With today‘s worldwide mobility and the great number of ways to access information quickly, the world has become considerably "smaller", and local and foreign authorities and organizations have more and more means to access the privacy of any individual or corporation.
A distinction is very often made between "common law" countries and "civil law" countries (the latter the case for Liechtenstein). When making a choice, account should be taken (besides the costs) of the following kind of criteria:
- Diversity and simplicity as well as flexibility of organisational structures;
- time needed to constitute an entity and for the subsequent amendments in the articles;
- adequate and swift service during administration;
- nearness to client and an efficient banking system;
- efficient support by the local authorities;
- reliance on a stable political system;
- Are unexpected law changes foreseeable?
- Should and can advantage be taken of double tax treaties?
- possibility of renting local premises and employing staff;
- possibility of migration in and out of the country;
- formalities such as accounting and auditors and filing of (audited and/or abridged) balance sheets (only in terms of tax authorities or also commercial register);
- disclosure of client name to authorities;
- exclusion of fiscal matters in international legal assistance.
Effects of the European Economic Area (EEA)
As from 1st May 1995 Liechtenstein became a member of the EEA. The four basic freedoms engendered in the EEA agreement (free movement of capital, free movement of individuals, free movement of services, free movement of goods) have a natural limitation in small member states such as Liechtenstein. The setting up of domiciled companies is not dependent on EU-directives (European Union), but the establishment of businesses operating in an EEA member state (such as Liechtenstein). Now EU citizens may freely establish and manage these in Liechtenstein and doing business within and from within Liechtenstein, however, at the moment, no natural person from within the EU can just migrate to and live in Liechtenstein, even if employment was secured there or a business could be built up in premises rented or bought. EEA membership does not include EU tax harmonization.
Clients worldwide can choose from a wide range of company structures and each jurisdiction endeavours to meet the client`s needs in the most appropriate way, but high pressure is coming up from European Community Organisations and high taxed countries themselves. High tax countries often do not assess a legal entity by its external legal structure, but by ultimate beneficial rights (the USA and Germany are very resourceful in this regard). The selection of net assets, actual management, and not only tax related decision, directly affects tax recognition. The principle of control and effective management are of great importance.
Liechtenstein's legal entities have been used for over 70 years and may be classified for simplification purposes:
- the Foundation especially for clients from Civil Law jurisdictions;
- the Trust (Settlement) for clients from Common Law jurisdictions;
- the Establishments and Trust reg.
- the Corporations (EU harmonized)
- the Private Company Limited by Shares (EU harmonized)
- the General Partnership and Limited Partnership (so-called LLC or LLP)
All entities benefit from a special low tax if their activity is outside of Liechtenstein or if they only invest and manage their own assets. Such concepts are broadly known in many other jurisdictions like for example in Delaware for the LLCs or for the Trusts in United Kingdom if the settlor and/or beneficiaries are not domiciled in United Kingdom.
Asset protection is a fashionable expression that is used in particular when referring to Foundation/Trust structures, but can be effected in any form for any type of company, depending from which side it be seen.
Investors’ liability is limited to their capital investment. Next in line are the company’s net assets where there is a liability towards the creditors. Board members are generally answerable to creditors and to investors for accepting shareholders’ funds and ensuring proper management. The Liechtenstein legislator attaches great importance to this through principles expressly enshrined in law. A Liechtenstein board of directors must therefore take an active part in managing the business. Powers of attorney in favour of third parties should be limited by time and actual content. Issued share capital must not be repaid to shareholders. This very important responsibility established in many other countries is reflected through recognition of the legal structure in the international context.
The Foundation and the Trust compete with each other internationally. A comparison between the Foundation and the Trust with a result to show an advantage on behalf of the Foundation seems to be artificial and enforced. Both instruments are a good basis for meeting with the clients' demands. The country of domicile of the founder/settlor, the domicile of the beneficiaries and the place of investments (of the Foundation assets held) done by the Foundation or the Trusts rather determines to choose a Foundation or a Trust. Also the foreign qualification of Foundations or Trusts as "corporations" or "trusts" determines their use in the international tax field.
Liechtenstein offers both types of entities which may run bank accounts all over the world, typically in Switzerland, Luxembourg, Liechtenstein or Austria.
The main reasons for setting up such structures are:
- for enhanced anonymity;
- for protection of the assets in general;
- for planning for a period of several generations;
- for protection of separate family members;
- for protection against the claims of creditors (segregation);
- for tax planning.
For more questions you may contact the author of this article.
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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.