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Foundations and Trusts
They are the essence of the same organizational phenomenon. Foundations are elements of the Romano-Germanic legal system; trusts are elements of the Anglo-Saxon one. Their structure normally reduces to 4 elements:
FOUNDER OF THE TRUST (FOUNDATION)- TRUSTEE
- BENEFICIARY
- GUARANTOR OF THE TRUST (FOUNDATION)
They are the essence of the same organizational phenomenon. Foundations are elements of the Romano-Germanic legal system; trusts are elements of the Anglo-Saxon one. Their structure normally reduces to 4 elements:
- FOUNDER OF THE TRUST (FOUNDATION)
- TRUSTEE
- BENEFICIARY
- GUARANTOR OF THE TRUST (FOUNDATION)
Liechtenstein, Panama, Luxembourg, the Netherlands are the most attractive jurisdictions to incorporate foundations; BVI, Belize, Cyprus, etc. are the most attractive ones to create trusts.
Liechtenstein, Panama, Luxembourg, the Netherlands are the most attractive jurisdictions to incorporate foundations; BVI, Belize, Cyprus, etc. are the most attractive ones to create trusts.
- No authorized capital is required
- The minimum capital to be managed by a foundation is EUR/USD/CHF 30,000 which must be deposited into its account at incorporation (the registration authorities may grant a grace period for depositing the amount to the foundation’s account). The founder may entrust the foundation with the management of both cash and other assets, including shares in companies.
- The goals of a foundation which it is obliged to strictly follow must not be solely commercial in nature. A foundation is allowed to conduct business activities only to achieve its non-commercial purposes. Holding shares is a non-commercial activity.
- A foundation may be incorporated for a fixed term or perpetually.
- A foundation may maintain an unlimited number of accounts in any jurisdiction.
- There is no requirement to maintain an account in Liechtenstein.
- Dividends received by a foundation from a Cypriot company are exempt from taxes in Liechtenstein.
- Payments to beneficiaries are exempt from withholding tax in Liechtenstein.
- The laws of Liechtenstein require a foundation to pay an annual capital tax of 0.2% but not less than CHF 1,000 (about EUR 750). The incorporation of a foundation requires the payment a stamp duty equal to 0.2% of the initially contributed capital.
- A foundation submits financial statements annually. No statutory audit is required by law.
- The minimum asset value is USD 10,000 (may be increased in the future). Just like in Liechtenstein, to avoid problems with the valuation of shares, it is more expedient for the founder to contribute this amount in cash. The foundation can freely dispose of this amount later on.
- The founders and beneficiaries of a foundation are not liable for the obligations assumed by the foundation with their property.
- A foundation is not liable for the obligations assumed the founders and beneficiaries with its assets.
- There is no statutory requirement necessitating the submission of financial statements by a foundation.
- The goals of a foundation which it is obliged to strictly follow must not be solely commercial in nature. A foundation is allowed to conduct business activities only to achieve its non-commercial purposes. Holding shares is a non-commercial activity.
- A foundation may open bank accounts, brokerage accounts and invest in real estate.
- Income generated by a foundation’s operations outside Panama is not taxable except for mandatory annual contributions.
- A foundation may make any business and civil transactions in any currency.
- Accounting records may be maintained in any country.
- Foundations incorporated in other jurisdictions may change their legal address to a Panamanian one.
- A foundation may receive income generated via business operations on a non-permanent basis (e.g., the sale of property; the foundation may have bank deposits, invest into shares in private and public companies, bonds, etc., but not trade in them).
- A foundation (Foundation, Trust Office, Administratiekantoor) issues depositary receipts that confer the right to own the foundations’ assets.
- A foundation is used primarily to manage shares in other companies.
- Depositary receipts do not require registration with any authorities; i.e. the foundation is the actual owner of assets and the beneficiary’s name is not registered anywhere.
- The entire return on shares managed by a foundation is distributed in favor of the beneficiary holding depository receipts.
- A foundation is not required to keep accounting records. Accordingly, no submission of financial statements is required.
- A foundation must pursue a non-commercial goal.
- Only income generated via business activities of a foundation is taxable.
- There are three types of depository receipts
- Convertible ones (receipts upon the presentation of which the holder is authorized to request the foundation to exchange them for assets in the form of shares that were transferred previously).
- Non-convertible depositary ones (receipts that do not authorize the holder to request the foundation to exchange them for shares transferred by the founder).
