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Quick Facts
- Population:
- GDP (PPP):
- $4.5 billion
- -0.5% growth
- $124,485 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Liechtenstein’s overall economic freedom cannot be assessed in the 2013 Index because of a lack of sufficient comparable data. Those facets of economic freedom for which data are available have been individually scored. The country will receive an overall economic freedom score and ranking in future editions as more information becomes available.
Openness to global trade and investment has been the cornerstone of Liechtenstein’s efficient and dynamic economy. A high degree of macroeconomic stability minimizes uncertainty, and a transparent regulatory framework supports the operation of numerous small and medium-sized enterprises, making the economy an attractive place in which to conduct global business. Financial services represent an important economic sector, contributing roughly one-third of GDP. In a move aimed at improving the competitiveness of the financial sector and the economy as a whole, a flat corporate tax rate of 12.5 percent has been in effect since 2011.
Liechtenstein’s vigorous defense of property rights, buttressed by a strong tradition of minimal tolerance for corruption, strongly sustains the foundations of economic freedom and contributes to a high level of prosperity.
Background
Prime Minister Klaus Tschütscher of the center-right Patriotic Union is Liechtenstein’s head of government, but Hans-Adam II, Prince of Liechtenstein and head of state, also wields considerable power. Liechtenstein has a vibrant free-enterprise economy. Low taxes and traditions of strict bank secrecy (now relaxed) 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. The principality’s economy is closely linked to Switzerland, whose currency it shares, and the European Union. Liechtenstein is a member of the European Free Trade Association and the European Economic Area but is not a member of the EU.
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 world’s best 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 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 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 traditionally has been very low. Labor market policies are focused on reducing youth unemployment. Monetary stability is well maintained.
The trade regime is competitive and efficient, with no significant tariff barriers and minimal non-tariff barriers. Foreign investment is welcome, and the overall investment environment encourages dynamic private-sector growth. 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 sensible regulatory regime.