How can the small Liechtenstein quietly hold disproportionate power in global finance?

The Smallest Giant in Finance

Nested between Switzerland and Austria, the Principality of Liechtenstein is smaller than most cities, with barely 38,000 residents and a capital that can be walked end to end in under an hour. On the surface, Liechtenstein as the allure of a fairy-tale alpine country of castles, ski slopes, and postcard views. Yet, behind this picturesque façade lies one of the world’s most concentrated financial center.

Despite its size, Liechtenstein is known for its tax advantages and legal structures that can conceal asset ownership. Over the past century, this microstate has attracted billionaires, multinational corporations, and ordinary high-net-worth individuals looking to minimize taxes or hide their wealth. For some, Liechtenstein represents aggressive tax planning within a stable European jurisdiction. For others, it embodies the darker side of global finance, that of secrecy. The country has walked a fine line profiting from its reputation as a tax haven while trying to rebrand itself as transparent in the face of international scandals. As Bradley Birkenfeld describes it in his 2016 book Lucifer’s Banker Uncensored [1]:

“Some tax havens are little-known places like Andorra and Vanuatu that few Americans have heard of. Others, like Switzerland and Liechtenstein, are notorious for operating behind a ring of secrecy. Billions and billions of dollars’ worth of US assets find their way into these secrecy tax havens, aided by banks, trust companies, accountants, lawyers, and others.”

Bradley Birkenfeld, Lucifer’s Banker Uncensored [1]

Navigating Liechtenstein’s Taxation

The reputation of Liechtenstein as a financial hub rests on a legal framework carefully designed to attract outsiders. Unlike some jurisdictions only relying on secrecy, Liechtenstein also offers a comprehensive package of tax advantages. These make it appealing to families, expatriates, and multinational corporations alike.

The corporate tax rate is a flat 12.5%, among the lowest in Europe and dramatically below that of neighboring Germany or Austria. Liechtenstein does not tax capital gains on movable assets which makes it particularly interesting for investors with large portfolios. Only gains from real estate are subject to capital gains tax. Despite not being a member of the European Union, Liechtenstein belongs to the European Economic Area. Operating similarly to Switzerland, this provides access to the EU single market while maintaining regulatory independence.

Liechtenstein Personal Income Tax Structure

For residents, the personal income tax system is surprisingly forgiving. Rates are progressive, but high thresholds and the multiple allowances significantly reduce the taxable base to a fraction of what it would be elsewhere in Europe. Even foreign-sourced income may escape taxation if it falls under exemption rules. In practice, this means that a significant portion of income never enters the tax net, making Liechtenstein far more competitive than its Alpine neighbors. Values as of 2025 are in Swiss franc, the official currency of Liechtenstein due to its monetary union with Switzerland.

• For couples, income thresholds and deduction amounts are double.
• At each tax bracket, a progressively larger deduction is applied to reduce the effective tax.

Taken together, these features create a jurisdiction where the tax code itself becomes as a competitive advantage.

Hans-Adam II is the reigning Prince of Liechtenstein and the owner of LGT Group, the royal family’s private banking and asset management firm serving high-net-worth clients globally.

Secrecy as a Selling Point

Adding to the attractive tax incentives, prior to 2017 Liechtenstein cultivated a reputation for absolute discretion, rivaling and in some cases surpassing its larger neighbor, Switzerland. Financial institutions built their reputation on banking secrecy, offering clients a world where few questions were asked and information was not shared. As the insider Bradley Birkenfeld reveals in his book:

“[…] was perfectly safe and comfortable in Liechtenstein, where the banking laws were even more covert and rock-solid than in Switzerland.”

Bradley Birkenfeld, Lucifer’s Banker Uncensored [1]

Birkenfeld goes on to explain how billionaires who hid wealth in Switzerland often did the same in neighboring Liechtenstein. As US authorities cracked down on offshore tax evasion in the 2000s, wealthy clients began moving money out of Switzerland. After major scandals including UBS in 2009 and Wegelin & Co. in 2012, Liechtenstein became a major destination for fleeing assets. The pressure peaked with the launch of FATCA in 2014, making Swiss banking secrecy effectively inexistant for American clients.

While banking secrecy for foreign clients has largely been dismantled through FATCA and the OECD Common Reporting Standard (CRS) for the automatic exchange of financial account information, a degree of confidentiality still exists for Swiss residents. Under Swiss law, domestic banking privacy remains protected unless there is a criminal investigation. Nonetheless, for non-residents, traditional Swiss secrecy is effectively a thing of the past.

“[An American billionaire] called me up and told me he had decided to move his money out of UBS over to a much smaller bank in Liechtenstein… The Liechtensteinians were even tougher than the Swiss when it came to outsiders screwing with their private business.”

Bradley Birkenfeld, Lucifer’s Banker Uncensored [1]

Complex Structures with Professional Gatekeepers

Beyond banks, a web of supporting professionals including lawyers, accountants, and trustees designed structures to separate the actual owner from their assets. Trusts, family foundations, shell companies, and hybrid vehicles became standard tools, creating legal smoke screens that even trained investigators struggled to pierce.

“That gentleman will set up company structures, trusts, foundations, and so forth. Your name won’t appear on any of their records, but you’ll be the ultimate beneficiary.”