- Partially convertible ones (receipts upon the presentation of which the holder is entitled to a specific percentage of shares that were transferred previously).
- VISTA trust introduced in 2003 is the most common form of trust.
- The maximum period for which a trust may be incorporated is 150 years.
- Purpose trusts may be incorporated for an indefinite period of time but at least one of their managers must be a resident of the BVI.
- A trust is exempt from income and capital gain tax if its beneficiaries are non-residents of the BVI.
- The trust protector has no fiduciary obligations and does not interfere with the activities of the companies while the settlor of the trust retains control over the trust’s operations.
- The property managed by a trust may not be inherited other than as provided for in the trust deed (inheritance by law), including in case of intervention of a court.
- It is advisable to use a trust incorporated in the BVI in the following cases:
- If the assets of the trust to be incorporated will be used for high-risk investments.
- If the settlor of the trust wants to retain control over the trust’s operations. Especially where the structure of the trust is created in such a way that only directors can exercise control over its operations.
- If it is necessary to create a dedicated fund for the securitization of assets.
- If the trustee’s intervention with the company’s affairs is undesirable or unacceptable.
The advantages of incorporating a trust in Belize are associated with a high level of asset protection, which is guaranteed by the laws of the state. In court, it is impossible to "neither change nor cancel" a trust established in Belize. It is also on the assets of the trust can not cause the claims of creditors.
Trust in Belize is not taxable under the following conditions:
- There is no minimum capital requirements for establishing a trust.
- High degree of protection of assets.
- The possibility of non-resident ownership of the trust.
- High degree of anonymity.
- No currency control.
- Trust can own companies, have bank accounts.
Trust in Belize is not taxable under the following conditions:
- The founder is a non-resident of Belize.
- Beneficiaries are non-residents of Belize.
- The company does not own any land located on its territory.
The treatment of information about its founders and members as confidential is the main advantage of a trust incorporated in Cyprus. A disclosure of information about the beneficiaries of the trust, accounts opened in favor of the trust and composition of the trust fund to third parties is prohibited by law. Cyprus is a European state which increases the level of confidence in this particular jurisdiction and, accordingly, respectability of international trusts incorporated there.
- The maximum period for which a trust may be incorporated is 100 years
- The settlor and beneficiary must be non-residents of Cyprus; at least one of the Trustees must be a resident
- A trust must not have immovable property in Cyprus
- There is no minimum capital requirement to set up a trust
- No registration with the authorities of Cyprus or financial reporting is required
- There are no restrictions on types of investments
- It is possible to accumulating income throughout the trust’s life
- A trust has the right to sue
- Taxation of a trust in Cyprus
- A trust in Cyprus does not pay any taxes, including dividend, royalty, interest, capital gain or similar taxes.
- The only tax that must be paid is the EUR 450 stamp duty for incorporating a Cyprus trust.
- No authorized capital is required
- The minimum capital to be managed by a foundation is EUR/USD/CHF 30,000 which must be deposited into its account at incorporation (the registration authorities may grant a grace period for depositing the amount to the foundation’s account). The founder may entrust the foundation with the management of both cash and other assets, including shares in companies.
- The goals of a foundation which it is obliged to strictly follow must not be solely commercial in nature. A foundation is allowed to conduct business activities only to achieve its non-commercial purposes. Holding shares is a non-commercial activity.
- A foundation may be incorporated for a fixed term or perpetually.
- A foundation may maintain an unlimited number of accounts in any jurisdiction.
- There is no requirement to maintain an account in Liechtenstein.
- Dividends received by a foundation from a Cypriot company are exempt from taxes in Liechtenstein.
- Payments to beneficiaries are exempt from withholding tax in Liechtenstein.
- The laws of Liechtenstein require a foundation to pay an annual capital tax of 0.2% but not less than CHF 1,000 (about EUR 750). The incorporation of a foundation requires the payment a stamp duty equal to 0.2% of the initially contributed capital.
- A foundation submits financial statements annually. No statutory audit is required by law.
- The minimum asset value is USD 10,000 (may be increased in the future). Just like in Liechtenstein, to avoid problems with the valuation of shares, it is more expedient for the founder to contribute this amount in cash. The foundation can freely dispose of this amount later on.
- The founders and beneficiaries of a foundation are not liable for the obligations assumed by the foundation with their property.
- A foundation is not liable for the obligations assumed the founders and beneficiaries with its assets.
- There is no statutory requirement necessitating the submission of financial statements by a foundation.
- The goals of a foundation which it is obliged to strictly follow must not be solely commercial in nature. A foundation is allowed to conduct business activities only to achieve its non-commercial purposes. Holding shares is a non-commercial activity.
- A foundation may open bank accounts, brokerage accounts and invest in real estate.
- Income generated by a foundation’s operations outside Panama is not taxable except for mandatory annual contributions.
- A foundation may make any business and civil transactions in any currency.
- Accounting records may be maintained in any country.
- Foundations incorporated in other jurisdictions may change their legal address to a Panamanian one.
- A foundation may receive income generated via business operations on a non-permanent basis (e.g., the sale of property; the foundation may have bank deposits, invest into shares in private and public companies, bonds, etc., but not trade in them).
- A foundation (Foundation, Trust Office, Administratiekantoor) issues depositary receipts that confer the right to own the foundations’ assets.
- A foundation is used primarily to manage shares in other companies.
- Depositary receipts do not require registration with any authorities; i.e. the foundation is the actual owner of assets and the beneficiary’s name is not registered anywhere.
- The entire return on shares managed by a foundation is distributed in favor of the beneficiary holding depository receipts.
- A foundation is not required to keep accounting records. Accordingly, no submission of financial statements is required.
- A foundation must pursue a non-commercial goal.
- Only income generated via business activities of a foundation is taxable.
- There are three types of depository receipts
- Convertible ones (receipts upon the presentation of which the holder is authorized to request the foundation to exchange them for assets in the form of shares that were transferred previously).
- Non-convertible depositary ones (receipts that do not authorize the holder to request the foundation to exchange them for shares transferred by the founder).
- Partially convertible ones (receipts upon the presentation of which the holder is entitled to a specific percentage of shares that were transferred previously).
- VISTA trust introduced in 2003 is the most common form of trust.
- The maximum period for which a trust may be incorporated is 150 years.
- Purpose trusts may be incorporated for an indefinite period of time but at least one of their managers must be a resident of the BVI.
- A trust is exempt from income and capital gain tax if its beneficiaries are non-residents of the BVI.
- The trust protector has no fiduciary obligations and does not interfere with the activities of the companies while the settlor of the trust retains control over the trust’s operations.
- The property managed by a trust may not be inherited other than as provided for in the trust deed (inheritance by law), including in case of intervention of a court.
- It is advisable to use a trust incorporated in the BVI in the following cases:
- If the assets of the trust to be incorporated will be used for high-risk investments.
- If the settlor of the trust wants to retain control over the trust’s operations. Especially where the structure of the trust is created in such a way that only directors can exercise control over its operations.
- If it is necessary to create a dedicated fund for the securitization of assets.
- If the trustee’s intervention with the company’s affairs is undesirable or unacceptable.
The advantages of incorporating a trust in Belize are associated with a high level of asset protection, which is guaranteed by the laws of the state. In court, it is impossible to "neither change nor cancel" a trust established in Belize. It is also on the assets of the trust can not cause the claims of creditors.
Trust in Belize is not taxable under the following conditions:
- There is no minimum capital requirements for establishing a trust.
- High degree of protection of assets.
- The possibility of non-resident ownership of the trust.
- High degree of anonymity.
- No currency control.
- Trust can own companies, have bank accounts.
Trust in Belize is not taxable under the following conditions:
- The founder is a non-resident of Belize..
- Beneficiaries are non-residents of Belize
- The company does not own any land located on its territory.
The treatment of information about its founders and members as confidential is the main advantage of a trust incorporated in Cyprus. A disclosure of information about the beneficiaries of the trust, accounts opened in favor of the trust and composition of the trust fund to third parties is prohibited by law. Cyprus is a European state which increases the level of confidence in this particular jurisdiction and, accordingly, respectability of international trusts incorporated there.
- The maximum period for which a trust may be incorporated is 100 years
- The settlor and beneficiary must be non-residents of Cyprus; at least one of the Trustees must be a resident
- A trust must not have immovable property in Cyprus
- There is no minimum capital requirement to set up a trust
- No registration with the authorities of Cyprus or financial reporting is required
- There are no restrictions on types of investments
- It is possible to accumulating income throughout the trust’s life
- A trust has the right to sue
- Taxation of a trust in Cyprus
- A trust in Cyprus does not pay any taxes, including dividend, royalty, interest, capital gain or similar taxes.
- The only tax that must be paid is the EUR 450 stamp duty for incorporating a Cyprus trust.