Liechtenstein - Overview of economy



Liechtenstein is tiny in size and has very limited natural resources, but it is nevertheless a prosperous country with a highly industrialized market economy and a robust financial services sector. Since World War II (in which the principality remained neutral), its liberal political regime and remarkably low business taxes have fueled strong economic growth and attracted many foreign companies. For over 80 years, Liechtenstein has been participating in a customs union with Switzerland; it uses the Swiss franc as its national currency, and in most aspects may be regarded as a part of the Swiss economy. Liechtenstein statistics are also included in the Swiss national statistics. Since 1919, Switzerland has represented Liechtenstein abroad diplomatically, as well. Living standards in the country are similar to those in the urban areas of neighboring Switzerland and Austria, both reckoned among the most affluent societies in the world. Its gross domestic product (GDP) per capita of $23,000 (1998 estimate) is also among the highest in the world.

Favorable tax treatment and extremely streamlined incorporation legislation have lured as many as 74,000 holding (or so-called "letter box") companies, operating overseas, to establish their head offices nominally in Liechtenstein, providing thus as much as 30 percent of the country's revenue basically in maintenance, administrative, and office services fees. Liechtenstein has been an active member of the European Economic Area (EEA), an organization serving as an intermediary between the European Free Trade Association (EFTA) and the European Union (EU) since May 1995. The government is working to harmonize its economic policies and legislation with those of the EU, although it is not negotiating for full membership in the union.

Some modern manufacturing industries have developed recently; notably in precision instruments, dental and optic materials, pharmaceuticals, and electronics. These industries contribute much to the country's positive trade balance. Yet much of the principality's income is also derived from tourism, banking, the sale of postage stamps and other retail services, and from the office expenses of the international companies maintaining their headquarters there.

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