A Dutch Foundation is regulated under the Netherlands Civil Code and not the Netherlands Commercial Code as are corporations and companies and other legal entities. The Dutch Civil Code (Burgerlijk Wetboek), Boek 2 Art 285-304 governs the formation, activities, and termination of foundations.
A foundation is known as a stichting in Dutch which is a legal entity. Therefore, a foundation can own real property, physical assets, open brokerage and bank accounts, and accumulate its own debts. In addition, the foundation may enter into legally binding contracts, initiate lawsuits in its own name and be sued on a court of law. A foundation can also provide loans to third parties. Other countries call this type of foundation a “private interest” one.
It has no members or shareholders. Normally, a foundation will not carry on commercial activities, but exceptions exist. Dutch foundations can earn profits, but they are subject to restrictions. First, they must register with the Dutch Companies Register in order to carry out business activities.
Foreigners generally set up foundations in Holland in order to provide for their families. They minimize taxation and provide excellent asset protection and family estate planning. Since a foundation’s income is passive, they are perfect platforms to act as a holding company owning the shares of companies around the world.
Foundation Benefits
A Dutch Foundation has the following benefits:
• Foreign Control: Foreigners can form foundations where all parties and assets are foreign.
• No Taxation: All passive worldwide income is non-taxable. However, U.S. taxpayers and everyone subject to global taxation must report all income to their tax authorities.
• Privacy: Foundations do not register with the government unless wishing to engage in commercial activities. Even then, the founder, beneficiaries, and assets remain private not being in the public records.
• Fast Formation: Only two legal documents are prepared for formation which can be written in a short period of time.
• Founder’s Control: The purposes, administration, management and roles of all interested parties are set forth in the Foundation Charter as the founder wishes. The founder can also be a council member.
• Asset Protection: Once all assets are transferred to the foundation, subsequent creditors cannot challenge the ownership of the assets in the foundation.
• Estate Planning: Foundations are ideal as estate planning vehicles.
• English: The majority of Dutch people speak and understand English.
Dutch Foundation Name
Foundations cannot use the same or similar names of other Dutch legal entities.
A foundation’s name must end with the word “Foundation”.
Formation
Foundations do not require any government approvals (except when wishing to engage in active commercial business) and are easy to form with two legal documents called the Articles of Association and the Deed of Formation with both documents being signed in front of a notary public.
The Articles of Association (Foundation Charter) are similar to a corporation’s where activities and administration of the foundation are set forth. This document must be written in Dutch, but an English translation cane be prepared for English speaking foreigners.
The Deed of Formation is similar to a corporation’s Memorandum establishing the creation of the foundation.
Registration
If the foundation will engage in commercial activities, it will need to be registered with the government. The Dutch Chamber of Commerce accepts the application and upon approval enters the foundation into its Companies Registry. This will make it subject to the corporate taxes in the Netherlands. However, foundations are treated as a Special Purpose Enterprise offering some tax exemptions from receiving funds outside of Holland and avoid withholding tax on interest payments. Foundations owning a Dutch Private Limited Company also benefits from corporate tax and dividend tax exemptions.
Founder
A founder can be a natural person or a legal entity which donates properties, funds, and other assets to the foundation, also known as the “corpus”.
Founders can be citizens of any nation and can reside in any country.
Foundation Council
A foundation’s council administers the purpose and objectives while managing its assets. Council members may be residents of and citizens in any country. They may also be wither natural persons or legal entities. The founder can also become a member of the council. There are no requirements regarding how many members constitute a foundation’s council.
The foundation council must follow the terms of the Articles of Association (Foundation Charter). Failure to do so can result in their being held personally liable for any foundation damages or losses.
The council may amend the foundation’s Charter if the Charter allows which is a big advantage over a trust which cannot amend or revoke the settlor’s Letter of Wishes.
Foundation Charter
The Foundation Charter is also known as the Articles of Association written for the founder adopting his or her wishes.
The Charter sets forth the purposes and objectives for the foundation. In addition, the Charter must be clear regarding whether the foundation may engage in commercial activities to further its purposes and objectives.
Beneficiaries
The foundation is created for the benefit of specifically named persons or an identifiable group of persons who are called the “beneficiaries”. They can reside and be citizens of any country.
Asset Protection
Families use foundations in order to protect the founder’s assets from future claims by ex-spouses, creditors, court judgments, disgruntled heirs, or others making claims on the specific assets. As long as the foundation is formed and the assets are transferred into the foundation before any actions leading to lawsuits or claims arises, they will be protected by the foundation and Dutch laws.
Beneficiaries receive protection from similar claims against them personally as the assets are not owned by the beneficiaries.
Estate Planning
The founder’s family and heirs can be named as the beneficiaries. Their heirs can automatically be included in the foundation as beneficiaries for many generations.
Taxes
Passive income derived outside of Holland by a foundation is free of all taxes including the corporate income tax (CIT) and Value Added Tax (VAT).
Foundations registering with the government and engaging in active commercial activities are subject to the corporation tax. The corporate tax rate is 20% of the profits up to 200,000 Euro and 25% on profits over 200,000 Euro.
Public Records
Most foundations do not register with the government so there are no public records. Foundations wishing to engage in commercial activities must register with the government. However, the names of the founder and beneficiaries and the description and location of the assets are not part of the public records for their privacy.
Conclusion
A Dutch Foundation enjoys the following benefits: total foreign control, privacy, no taxes, asset protection, estate planning, fast formation, founder’s control, and English is understood by most Dutch persons.
