In recent years, Liechtenstein has continued to improve the legal framework for wealth structuring and succession planning and to adjust to international developments.

On 1 January 2011, the completely revised Liechtenstein Tax Act entered into force. With the new Act, Liechtenstein introduced an attractive tax system, which complies with European law.

With a corporate tax rate of 12.5 per cent and the reduction of the effective tax rate even further through the notional interest deduction, Liechtenstein has joined the league of most tax-efficient jurisdictions by European standards. Furthermore, the taxation of legal entities as private asset structures (PAS) offers an attractive way for individuals to structure their wealth.

Liechtenstein is also an interesting jurisdiction for individuals to take residence. The top income tax rate for a resident of the capital, Vaduz, is 20 per cent. Income from assets that are subject to wealth tax is not taxed directly. Instead, tax is currently levied on a notional income of 4 per cent of the tax value of these assets. Moreover, a favourable lump-sum taxation regime is available for foreigners, and there is no inheritance or gift tax.

Liechtenstein has a long-standing tradition of private family foundations that continue to be attractive vehicles for wealth preservation and succession planning. With the latest reform of the Liechtenstein Foundation Law in 2009, a new foundation governance structure was implemented, providing for more checks and balances regarding the interests of the founder, the beneficiaries and the foundation itself, while the favourable opportunities for wealth planning have fully been preserved. The rules regarding the enforcement of forced heirship rights were amended, resulting in considerably more room for estate planning.

Liechtenstein has a long history of its own trust law. In 1926, Liechtenstein incorporated the institution of the trust, based on the English Trust Act of 1925, into national law. Since then, the Liechtenstein trust has developed into a popular vehicle for wealth structuring and succession planning.

Furthermore, with the implementation of the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) of the European Union into national law, Liechtenstein has incorporated a new investment fund referred to as a 'Smart Fund', which provides another internationally recognised, tax-neutral vehicle for structuring private wealth.


i Taxation of trusts

Trusts managed from Liechtenstein are subject to an annual tax of 1,800 Swiss francs. No tax filings are necessary.

ii Regular taxation of legal entities

Corporate tax rate and tax base

Legal entities that are taxable in Liechtenstein are subject to corporate tax on their net income at a rate of 12.5 per cent under regular taxation rules.2

The net income is reduced by income from foreign permanent establishments, rental and lease income from foreign real estate, gains from selling real estate, distributions from foundations or trusts, dividends and capital gains on the sale of shares and unrealised capital gains on shareholding in companies both in Liechtenstein and abroad.3 In general, dividend income and capital gains from the sale of shares are tax-exempt. As a result, not only income and capital gains from interests in partly or wholly owned subsidiaries, but also income and capital gains from shares held as part of a securities portfolio, are in principle tax-free.

However, in 2016, a number of the Organisation for Economic Co-operation and Development (OECD)'s Base Erosion and Profit Shifting (BEPS) measures were implemented in the Liechtenstein Tax Act, including the introduction of a hybrid mismatch rule. As a result, dividend income is no longer tax exempt if: (1) the shareholding in the respective subsidiary amounts to at least 25 per cent of the capital or voting rights; and (2) the share of profits are treated as expenses deductible for tax purposes by the subsidiary.4 This means that if a Liechtenstein entity receives dividend income that for some reason is classified as tax deductible interest payment in the country where the dividend was declared, Liechtenstein will be forced to tax the dividend if the 25 per cent holding threshold is met.

In addition, the Liechtenstein Tax Act was further amended in 2018, based on a further analysis of BEPS standards. Losses resulting from a sale or impairment of participations will no longer be tax-deductible as of 2019 to terminate the asymmetric treatment of (tax-free) profits and tax-deductible losses.5

Further, a 'switchover' rule was introduced to ensure that taxable income resulting from a shareholding in a foreign entity, which has predominantly passive income and is subject to low (or no) taxation in its home state, will be additionally taxed in Liechtenstein. This 'switchover' from a tax-free dividend to taxable income applies if a Liechtenstein entity receives a dividend from a foreign tax-resident entity that has more than 50 per cent passive income over a multi-year period, if the foreign taxation, directly or indirectly, amounts to less than 50 per cent of the Liechtenstein tax. With regard to taxation at less than 50 per cent of the Liechtenstein tax, a distinction is made depending on the percentage of the shareholding in the foreign entity. Lower taxation is assumed if the shareholding is: (1) lower than 25 per cent and the local tax rate is less than 6.25 per cent; or (2) more than 25 per cent and the effective taxation is less than 50 per cent in a comparable domestic case.6

For the purpose of determining whether a foreign tax-resident entity that has more than 50 per cent passive income, 'passive income' means:7

  1. interest or other income from financial assets; royalties or other income from intellectual property; and income from finance leases;
  2. profit shares or distributions from foreign legal entities whose total income consists of more than 50 per cent of low-taxed passive income pursuant to (a) above, provided that this income was not generated in the course of an actual economic activity; and
  3. realised and unrealised capital gains in the value of participations in foreign legal entities, provided these fulfil the conditions set out in (b).