Bradley Birkenfeld, Lucifer’s Banker Uncensored [1]

In practice, this meant that assets could circulate through foundations or offshore companies, all formally controlled by trustees or administrators, while the real beneficiaries remained hidden. The system rewarded complexity. The more layers between the money and its owner, the safer the wealth was from regulators or foreign tax authorities. Hiding assets was made into a product deliberately marketed to the wealthy.

Scandals and International Pressure

The very secrecy that made Liechtenstein attractive also made it a target. For years, its financial system quietly absorbed wealth from around the world. In the 2000s, cracks began to appear as international investigators and whistleblowers exposed how the extent to which the principality’s secrecy laws had been exploited.

The most infamous of these was Igor Olenicoff, a California real estate developer who became a symbol of how US fortunes escaped offshore. Olenicoff eventually pleaded guilty to filing a false tax return, admitting that he had hidden accounts across the Bahamas, Liechtenstein, the United Kingdom, and Switzerland. His case demonstrated how Liechtenstein was not used in isolation but as part of a global network of secrecy jurisdictions. The US Department of Justice exposed the techniques being sold to wealthy clients in a 2008 press release. Investigators revealed that some banks and advisers in Liechtenstein had encouraged clients to falsify tax returns, disguise assets as “loans,” and even destroy offshore banking records to keep wealth hidden from tax authorities.

Liechtenstein’s Reputation Under Fire

The damage to the reputation of Liechtenstein went beyond American headlines. Multiple stories surfaced of lost beneficiaries and trustees accused of mismanagement and abuse, exposing the opacity of family foundations that had been marketed as tools of asset protection. Families who believed their wealth was locked away safely in perpetuity sometimes discovered that the very structures designed to protect them had instead swallowed their assets. During an interview, a victim warned those considering the use of Liechtenstein-registered trusts:

“They will find that the trustees become the beneficiaries […] Then the judge and the Liechtenstein Trust Committee will side with the trustees.”

Tamar Perry, quoted in The Independent article “Liechtenstein: The mysterious tax haven that’s losing the trust of the super-rich.”

In the eyes of critics, instead of another tax-friendly jurisdiction Liechtenstein became a place where money could be stolen. By the late 2000s, the principality found itself under a level of international pressure it had never faced before.

The Liechtenstein Princely Collections are among the most important private art collections worldwide. They cover five centuries of European art with a focus on Flemish and Dutch masters, including the world’s largest collection of Peter Paul Rubens works and his Decius Mus cycle in eight paintings.

Rebranding a Tax Haven

International pressure eventually forced Liechtenstein to change course. In 2017, it formally abolished banking secrecy in tax matters and joined the global system of automatic exchange of information. Under this regime, tax-related data (including interest, dividends, account balances, and even capital gains) can be shared with national tax authorities. An agreement with the EU implemented in 2016 completed this shift. It ensured that EU citizens could no longer use Liechtenstein accounts to hide money from their home tax administrations.

However, while tax cooperation became mandatory, customer privacy did not disappear. Bank client confidentiality remains protected under Liechtenstein law, backed by civil codes on personality rights and modern data protection rules. In practice, this means authorities can track taxable financial flows, but individual banking relationships still enjoy strong legal safeguards.

Liechtenstein in the Global Map of Tax Havens

Despite its reputation, Liechtenstein has never ranked at the very top of the Financial Secrecy Index. Larger jurisdictions such as the Cayman Islands, Luxembourg, and Switzerland have long dominated the global perception of secrecy havens. Yet Liechtenstein has maintained a unique appeal, particularly for European clients looking for the benefits of discretion without transferring their wealth to distant islands or attracting the attention associated with using more notorious havens. Its allure lies in proximity, cultural familiarity, and the subtle promise of Swiss-style confidentiality with less international attention.

Liechtenstein’s competitive edge has always rested on its ability to blend banking privacy with highly flexible legal structures. While Switzerland relied on strict banking secrecy laws, Liechtenstein offered foundations and trusts that could obscure ownership while maintaining a veneer of legitimacy. This combination allowed clients to achieve their objectives within a legal system designed to blur the line between discretion and concealment.

Shaping Global Finance by Selling Financial Secrecy

The success of Liechtenstein is not merely a matter of geography, but the result of carefully aligned incentives. By selling tax advantages and protective laws, a small jurisdiction can generate outsized revenues and punch far above its weight in the international system. For clients, lower taxes, shielded ownership, and reduced exposure to international regulations made the cost of entry worth the potential risks.

The recent exposure of scandals involving the principality highlights how quickly a lucrative business model can become a liability. The very legal structures designed to attract capital can leave a jurisdiction vulnerable to external pressure once their inner workings are brought to light.

Financial secrecy is a marketplace, surviving only as long as buyers and sellers both see value in it. When scandals break or regulators sanction, the balance shifts. Instead, the model adapts as secrecy is rebranded, compliance is tightened, and the cycle resumes in a slightly different form. Liechtenstein serves as a reminder of how even the smallest jurisdictions can shape global finance. Beyond being a local service, secrecy is a global commodity, and this principality proves how much can be achieved when a country decides to sell it.

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Cover image: Flag of Liechtenstein (1982), Wikimedia Commons

References

1. Birkenfeld, Bradley. Lucifer’s Banker Uncensored: The Untold Story of How I Destroyed Swiss Bank Secrecy. Greenleaf Book Group Press, 2016.