Andorra, Liechtenstein, San Marino, Monaco

written by A. L. Hart Havens on April 1, 2022

Americans, Canadians, and Australians are often surprised when they discover just how small the territories of influential European countries are — with the exception of Russia of course. For instance, the United Kingdom, the world’s most powerful country for centuries and still an economic and military force to be reckoned with, has a land area smaller than that of the US state of Michigan.

Further examples include the economic powerhouse of Germany (smaller than Montana) and the former colonial power of Portugal (smaller than Indiana). In fact, the combined territory of the European Union’s 27 member countries is less than half the size of the United States.

More remarkable still are the European countries considered tiny by European standards, among which are some no larger than a mid-sized city in terms of both land area and population. The term microstate is often used to distinguish the world’s smallest UN member countries from micronations, which are self-proclaimed sovereign jurisdictions that do not enjoy international recognition as such. It should be noted however that microstate is an ill-defined term with no standard definition.

In light of this, Liberated Services will define a microstate in this article as a UN member country with a population lower than 100,000 and a territory smaller than 200 square miles (518 square kilometers). This eliminates countries like Malta (too populous), Luxembourg (too large and too populous), and Vatican City (not a UN member country).

Four countries in continental Western Europe qualify as microstates under this definition, and these are Andorra, Liechtenstein, San Marino, and Monaco. These tiny countries, all of which have astutely managed to stay out of both the European Union and NATO, will be covered below in order from geographically largest to smallest.

All of these miniscule jurisdictions boast incredible prosperity, old-money affluent lifestyles, tremendous generational wealth, and a high GDP per capita. However, their competitive advantages are undoubtedly eroding in the face of unrelenting pressure from EU and NATO countries which — rather than introducing competitive tax rates in their own countries — instead seek to strong-arm tax-friendly jurisdictions across the world into embracing the idea of bloated government.

Andorra

Nestled between France and Spain in the eastern Pyrenees Mountains, Andorra is by far the largest and most populous of the four Western European microstates with a territory of 180 square miles (467 square kilometers) and a population of 77,000. The country’s capital and largest city of Andorra la Vella has a population of 22,000.

The Andorran governmental system dates back to the 13th Century, when it was established as a co-principality with two official heads of state ― the Bishop of Urgell and the King of France. These influential powers over Andorra afforded to both Spain and France have endured to this day, although the President of France has taken the place of the King of France. The two current Andorran co-princes, Joan Enric Vives i Sicília and (laughably) Emmanuel Macron, rule Andorra alongside a prime minister (currently Xavier Espot).

Traditionally a tax haven and hub for banking privacy, Andorra like other similar jurisdictions has over the past 15 years increasingly succumbed to the sustained harassment by the EU, the OECD, and the G20 to abandon its wealth-attracting policies. The international pressure came to an initial boiling point in 2009 when then-president of France Nicolas Sarkozy threatened to renounce his title of co-prince unless Andorra agreed to modify its tax and banking laws to bring them into line with the French government’s demands.

The tenuous situation escalated further in 2015 when the United States government declared the Andorran bank Banca Privada d’Andorra a foreign financial institution of primary money laundering concern in application of Section 311 of the USA Patriot Act of 2001. In response to this blacklisting, the Andorran government introduced the automatic sharing with foreign governments of information concerning nonresident holders of Andorran-based bank accounts.

While Andorra certainly can no longer be considered a tax and banking haven in view of these disappointing changes, the country’s taxes have remained fairly low for European standards, with a standard sales tax (VAT) rate of 4.5% and a personal income tax rate of 10% on income exceeding €40,000. Andorra’s official currency is the euro and its official language is Catalan.

Andorra has the 27th highest nominal GDP per capita in the world according to UN statistics, although it would rank much higher if the Spanish and Portuguese immigrants working in the country were excluded from the statistic. Andorra’s economy is heavily geared toward tourism from France and Spain with an abundance of mountainside summer and winter ski resorts and fancy restaurants. Banking remains an important sector, albeit less so than in the past for the aforementioned reasons.