If dividends from participations are not tax-exempt owing to fulfilment of the above criteria, capital gains (realised and unrealised) and liquidation proceeds from such shareholdings are not tax-exempt either.8

Dividends and capital gains from participations will continue to be tax exempt as long as the criteria set out above are not met. However, Liechtenstein entities have to prove that these criteria are not met to claim tax exemption.9

This 'switchover' rule has been applicable as of 1 January 2019, but shareholdings in foreign legal entities that were acquired prior to 1 January 2019 will only become subject to the new regime in 2022.

Notional interest deduction

The new tax law introduced a notional interest deduction, which is currently 4 per cent of the modified equity as a deemed expense to ensure equal treatment of debt and equity.

The modified equity is calculated by deducting the following items from the net equity:

  1. own equity;
  2. shares in legal entities;
  3. assets not required for the company's purposes; and
  4. a deduction of 6 per cent of all assets, under exclusion of the above-mentioned three items.10

The reason for the first three deductions is that they produce tax-exempt income and capital gains and, therefore, cannot be used to create a notional interest deduction. The term 'all assets' refers to the balance sheet total.11 In case of 100 per cent equity funding, the effective notional interest deduction is reduced from 4 per cent to 3.76 per cent because of the deduction of 6 per cent from the total of all assets (100 per cent – 6 per cent = 94 per cent; 94 per cent × 4 per cent = 3.76 per cent).

When calculating the modified equity, increases and decreases of the equity during the financial year are taken into account pro rata. However, increases and decreases within the same tax quarter are netted off and are considered to have taken place mid-quarter.12 The modified equity is calculated separately for each tax quarter; the average modified equity during the quarter is also calculated.13

The table below shows the effects of the notional interest deduction, assuming 100 per cent equity financing for various return-on-equity (ROE) scenarios and the resulting earnings before interest and taxation (EBIT). It is evident that the notional interest deduction can result in a substantial reduction of the effective tax rate. Obviously, the effect is higher the closer the ROE is to the 3.76 per cent effective notional interest deduction. However, even in the case of a highly profitable company yielding a 20 per cent ROE, the notional interest deduction results in a decrease of the effective tax rate from 12.5 per cent to 10.15 per cent.

ROE 3.76% 5% 10% 15% 20%
Equity (before deduction of 6% of all assets) 1 million 1 million 1 million 1 million 1 million
Equity (after deduction of 6% of all assets) 940,000 940,000 940,000 940,000 940,000
EBIT 37,600 50,000 100,000 150,000 200,000
Notional interest deduction (3.76%) 37.600 37.600 37.600 37.600 37.600
Profit before taxes 0 12,400 62,400 112,400 162,400
12.5% corporate tax 0 1,550 7,800 14,050 20,300
Effective tax rate 0 3.10% 7.80% 9.37% 10.15%

Since the revision of the Tax Act in December 2014, in cases of receivables from shareholders, founders, beneficiaries or related persons carrying an interest rate of less than 4 per cent, the interest rate differential between the interest paid to the legal entity by the related person and the notional interest deduction will generally be excluded in the calculation of the notional interest (except if such receivables from related person result from the main activity of the entity).14

iii Taxation as a private asset structure

As an alternative to regular company taxation and inspired by Luxembourg's private asset management company, the Liechtenstein legislature devised a new tax privilege for legal entities that are only engaged in the management of their own assets and do not perform any commercial activity. A PAS is only subject to the minimum corporate income tax of 1,800 Swiss francs annually without having to file any tax returns. Taxation as a PAS was approved by the ESA as being compliant with the European competition law on 15 February 2011.

The main feature with regard to the tax privilege is the lack of commercial activity. Article 64, Paragraph 1(a) of the Tax Act exemplifies, by reference to the Asset Management Act, what is not considered a commercial activity. This includes the acquisition, possession, management and sale of transferable securities such as bonds, stocks, money market instruments, shares in investment undertakings and derivatives.

Likewise, buying, holding and selling of precious metals, artwork and similar assets is generally possible. In its decision approving the provisions on the PAS, however, the ESA indicates that transactions in securities when effected 'as part of a commercial share dealing activity' constitute economic activity. Regular and active trading of securities (and other assets) is therefore not considered permissible for a PAS unless decisions are delegated to an independent asset manager. The purchase and sale of securities as part of a long-term investment strategy is, however, allowed in any event.

