded network of double taxation treaties and international tax agreements.

This makes today's financial centre fundamentally different from its historical image as an isolated European special case.

A double taxation treaty, however, is no substitute for structuring.

It must first be established which person or company is entitled to treaty benefits at all, where tax residence lies, how particular income is characterised, and which national anti-abuse or attribution rules additionally apply.

The treaty is therefore a building block.

Not a free pass.

The three instruments can be reduced to their basic ideas:

The table is deliberately not a ranking.

None of these legal forms is fundamentally "better" than the others.

They answer different questions.

This is perhaps the most important insight for any international structuring exercise.

A foundation does not make sense simply because someone has a great deal of wealth.

An Anstalt does not make sense simply because it sounds more exotic than a GmbH.

And a Liechtenstein AG is not automatically better than a company in another state merely because Liechtenstein levies 12.5 percent corporate income tax.

The question at the outset should therefore never be:

"How do I get myself a Liechtenstein foundation?"

But rather:

What is actually meant to be achieved?

Is an operating business to be run?

Is it about succession?

About long-term continuity of wealth?

About governance within a family?

About separating different pools of assets?

About private capital investment?

Only once that question has been answered can one judge whether the AG, the Anstalt, the foundation – or Liechtenstein at all – can be the right answer.

With that, our look at Liechtenstein ends at a different point than most countries in our location series.

We cannot, in good conscience, say:

Move to Liechtenstein.

For the overwhelming majority of our readers, that option is practically not available at all.

That does not, however, make the Principality any less relevant.

Quite the opposite.

Liechtenstein demonstrates, by example, that international structuring does not necessarily mean constantly hunting for new places to live.

One's personal centre of life can lie in one state.

An operating business in another.

Shareholdings can in turn be structured differently again.

And long-term family wealth can follow a legal order all of its own.

What matters is not combining as many countries as possible.

What matters is finding the appropriate legal framework for each function.

The Principality is not selling an easy route to a new tax residence.

It offers something else:

an exceptionally developed body of company and foundation law for people who already know where they live – and now need to decide how to structure their businesses, shareholdings and wealth.