Liechtenstein

The German-speaking country of Liechtenstein is sandwiched in-between Switzerland and Austria in the Alps Mountains. Interestingly, Liechtenstein is the only country in the world other than Uzbekistan that is doubly landlocked, meaning that all of the countries that it borders are also landlocked. The upper section of the Rhine, Europe’s longest river, forms Liechtenstein’s entire western border with Switzerland. Winter sports like downhill skiing as well as auto racing are extremely popular in Liechtenstein.

Liechtenstein encompasses a territory covering 62 square miles (160 square kilometers) that is home to a population of 39,000, while its capital and economic center of Vaduz has a population of only 6,000. Liechtenstein boasts the highest nominal GDP per capita in the entire world at $180,000 and is by many metrics considered to be the world’s wealthiest country. The official currency of Liechtenstein is the Swiss franc.

The government of the Principality of Liechtenstein is organized as a constitutional monarchy that has been headed by Prince Hans-Adam II since 1989. However, Liechtenstein (like Switzerland) is also considered to be a direct democracy, meaning that the country’s laws are enacted largely based on the results of public referendums rather than on congressional voting by elected representatives.

Hans-Adam II proposed a new constitution in 2003 that sought to affirm his own legislative veto powers and confer upon himself the right to unilaterally appoint judges and dismiss government ministers. The constitutional referendum was criticized by other western countries as a highly controversial attempt to subvert democracy and restore an absolute monarchy, but the prince’s reforms were adopted by voters with a 65% approval rate.

Liechtenstein has experienced its fair share of conflict with EU governments and the OECD as well and has at times been blacklisted as an uncooperative tax haven. This was evidenced by the 2008 Liechtenstein Tax Affair, which saw extensive investigations conducted by foreign governments into the use of Liechtenstein bank accounts and trusts by their citizens allegedly for the purpose of tax evasion. The resulting backlash prompted Liechtenstein to abandon its longstanding policy of bank secrecy.

Liechtenstein is a member of the European Free Trade Association, which consists of four Western European countries that have declined to join the European Union. The other three members are Switzerland, Norway, and Iceland, and it is speculated that the UK may seek to join the EFTA in the wake of Brexit.

Liechtenstein and Switzerland have an agreement in place to keep their sales tax (VAT) rates equal, and 7.7% is currently the standard rate. And while personal income taxes in Liechtenstein are fairly low at the federal level, municipal tax surcharges can bring the total personal income tax rate up to 23% on annual income exceeding 200,000 Swiss francs. Surprisingly, Liechtenstein and Switzerland are two of only a handful of countries in the world that subject their resident population to an annual wealth tax, which is dubiously imposed on the value of their worldwide assets (although exceptions are granted to noncitizens in certain cases).

San Marino

The Western European microstate of San Marino, which is completely surrounded by Italy, covers a territory of 24 square miles (61 square kilometers) and hosts a resident population of 33,000. The national enclave is situated in the northeastern Italian Apennine Mountains only 6 miles (10 kilometers) from the Adriatic Sea and features extremely hilly terrain and quaint mountainside towns.

San Marino’s official language is Italian, its national currency is the euro, and the country has the world’s 12th highest nominal GPD per capita. Borgo Maggiore is San Marino’s undisputed economic center and most vibrant town, although it is neither the capital (San Marino City) nor the most populous settlement (Dogana).

San Marino has traditionally been viewed as a tax haven but the country today seems primarily concerned with offering tax rates that are only marginally lower than those imposed by Italy. Although there are a number of caveats that can come into play, San Marino’s corporate income tax rate is generally 17% compared to Italy’s 24%. While this may appear lucrative for nearby Italians (and it does attract businesses and wealthy individuals from Italy), it is certainly not a rate attractive enough to incentivize a savvy American, Canadian, or Australian entrepreneur to relocate to San Marino.

And like the other three countries covered in this article, San Marino has been intimidated into overhauling its financial sector to include anti-privacy regulations and other onerous compliance rules.

In a peculiar governmental setup, San Marino has two heads of state who are elected every six months by the country’s legislature ― the 60-member Grand and General Council. The two heads of state ― known as the captains regent ― are afforded equal powers throughout their six-month terms beginning on April 1 and October 1 of each year. Oscar Mina and Paolo Rondelli were elected as San Marino’s captains regent for the term beginning April 1, 2022.