As the mere exercise of ownership and the granting of benefits by the entity to its shareholders or beneficiaries are not considered commercial activities, the holding of a property does not constitute a commercial activity as long as the property is used by the PAS or its shareholders and beneficiaries and no rent is charged.

When a PAS holds shares in a subsidiary that exercises a commercial activity, neither the PAS nor its shareholders or beneficiaries are allowed to exercise any control over the management of the subsidiary through direct or indirect influence, otherwise the PAS itself will be regarded as commercially active and lose its status as a PAS.

When comparing regular taxation with PAS taxation, it turns out that in some cases there may be only a small difference in the tax burden because, even in cases of regular taxation, the income from the management of the legal entity's own assets tends to be tax-exempt anyway.

The following table shows where PAS taxation has advantages over regular taxation:

Investment Revenues Regular taxation
(12.5% corporate tax)
Possible advantage of PAS
Shares (assuming no application of the hybrid mismatch and switchover rules) Dividends Tax-free
Realised capital gains Tax-free
Bonds Interest Taxable if net profit exceeds the 4% notional interest deduction Yes
Realised capital gains Taxable if net profit exceeds the 4% notional interest deduction Yes
Commodities (physical, e.g., gold in a safe) Realised capital gains Taxable if net profit exceeds the 4% notional interest deduction Yes
Real estate (non-Liechtenstein) Rent Tax-free
Realised capital gains Tax-free
Derivatives All income Taxable if net profit exceeds the 4% notional interest deduction Yes
Investment funds Treated as transparent; investments of the fund are treated as being held directly by the legal entity Yes (except pure stock or property funds)

The table illustrates that a Liechtenstein legal entity that is taxed as a PAS generally does not have any tax advantage over a regularly taxed company if it only holds shares, or real estate outside Liechtenstein. The reason is that even under regular taxation any income or capital gains produced by these asset classes will generally be tax-free anyway, provided that the hybrid mismatch rule and switchover rule set out above in Section II.ii do not apply. In the case of the other asset classes, whether taxation as a private asset structure is preferable over regular taxation depends on whether the asset classes yield more than the 4 per cent notional interest deduction applying in case of regular taxation.

iv Taxation of individuals

Income and wealth tax

Personal tax liability

The Liechtenstein tax regime for the taxation of individuals combines income and wealth tax. The wealth tax is based on the notional income of currently 4 per cent of the taxpayer's assets, which is then subject to income tax in lieu of the real income from such assets (which is tax-free). There is an eight-stage scale for determining the income tax.

Individuals having their residence or habitual abode in Liechtenstein are taxable on their entire wealth and income. While residence means the place where a person lives with the intent of staying permanently, habitual abode refers to the place or area in which a person dwells not only temporarily. The Liechtenstein Tax Act considers a temporary continuous abode of more than six months as habitual abode, whereby short-term interruptions are not taken into account.

Limited tax liability applies to individuals whose residence or habitual abode is not in Liechtenstein. Such individuals are taxable in respect of their Liechtenstein wealth and income.

Subject of income tax

All income in money and money's worth is subject to income tax such as:

  1. any income from self-employment;
  2. any income from employment relationship under private or public law;
  3. any income of board members, foundation council members and members of similar bodies of legal entities and trusts that they receive for their respective functions; and
  4. contributions received by the taxpayer as beneficiary, unless this is subject to wealth tax.15

Tax-exempt income includes income from wealth for which the taxpayer pays wealth tax, recurring benefits to the taxpayer, which are considered as taxable wealth, and income from permanent establishments abroad.

Subject of wealth tax

The entire movable and immovable wealth of the taxpayer is subject to wealth tax. Individuals with limited tax liability are only taxable in respect of their domestic wealth that is real estate and permanent establishments in Liechtenstein.16

The Tax Act provides for certain exemptions from wealth tax. In particular, real estate and permanent establishments abroad are exempted from wealth tax. Taxpayers are also entitled to make certain deductions, such as reducing assets by debts and other liabilities, provided that the taxpayer is liable as principal debtor.

Trusts or foundations with Liechtenstein-resident settlors or beneficiaries

With regard to trusts, foundations and similar vehicles with Liechtenstein residents as settlors or beneficiaries, the following rules apply.

The wealth of revocable foundations, trusts and establishments with a foundation-like structure is attributed to the founder and wealth tax is paid by the founder. However, it is possible to opt for taxation at the level of the trust, foundation or similar structure instead.

In the case of irrevocable trusts, foundations and establishments with a foundation-like structure, a distinction is made between entities with determinable beneficiaries that benefit from a certain quota and entities where this is not the case.

