The flag since 1937
The dwarf state Fürstentum (princedom) Liechtenstein had been sovereign since the Congress of Vienna in 1815 (even if protected by its bigger Neighbors of Austria-Hungary and [since 1923] Switzerland respectively) and enjoyed continuous peace since 1866 and (also since 1923, when the Swiss Franc was introduced as the currency) growing wealth.
When Austria was annexed by the "Großdeutsches Reich", the prince Franz Joseph II of Liechtenstein - an opponent of the Nazis - moved from Lower Austria to the princedom. He was the first prince who actually lived in the capital of Vaduz.
Although the small nazistic "Volksdeutsche Bewegung in Liechtenstein" under Theodor Schädler openly propagated joining Nazi Germany, demanded the Jews should wear the yellow star, and once even tried a Putsch, life seemed just to go on, and more than 95% of the population supported the prince and independence in a Referendum.
The End[]
When World War II had already ended in Europe, Adolf Nazi decided to "clean up the dwarf state garbage". On a single day, Liechtenstein was occupied by Wehrmacht troops, annexed, and the prince sent to exile in Switzerland. Many artworks from the castle ended up in the collections of Adolf Nazi and Hermann Göring. Switzerland and the Western Allies protested, but didn't do anything. From then on, all that was left of the former princedom were a few insignificant communities at the Western edge of the Reichsgau of Tyrol-Vorarlberg, divvied up among the counties of Bludenz and Feldkirch.