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The Establishment
For holding and domiciliary companies, the Establishment is the most favoured corporate form.

 

I. Legal Basis and Concept of the Establishment


The Persons and Companies Law (Personen- und Gesellschaftsrecht), hereinafter called PGR, treats The Establishment in the second chapter which deals with Legal Entities. According to paragraph 534 PGR the Establishment is a distinct juridical person with a specific internal organization. It may have commercial or other objects and must be entered in the Commercial Registry. The Establishment holds rights and property personal to it and is generally speaking not a public company. An Establishment may have members and capital divided into parts, or no members and undivided capital. Generally speaking the Establishment is a privately organized undertaking with its own legal personality and founded with a stated amount of capital. Such Establishments, the activities whereof are of an unlimited duration and semi-public in nature (social services, churches, or public utilities, for example) are public Establishments and are subject to official supervision and regulation. Eccelesiastical Establishments are subject to public law and supplementary thereto, to canon law. Establishments which do not enjoy a separate juridical personality (dependent establishment) as well as other unincorporated endowments are not subject to the provisions concerning the Establishment, but rather to those concerning the implied trust. For the purposes of this brochure the usual form of the Establishment, common in Liechtenstein, which has developed through practice and the jurisprudence shall be dealt with. This is an Establishment without members, the capital whereof is, for tax reasons, not divided into shares. The supreme executive organ is the Founder. The Establishment is represented through its Board of Directors.

 

II. The Formation of an Establishment


An Establishment may be formed by either a natural or a legal person. The Founder may be of any nationality. Only one Founder is required. The operation of a domiciliary or holding Establishment requires no official approval or business licence. A person may form an Establishment for himself or for another party pursuant to a power of attorney or by fiduciary agreement. In normal practice a Liechtenstein attorney or trust company acts as Founder of an Establishment, thus protecting the anonymity of the actual owner or beneficiary. The formation requires the submission of written articles for the Establishment signed by the Founder and notarized or otherwise authenticated. The articles must contain at least the following:

  • The name and registered office of the Establishment
  • The objects of the Establishment
  • The stated capital
  • The manner in which the business will be administered (Board of Directors)
  • Principles concerning the preparation of financial statements and the application of surplusses
  • Form of legal notice.

 

Other matters may be included in the articles such as the manner of appointing officials and representatives, signing authorities, etc. Should the articles be mute on certain matters, the legal norms for Establishments (Articles 534-551 PGR) will be applicable. Supplementary thereto, reference will be made to the regulations pertaining to Trust Entities (Article 932a, 1-170 PGR) and/or to the general regulations pertaining to legal entities. 

1. The Name


Generally speaking, the name of the Establishment can be freely chosen. The name must be in compliance with certain legal restrictions. Descriptive words following the name may have personal meaning to the owner, describe the firm's activities, relate to heirs or beneficiaries, contain trade names, refer to the location of the activity, or may be pure fantasy. The name as a whole however, must not be untruthful, immoral, or otherwise contrary to law. Names designed purely for publicity purposes are not permitted. Names of holding or domiciliary companies may not contain words with national connotations, such as "Liechtenstein", "State", "Land" or words such as "Bank", "Law" or "Trust" either alone or in connection with other words. Names indicating a particular relationship to the local community, or a public international organization, require special approval from the Princely Government. Domiciliary or holding Establishments may have their name entirely in a language other than German. Should a name be registered in more than one language, the various linguistic versions must coincide as much as possible. The name of an Establishment must contain the word "Establishment" or its equivalent in other languages (French: "Etablissement", Italian: "Stabilimento", and German: "Anstalt").

 

2. The Objects


The objects of the Establishment are set forth by the Founder in the articles of incorporation and can be stated as desired, provided that the same are not immoral or illegal in application. The objects may be set forth in detail or stated in broad terms. The objects may be of a commercial or non-profitable nature. If the objects permit the Establishment to engage in commercial or industrial activities or a trade, it must keep proper books and records as well as submit annual financial statements.

If however, the objects limit the activities of the establishment to the holding and management of its movable and immovable assets, the holding of equity participations and other rights, the establishment is only required to prepare an annual statement showing its net worth.

 

3. Capital


Establishments whose capital is not divided into parts or shares must have a minimum capital of Swiss Francs 30.000,- which must be fully paid in. Property in kind may also be accepted as capital. A certification by a Liechtenstein or Swiss bank that the capital has been paid in must be presented to the Registry officials along with the other constitutive documents. The capital must remain in the incorporation account at the bank until the Establishment is registered. It is then available to the Establishment to be applied according to the objects. The executive organs of the Establishment are legally obligated to preserve the stated capital.

 

4. The Commercial Register


The Establishment achieves legal personality at the moment it is entered in the Commercial Register (Public Registry). Registration requires submission of the articles, the constitutive declaration, proof that capital has been paid in, and evidence that the official registration fees have been paid. The following information is entered in the register:

  • Name and registered office of the Establishment
  • Date of the articles, objects, the stated capital, the Board of Directors and their respective signing authorities
  • The registered agent, and form of legal notice

 

There is no publication of the registration. The office of the Public Registry will, upon application, issue abstracts concerning individual companies. The abstract will only consist of the above-mentioned information entered in the Registry.