Concerning trusts, foundations or establishments with a foundation-like structure with determinable beneficiaries entitled to a certain quota, wealth tax is levied at the level of the Liechtenstein resident beneficiaries. However, the beneficiaries may apply for taxation at the level of these structures but require the consent of the body responsible for distributions. Such a structure will not become the taxpayer itself but rather must meet the wealth or personal tax liability in lieu of the beneficiaries.17

If such structures have no determinable beneficiaries entitled to a certain quota, no wealth tax is payable because the wealth cannot be attributed to any natural persons; however, if such structures are established by Liechtenstein tax residents, the set-up itself triggers a particular tax, which is illustrated as follows.

Such transfers to a discretionary structure are subject to taxation to the extent that: this wealth is no longer subject to wealth tax; and benefits or shares do not become liable to wealth tax.18 For example, the first prerequisite is not met if real estate abroad is transferred as this is exempted from wealth tax.

The taxation of transfers to a fiduciary structure also applies in the event of changing circumstances after the establishment of a fiduciary structure that led to a shortfall of the wealth tax liability. As a result, the conversion of a determinable benefit into a discretionary benefit leads to taxation as well.19

The transferor shall pay a tax in the amount of 3.5 per cent of the wealth tax value of the contribution plus the applicable municipal surcharge. If a tax resident of Vaduz (where the municipal surcharge is 150 per cent) establishes a foundation or trust where no quota can be attributed to the beneficiaries and, therefore, the assets are no longer subject to wealth tax, the set-up is therefore taxed at a rate of 8.75 per cent. The assets will then no longer be subject to wealth tax. However, any distributions from such a foundation or trust to a beneficiary who is a Liechtenstein tax resident will be subject to income tax.

Tax calculation

The taxation of Liechtenstein tax resident individuals is based on a combination of wealth and income tax: the wealth tax is integrated into the income tax by transforming a part of the wealth into an additional category of income. This transformation is based on a notional income.20 To determine the taxable base, wealth and income are calculated separately and then a notional income from the wealth is assumed. The interest rate for determining the notional income from wealth is determined annually in the Finance Act, being 4 per cent for 2020. This notional income from taxable wealth is then considered income (instead of the real income) and added to the total taxable income.

After basic exemptions up to 15,000 Swiss francs (and up to 22,500 Swiss francs in the case of single parents within the meaning of the Family Allowance Act and up to 30,000 Swiss francs for jointly assessed married couples), taxable income (including the notional income resulting from wealth tax) is then taxed at different rates for eight income brackets, with the highest rate for the national income tax being 8 per cent. Additionally, the Liechtenstein communities may levy a municipal surcharge of between 150 per cent and 250 per cent on the national tax. Currently, all Liechtenstein communities levy a surcharge of between 150 per cent and 200 per cent on the national income tax, with the rate in Vaduz being 150 per cent. The top tax rate for a resident of Vaduz therefore amounts to 20 per cent and applies in the case of a non-married taxpayer without children if his or her annual income exceeds 200,000 Swiss francs.

No inheritance or gift tax

Inheritance tax and gift tax have been abolished in the course of the revision of the Liechtenstein Tax Act. Under the new Liechtenstein tax regime, just a disclosure of donations to the fiscal authority is required. Liechtenstein-resident donors and recipients of gifts must therefore include gifts in their tax returns. The purpose of this notification is to enable comprehensibility of declarations of wealth set out in the tax returns of these individuals (i.e., the information is only declaratory).21 The disclosure requirement applies only to gifts, inheritances and bequests exceeding 10,000 Swiss francs.

Lump-sum taxation

Individuals can apply to the fiscal authority for lump-sum taxation (i.e., apply for taxation on expenditure instead of income and wealth tax). The latter does not apply to real estate in Liechtenstein, which remains subject to wealth tax.

Liechtenstein citizens are not entitled to apply for such lump-sum taxation. Another prerequisite for the application is that the individual takes residence or habitual abode in Liechtenstein for the first time or after an absence of 10 years or more from Liechtenstein. The individual must not be entitled to work in Liechtenstein but shall live on income from his or her wealth or other receipts from abroad.

The discretionary decision regarding the lump-sum taxation depends on the Liechtenstein fiscal authority. The lump-sum taxation considers the total expenditure of the taxpayer, and the tax based on the expenditure amounts to 25 per cent of the expenditure.22 The tax may be determined for several years depending on the regularity of the expenditure amount.

Individuals intending to apply for lump-sum taxation must also take into account the applicable provisions in conjunction with the permission to reside in Liechtenstein. Currently, residence permits are quite restricted, although there is a lottery open to citizens of the European Economic Area. Furthermore, several times in the political process there have been discussions to issue more resident permits to wealthy or highly qualified foreigners but no final conclusion has been reached thus far.


Under the Liechtenstein Private International Law Act, all aspects of legal succession are governed by the law of citizenship of the deceased, which is applied by the Liechtenstein courts. Foreign testators and Liechtenstein nationals living abroad may, however, choose the law of the country of their last residence instead, which provides for flexibility on their side.

