As Member State of the EEA since May 1995 Liechtenstein has to take over the EU Directives into its own law, the completion of which is on good progress. Liechtenstein like Switzerland, Austria and Luxembourg takes pride in its privacy laws which have existed since the beginning of last century and which will not be affected by those EU Directives relevant for Liechtenstein.
The new Liechtenstein law on due diligence enacted on 1 January 2001 has already included most of the provisions of the EU Directive on money laundering to become effective as at 15 June 2003 (for the trust business all provisions have been included). In the financial area, supervision in Liechtenstein is based on laws that are much stricter than in other EU countries today. Contact between Liechtenstein financial intermediaries with foreign clients requires in-depth explanations of their financial situation and activities; client profiles have to be drawn up and monitored. Suspicious transactions have to be reported to the competent supervisory authority. Nevertheless, there exists no legal requirement to disclose the ultimate beneficiary to any authority outside of the well defined law on due diligence (money laundering). Cooperation in criminal matters only follows according to the penal code and legal assistance act in criminal matters between the contracting states. Liechtenstein does not know an information exchange system with foreign states or foreign authorities on tax matters. A foreign request on disclosure or legal assistance in connection with criminal matters has to go through the court.
Company forms affected by the EU harmonization process
With effect as at 1 January 2001 the Liechtenstein law on Persons and Companies (PGR) has been harmonized with the 1st and 4th EU Directive. Consequently, valuation of assets and liabilities and the balance sheet and profit and loss account layouts have been regulated in much more detail than in the past.
The following company forms are affected by amendments in the PGR: Company Limited by Shares (Aktiengesellschaft; AG), Private Company Limited (Gesellschaft mit beschränkter Haftung; GmbH); Limited Partnership with a Share Capital (Kommandit-Aktiengesellschaft); in addition, General Partnership (Kollektivgesellschaft) and Limited Partnership (Kommanditgesellschaft), subject to comprising shareholders of unlimited liability in one of the types of companies referred to above.
In contrast to these so-called EU harmonized companies, the Establishment (Anstalt), the Trust reg. (Treuunternehmen) and the Foundation (Stiftung) will not be affected by the EU Directives.
In compliance with the new PGR regulations, business reports will have to be prepared for the first time for the financial year of January 1, 2002, to December 31, 2002 (subject to the financial year coinciding with the calendar year). As a new feature, previous year's figures will have to be listed in the balance sheet and profit and loss account.
Constitution, registration/deposit of Foundations
The formation of a Foundation takes the form of a deed on which the signatures of the founders are certified, by testamentary disposition or by deed of inheritance (Art. 555 al. 1 PGR code).
The constitution is based on:
- the will to establish a Foundation with legal personality.
- the endowment of property specified (at least CHF 30'000.00 according to Art. 122 al. 1 PGR code).
- the specified purpose.
The Foundation deed or the articles (statutes) must contain the name and domicile of the Foundation, its purpose or objective, the designation of the Foundation council members and the method for appointing another Foundation council as well as a provision concerning the application of the assets in the event of the dissolution of the Foundation (Art. 555 al. 2 PGR code). The amount of the Foundation fund is normally stipulated in the statutes. The Foundation deed can be a separate document or be integrated into the statutes.
According to Art. 557 al. 2 PGR code, Ecclesiastical Foundations, pure and mixed Family Foundations and Foundations whose entitled beneficiaries are specifically designated or definable (a family to be named as potential beneficiaries is sufficient) acquire legal personality without being entered in the Public Register. This provision is important for non Family Foundations who may have no definable beneficiaries: Non-profit Foundations (Foundations in the public interest; purpose Foundations) without defined beneficiaries must register in order they acquire legal personality.
Foundations which acquire legal personality without registration in the Public Register must only deposit the Foundation deed as well as the articles with the Public Register. The deposit of the foundation deed is a regulatory requirement in order the authority can fullfill its supervisory obligations (Art. 554 PGR code), however, failure to deposit will not invalidate the constitution of the Foundation.
An obligation to register exists for those Foundations which, for the attainment of their non-economic purpose, pursue a trade conducted in a commercial manner or if the nature and scope of the participations held involve a commercial operation.
The Liechtenstein trustee will take care that the decision taking and management and control takes place in Liechtenstein in order to fulfil the founder's and beneficiaries' wishes the legally separate the assets from themselves (asset protection).
Setting up a Trust (Settlement)
According to Art. 899 al. 1 PGR a Trust becomes existent by a written agreement between the settlor and trustee. If the establishment ensues by virtue of a unilateral declaration by the settlor (Art. 899 al. 2 PGR), the Trust will only exist upon the written declaration of acceptance by the trustee. The relationship must be declared as a "Trust".
More precisely, there are two legal requirements for setting up the Trust, i.e.
- the legal establishment (the duty of commitment) which follows by written agreement, unilateral declaration of trust (trust letter) or disposal upon death;
- the transfer of the trust assets to the trustee (the duty of disposal). The trustee should make sure that the trust property is vested in him or under his control.
The trust deed should as far as possible contain:
- the detailed description of the beneficial interest, the possible distributions and their time;
- the powers reserved to the settlor or the beneficiaries;
- the authority of the trustee to administer and distribute;
- provisions relating to the appointment and removal of the trustee (the right to remove implies the right to appoint);
- the trustee's duty to submit accounts or his release from this duty;
- the termination of the Trust and its amendment;
- the possible transfer of the trust property to other Trusts or abroad (any Trust may be migrated into our out of Liechtenstein if so foreseen in the other jurisdiction), but any flee clause should be drafted very carefully;
- the subordination or non-subordination to a supervisory authority and the determination as to whether the Trust shall be entered or deposited.
