IFLR 1000
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CONTEXT AND TRENDS
Ever since the 2008 financial crisis, Liechtenstein has been a market in transition. Regulators and tax authorities from around the world have been turning the screw on so called 'tax havens' in an attempt to claw back revenues and, it should be said, to be seen to be acting proactively on such issues....

CONTEXT AND TRENDS

Ever since the 2008 financial crisis, Liechtenstein has been a market in transition. Regulators and tax authorities from around the world have been turning the screw on so called 'tax havens' in an attempt to claw back revenues and, it should be said, to be seen to be acting proactively on such issues.

Liechtenstein has the felt the heat in this regard and the country was not helped by the 2008 tax scandal, which saw a variety of countries, including Germany and the US, launch investigations into alleged tax evasion being committed by its citizens through the vehicle of Liechtenstein bank accounts. In the tense post-Lehman environment, the eventual fallout saw the Liechtenstein government enter into various tax treaties with other countries, which would allow for some account and tax information to be shared.

"Liechtenstein in still in the transitional process in the financial market because of the scandal," says one partner. "The Liechtenstein authorities and governments decided to restructure the financial market with new laws."

Arguably the new law which promises to have the most impact is the 2011 Tax Law, which will bring more transparency to the country's systems and bring it more closely in line with EU regulations: "In 2011 there was the introduction of the new tax law – which now is in compliance with EU legislation," says one lawyer. "It's still very competitive, so there's a possibility to reduce the tax basis."

This last point touches upon the key issue which now faces the country, namely how does it balance its key selling point as a low tax destination for assets, while simultaneously trying to avoid being blacklisted and shunned by its EU neighbours and the US. "They want to change Liechtenstein from offshore to onshore through tax structures," explains one partner, "but it is not easy in the first year. In the future it could be possible."

The country is also keeping in line with new and upcoming regulation including the likes of the AIFMD (Alternative Investment Manager's Directive) and the latest adjustments to the UCITS (Undertaking for Collective Investment in Transferable Securities) structure, the passportable fund, which can be sold throughout the EU.

For firms, the market change is requiring that they in turn need to adjust to new client needs. "15 years ago clients came here to hide money. Now they still want to, but also to comply with tax procedures. That requires other expertise and skills," says one partner.

Another trend worthy of note has seen firms look east for potential new clients, from Russia and Eastern Europe. Whether this is a reaction to the increased regulatory pressure being put on Western European clients is not yet clear. "We are trying to establish relationships with Russia and Eastern Europe," one partner confirms.