The enforcement of forced heirship rules against Liechtenstein trusts, foundations and other fiduciary structures has been the subject of several trials and has consequently led to actions by the Liechtenstein legislator.

Forced heirship rules allocate a part of the assets to the disposition of the testator and another part to certain family members. Contributing assets to a foundation may be disputed by the heirs in the same way in which they have the right to challenge donations.23 If Liechtenstein inheritance law applies, upon request of a child, the spouse or the registered partner entitled to a compulsory portion, donations by the testator must be taken into consideration in the computation of the estate. The subject of the donation must be added to the estate.24 If the estate is insufficient to cover the claims of forced heirship due to the fact that the assets were transferred to a foundation by the deceased, the subject of potential challenge is the assets. The trust cannot be disputed.25

Donations to persons not entitled to a compulsory portion that have been made more than two years prior to the donator's death are disregarded.26 This fairly short period27 also applies to contributions made to a foundation, with the caveat that its commencement depends on the structure of the foundation. In particular, the deadline does not start before the founder's death if the assets have not really been economically (i.e., the founder has not given up control of the assets) transferred to the foundation prior to his or her death.

Assets are not deemed entirely separated from the founder if he or she has reserved rights to revoke the foundation and to amend the foundation documents;28 however, it has been argued that even where the foundation documents provide a revocation right, the statute of limitations starts with the setting up of the foundation if the foundation documents refer to a third party as ultimate beneficiary in the case of a revocation.

The founder is also entitled to waive such rights: upon waiver of such rights set out in the foundation documents, the two-year period shall also start.29 The Liechtenstein Supreme Court recently stated that a revocation right is not the only indication that the assets have not been separated from the founder, and therefore the two-year period has not yet begun. Rather, any circumstances indicating the control of the foundation by the founder must be taken into account.30

If the founder is not a citizen of Liechtenstein and not resident in Liechtenstein, his or her entire estate is governed by law of the country whose citizen he or she was at the time of his or her death (unless the founder chose the law of the country of his or her last residence instead in a will). That law will also apply to the questions of whether there is a forced share for certain family members and whether such compulsory heirs can challenge transfers to a trust or foundation under certain circumstances. As a result, if a foreign resident has established a Liechtenstein trust or foundation, any challenge of the transfer of assets will generally be based on the law governing his or her estate, not on Liechtenstein compulsory heirship law. Accordingly, the Liechtenstein Supreme Court has allowed claims of foreign heirs in several cases based on the applicable foreign heirship law, irrespective of the fact that the Liechtenstein two-year statute of limitations had expired.

However, the newly introduced Article 29, Paragraph 5 of the Liechtenstein Private International Law Act installed a further barrier to challenges,31 prescribing that the heirs are entitled to claims for a compulsory portion only if they have equivalent claims under the laws governing the acquisition of the assets by the foundation or trust. Therefore, disputes by persons entitled to a compulsory portion of contributions to a Liechtenstein foundation made by its foreign founder must be possible both under the applicable inheritance law and under Liechtenstein law if Liechtenstein law had been chosen as the law governing the transfer or if Liechtenstein law is applicable because the funds were transferred to the foundation as part of its stated capital. As a result, if Liechtenstein law applies to the contributions to the foundation, the Liechtenstein rules regarding the statute of limitation is applicable.32

In practice, this means that if a foreigner establishes an irrevocable discretionary trust or a foundation in Liechtenstein (without reserving any revocation rights or equivalent powers) and chooses Liechtenstein law as the law governing the transfer of his or her assets to the foundation or trust, any claims of any compulsory heirs under the applicable inheritance law will become time-barred after the expiry of two years from the transfer of the assets to the trust or foundation.

Alternatively, a potential claim of compulsory portion will generally also be denied, if a founder makes an inter vivos donation to a Liechtenstein foundation and agrees that such contributions will be governed by a jurisdiction not having forced heirship rules at all.33 However, this concept has not yet been contested in court, and it seems possible that under certain circumstances a court could rule that a foundation cannot rely in good faith on such a choice of law for the transfer of assets to the foundation, if it was designed only to frustrate the rights of compulsory heirs under the applicable inheritance law.


The main Liechtenstein vehicles used for wealth structuring and estate planning are trusts and foundations. The following have recently been the subject of discussions or legislative efforts:

  1. the checks and balances that can be incorporated in the structure of a Liechtenstein foundation to prevent any abuse (often referred to as foundation governance);
  2. asset protection and the protection of creditors in connection with Liechtenstein trusts and foundations; and
  3. the use of a Liechtenstein foundation as a private trust company instead of a trustee company owned by a financial service provider.

