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Liechtenstein’s Fintech Regulatory Landscape Takes Center Stage

Introduction

Liechtenstein has been making waves in the global fintech community due to its increasingly favorable regulatory landscape. But what makes Liechtenstein an attractive destination for fintech entrepreneurs and investors? And how does its regulatory framework support the growth of this rapidly evolving industry?

Sources of Payments Law

In Liechtenstein, payment services are primarily governed by the Payment Services Act (PSA), which came into effect in 2019. The PSA regulates all types of payment transactions, including credit transfers, direct debits, and card payments.

Non-Bank Providers of Payment Services

Yes, non-bank entities can provide payment services in Liechtenstein, subject to specific conditions. For example:

  • E-money institutions (EMIs) are allowed to issue electronic money and provide payment services.
  • Payment institutions (PIs) can offer payment transactions without taking possession of the funds.

Contactless payments and mobile wallets are gaining traction in Liechtenstein, with many citizens using their smartphones to make everyday purchases. Credit cards and debit cards are also widely accepted, particularly among younger generations.

Open Banking

Liechtenstein’s open banking framework is still in its early stages of implementation. The PSA requires banks to provide third-party service providers (TPPs) with access to account information and payment initiation services. However, the regulation does not yet cover push-payment functionality.

Data Regulation

The General Data Protection Regulation (GDPR) applies in Liechtenstein, governing the processing and protection of personal data in the fintech sector. Fintech companies must ensure that they comply with GDPR requirements, such as obtaining explicit consent from customers for data collection and processing.

Regulatory Support for Innovation

The Liechtenstein Financial Market Authority (FMA) has established a regulatory sandbox to facilitate innovation in the financial sector. The sandbox allows fintech companies to test new business models and products in a controlled environment, subject to specific conditions and oversight from the FMA.

Tax Incentives

Liechtenstein offers attractive tax incentives for fintech investors, including:

  • A 50% reduction on income tax for individuals who invest in fintech startups.
  • A 20-year tax holiday for companies that establish themselves as e-money institutions.

Investment Areas

Series A and Series B funding are currently available to Liechtenstein-based fintech companies, particularly in areas such as payments, lending, and digital identity verification.

Taxation for Foreign Entrepreneurs

Liechtenstein’s tax regime is favorable for foreign entrepreneurs, with a 20% income tax rate and no wealth tax. However, expats may be subject to taxes on their worldwide income if they spend more than 30 days in the country during a calendar year.

Immigration Rules

Liechtenstein has an open-door policy for highly skilled workers from EU countries. Non-EU citizens can also apply for work permits, but these are subject to strict requirements and may involve a quota system.

Intellectual Property Protection

Liechtenstein offers robust protection for intellectual property rights, including patents, trademarks, and copyrights. Fintech companies can register their IP in Liechtenstein and benefit from its favorable tax regime.

Cryptocurrencies and Initial Coin Offerings

The regulatory framework for cryptocurrencies is still evolving in Liechtenstein. While some cryptocurrencies are considered securities, others may be classified as commodities or utility tokens. Initial coin offerings (ICOs) are subject to strict regulations, and companies must comply with anti-money laundering (AML) and know-your-customer (KYC) requirements.

Blockchain Projects

Several blockchain projects are underway in Liechtenstein, including a national blockchain platform for secure data exchange and a decentralized digital identity solution.

Artificial Intelligence

Artificial intelligence is already being used in various aspects of the financial sector in Liechtenstein, such as customer service chatbots and credit risk assessment. While regulation may initially slow down its adoption, AI is expected to continue playing an increasingly important role in the country’s fintech industry.

Insurtech

The insurtech landscape in Liechtenstein is still in its early stages of development, with a focus on innovative insurance products and services for individuals and businesses.