Liechtenstein is a well-known tax haven
Liechtenstein is to ease its bank secrecy rules and swap information with foreign governments to help combat tax fraud and evasion.
The tiny principality will now adopt OECD standards on cross-border tax negotiations and offer bilateral tax deals on co-operation.
It had come under pressure to co-operate with other states' investigations into tax evasion.
Liechtenstein has been on an OECD blacklist of tax havens.
"Our bank secrecy has always served to ensure the legitimate protection of the privacy of the citizen, which we will continue to retain," said Prime Minister Otmar Hasler.
"With this declaration, however, we want to make clear that bank client confidentiality in future cannot be misused to facilitate tax crime," he added.
As the world economy deteriorates, European governments have been seeking help in the fight against tax evasion as they try to increase tax revenues.
Liechtenstein came under pressure to ease its tax laws last year when Germany bought data from a former bank employee and used it to open a tax evasion investigation.
In a deal signed in December, the principality agreed to grant US tax authorities access to information kept by its banks on Americans in certain cases of tax evasion.
The US-Liechtenstein deal will come into force in 2010 and will look at tax cases from 2009 onwards.
Liechtenstein's banks have 200bn Swiss francs (£112bn; $165bn) in assets, compared with Swiss banks' assets of 4.5tn Swiss francs.