Smart Fund

In the course of implementing the AIFMD in Liechtenstein, a special investment vehicle was created for families. If the investor circle only consists of members of a single family, then a 'Smart Fund' can be set up. A Liechtenstein Smart Fund is an alternative investment fund in the meaning of the Liechtenstein AIFM Act and the AIFM Ordinance.34 It provides an opportunity for families to create a tax-neutral, internationally recognised investment vehicle for family members only (i.e., all family members who are or have been related by marriage or registered partnership, by direct or collateral line or by inheritance).

i Foundation governance

Foundation types

The Liechtenstein foundation is a legally and economically independent special-purpose fund, which is formed as a legal entity through a unilateral declaration of will by the founder.35 Assets transferred to a foundation become independent from the personal assets of its founder. The latest reform of the Liechtenstein Foundation Law has led to remarkable amendments. This chapter focuses on foundation governance as an area quite notably affected by the aforementioned reform.36

For foundation governance purposes, it is necessary to distinguish between common-benefit and private-benefit foundations. For instance, a common-benefit foundation requires a registration in the Commercial Register to acquire legal capacity. By contrast, private-benefit foundations acquire legal capacity by the declaration of establishment. While a common-benefit foundation serves entirely or predominantly common-benefit purposes, a private-benefit foundation serves entirely or predominantly private or personal purposes. If this is unclear, the foundation is treated as a common-benefit foundation.

External foundation governance

Common-benefit foundations are subject to supervision by the foundation supervisory authority (i.e., the Office of Justice).37 This authority must ex officio ensure that the foundation assets are managed in accordance with the purpose of the foundation. The law grants certain information rights to the authority; for example, inspection of the foundation's books and right to information in relation to the foundation. Furthermore, the authority may apply to court in order to control or remove foundation bodies, to carry out special audits or to cancel resolutions of the foundation council. Such measures are available for all foundation participants,38 including the founder, the beneficiaries, the foundation bodies and the members of these bodies.

As a rule, private-benefit foundations are not subject to supervision by the foundation supervisory authority. This can be changed if the articles of the foundation (voluntarily) provide for supervision.

Internal foundation governance

All foundations that are subject to supervision by the foundation supervisory authority require an auditor. The auditor appointed by the court must be independent from the foundation. The auditor is obliged to annually review the management and the use of the foundation's assets to ascertain conformity with the purpose of the foundation, and must report to the foundation council, as well as to the foundation supervisory authority.39

External foundation governance of private-benefit foundations is constrained because they are not subject to supervision by the foundation supervisory authority. For this reason, mechanisms of internal foundation governance, particularly the rights granted to the beneficiaries, are of paramount importance. Beneficiaries of the foundation are entitled to inspect the foundation documents as far as their rights are concerned. Beneficiaries are also entitled to information, to reporting and accounts. Again, such rights are only available if the beneficiary's rights are affected. The law restricts the rights of the beneficiaries; for instance, in the event of abuse of such rights.40 Moreover, the rights may not be exercised in a manner conflicting with the interests of the foundation or other beneficiaries. In this respect, carefully balancing different interests is necessary. The above-mentioned rights are also restricted insofar as they can be denied for important reasons to protect the beneficiary.41

To some extent, the interests of the founder can also be considered within the internal foundation governance: if the right of revocation has been reserved by the founder and if the founder is the ultimate beneficiary, the beneficiaries are not entitled to the information rights above.42

Adjustments of the internal foundation governance can also result from the founder's right to provide for other supervisory bodies. This will have the consequence that beneficiaries may only demand disclosure of information about the purpose and organisation of the foundation and with regard to their own rights in relation to the foundation, and may verify the accuracy of this information by inspecting the foundation deed, the supplementary foundation deed and the regulations.43 This leads to restrictions for the beneficiary to gain information about the foundation. In practice, for example, the beneficiary will not be able to get the names of other beneficiaries, for example. The beneficiary will therefore also not know what distributions other beneficiaries received.44

In summary, it can be stated that the Liechtenstein legislator has implemented various checks and balances. Because of a lack of mandatory supervision of private-benefit foundations by the foundation supervisory authority, information rights particularly granted to the beneficiaries are necessary to guarantee a control mechanism. On the other hand, the interests of the founder are also safeguarded by allowing several ways to exclude or limit the information rights of beneficiaries in certain cases.

ii Asset protection and protection of creditors

Asset protection and protection of creditors obviously reflect opposing interests. Needless to say, the settlor of a Liechtenstein trust or foundation seeks to protect the trust or foundation assets against third parties, but the interests of the founder or settlor are generally in conflict with the demands of third parties.

Creditors of the founder or settlor

Creditors may consider different options in order to enforce their claims on the founder of a foundation or trust. Firstly, creditors have the right to dispute contributions of assets to the foundation in the same way as they could challenge a gift.45 As a rule, every creditor having an enforceable claim is entitled to do so if full compensation could not be achieved by enforcement of the claim against the founder or settlor, or this could be assumed at the time of approval of the enforcement.

