Although agriculture plays a considerable role in the economy, industry and services make up the bulk of Liechtenstein’s GDP (especially general services, including tourism and information technology). The Swiss franc is used as legal tender and imports are tax-free because of the country’s membership in a customs union with Switzerland.
Liechtenstein Economy In Europe 2023 [Facts & History]
Liechtenstein gets over 85% of its energy needs met by imports. Since 1991, Liechtenstein has been an EFTA member (previously its interests had been represented by Switzerland). It joined the EEA in May 1995 and is a signatory to the Schengen Agreement, which allows citizens to travel freely within Europe without a passport.
Liechtenstein Economy History
The historical customs union between Liechtenstein and Austria ended in 1919. Open borders exist between Liechtenstein and Switzerland because of a customs convention that was signed in 1923 and went into effect the following year in 1924.
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This customs union, commonly referred to as the Swiss customs area, also includes the German village of Büsingen am Hochrhein and the Italian village of Campione d’Italia, albeit only de facto.
The Swiss franc is Liechtenstein’s official currency. Security along Switzerland’s border with Austria is handled by border patrol and customs officials. Twenty-one Swiss and twenty Austrian border guards are currently stationed in Liechtenstein to maintain order and prevent illegal entry (as of 2011).
For access to the European Union’s internal market, Liechtenstein joined the European Economic Area (EEA) in 1995 and subsequently EFTA. Liechtenstein’s highly advanced, internationally laid-out infrastructure and close ties to Switzerland make it a safe, trustworthy, and success-oriented destination to live and do business.
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In the last 50 years, the Principality of Liechtenstein has experienced unprecedented economic and cultural growth among Western nations. Liechtenstein has transformed itself in the previous fifty years from an agrarian state into one of the most highly industrialized countries on the planet.
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In addition to its highly effective manufacturing sector, it also has a robust service industry. Nearly half of the labor force is employed in the service industry, with many workers crossing the border from Switzerland, Austria, and Germany to go to their jobs.
The value of industrial exports has more than doubled in the past 20 years, from $1.21 billion (SFr 2.2 billion) in 1988 to $2.9 billion (SFr 4.6 billion) in 2008. Liechtenstein exports about 16.3% of its goods to Switzerland, 66% to the European Union, and 21.1% to the rest of the world.  [quote missing]
Liechtenstein’s top export market in recent years has been the United States, with total sales of $561 million (SFr. 876 million). The second largest export market is Germany, with $479 million (SFr. 748 million) in sales, and the third is Switzerland, with $375 million (SFr. 375 million) in sales (SFr. 587 million).
Liechtenstein Source of Revenue
One of the main reasons for Liechtenstein’s thriving economy is the country’s dedication to R&D, which consumes about 32% of its annual earnings. Investment in research and development jumped by 20.7%, to almost $140 million, in 2000. (213 million francs)
Since it focuses on serving the needs of foreign clients, the Principality of Liechtenstein has established a strong reputation as a major international financial hub. Financial intermediaries in Liechtenstein are able to draw capital from outside the country in large part because of the country’s low tax rate, lax incorporation and corporate governance requirements, and traditions of strong bank secrecy.
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Although the legislation passed at the end of 2009 enhanced regulatory control of illicit cash transfers, the same features that made the country appealing to money launderers also made it vulnerable to them.
As of 2018, Liechtenstein had chartered 17 banks, 3 non-bank financial institutions, 71 public investment companies, and 71 insurance and reinsurance firms. More than 73,000 organizations (mostly corporations, institutions, or trusts) are nominees for or managed by the 270 licensed fiduciary companies and 81 lawyers in the Principality of Liechtenstein.
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About a third of these organizations have majority ownership in organizations that are chartered in jurisdictions other than Liechtenstein. Bearer shares are legal under the statutes of the Principality for corporations it has chartered.
Banks in the Principality were able to issue account numbers up until recently, but now they must engage in rigorous “know your customer” procedures before opening any new accounts.
Since it must always be in sync with Switzerland, the standard rate of value-added tax (Mehrwertsteuer) in Liechtenstein is 7.7%, the same as in Switzerland. There is now a 2.5% discount. In the hospitality sector, a preferential rate of 3.7 percent is in effect.
A new double taxation treaty between Liechtenstein and Switzerland was signed in July 2015, and it replaced the earlier treaty from 1995.
Despite the fact that there were some disagreements on the withholding tax, Switzerland did not agree to implement this policy with regard to Liechtenstein citizens who work in Switzerland.
The Swiss government is one of 27 new treaty partners with which the parliament of the principality voted in November 2016 to begin automatic information exchange. In 2019, after a year of collecting data, both parties will be able to effectively communicate account information.