Almost 30 years ago Liechtenstein became a member of the European Economic Area (EEA). This membership is often called a model of success, and is now undisputedly recognised as a groundbreaking step in Liechtenstein’s economic development. Liechtenstein also shares a common economic and currency area with Switzerland. Access to both, the EEA and the Swiss market, is one of Liechtenstein’s strength as a business location and offers many advantages.
Liechtenstein’s alliance with the EU
In May 1992 the EEA agreement was signed in Portugal by the then member states of the European Union (EU) and the European Free Trade Association (EFTA). Liechtenstein and Switzerland were also represented. The purpose of the agreement was to make the European single market accessible to the EFTA member states.
In order to effectively join the EEA, the agreement had to be confirmed by the Liechtenstein people. In the run-up to the corresponding referendum, it became clear that the Swiss population – which would be voting in advance of Liechtenstein – would probably oppose the agreement. This led to concerns at home, with the reigning Prince Hans-Adam II of Liechtenstein strongly advocating for bringing forward the voting date in Liechtenstein. He saw the EEA as the best form of cooperation with the EU that was also compatible with small states.
However, the Liechtenstein voting date remained the same. As expected, the Swiss population voted by a narrow majority against the EEA agreement. How would the Liechtenstein people react to this? There was also the question of how joining the EEA would affect the 1923 economic and customs treaty with Switzerland.
On 13 December 1992, 87% of those eligible voted in Liechtenstein. Contrary to all predictions, there was a clear majority in favour of ratifying the EEA agreement. The understanding of the necessity of the EEA for Liechtenstein had prevailed and unrestricted access to the European single market was assured.
Where we stand today
With the EEA agreement, Liechtenstein gained access to the European internal market, while at the same time preserving its sovereignty. The concern that an EEA accession would affect the economic and customs treaty with Switzerland – which will be discussed later – has not come true. On the contrary: Liechtenstein’s access to the EEA and Switzerland, as a result of its membership of two economic areas, has become an important distinguishing feature and positively characterises Liechtenstein as a business location today.
But what are the concrete benefits of EEA membership? The agreement guarantees what are often referred to as the four freedoms: the freedom of movement for goods, people, services and capital. This opens up extensive opportunities for Liechtenstein as an industrial location, a financial centre and a labour market. Also all legal forms possible under Liechtenstein law must be recognised throughout Europe.
Liechtenstein also has unrestricted access to the European single market with over 450 million consumers. Through its EEA membership, Liechtenstein gains access to the EU’s global free trade and association agreements, and legal certainty in the EU context is strengthened. The EEA membership also gives Liechtenstein businesses and the local population access to various funding programmes.
The legal perspective
EU law rules which are relevant to the EEA single market are transposed to the legal order throughout the whole of the EEA. Therefore, Liechtenstein’s financial market regulation is substantially shaped by the EEA relevant financial market regulations of the EU. This is an important pillar for the international recognition of the domestic financial centre. Liechtenstein also adopts most of the regulations in the sphere of international taxation, such as the automatic exchange of information, which forms an integral part of ensuring that Liechtenstein legal entities are recognised by European member states, and can be used for international asset structuring.
Liechtenstein legal entities such as the Liechtenstein foundation can be used in all EU member states to structure assets. They are used in particular for succession and estate planning, as well as the preservation of wealth over generations. This opens up a wide range of possibilities, especially for entrepreneurial families, with positive effects for European family businesses.
In summary, EU legislation has an impact on EEA law and thus on Liechtenstein law. However, there is room for flexibility when adopting Liechtenstein law, as long as this does not contradict EEA law.
The future of the EEA
Current developments understandably raise questions about the future viability of the EEA. It must be positively emphasised that the EEA is a proven instrument for a successful economic alliance with the EU without demanding full membership.
It will be essential for the EEA that the existing member states further strengthen the recognition of the four fundamental freedoms and the non-discriminatory access to the EU’s internal market and that they uphold their right to self-determination. From the very beginning, the EEA has stood for a partnership-based alternative to full EU membership and has provided a healthy market-economy balance.
The EEA regulates many framework conditions that would otherwise have to be defined in specially negotiated intergovernmental treaties and agreements. The EEA is therefore a resource-saving alternative. These types of alliances which allow for participation and autonomy at the same time will only grow in importance.
The biggest threat to the continuity of the EEA would be if the existing member states or Brussels no longer supported the concept of the EEA – which is characterised by its idea of subsidiarity and differentiated integration. This does not appear to be the case at present.
Liechtenstein’s alliance with Switzerland
On 29 March 2023, Liechtenstein and Switzerland celebrated the 100th anniversary of their customs treaty, with which both countries declared their intention for a common economic area in 1923.
The starting point for this alliance was the dissolution of the Austrian Empire and, as a consequence, the disintegration of Austria’s economic power. Liechtenstein was both economically and politically isolated and struggled with high levels of unemployment and poverty. In 1919, Liechtenstein was forced to dissolve its treaties with Austria. In the same year talks with Switzerland began.
Initially there was resistance to an alliance, negotiations were tough, and Liechtenstein was put through its paces by Switzerland. There were concerns that Liechtenstein’s integration into the Swiss customs territory could have an impact on the neighbouring Swiss territories. However, these concerns soon evaporated.
The Liechtenstein-Swiss customs treaty, together with other decisions such as the implementation of a liberal Persons and Companies Act in 1926 (which included a Liechtenstein trust concept based on the Anglo-Saxon trust and the Liechtenstein family foundation) and the rapid economic growth in Europe after the end of the Second World War, proved to be a further milestone in Liechtenstein’s positive economic development.
Today, Liechtenstein can build on a friendly and constructive partnership with Switzerland and participate in over 100 Swiss agreements. With the Swiss franc as its national currency, Liechtenstein benefits from having one of the most stable currencies in the world. If you would like to learn more about the
Liechtenstein-Swiss customs treaty and the currency agreement, visit www.zollvertrag.li
Conclusion
As with all treaties, the EEA membership and the partnership with Switzerland not only bring with it advantages and benefits, but also duties and obligations. Liechtenstein is aware of its responsibilities and strives to be a reliable and trustworthy partner for both Europe and Switzerland.
These efforts enhance Liechtenstein’s stability and strengthen the Liechtenstein financial centre in its range of services for internationally positioned families and entrepreneurs. Economic stability, political reliability and innovative foresight are fundamental pillars for long-term wealth preservation solutions and generation-oriented wealth management.