Liechtenstein sets out its stall as new model financial centre

It is abandoning its banking secrecy business model, and embracing the new global order of tax information transparency and exchange, while at the same time, making changes to its tax and regulatory framework in an effort to attract new types of business.

Of course, as is the case as well with a number of other jurisdictions that have also re-jigged their business models under pressure from other countries over the last two years, it remains to be seen how successful Liechtenstein will be in finding alternative sources of income to replace that which it is losing with the departure of banking clients keen to remain anonymous.

Still, as Katja Gey, coordinator for international negotiations in financial and tax matters for the Liechtenstein government points out, “not cooperating in tax matters with other countries" was never the only reason individuals and businesses chose to do business in Lichtenstein in the past.

For this reason, she argues, the scale of any exodus of clients is unlikely to be as great as some external commentators have suggested.

“There were and still are a lot of other attractions to Liechtenstein, including the fact that it is a small, efficient and reliable financial centre, with expertise in financial matters and wealth management, including trusts, that has been developed over decades, and probably a lot less bureaucracy than some other, larger countries,” she notes.

Gey also cites the strength of  Liechtenstein’s currency, the Swiss franc – which has been soaring in value recently as investors seek refuge from other currencies. It hit all-time highs against both the euro and the dollar at the end of December.

As for the country’s banks, although small by the standards of some other places, Gey says they are exceptionally sound by modern global standards, due to the conservative investment strategies of their managers and the fact that they are not involved in investment banking. As a result, none failed or had to be bailed out during the recent financial crisis. 

 “In addition, our financial services are regulated in conformity with the regulations of the European Union. Liechtenstein is a member of the European Economic Area, so from Liechtenstein you are able to market various financial and other products throughout the EU.”

Liechtenstein also specialises in a type of trust known as the foundation, which not all of its competitor jurisdictions offer (Jersey recently added them to its mix), and which wealthy people in certain countries are known to prefer.

Many boxes ticked

As the table below reveals, Liechtenstein also ticks many of the boxes that businesses on the move look for – including a relatively central location. (Not that it is particularly easy to get to; it has no airport of its own, for example, with visitors mostly relying on nearby Zurich’s.)

Individual deposits in its banks are covered by the European Union’s new €100,000 maximum depositors’ compensation scheme, while its residents apparently enjoy the highest per capita GDP in the world – although the data for this claim are some years old now.

For all these advantages, though, Liechtenstein has remained a minor player on the global financial services scene. It has never appeared on the twice annual Global Financial Centres Index, for example, which lists 75 cities, including Monaco, Jakarta and even Tallin, Estonia.  

Michael Mainelli, chairman of Z/Yen, the London-based think tank that compiles the GFCI, says the reason is that Liechtenstein “just…doesn’t get mentioned by enough people to make the top 75 [cities].”

It is this lack of awareness that Liechtensteiners are hoping to change. 

For more on Liechtenstein, see the January issue of International Adviser, which features a profile on the country. It may be read and downloaded here.

Sources: Liechtenstein government; CIA World Factbook