Under Article 75 of the Legal Remedy Code, the challenge of a transfer of assets to a foundation or trust by a creditor must be possible under both the laws of the country of residence of the debtor and the law governing the transfer. As a result, if the transfer of assets to a Liechtenstein foundation or trust is made subject to Liechtenstein law, the challenge must be permissible not only under the laws of the country of residence of a foreign settlor or founder, but also under Liechtenstein law.

Under Liechtenstein law, the dispute of the transfer of assets must refer to actions made within a period of one year before approval regarding the enforcement.46 The one-year period is not required if the creditor is able to prove that the debtor's (in the case of foundations, the founder's) actions are based on intent to defraud creditors, in which case a five-year limitation period from the point of transfer of assets is applicable.47

Under exceptional circumstances creditors may refer to the general principle of the ban on abuse of legal right enshrined in Liechtenstein company law.48

Furthermore, in the case of rights of revocation and amendment of the purpose reserved by the founder or settlor, creditors may attempt to attach such rights.49

Creditors of the beneficiaries

Another instrument for asset protection is stipulated in Article 552, Section 36, Paragraph 1 of the PGR, which contains an enforcement privilege for family foundations providing that creditors of beneficiaries are not permitted to deprive the beneficiaries of their entitlement to a beneficial interest acquired without valuable consideration by way of enforcement or bankruptcy proceedings. Such an enforcement privilege must be included in the foundation articles.50 In the case of mixed family foundations, such a privilege can only be implemented to the extent to which it serves the purpose of the foundation. It is, however, questionable whether a beneficiary who is simultaneously also the founder is entitled to such a privilege, as in the case of the founder, the beneficial interest was arguably not acquired 'without valuable consideration' since the founder contributed the assets.51

In practice, however, the meaning of the aforementioned enforcement restriction is limited. The reason is that it applies only if the beneficiaries have a sufficiently specified claim that could potentially be attached by the beneficiaries' creditors. In the event that discretionary beneficiaries of a foundation or trust are merely members of a class of several beneficiaries without any rights to certain shares in the trust or foundation fund, no enforceable claims exist. Therefore, the beneficiaries' creditors cannot attach their rights, which is a fact that has been confirmed by the Liechtenstein Supreme Court.52

V A Liechtenstein foundation as a private trust company

Many families use trusts as vehicles for estate planning and wealth preservation. Increasingly, instead of using trustee companies owned by financial service providers, private trust companies (PTCs) are appointed as trustees. The use of a Liechtenstein foundation as such a PTC offers several key advantages.

i A common set-up of a PTC structure

While using a PTC has several benefits, it begs the question of who should act as the shareholder of the privately held trustee company. In most cases, the shareholder cannot be the settlor of the trust because then the shares of the PTC would be part of his or her estate, which would frustrate the estate planning purpose of the trusts. A common set-up to solve this problem has been to establish a separate purpose trust whose only purpose is to hold the shares of the PTC.

The main drawback of this approach is that again a trustee is needed for the purpose trust holding the shares of the PTC. In most cases, a trustee company owned by a financial service company is used for this purpose. This means that the reasons for not using such a company as a trustee of family trusts are still present. However, they are moved to a remoter level (i.e., the purpose trust) and are mitigated because the only assets held by the trustee company of the purpose trust are the shares in the PTC.

ii Using a Liechtenstein foundation as a PTC

Using a Liechtenstein foundation removes entirely the need for a trustee company owned by a financial service provider and at the same time reduces complexity. The structure then simply consists of a Liechtenstein foundation acting as trustee of one or more family trust.

A Liechtenstein foundation essentially is a fund endowed for a specific purpose that becomes autonomous and acquires the status of a legal person. It has no shareholders and therefore the question of who holds the foundation does not arise. Such a foundation can be established with the sole purpose to act as the trustee of one or more trusts for the benefit of a certain family.

When a Liechtenstein foundation acts as a PTC, generally no special business licence is necessary in Liechtenstein. This was clarified recently by a submission of the Liechtenstein government to the parliament dealing with an amendment of the Trustee Act. The Liechtenstein Trustee Act deals with the regulatory framework for professional trustees and trust companies. In this submission,53 the Liechtenstein government clarified that a PTC does not qualify as a professional trust company and does not require a licence under the Trustee Act.