 

III. The Organization of the Establishment


The executive organs are:

  • The Founder
  • The Board of Directors
  • The Auditors

 

1. The Founder


The supreme executive organ of the Establishment is the Founder or his legal successor(s). The Founder's rights are stated in the Establishment's articles within the prescribed legal limitations. Normally the Founder's rights include:

  • Designation of his legal successor(s);
  • The appointment, dismissal, and the exoneration of the members of the Board of Directors;
  • Determination of the signatory authority of the Board of Directors;
  • The right to supplement and to amend the articles;
  • The issue of the by-laws and regulations for the Establishment;
  • Approval of the annual financial statements and disposition of profits;
  • Appointment of those entitled to enjoyment of profits and/or liquidation proceeds;
  • Reorganizations and mergers;
  • Dissolution and liquidation of the Establishment:

 

The supervisory rights of the Founder may be compared to those of the general meeting of shareholders of a corporation. The Founder may transfer the rights given him by law and by the articles, in part or in total, to one or more assignees or legal successors. The Founder's rights may also be passed by inheritance.

 

2. The Board of Directors (Management)

 

The Board of Directors are normally appointed by the Founder for a term of three years, but may be appointed for lesser or longer terms of office. The Board may consist of one or more natural or legal persons. At least one Director, authorized to represent and conduct business for the Establishment must have his registered office in the country. This member must also be authorized to practice as a lawyer, trustee, or auditor, or have other qualifications recognized by the government. There are no other requirements as to the nationality or residence of the remaining members of the Board. The member's names, addresses, and signatory authorities are registered in the Public Register. The Board manages the Establishment and represents it vis à vis third parties. Within the competence of the Board of Directors are all matters which are not specifically reserved to the Founder. The Founder may give the Board authority to exercise some or all of his rights. The Board may appoint its own members, or others, as signing authorities or agents of the Establishment, and may define their respective authorities. The Board may assign its management and executive responsibilities partially or completely to one or more of its own members, or to third persons. In carrying out its management and representational functions, the Board must observe all limitations on its authority contained in the articles or in instructions and/or regulations issued by the Founder.

 

3. The Auditors


The law requires the appointment of Auditors, if the Establishment carries on business, or if the objects of the Establishment would permit it to do so. If the objects of the Establishment are limited to the management of assets, the holding of participations and other rights, then it is not necessary to appoint an auditor. The Auditors review whether the financial statements comply with the law and the articles. The auditor is obligated to bring to the attention of the supreme executive organ (usually the holder of the Founder's Rights) any violation of the law or prescriptions contained in the articles as well as any other irregularity which it discovers in the course of carrying out its duties.

 

4. The Agent for Service (Repräsentant)


According to paragraph 239 of the PGR each Establishment must have a legal representative or agent for service which must be a natural person, resident in Liechtenstein or a Liechtenstein corporate entity.

The agent for service represents the company towards authorities. According to the law he may accept the service of declarations and any other notice or information of whatever nature and kind whatsoever. In the absence of a specific power of attorney or authorisation, the agent for service has no further competences. The agent for service has no management authority.

 

IV. The Activities of the Establishment


The activities depend upon the objects described in the Establishment's articles. The following types of activities may, depending upon specific requirements, be included in the articles either as the sole function of the Establishment, or in conjunction with other lawful activities.

  • Holding Function
    Holding companies hold shares in, or provide financing for other companies. Holding companies may also be formed for the purpose of controlling foreign companies, or groups of companies. Such companies may also provide coordination or management services for related or controlled (subsidiaries) companies.
  • Property Management
    Establishments may be used to manage property. This may be done for tax reasons, or based on family or inheritance considerations.
  • Trading Companies
    An Establishment may conduct a trading operation for its own account or on behalf of others.
  • Exploitation of Patents and other Intellectual Property. Profits from licensing agreements can be accumulated and invested without domestic tax exposure.
  • Financing
    Interest earned on funds invested outside Liechtenstein is not subject to domestic taxes.

The Establishment's objects may include all other types of activity, such as those of an agent, distributorships, the buying and selling of securities for its own account, the provision of services, sales, property management and development, provision of "know how", brokering, etc. An Establishment may be engaged in one or more, or all of the above activities.

 

V. The Beneficiaries

 

The Beneficiaries are those natural or legal persons designated by the Founder, or person holding the Founder's rights, as entitled to receive the profits and/or liquidation proceeds of the Establishment. The right to appoint beneficiaries is usually set forth in the articles and may be reserved to the Founder or granted to the Board of Directors or to third persons. If no beneficiaries are appointed, the Founder or his successors are presumed to be the beneficiaries.