Any Trust the duration of which exceeds 12 months may either be registered or deposited (the trust deed must be deposited with the Public Register). In case of registration, the following data must be disclosed:
- the designation of the Trust;
- the date of creation of the Trust;
- the duration of the Trust (no rules against perpetuity);
- the name, first names and address or firm and domicile of at least the Liechtenstein trustee.
Possible protectors and also the audit body need not be registered.
In case of deposition, the deposited documents, i.e. the original trust deed and all the amendments, are not accessible to the public, but to the participants, in particular, under certain preconditions, to the beneficiaries.
Where property of a trust is registered in other Public Registers, such as the Land Register, the Patent Register or similar and the Trust itself is entered in these Public Registers, the Registrar may agree to waive an additional entry of the Trust in the Public Register (Art. 901 PGR).
An extract from the register which is only available for registered Trusts can be helpful to prove the Trust's existence to third parties (e.g. banks) without having to produce the trust deed itself.
Management of a company from within Liechtenstein
Taking into account the purpose for setting up a legal structure, the companies may be classified for simplification purposes as follows (and a certain formally different treatment relates to this classification):
- locally active companies and business (production, sale, import for local use, warehouse) with business licence (Gewerbeschein)
- financial institutions like banks, insurance companies and mutual funds
- holding companies
- trading offshore companies (domiciliary companies)
- Foundations and Trusts
Only the last two classes of legal entities have access to additional privileges if the trade is not done in Liechtenstein, e.g. no special business licence required in Liechtenstein, no proof of product knowledge, special tax treatment. For Foundations and Trusts the privileges are available if the founders/settlors and beneficiaries do not live in Liechtenstein. However, there are some products/services where even offshore companies will be regulated like local trading companies, e.g. banking, insurance, medical field.
The above classification shows that Liechtenstein does basically not offer privileges to financial institutions, insurance companies, mutual funds or holding companies. All these entities are treated in the same way regardless of where the business is done. Real differences depend on the business plan and the effective activity of such entities.
Liechtenstein has implemented the EU Directives on banks, insurance and mutual funds in its own law.
Regardless of the above classification it makes sense that the central decision taking and place of management and control is at the same place where the company is registered. Therefore there will hardly be found a Liechtenstein company where at least one qualifying member of the board of directors does not have its place of business and domicile in Liechtenstein. The board of directors is the body, which conducts the business within the meaning of the law, statutes, or any regulations. The rights of the board members may be limited through the integration of supervisory bodies, auditors or protectors (for Foundations).
For international holding companies, trading offshore companies (domiciliary companies (Sitzunternehmen)) and Foundations and Trusts the following applies to the sole member of the board of directors:
Any EEA citizen and EEA resident can act as sole member of any legal entity in Liechtenstein. Depending on the class of entity there are special regulations to be considered. Liechtenstein's financial services sector welcomes the attitude of the Court of Justice of the European Communities which strongly supports the free movement of capital and persons and which indirectly helps the international recognition of Liechtenstein entities (see for example EuGH, judgement from 5.11.2002, C-208/00, Ueberseering BV/Nordic Construction Company Baumanagement GmbH (NCC).
At least one member of the board of directors must be a citizen of an EEA (European Economic Area) Member State and have his permanent place of residence in an EEA Member State. A state treaty with Liechtenstein can grant other persons of the respective treaty states the same rights. This sole member must also be authorized to pursue the inland profession of trustee according to the law on trustees. The same authorization applies to citizens of an EEA Member State resident in a EEA Member State (or persons having the same rights due to a state treaty) who possess evidence of a qualification according to art. 2 of the Liechtenstein law on trustees. They have also to be in a at least one year full-time employment in Liechtenstein of a trustee or a trust company and exercise their activities in the context of that employment relationship according to the first sentence in this alinea. Nationals who are not citizens of an EEA Member State or who do not have the same rights according to a state treaty must have a Liechtenstein residence permit.
Therefore, Swiss nationals with a residence permit are treated in the same way as Liechtenstein citizens in respect of access to the profession of trustee, pursuant to the legislation of the cantons on the basis of reciprocal recognition of the laws.
Persons who want to deploy such an activity must notify the Government of such intention. The Government will check if all conditions are met and will issue a confirmation and set up a list of all relevant persons. Changes of conditions have to be announced immediately.
Due to transitional provisions attorneys-at-law, legal agents and auditors who held a relevant licence/admittance before enactment of the revised law in spring 2003, can continue practising.
Tax law in Liechtenstein
Any class of legal entity mentioned before can have the necessary structure and substance in Liechtenstein in order it is internationally recognised. It depends on the local or international activity and the residence of the shareholders and members of the board of directors which additional laws have to complied with in Liechtenstein.
The Liechtenstein tax law does not provide extensive rules for the avoidance of double taxation and there are many situations under which double taxation may occur for which the law does not provide remedies, especially for legal entities. However, the tax administration is often willing to grant relief from Liechtenstein taxes in cases where its residents are subject to tax both in the country of source of the income and in Liechtenstein in a manner which it considers unfair. Besides this, the local taxes have sought to take into account the Liechtenstein competition in the international financial environment.
The Liechtenstein domiciliary and holding companies which are not taxed on their profit, which is normally derived from proceeds outside of Liechtenstein, do not suffer any double taxation as the tax already paid abroad is not further taxed in Liechtenstein.
The ALLGEMEINES TREUUNTERNEHMEN offers a comprehensive range of services relating to the formation of companies and the provision of advice on legal matters such as "family office". Supported by more than 90 members of staff, our team of professionals ensure that clients receive individual attention.
This article does not replace any detailed consultancy before undertaking any steps on the basis of this article.