Liechtenstein’s economic freedom score remains unrated in the 2015 Index because of a lack of sufficient comparable data. Those aspects 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.
Liechtenstein is a modern and diversified economy that has made dynamic engagement with global commerce the cornerstone of its economic policy. An efficient regulatory environment that is open to trade and investment has contributed to the development of a robust banking sector. Tax rates are competitive, and labor laws allow employers and employees to respond efficiently to changing market dynamics.
Enhanced levels of political and social stability have facilitated the development of a high-value service industry that has capitalized on a well-entrenched rule of law. Property rights are respected, and the judicial system is transparent. The absence of corruption minimizes potential drags on the economy and encourages entrepreneurialism.
Prince of Liechtenstein Hans-Adam II is head of state, but his son Prince Alois wields considerable power as regent. The center-right Progressive Citizens’ Party won the March 2013 parliamentary elections, and Prime Minister Adrian Hasler now heads the government. Liechtenstein has a vibrant free-enterprise economy. Low taxes and traditions of strict bank secrecy (though less secret than before) have helped financial institutions to attract funds. Still, 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 not the EU.
Liechtenstein is largely free of corruption, although as an offshore banking center, it must continue to work to prevent money laundering in its banking system. The judiciary is independent and impartial despite the appointment of judges by the hereditary monarch. Property rights and contracts are secure. Intellectual property laws are based on Switzerland’s IPR protection regimes.
Tax reform that went into effect in 2011 lowered rates, modernized administration, and improved transparency. The top individual income tax rate is 7 percent, and the top corporate tax rate is 12.5 percent. A value-added tax is administered by Switzerland. Although the fiscal system lacks some transparency, government fiscal management has been relatively sound.
The efficient regulatory framework facilitates entrepreneurial activity. Government generally takes a hand-off approach in sectors dominated by small businesses. Unemployment has been low, and labor market policies have focused on minimizing youth unemployment. Liechtenstein has a de facto monetary union with Switzerland but no vote in the Swiss National Bank’s monetary policy.
Liechtenstein has a 0 percent average tariff rate. The government maintains an open trade and investment regime and generally does not discriminate against foreign investors. 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 prudent regulatory regime.