 

VI. The Liability of the Establishment

 

Article 548 PGR limits the liability of the Establishment to the extent of its assets. No personal liability extends to the Founder or to the management of the Establishment.

 

VII. The Accounting for the Establishment


If the Establishment does carry on business, or if the objects of the Establishment, as laid down in the articles permit the same, then fully audited financial statements must be submitted annually to the Liechtenstein tax authorities in Vaduz. The statements are not required to be published. The Liechtenstein tax officials are legally bound to observe strict confidentiality. If the objects of the Establishment are limited to the management of assets, the holding of participations and other rights, then it is not necessary to appoint an auditor. In this case, the Establishment is obligated to make a Declaration concerning its net worth. The Board member of the Establishment resident in Liechtenstein must give a written Declaration to the Public Register within six months after the close of the financial year. This Declaration must merely confirm that a list of assets has been drawn up at the end of the previous financial year (without revealing information concerning the actual net worth) and that the Establishment has not carried out any commercial business during the previous year. All records of an Establishment must be preserved for ten years. Accounting books and records, with the exception of the financial statements, may be stored in microfilm or similar form.

 

VIII. The Liquidation of the Establishment


The right to liquidate is that of the Founder or the holder of the Founder's rights. In a resolution to liquidate, the Founder shall designate one or several liquidator(s) and establish his (their) authority. The resolution to liquidate will be entered in the Commercial Register, and notice to creditors will be published in the official publication of Liechtenstein. The Establishment in liquidation retains its identity as a legal person and adds the words "in liquidation" to its name. In the liquidation process the liquidators must first prepare a liquidation balance sheet. Thereafter they must proceed to call in receivables, realize the assets and wind-up current business. The liabilities of the Establishment are to be discharged. Fixed assets are to be liquidated and uncalled capital called in to the extent that the same is legally required. Known creditors may be paid either by depositing funds with the court, or by direct payment. The liquidation surplus is distributed to the beneficiaries. An Establishment in liquidation must nevertheless prepare annual financial statements. At any time during the liquidation process the Founder may rescind his decision to liquidate and carry on with business as usual. Generally speaking after the expiry of six months calculated from the notice to the creditors, the Establishment may be struck from the commercial registry. Prior thereto the supreme executive organ of the Establishment must approve the final financial statements and exonerate the liquidators. Any liquidation proceeds are paid to the beneficiaries designated by the holder of the Founder's rights. All records of a liquidated Establishment must be preserved for ten years.

 

IX. Incorporation Expenses and Taxes for an Offshore Establishment

1. Formation costs

 

a) Formation Fee
The formation costs for the Establishment are 1 % of the stated capital exceeding Swiss Francs 250.000, - and are reduced to 0.5 % for amounts exceeding Swiss Francs 5.000.000, - and to 0.3 % for amounts exceeding Swiss Francs 10.000.000,-.

b) Registration Fees
The fees for registering the company in the Commercial Registry are Swiss Francs 700,- for a stated capital of up to 100.000,-. If the stated capital exceeds the said amount, then the fees increase by Swiss Francs 200,- for each additional 100.000,- to a maximum fee of Swiss Francs 7.000,-. In addition thereto, the notary fees are several hundred Francs.

 

2. Annual Tax on Capital

Holding and Domiciliary companies pay an annual tax on capital calculated as 1 promille of the net worth of the company, but in any event a minimum of Swiss Francs 1.000,-. Dividend distributions including the liquidation dividend of

Establishments having an undivided capital are free of any tax including withholding tax. No other taxes are imposed upon the Establishment.

 

X. Double Taxation Treaties

1. Liechtenstein-Austria


Liechtenstein has only one comprehensive double-taxation treaty, that being with Austria. Its purpose is to avoid the double taxation of income, property, and inheritances. The treaty provides:

  • Income taxes may be levied only by the state in which the person receiving the income is resident.
  • In the case of income from immovables, in that state in which the immovable property is located.

 

Provisions which are available to avoid double-taxation are reservations concerning the marginal rate, foreign-tax credits as well as provisions concerning the refund of taxes deducted at source.

 

2. Tax Treaty with Switzerland


Before 1995 there was no tax treaty with Switzerland. After the new federal taxation code entered into force on the 1st day of January 1995 concerning direct federal taxes as well as taxes at source, it was necessary for Liechtenstein to enter into a tax treaty with Switzerland in order to avoid the double-taxation of commuters and retired persons at the federal level. The basic premises of the treaty provide that:

  • Interest paid on mortgages may only be taxed by the resident state of the mortgagee.
  • The income of commuters may only be taxed by the country of their residence and no taxes may be imposed by the state where the place of work is.
  • Pensions, annuities and lump sum pensions may only be taxed by the state of residence of the payee.

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Publisher and Copyright Owner:
ArComm Treuhand Anstalt

Editing and Arrangement:
Dr. iur. et lic. oec. Norbert Seeger

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Disclaimer


The material contained in this publication is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. The publisher, the author and editor expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this publication.