The Principality of Liechtenstein is beautifully situated in the Rhine valley between Switzerland and Austria and is surrounded by impressive mountains. It is easily accessible by helicopter, train or car. The nearest international airports are Zurich (1.25 hours away by car), Basle (2 hours), Stuttgart (2.50 hours), Munich (2.50 hours), Innsbruck (2.50 hours) and Milan (3.50 hours). In addition there is a small but well-equipped international airport at Altenrhein (in Switzerland, close to Lake Constance) which can be reached by car from Liechtenstein in only 30 minutes. The local language is a Swiss-German dialect, although English, French and Italian are widely spoken throughout the business community. There are numerous first-class hotels and restaurants.

'OFFSHORE' CENTRE

Despite its onshore location, Liechtenstein has long been one of the premier 'offshore' centres of the world. It is renowned, in particular, for its strict banking secrecy and the wide choice of different types of offshore vehicle, which at the last count, outnumbered the residents (just over 30,000) by approximately 3:1. Despite its diminutive size (160sqkm) the Principality is one of the world's richest and most industrialised countries. It has been a member of the UN since 1990 and joined the EEA in 1995, having previously been a member of EFTA. Political power in Liechtenstein is shared between the people via a democratically elected parliament and the Prince, who is Head of State and in charge of foreign policy. In this capacity, Prince Hans-Adam II has made it clear to date that Liechtenstein has no aspirations to join the EU.

EEA MEMBERSHIP

Liechtenstein's membership of the EEA has, however, brought with it various changes. In order to comply with EU directives, the Liechtenstein parliament has recently intoduced a new Banking Law and has enacted legislation to promote and regulate the establishment and growth of insurance and re-insurance companies as well as collective investment vehicles. It has also passed a Due Diligence Law by virtue of which banks and fiduciaries are obliged to 'know their customer' and the source of incoming funds, as well as having to notify the authorities of suspected money laundering activity. A government commission is currently considering how best to implement the EU guidelines on company law, although any changes are likely to affect only the company limited by shares and the company with limited liability. This will leave the established 'offshore' vehicles untouched.

'OFFSHORE' LAW

Liechtenstein's established reputation as one of the leading offshore finance centres of the world is based on a law passed by a far-sighted legislature as long ago as 1926. With the exception of an amendment in 1928 which introduced the trust enterprise or trust reg. (a sort of business trust) to the palette of vehicles on offer, the Law on Persons and Companies (Personen- und Gesellschaftsrecht or "PGR") has remained almost unchanged over the decades, evidencing a stability which is also reflected in the constitutional, political and socio-economic spheres.

The most widely used offshore vehicles in Liechtenstein are the foundation (Stiftung) and the trust (Treuhaenderschaft), followed by the establishment (Anstalt) and the trust reg. (Treuunternehmen).

FOUNDATION

The foundation is a legal entity consisting of assets that have been set aside and dedicated for a specific purpose, most commonly for the benefit of the members of a particular family. Such 'family foundations' acquire legal personality immediately upon formation and no registration is necessary with the Public Registry. A copy of the foundation deed is lodged with the authorities but this contains only a general description of the foundation's purpose. The detailed provisions as to beneficial ownership are usually set out in by-laws that remain strictly confidential. The foundation does not have shareholders or members: instead, there are transferable 'founder's rights' which, for example, give the holder the right to amend the by-laws or terminate the foundation. A foundation may only carry on commercial activities to the extent that these are necessary for attaining its non-commercial purpose. The minimum capital required to form a foundation is CHF30,000.

TRUSTS

The Liechtenstein trust is unique in continental Europe as a common-law institution that has been successfully integrated into a civil-law system. Although very similar, it is however, not identical to the trust as it is known in common-law jurisdictions such as the UK or the US. Primarily, there are quasi-contractual features (eg, the settlor is given certain rights and duties), although these can be over-ridden by the terms of the trust instrument. There is no rule against perpetuities and trusts can therefore be formed for an indefinite period. Furthermore, it is possible to set up trusts for a purpose, something that is not possible under English law. Trusts have no legal personality, the trust assets being transferred to a trustee to be held in the trustee's name for the benefit of the beneficiaries. There is no minimum capital requirement for a trust. Being a civil law country, Liechtenstein itself has forced heirship provisions in its laws that do, however, stipulate specific limitation periods after which transfers can no longer be set aside. Furthermore, Liechtenstein law expressly provides that it is possible to stipulate in a Liechtenstein trust deed that the interest of a beneficiary under the trust is not available to satisfy the claims of that beneficiary's creditors.

ESTABLISHMENT

The 'offshore' establishment is also unique to Liechtenstein. It is a special-purpose company with separate legal personality that can carry on commercial activities. If its capital is divided into shares the minimum capital is CHF50,000 but if the establishment is organised in the same way as a foundation the minimum is only CHF30,000. In the latter case, there are founder's rights that can be transferred, giving the holder for the time being the ultimate power in relation to the establishment.

TRUST REG.

The trust reg. or trust enterprise can be formed with or without legal personality. The more common form is the separate legal entity. As such, the supreme organ is usually the trustor (ie founder) whilst the board of trustees carries out the day to day executive functions. The trust enterprise can carry on commercial activity. If its capital is split into shares, the minimum is CHF50,000 otherwise the minimum capital is CHF30,000.

CHOICE OF VEHICLE

The decision as to which vehicle to use will depend inter alia on the purpose for which it is intended, as well as the personal preferences of the particular client and his or her advisors. Experience shows that a UK resident is likely to opt for the trust since it is a concept with which he or she will be familiar and which is known to and accepted by the Inland Revenue. A German national is more likely to be familiar with the foundation that will therefore be his or her vehicle of choice.

There are manifold reasons why high net worth individuals are advised or decide to establish an offshore structure. First and foremost amongst these is legitimate tax planning, followed by or in conjunction with estate planning (regulating succession issues), family maintenance, property holding, and asset protection. Liechtenstein trustees and fiduciaries are well versed in advising and assisting clients from all parts of the globe in finding and maintaining a structure that suits their needs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article also appears in the 'International Offshore and Financial Centres Handbook 1999/2000'. For further information about this highly informative guide to offshore centres, or to order your copy, please phone +44 (0) 207 820 7733 or send an email to iofch@mondaq.com