Liechtenstein is not graded in the 2018 Index because of the unavailability of relevant comparable statistics on all facets of the economy. Despite its small size and lack of natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital financial service sector and the world’s third-highest per capita income. The country 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.
Flexibility and openness to global commerce have been the cornerstones of Liechtenstein’s modern and widely 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, including the ability to dismiss the government and veto bills. The center-right Progressive Citizens’ Party won a reduced share of the vote in February 2017 parliamentary elections but still won the most seats. Prime Minister Adrian Hasler, in office since 2013, remains head of the government. Traditions of strict bank secrecy have helped financial institutions to attract funds. The banking sector has largely recovered from a contraction caused by the 2008 global financial crisis. Liechtenstein signed an agreement with the EU in 2015 allowing for the automatic exchange of financial account information.
Property rights and contracts are secure. Despite the appointment of judges by the hereditary monarch, the judiciary is independent and impartial. 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. The number of individuals employed outnumbers the domestic population. The substantial numbers of foreign workers are mainly Swiss and Austrians. Liechtenstein has a de facto monetary union with Switzerland but no role in determining the Swiss National Bank’s monetary policies.
Liechtenstein’s average applied tariff rate is 0.0 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. 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.