Home Search Impressum Deutsch
Login
The Foundation

I. Concept and Legal Nature

 

The Liechtenstein Persons and Companies Law (PGR) treats the Foundation in its second section, "The Legal Entities". The Foundation is a juridical person without members, having its own internal organization for the conduct of its affairs, and possessed of endowments. It is in essence an incorporated estate. The Founder transfers specific assets to the Foundation which are then endowed for specific purposes. The assets pass from the personal estate of the Founder to the Foundation. The Founder specifies the objects of the Foundation and appoints its administrators. Assets so endowed are not subject to gift or inheritance taxes in Liechtenstein provided that the Founder transferring the assets is not resident in Liechtenstein. The special sections of the PGR relating to Foundations, Articles 552?570, are supplemented by the regulations pertaining to Trust Enterprises and the general regulations concerning legal entities. The regulations contain few mandatory provisions, the dominating principle particularly with respect to Foundations, being based upon the right and freedom to contract.

 

II. The Objects and Types of Foundations

 

The Founder may stipulate the objects of the Foundation with complete freedom, provided that the objects are not immoral or illegal. The objects of the Foundation may be expressed in detail, or may be generally stated, provided the same are unequivocal and not subject to misinterpretation. Only in exceptional circumstances may the Foundation pursue commercial objects. The most common types of Foundations are:

 

1. The Family Foundation

 

a) The Pure Family Foundation

This form of Foundation provides that the Foundation?s assets and/or the income thereof, be applied to defray the costs of rearing and educating members of certain specified families, providing them with dowries, or gifts and support. The Founder is also free to designate the Foundation for purely support purposes if he so desires.

b) The Mixed Family Foundation

A mixed family Foundation is formed when other general, charitable, or religious objects are included in addition to the family purposes designated above in paragraph 1.a). 

 

2. The Benevolent Foundation


A Foundation whose assets and/or the income thereof are designated for objects which enhance the common welfare is known as a benevolent Foundation. Examples of such purposes would be the support of scientific research, the arts, humanitarian or charitable undertakings, or the support of organizations engaged in such activities.

 

3. The Employee Welfare Foundation

 

Basically such a Foundation is established for the benefit of certain employees, in order to provide for the event of their retirement, disability, or death. Normally the assets managed by such a Foundation are provided, partially by the employer and partially by the employees. 

4. The Ecclesiastical Foundation


As the name implies, such Foundations are established in order to serve ecclesiastical or religious objects.

A Foundation may only carry on business to the extent that the same is necessary in order to achieve its objects. Such activities must be absolutely subordinate to the main activities/objects of the Foundation.

III. The Formation of a Foundation


A Foundation may be formed by either a natural or a juridical person. The Founder may be of any nationality or residence. No official permission need be obtained to form a Foundation. A Foundation may be formed by a Founder on his own behalf, or for third persons pursuant to a power of attorney or fiduciary agreement. Normally, Foundations are formed by a Liechtenstein attorney or professional fiduciary acting as Founder in order that the identity of the actual Founder be kept anonymous.

1. The Formation


Formation of a Foundation takes place by one of the following means:

  • The filing of a Foundation charter, bearing the authenticated signature of the Founder;
  • By last will or testamentary disposition;
  • By contract (joint will) in the nature of a testamentary disposition

 

In the Foundation?s charter, the Founder pledges specific assets. With the signing of the charter, these assets pass from the personal estate of the Founder and become the legal property of the Foundation.

2. Foundation Documents


a) The Foundation Charter and the Articles

The Founder is free to determine the content and extent of the charter and the articles. The articles are either a part of the charter or included therein, however the following information, necessarily included in the charter, may also be included in the articles. For the purposes of the following, the expression "charter" shall also include the articles. 

  • The name and registered office of the Foundation;
  • Objects and assets of the Foundation;
  • Designation of the Foundation?s administrators and their signing authority;
  • The method by which new administrators may be appointed;
  • Stipulation as to the distribution of the Foundation?s assets in the event of liquidation;
  • Designation of the Foundation?s agent for service

b) Modification of the Foundation?s Articles

In addition to the above, the charter must state the circumstances under which the articles may be amended. The Founder may expressly reserve for himself the right to amend the articles. The right to change or amend the articles may also be vested by the Founder in the administrators of the Foundation, or vested in them with the condition that certain modifications require the approval of the Founder, the beneficiaries, a third person, or all of the above-mentioned parties. The Founder may also provide that, after his demise, the articles may not be amended, or that only certain portions may be amended, either with or without the approval of the beneficiaries. Should the Foundation?s charter make no provision for the supplementation or amendment of the articles then same may in principle not be varied. In such case amendments may be made only upon demonstrated necessity, with the approval of the competent court and only with the consent of the Founder, the administrators, and the beneficiaries. It therefore is highly advisable that the charter makes provision for the amendment of the articles to accomodate possible changes in circumstances.

c) By-Laws and Rules

The Founder may, in the charter, reserve for himself or others the right to issue by-laws and rules. The by-laws may be used to supplement or further define certain provisions contained in the articles. They may designate beneficiaries, or beneficiaries of liquidation proceeds. Rules define the scope, manner, and methods of the conduct of the Foundation?s affairs. As a practical matter, by-laws and rules are preferred in order to regulate certain aspects of the Foundation?s affairs, as neither of these documents must be submitted to the Foundations Register or the Public Registry. 

3. The Foundation?s Assets


Article 122 of the PGR prescribes that the value of the assets to be transferred to the Foundation shall total at least Swiss francs 30.000,?. The assets may also take the form of property or claims receivable. Rights of various kinds, which may be transferred merely by way of assignment, become the property of the Foundation upon its legal formation. At the time of the formation of the Foundation, it is sufficient that the Founder has obligated himself to donate the assets at such time as the Foundation has been legally formed and is in existence. The pledge of the assets by the Founder provides the Foundation with a legal claim against the Founder for the fulfilment of his pledge.

4. The Name of the Foundation


The name of the Foundation is basically a matter of free choice. Words or phrases supplementing the basic name may refer personally to the Founder or to heirs or beneficiaries, or to the registered office of the Foundation, or may be pure fantasy, provided that the name as a whole, is not misleading, immoral, or illegal. The name must include the word "Foundation" (German: "Stiftung", French: "Fondation", Italian: "Fondazione", etc.). 

5. Registered and Unregistered Foundations


a) Registered Foundations

Basically a Foundation acquires legal personality upon being entered in the Foundation Register. Registration requires submission of the Foundation?s charter and articles, proof of the donation of assets, and evidence that the registration fees have been paid. The following information is entered in the Foundation Register:

  • The name and registered office of the Foundation;
  • The objects of the Foundation;
  • The date of organization;
  • The organization and representatives of the Foundation;
  • The name of the Foundation?s agent for service.

 

The Foundation Register abstract contains no information concerning the Foundation other than that hereinbefore set forth. The identity of the Founder thus remains anonymous. Should an unregistered Foundation pursue or commence the pursuit of commercial activities in order to achieve its objects, it is obliged to register.

b) Unregistered Foundations

The unregistered Foundation acquires legal personality without registration. Its charter and articles are simply deposited with the registry officials in order that they may determine that the Foundation does not pursue illegal or immoral purposes and qualifies as an unregistered Foundation. Article 557 of the PGR exempts the following types of Foundations from the obligation to register: die reine Familienstiftung;

  • Pure family Foundations;
  • Mixed family Foundations;
  • Foundations whose beneficiaries are specifically designated or identifiable juridical or natural persons
  • Ecclesiastical Foundations.

 

Only such persons as have a demonstrated, direct interest in an unregistered Foundation can apply for an abstract from the registry officials confirming that the Foundation exists, the amount of its assets, the identity of its administrative organs, and its agent for service (legal representative)..

 

IV. The Organization of the Foundation

1. The Founder

 

It is the Founder?s obligation to make provision in the charter for the administration of the Foundation, and to prescribe the functions and coordination of administrative organs in order to ensure the proper management of the Foundation?s assets. The Founder may guarantee his influence upon the Foundation?s affairs by naming himself as an administrator, or by reserving to himself certain rights when formulating the articles, such as:

  • The appointment and discharge of the administrators;
  • The control over and designation of the signing authorities;
  • Variation of the articles;
  • Revocation of the articles;
  • The appointment of beneficiaries and the definition of the scope of their beneficial entitlement;
  • The appointment of the remainderment;
  • Supplements to the articles by means of by-laws and regulations;
  • Termination or liquidation of the Foundation.

 

The Founder has the right in any case to assure himself that the various administrative organs of the Foundation adhere to the provisions set forth in the articles.

 

2. The Foundation Administrators


a) Duties of the Administrators

Normally, the administrators are the supreme organ of the Foundation. The Founder defines the function of the member or members of the board of administrators in the articles. The administrators may be one or more juridical or natural persons of which one must be domiciled in the country. This member must also be a qualified lawyer, trustee or auditor, or have other qualifications recognized by the government. There are no other requirements as to the nationalities or residences of the remaining administrators. Unless otherwise provided in the articles, the administrators organize the board meetings themselves, and their decisions are reached by simple majority vote. The duties and obligations of the administrators are those set forth in the articles, and, normally, those not specifically assigned to another administrative organ of the Foundation. Included in their duties are the conduct of the Foundation?s affairs, and its representation as regards third parties as well as the beneficiaries. The conduct of the Foundation?s affairs includes the investment and management of its assets and the distribution of income and/or capital to the beneficiaries as per the stipulations contained in the articles. The administrators are responsible for the proper management and conservation of the Foundation?s assets as provided by the law and the articles. The administrators may delegate the conduct of business and management to one of their members or to a third party. In the articles, the Founder may reserve for himself the right to discharge and appoint administrators.

b) Appointment of the Administrators

Normally the first board of administrators is named by the Founder in the charter. The articles will prescribe the procedure for the appointment of new administrators. The Founder may reserve for himself the right to discharge and appoint administrators, or he may designate a third person to exercise this right. Provision may also be made for the board to elect its own members, or for an outgoing administrator to designate his successor.

c) Responsibilities of the Administrators

The administrators are required to adhere to the articles. They are personally responsible to the Founder and to the beneficiaries for damages resulting from their failure to comply with the articles. The Founder and the beneficiaries may apply to the court to assure compliance with the Foundation?s articles.

3. The Collators (Protectors)


Whereas the administrators are responsible for the management of the Foundation?s assets, decisions as to the distribution of income or assets to beneficiaries may be delegated to the collators who act independently of the administrators. In such a case the duties of the administrators are limited to the administration of the Foundation?s affairs. Collators are often appointed in the case of benevolent Foundations. 

4. The Trustee


In addition to the administrators, the charter of the Foundation may provide for a trustee with special functions and responsibilities. His duties and functions may include:

  • Supervision of the board of administrators;
  • Review of the propriety of distributions to beneficiaries;
  • The investment and management of benefits payable to beneficiaries whose whereabouts are unknown or who are presumed dead.

 

5. The Auditors


Although the law does not require that auditors be appointed in respect of such Foundations as do not carry on business, the articles may so provide. Article 193 PGR provides that auditors may be appointed for a first term of not more than one year and that successive terms may not exceed three years. The auditors review whether the financial statements comply with the law and the articles. Irregularities or infractions of the law or articles discovered in the course of the auditor?s review, must immediately be brought to the attention of the Foundation?s supreme executive authority.

6. The Agent for Service (Legal Representative)


According to paragraph 239 of the PGR each Foundation must have a legal representative or agent for service which must be a natural person, resident in Liechtenstein or a Liechtenstein corporate entity. The legal representative or agent for service represents the Foundation as regards the authorities and is the recipient for the purposes of service of notice upon the Foundation. Unless specifically otherwise authorized, the legal representative has no other functions and is not authorized to conduct the business of the Foundation.

 

V. The Beneficiaries of the Foundation

 

The articles and by-laws of the Foundation are the primary regulatory instrument concerning the Foundation?s beneficiaries. Supplementary thereto, the regulations of Article 932 a, §§ 1-170 PGR concerning the incorporated Trust are applicable. The beneficial interests of the Foundation are not subject to the rule against perpetuities or accumulations. Moreover, in practice the personal succession law of the Founder including forced heirships as well as matrimonial property regimes, in no way effect the Foundation.

