The Legislative Landscape of Cryptocurrencies in Liechtenstein Prior to 2023

Liechtenstein, a small yet progressive country, has emerged as a crypto-friendly jurisdiction, recognizing early the potential of blockchain and distributed ledger technology (DLT). The government’s proactive approach led to the establishment of the Blockchain Act, officially known as the Law on Tokens and Trusted Technology Service Providers (TVTG), which came into effect in January 2020. This comprehensive and technology-neutral legislation regulates the token economy, focusing on the rights and obligations of service providers engaged in TT systems, supervised by the Financial Market Authority (FMA)​​.

Key Elements of the TVTG

Service Provider Licensing: The TVTG mandates licensing for various services linked to DLT, including token issuers, custodians, exchange service providers, and more. Each service provider must adhere to specific requirements, such as initial capital, IT infrastructure, and management suitability​​.

Civil Law Framework: A pioneering aspect of the TVTG is the Token Container Model (TCM), which provides a civil law basis for the creation, ownership, transfer, and deletion of cryptoassets. This model treats tokens as containers of rights, applicable universally across various types of assets​​.

Regulatory Adjustments for MiCA: With the implementation of the EU’s Markets in Crypto-Assets Regulation (MiCA), Liechtenstein is aligning its TVTG regulations to ensure a smooth transition. This includes incorporating cryptoasset services such as trading platform operation and portfolio management into the TVTG​​.

Financial Market Regulations: Depending on their classification, cryptoassets might be subject to additional financial market laws like the Banking Act or the Act on Alternative Investment Funds. For example, security tokens are treated like financial instruments and are subject to relevant regulations​​​​.

Cryptocurrency Use and Taxation

In Liechtenstein, cryptocurrencies, while not considered legal tender, are widely accepted as a means of payment. Bitcoin, for instance, is viewed as a foreign currency for tax purposes. Taxation of cryptoassets varies based on their classification as utility tokens, payment tokens, or security tokens​​.

Anti-Money Laundering and KYC Regulations

Liechtenstein has implemented robust anti-money laundering (AML) and know-your-customer (KYC) regulations under the Due Diligence Act. These regulations apply to all token issuers and certain TT service providers, ensuring a comprehensive system to combat financial crime​​.

Promotion and Testing

The country doesn’t have a specific regulatory sandbox, but the FMA and a dedicated government body facilitate fintech and blockchain development. The EU’s DLT Sandbox Regime, applicable in Liechtenstein, enables DLT-based trading and settlement systems​​.

Other Aspects

Mining Regulations: Cryptocurrency mining, depending on the business model, might fall under the TVTG or other financial market laws​​.

Border and Reporting Regulations: There are no specific border restrictions or declaration requirements for cryptocurrencies. The reporting of transactions follows a risk-based assessment​​​​.

Estate Planning: General civil law rules apply to cryptocurrencies in estate planning, with practical challenges in accessing cryptocurrencies held in self-custody​​.

This legislative framework reflects Liechtenstein’s commitment to fostering a regulated yet innovative environment for cryptocurrencies and blockchain technology, positioning it as a leader in this field within the European context.