An effort should be made to avoid confusing San Marino with San Remo, a town in northwestern Italy known for its storied Casino Sanremo that first opened in 1905. The Casino Sanremo has been featured in a number movies over the past 100 years and has hosted major poker and chess tournaments, among other things. The country of San Marino legalized gambling in 2007 and is home to one casino, the Giochi del Titano.

Monaco

The Principality of Monaco is a city-state in the Maritime Alps situated on the Mediterranean coastline of the French Riviera. Although Monaco does not share a border with any country other than France, it is located only 5 miles (8 kilometers) from Italy’s western border. It is the only one of the four Western European microstates that is not landlocked.

At under 0.8 square miles (2 square kilometers), Monaco is a genuine dwarf among dwarves. In fact, it is the world’s smallest internationally recognized sovereign jurisdiction after Vatican City. Monaco is amazingly home to 38,000 residents despite its extremely small territory, making it the world’s most densely populated country (and more than doubling the population density of #2 Singapore).

Because it is a city-state, Monaco does not have a capital or any cities or towns at all. Its most important area is the world-renowned district of Monte Carlo ― not to be confused with the Italian island of Monte Cristo, after which the famous deep-fried sandwich is named. Monaco’s official language is French, its national currency is the euro, and it boasts the world’s second highest nominal GDP per capita (after Liechtenstein). Around one third of Monaco’s residents are millionaires.

Aside from its incredible wealth, expensive yachts, and the prestigious Monaco Grand Prix of Formula One auto racing, Monaco is known for its luxurious state-run Monte Carlo Casino, which first opened in 1865. The casino is a major attraction for foreign tourists, although citizens of Monaco are not permitted to enter the gambling areas. There was a Monte Carlo Casino that existed in Las Vegas from 1996 to 2018 which was designed to emulate the original in Monaco.

The casinos of Monte Carlo and San Remo (not San Marino) are located less than an hour’s drive from one another on toll roads, and anyone embarking on the short journey will inevitably cross the borders of three countries ― Monaco, France, and Italy.

Monaco’s government is organized as a constitutional monarchy headed by a ruling prince, and the prime minister, who must be a citizen of either Monaco or France, is appointed directly by the Sovereign Prince of Monaco. This aristocratic title is currently held by Albert II — son of Monaco’s previous monarch Rainier III and American actress Grace Kelly.

Albert II inherited the citizenship of both Monaco and the United States at birth but decided to renounce his US citizenship as a young adult in light of the US government’s outrageous policy of citizenship-based taxation that keeps US citizens who reside abroad taxable in the United States indefinitely.

Although Monaco has unfortunately also been pressured into compliance with the OECD’s aggressive anti-privacy directives, the country has at least refrained from imposing any personal income taxes on its resident citizens. French citizens living in Monaco are an exception to this rule, however, as they cannot take advantage of the low tax rates due to a treaty in place with France under which they are treated as French tax residents. The low personal tax rates stand in stark contrast to Monaco’s business taxes, which can exceed 30% under certain circumstances.

The Passports of Western European Microstates

In terms of the visa-free travel afforded by their national passports, the four Western European microstates are approximately equal, with each scoring in the top of 50 of the 2022 rankings of the world’s 199 passports. Liechtenstein leads the pack at #36, followed by Monaco at #40, San Marino at #47, and Andorra at #48.

While missing out on parts of Africa and Asia, the holders of these four passports enjoy visa-free access to the entire developed world including the US, Canada, Japan, the UK, Australia, as well as the vast majority of Latin America and the entirety of Europe including Belarus. Access to Russia is available by way of an e-visa or visa on arrival. Furthermore, San Marino is one of around only 20 countries whose citizens enjoy visa-free access to mainland China. Andorra and Monaco feature red passport covers, while Liechtenstein and San Marino issue blue passports.

Although these passports are excellent travel documents and the underlying citizenships are arguably among the world’s best, it should be emphasized that they are incredibly difficult for foreigners to obtain. And this inconvenience is only compounded by the heavy restrictions that the governments of Andorra, Liechtenstein, San Marino, and Monaco place on dual citizenship, meaning that a foreigner eligible for naturalization in any of these countries will almost certainly be required to renounce his current citizenship(s).