The government noted that a Liechtenstein PTC, like all other Liechtenstein companies without a special business licence, requires a member of the board who is licensed as a professional trustee or in an employment relationship with such a professional trustee. According to the Liechtenstein government, no separate regulation of the entity acting as a PTC is necessary. The government pointed out that the licensing requirement only applies to 'professional' trustees and that a privately held trustee company typically does not meet this criterion because it is not used with the goal of creating profits. The government also mentioned that the fact of directors charging a fee to the PTC is not harmful either. Furthermore, the government stated that even if the Liechtenstein entity charges a trustee fee to the trusts, it does not need to be regulated as the PTC offers its services to a closed circle of persons only. The government also specifically confirmed that a Liechtenstein foundation can act as a PTC.

VI OUTLOOK and conclusions

With the adoption of a tax law that is in compliance with European rules, and the revised foundation law, Liechtenstein has strengthened its position as an attractive jurisdiction for wealth structuring and estate planning.

In spite of a demanding environment, Liechtenstein has maintained its high degree of stability, especially with regard to the financial system, which proved very reliable in the last financial crisis. In this context, it is noteworthy that Liechtenstein remains one of the few European countries with a long-term credit rating of AAA by Standard & Poor's Rating Services (Outlook: stable).


1 Markus Summer and Hasan Inetas are partners at Marxer & Partner Rechtsanwälte.

2 Article 61 of the Tax Act.

3 Article 48 of the Tax Act.

4 Article 48, Paragraph 3, Item (a) of the Tax Act.

5 Article 47, Paragraph 3, Item (c)-bis of the Tax Act.

6 Article 48, Paragraph 3, Item (b) of the Tax Act

7 Article 48, Paragraph 4 of the Tax Act.

8 Article 48, Paragraph 6 of the Tax Act.

9 Article 48, Paragraph 7 of the Tax Act.

10 Article 54 of the Tax Act; Article 32 of the Tax Ordinance.

11 BuA No. 48/2014, 33.

12 Article 32, Paragraph 4 of the Tax Ordinance.

13 Article 32, Paragraph 5 of the Tax Ordinance.

14 Article 54, Paragraph 3 of the Tax Act.

15 Article 14(2) of the Tax Act.

16 Article 6(4) of the Tax Act.

17 Draft Bill (BuA) No. 48/2010, 75.

18 See Article 13(1) of the Tax Act.

19 BuA No. 48/2010, 83.

20 BuA No. 48/2010, 25.

21 BuA No. 48/2010, 187.

22 See Article 33 of the Tax Act.

23 Article 552, Section 38(1) of the Persons and Companies Act (PGR). This provision shall refer to Sections 785 and 951 of the Civil Code (ABGB) entitling the heirs to challenge. See BuA No. 13/2008, 122.

24 See Section 785(1) of the ABGB.

25 See BuA No. 13/2008, 122.

26 Pursuant to Section 785(3) of the ABGB, donations that the testator made out of current income for charitable purposes in accordance with moral duty or consideration of decorum without diminishing the substance of property will also be disregarded.

27 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 685 with references to Germany and Switzerland.

28 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 686.

29 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 687.

30 Supreme Court, 7 December 2012, 03 CG.2011.93.

31 See BuA No. 13/2008, 140.

32 See BuA No. 13/2008, 140 et seq.

33 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 692.

34 See Article 155 of the AIFM Ordinance.

35 See Article 552, Section 1 of the PGR.

36 For further details see Marxer & Partner, Liechtensteinisches Wirtschaftsrecht, 2009, 104 et seq.; Jakob, Die Liechtensteinische Stiftung, 2009, 195 et seq.

37 See Article 552, Section 29 of the PGR.

38 See Article 552, Section 3 of the PGR.

39 Upon application, the foundation supervisory authority exempts a common-benefit foundation from the obligation to have an auditor in the case of low asset value.

40 See Article 552, Section 9(2) of the PGR.

41 See BuA No. 13/2008, 65; Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 490; Article 552, Section 9(2) of the PGR.

42 Article 552, Section 10(1) of the PGR.

43 The founder can also be a controlling body pursuant to Article 552, Section 11(2), No. 3 of the PGR.

44 See BuA No. 13/2008, 68.

45 Article 552, Section 38(1) of the PGR. Reference is particularly made to Article 65 of the Liechtenstein Legal Remedy Code (RSO); see BuA No. 13/2008, 121.

46 The burden of proof will be carried by the creditor (see Article 65(2) of the RSO).

47 See Article 74(1) of the RSO.

48 See Article 2 of the PGR; in a case of misuse of a foundation by the founder. Also see Constitutional Court, 16 September 2002, LES 2005, 128 et seq.; Marxer & Partner, Liechtensteinisches Wirtschaftsrecht, 2009, 107; Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 708.

49 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 710, providing conclusive arguments against such potential enforceability.

50 See Article 552, Section 16(2), No. 6 of the PGR.

51 See Jakob, Die Liechtensteinische Stiftung, 2009, margin No. 713.

52 Supreme Court, 5 February 2009, 2R EX.2008.5850-17.

53 See BuA 42/2013, 40 et seq.