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Liechtenstein: Still an Excellent Jurisdiction for Tax-Compliant Offshore Planning

02/25/2013
As a result of severe international pressure, Liechtenstein recently announced a new policy of transparency in cases of tax fraud. As a result, owners of undeclared secret accounts that violate their home countries’ tax laws are now looking elsewhere. Liechtenstein, however, still remains an excellent jurisdiction for tax-compliant offshore planning.

In December 2008, Liechtenstein signed an agreement with the United States to share banking information regarding U.S. tax payers with accounts in Liechtenstein. Liechtenstein’s agreement with the U.S. was followed by its March 2009 agreement with the OECD which promised more financial transparency. This erosion of Liechtenstein’s long-standing bank secrecy regime effectively ended Liechtenstein’s reputation as a “tax haven” for assets sought to be kept hidden from tax authorities.

At the outset, we note, once again, that we have always counseled our clients against maintaining an undeclared foreign account (in Liechtenstein, Switzerland or anywhere else) and relying upon expectations or promises of banking secrecy as a means of avoiding taxation. Secrecy is far from absolute, as recent events have shown and such accounts violate U.S. tax law. Thus, if you have a non-compliant offshore account, you should consider voluntary disclosure of that account before the IRS discovers it. The IRS is offering a sort of “amnesty” to taxpayers who voluntarily come forward before they are discovered. The IRS’ Voluntary Disclosure Program offers reduced penalties and a promise of no criminal prosecution. Such a pre-emptive disclosure is best made by qualified legal counsel, experienced in offshore compliance and IRS negotiations. For more information about the Voluntary Disclosure Program, please read our recent article.

Although Liechtenstein is no longer a “secret tax haven” for non-compliant accounts, Liechtenstein is still the most politically, socially and economically stable and secure jurisdiction for tax-compliant asset protection planning and for tax-compliant strategies to minimize US taxation on foreign income, including capital gains tax, ordinary income tax and estate tax, via use of foreign deferred variable annuities, private placement international insurance, offshore captive insurance and re insurance entities, offshore non grantor trusts and other international vehicles in the implementation of tax minimization plans that comply with U.S. and foreign tax laws.

In addition, notwithstanding the elimination of banking secrecy vis-a-vis the IRS, Liechtenstein is still one of the very best jurisdictions for asset protection vis-a-vis civil creditors. In fact, banking secrecy still exists for a Liechtenstein bank account that is tax-compliant and at the same time protected from civil creditors. As we detailed in a recent case history, based upon our actual client and real events, asset protection is still sound, legal and effective. In that case, the client conveyed her assets to an asset protection trust in Liechtenstein. The trust funds were administered and controlled by a licensed, bonded, qualified and reputable trustee in Liechtenstein. The trustee and the trust assets were outside the reach of U.S. jurisdiction. The client’s creditor was forced to commence a new lawsuit in Liechtenstein, at great effort and expense, and ultimately lost. Since February 2009, when we wrote the case history , the highest court in Liechtenstein affirmed that the trust assets remained out of the reach of the client’s U.S. creditor.

Thus, offshore tax and asset protection planning in Liechtenstein is very much alive and 100% effective, provided that it is done properly and tax compliantly. While Liechtenstein’s appeal as a “secret tax haven” for undeclared assets may be over, it offers a secure and stable jurisdiction for tax minimization strategies which are compliant with U.S. tax law. Moreover, Liechtenstein’s attraction as an asset protection jurisdiction is undisputed and, most recently, highlighted by its Supreme Court ruling in favor of our client against her creditors. “Hiding” assets does not work; “protecting” assets does.