Austria vs. Liechtenstein

Austria is a well-developed market economy with skilled labor force and high standard of living. It is closely tied to other EU economies, especially Germany's, but also the US', its third-largest trade partner. Its economy features a large service sector, a sound industrial sector, and a small, but highly developed agricultural sector.

Austrian economic growth strengthen in 2017, with a 2.9% increase in GDP. Austrian exports, accounting for around 60% of the GDP, were up 8.2% in 2017. Austria's unemployment rate fell by 0.3% to 5.5%, which is low by European standards, but still at its second highest rate since the end of World War II, driven by an increased number of refugees and EU migrants entering the labor market.

Austria's fiscal position compares favorably with other euro-zone countries. The budget deficit stood at a low 0.7% of GDP in 2017 and public debt declined again to 78.4% of GDP in 2017, after reaching a post-war high 84.6% in 2015. The Austrian government has announced it plans to balance the fiscal budget in 2019. Several external risks, such as Austrian banks' exposure to Central and Eastern Europe, the refugee crisis, and continued unrest in Russia/Ukraine, eased in 2017, but are still a factor for the Austrian economy. Exposure to the Russian banking sector and a deep energy relationship with Russia present additional risks.

Austria elected a new pro-business government in October 2017 that campaigned on promises to reduce bureaucracy, improve public sector efficiency, reduce labor market protections, and provide positive investment incentives.

Despite its small size and lack of natural resources, Liechtenstein has developed into a prosperous, highly industrialized, free-enterprise economy with a vital financial services sector and one of the highest per capita income levels in the world. The Liechtenstein economy is widely diversified with a large number of small and medium-sized businesses, particularly in the services sector. Low business taxes - a flat tax of 12.5% on income is applied - and easy incorporation rules have induced many holding companies to establish nominal offices in Liechtenstein, providing 30% of state revenues.

The country participates in a customs union with Switzerland and uses the Swiss franc as its national currency. It imports more than 90% of its energy requirements. Liechtenstein has been a member of the European Economic Area (an organization serving as a bridge between the European Free Trade Association and the EU) since May 1995. The government is working to harmonize its economic policies with those of an integrated EU. As of 2015, 54% of Liechtenstein's workforce consisted of cross-border commuters, largely from Austria, Germany, and Switzerland.

Since 2008, Liechtenstein has faced renewed international pressure - particularly from Germany and the US - to improve transparency in its banking and tax systems. In December 2008, Liechtenstein signed a Tax Information Exchange Agreement with the US. Upon Liechtenstein's conclusion of 12 bilateral information-sharing agreements, the OECD in October 2009 removed the principality from its "grey list" of countries that had yet to implement the organization's Model Tax Convention. By the end of 2010, Liechtenstein had signed 25 Tax Information Exchange Agreements or Double Tax Agreements. In 2011, Liechtenstein joined the Schengen area, which allows passport-free travel across 26 European countries. In 2015, Liechtenstein and the EU agreed to clamp down on tax fraud and evasion and in 2018 will start automatically exchanging information on the bank accounts of each other's residents.