Liechtenstein has a vibrant free-enterprise economy that is closely linked to Switzerland, whose currency it shares, and the European Union. Liechtenstein is a member of the European Free Trade Association, the Schengen Area, and the European Economic Area, but the lack of readily available comparable statistics precludes ranking of its economy.
Flexibility and openness to global commerce have been the cornerstones of Liechtenstein’s modern and diversified economy. Minimal barriers to trade and investment foster vibrant economic activity, and a straightforward, transparent, and streamlined regulatory system supports an innovative entrepreneurial sector. Banking has benefited from Liechtenstein’s high levels of political and social stability and its sound and transparent judicial system.
Prince of Liechtenstein Hans-Adam II is head of state, but his son Prince Alois wields considerable power as regent. The center-right Progressive Citizens’ Party won the March 2013 parliamentary elections, and Prime Minister Adrian Hasler heads the government. Traditions of strict bank secrecy have helped financial institutions to attract funds, but the global financial crisis has led to a contraction in the banking sector. In 2009, the Organisation for Economic Co-operation and Development removed Liechtenstein from its list of uncooperative tax havens. In October 2015, Liechtenstein and the EU signed an agreement allowing for the automatic exchange of financial account information.
Property rights and contracts are secure. The judiciary is independent and impartial despite the appointment of judges by the hereditary monarch. Politics and society are largely free of corruption. Although Liechtenstein is a leading offshore tax haven and traditionally has maintained tight bank secrecy laws, the government has made efforts in recent years to increase transparency in banking.
Liechtenstein imposes relatively low taxes on both nationals and non-nationals. The tax reform law that became effective in January 2011 has made the tax system more modern and attractive. The corporate tax rate is now a flat 12.5 percent, and capital gains, inheritance, and gift taxes have been abolished. Although the fiscal system lacks transparency, government fiscal management has been relatively sound.
Establishing a business is fairly easy. Administrative procedures are straightforward, and regulations affecting business are transparent and applied consistently. Traditionally, unemployment has been very low. In recent years, labor market policies have focused on reducing youth unemployment. Liechtenstein has a de facto monetary union with Switzerland but no say with respect to the Swiss National Bank’s monetary policies.
Trade is extremely important to Liechtenstein’s economy; the value of exports and imports taken together equals 122.5 percent of GDP. The average applied tariff rate is 0.0 percent. In general, foreign and domestic investors are treated equally, but foreign ownership of land is restricted. Liechtenstein is a major financial center, particularly in private banking.