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Liechtenstein’s economic freedom cannot be fully assessed in the 2012 Index of Economic Freedom because of a lack of sufficient comparable data. The country will receive an economic freedom score and ranking in future editions as information becomes available.
Flexibility and openness to global commerce have been the cornerstones of Liechtenstein’s modern and efficient economy. The country’s vigorous defense of property rights, coupled with a strong tradition of minimum tolerance for corruption, strongly sustains the foundations of economic freedom and keeps the dynamic economy competitive.
Liechtenstein’s stable macroeconomic and regulatory environments have contributed to its status as an attractive place in which to conduct business. Moderate tax rates and a well-maintained monetary framework promote vibrant entrepreneurial activity. The parliament has adopted tax code changes that further improve the competitiveness of the financial sector and the economy as a whole. Under the reform, a flat corporate tax rate of 12.5 percent has been in effect since January 2011.
Background
The principality of Liechtenstein occupies about 60 square miles between Switzerland and Austria. Its high living standards are based on a vibrant free-enterprise economy with a stable financial sector. Low taxes and traditions (now relaxed) of strict bank secrecy have contributed significantly to the ability of financial institutions to attract funds. However, the worldwide financial crisis led to a sharp contraction in the banking sector. In 2009, the Organisation for Economic Co-operation and Development removed Liechtenstein from its list of uncooperative tax havens. Liechtenstein’s economy is closely linked to Switzerland, whose currency it shares, and the European Union. Nearly two-thirds of its approximately 36,000 jobs are filled by commuters from Switzerland, Austria, and Germany. Liechtenstein is a member of the European Free Trade Association and the European Economic Area.
The legal framework is well institutionalized and modern, and the judiciary is independent. Property rights and contracts are secure. Intellectual property laws are based on Switzerland’s IPR protection regimes, which are among the best in the world for both foreign and domestic rights holders. Most foreigners have the same rights as Liechtenstein nationals when purchasing real property. Corruption is perceived as minimal.
Liechtenstein has a competitive tax system and imposes relatively low taxes on nationals and non-nationals. Under the tax reform act that became effective in January 2011, the tax system has become more modern and attractive. The corporate tax rate is now a flat 12.5 percent, and the capital gains, inheritance, and gift taxes have been abolished. Although the fiscal system lacks some transparency, government fiscal management has been relatively sound.
The overall freedom to conduct a business is well protected under the efficient and transparent regulatory environment. Establishing a business is fairly easy. Administrative procedures are straightforward and applied consistently. The labor market is dynamic, and unemployment has traditionally been very low. Labor market policies have been focused on reducing youth unemployment. Monetary stability has been well maintained.
The trade regime is competitive and efficient, with a zero tariff rate and minimal non-tariff barriers. Foreign investment is welcome, and the overall investment environment encourages dynamic growth in the private sector. There are no restrictions on repatriation of profits or currency transfers. Liechtenstein is a major financial center, particularly in private banking. The banking sector remains stable under a prudent regulatory regime.