1. Beneficiaries and Remaindermen


Beneficiaries are natural or legal persons having the right to receive a present or future benefit from the Foundation, such as participation in the income or assets of the Foundation, the right to the use or the occupancy of Foundation assets or property, or the right to receive stipends, support, rewards for outstanding performance, etc. Remaindermen are those persons designated to succeed to rights and benefits upon the demise of the beneficiaries and in particular, are entitled to the enjoyment of the rest and residue of the Foundation assets.

2. Designation of the Beneficiaries


The Founder has the right to designate the beneficiaries in the charter, the articles, or by-laws of the Foundation, or he may delegate such right to the administrators or third persons. Should the beneficiaries not be designated, the Founder is presumed to be the sole beneficiary during his life and, upon his demise, his beneficial interest passes to his heirs.

 

3. Rights of Beneficiaries


In the articles, the Founder sets forth the extent to which the beneficiaries have a claim to the income from the Foundation?s assets. Beneficiaries may be bound by conditions, time limitations, obligations, or other stipulations. Conditions may include, for example, the existence of offspring, or the pursuit of a specified profession. Acceptance of the right to benefit from the Foundation will be assumed if the conditions are such that obviously only advantages accrue to the beneficiary and no circumstances exist from which it could be inferred that the beneficial interest will not be accepted.

The Founder may stipulate that the rights of beneficiaries to benefits from the Foundation be immune from legal claim or process by creditors of the beneficiaries, provided that the beneficial interests were obtained by the beneficiaries for no consideration. Provided that the articles so stipulate, the beneficiaries may not be deprived of the Foundation?s benefits through execution, foreclosure, or bankruptcy proceedings brought by creditors of the beneficiaries. The law provides the beneficiaries with the right to request information concerning the condition and placement of the Foundation?s assets, as well as access to the accounting records. The Founder may limit or totally exclude this right in the articles or by means of a written disposition. Unless all beneficiaries or remaindermen request information concerning the Foundation?s affairs at a particular time, the management may decline to provide information if there is reason to fear that the request for information is based upon less-than-honorable intentions, or that the provision of information will be detrimental to the beneficiaries as a group, or that the request is made in bad faith.

4. The Creation and Extinction of Beneficial Interests


Beneficial interests arise by virtue of the provisions in the articles or by-laws, and by the acceptance of the same by the beneficiaries. Benefits are extinguished by.

  • Notice, if the Founder has reserved this right for himself:
  • Revocation or exclusion due to unworthiness, or in the event that legal relationships within the family have basically changed;
  • Settlement, when provision for the waiver of a claim in exchange for a lump settlement has been made;
  • Satisfaction, namely payment in full of benefits out of income and capital;

 

5. Record of the Beneficiaries

 

The administrators must establish and maintain a record of the beneficiaries, and their respective places of abode, particularly in the case of family Foundations.

VI. The Liability of the Foundation


Article 563 PGR limits the liability of the Foundation to the extent of its net assets. The Founder and the members of the administration and management of the Foundation have no personal liability for debts incurred by the Foundation. The Founder is only obligated to fulfil his pledge to transfer the endowed assets to the Foundation. No further liabilities exist either on the part of the Founder or the members of the administrative organs of the Foundation.

VII. The Accounting for the Foundation


Foundations as do not carry on business are not obliged to establish and maintain orderly accounting records.

However, in the interests of the beneficiaries, inventories should be taken and maintained, and records kept from which the financial status of the Foundation may be determined. There is no requirement for the filing of financial statements with any authority, and the Foundation is not subject to official review of any sort.

VIII. The Revocation of the Foundation


The Founder may in the articles reserve the right to revoke the Foundation at any time. Should he exercise this power and revoke the Foundation, the entire net assets of the Foundation revert to the personal estate of the Founder. If the Founder has made no provision in the articles for the revocation of the Foundation, then the following principles apply:

a) In the case of a Foundation which is, by law, required to be registered, the
Foundation may only be revoked prior to the registration of the same;
b) In the case of a Foundation not required by law to be registered, the Foundation may only be revoked prior to authenticating the charter and articles;
c) In the case of a Foundation formed by last will or testamentary disposition, the Foundation may only be revoked if such a revocation is provided for according to the law applicable to the will or testamentary disposition. (A will may be revoked by the testator, but not the heirs.)

IX. The Termination and Liquidation of the Foundation


The Foundation is terminated by:

  • