Form a Liechtenstein Foundation Introduction
A Liechtenstein Foundation is a special purpose asset protection tool and an estate planning platform. Under the law, it is a separate legal entity without shareholders, participants or members. The Founder can donate assets while maintaining control to amend terms and conditions in the Articles of Association.
The permitted purpose for a foundation is to pursue non-commercial and/or private benefit purposes. For a Non-Commercial Foundation, this means no engaging in active trade or other commercial enterprises. Commercial activities may only be conducted to achieve its non-commercial purpose. Therefore, a non-commercial foundation is not suitable to pursue commercial ends.
A Private Benefit Foundation, on the other hand, can create commercial operations to engage in investments and manage the assets.
A Private Benefit Family Foundation pays no taxes and is a perfect asset protection and estate planning tool for families.
The governing law for all foundations is The Foundations Act of 2008.
Liechtenstein Background
Liechtenstein is a principality located between Austria and Switzerland. Its political system is a constitutional monarchy with one legislative house.
Liechtenstein Foundation vs. Trust
So, how does a foundation compare to a trust. Foundations are products of civil law, originating on the European mainland. Trusts originate from common law in England. Common law has migrated to the United States, Australia, Canada and many other English-speaking countries.
Unlike a trust, a foundation is a separate entity from the parties associated with it. In this light, they are more like companies than trust. In contrast to companies and trusts, there are no owners or shareholders and no requirement to have beneficiaries (though it may have them). A foundation holds assets in its name.
With a trust, the trustee holds the assets for the benefit of the beneficiaries. A trust is not a separate entity but contractual a relationship among the parties in the trust. A trust holds assets in the trustee’s name; not personally but in his, her or its official trustee capacity.
Liechtenstein Foundation Benefits
A Liechtenstein Foundation enjoys the following benefits:
- 100% Foreign Owned: The Founder can be a national of and reside in any country.
- Total Control: The Founder maintains total control over the foundation.
- Sole Beneficiary: The Founder can be the sole Beneficiary.
- Tax Free Family Foundations: Private Benefit Family Foundations pay no taxes. However, U.S. and those from other countries taxing worldwide income must report all income to their tax agencies.
- Privacy: Only commercially active foundations must register with the government. Beneficiary’s names are never part of any public records.
- Easy and Fast Registration: A simple form is filed with the Registry and approval takes up to two business days.
- Asset Protection: The assets are owned by the foundation which is legal separate entity from the Founder and the Beneficiaries.
- Estate Planning: Family Foundations are perfect estate planning tools.
Liechtenstein Foundation Name
Liechtenstein Foundations can select a name in any language. If the name includes national or international places, special permission must be obtained.
Formation
The foundation is formed through a written Foundation Declaration Deed with the Founder’s notarized signature. Private Benefit and Non-Commercial Foundations engaging in commercial activities must register with the government’s Commercial Registry.
Founder
The Founder can be a citizen of and reside in any country. The Founder sets forth the purpose for the foundation in writing either as an outline or formal document. The group of Beneficiaries must be specified in this outline or document.
The Founder can revoke or change any foundation documents and even the registration of the foundation. The Founder’s rights cannot be transferred nor bequeathed.
Foundation Council
The Foundation Council is the supreme authority of the foundation. It manages and represents the foundation in every legal relation. The law requires that at least one council member must be an attorney with a local law office address. The remaining council members can be nationals and residing in any other country.
Beneficiaries
The Founder’s Articles of Association and its By-Laws set forth the rights of the Beneficiaries. The Founder can be a Beneficiary. The rights of the Beneficiaries may be tied to certain time limits, conditions, and prerequisites. Such interests can be revoked by amending the Articles of Association at any time if the original Articles allow. The Foundation Council must abide by the Articles of Association and wises of the Founder.
If no Beneficiaries are named, the law presumes that the Founder is the sole Beneficiary where succession will occur through inheritance.
Unless specified in the Articles of Association, the heirs of a deceased Beneficiary will not inherit the beneficial interest which will be divided to amongst the other named Beneficiaries.
Beneficiaries Interests
In regards to claims, different designations exist pertaining to beneficial interests set forth in the foundation documents as follows:
- Prospective Entitlements: This designation allows for the succession of beneficial interests from one beneficiary to others. This prevents claimants not entitled to rights of succession to a beneficiary’s interests from obtaining benefits.
- Discretionary Beneficiaries: The founder designates who are Discretionary Beneficiaries whose rights are at the discretion of the Foundation Council.
- Ultimate Beneficiaries: After the foundation’s liquidation, the designated Ultimate Beneficiaries receive the remaining assets not already transferred to other Beneficiaries.
Liquidation
Upon completion of the liquidation process as provided in the foundation’s documents, deregistration of the foundation by the government can take effects within a few days.
Representative
Similar to a resident agent, the foundation’s representative’s physical address serves as the location for official government notices.
Taxes
Foundations are subject to income taxes which currently is 12.5% of the net income with a minimum tax of 1,200 CHF. However, foundations having been granted the status as a Private Wealth Structure (PVS) only pay the minimum 1,200 CHF annual tax. PVS status is generally granted to non-commercially active foundations.
Private Benefit (Family) Foundations
Special exemptions exist for Private Benefit Foundations which are separate legal entities dedicated to the support of a specific family or group of people.
As a “pure” family foundation, assets can be managed and kept for the safekeeping of a family’s members on an international basis.
Estate Planning
A Private Benefit Family Foundation can be set up for “Estate Planning” objectives. The transfer of Beneficiaries assets can occur for the next generation and beyond. The Founder has the freedom to bind his or her descendants to specific conditions over several generations. This is the perfect vehicle for an entrepreneur wishing to protect his or her immediate family from costly and time consuming inheritance probate and taxes. In addition, the immediate family members can avoid the stress of managing the Founder’s assets and companies and business activities.
The law prevents the mandatory succession of heirs and rights to statutory percentage shares of the Founder’s assets upon his or her death. In essence, a legal heir can be eliminated from the legal rights of succession as an heir if the Founder wishes.
Taxes
There is no taxation imposed on Private Benefit Family Foundations. Profits are neither subject to taxation nor distributions made to the Beneficiaries. There is no capital gains tax, or gift tax, or inheritance tax in Liechtenstein.
However, U.S. and those from other countries taxing worldwide income must report all income to their tax agencies.
Other Advantages
The Family Foundation allows the Founder to benefit himself or herself as the sole Beneficiary. In addition, named family member Beneficiaries enjoy the same benefits. This includes separating ownership of assets into the foundation. A Founder has many options when drafting the Articles of Association.
Family Foundations do not have to register with the Commercial Registry and have no external supervisions. The Foundation Deed can remain private as it is not required to be filed with the government. A simple Notification of Formation filed with the Commercial Registry and the Registry of Deeds is sufficient. Only the local attorney and trustee will know the Founder’s name and the foundation’s purposes. The names of the Beneficiaries are never disclosed to the government.
Time to Register
The formation of a foundation can take two business days.
Conclusion
A Liechtenstein Foundation enjoys the following benefits: 100% foreign ownership, Founder maintains total control, Founder can be the only Beneficiary, family foundations pay no taxes, privacy, easy and fast registration, asset protection, and estate planning.
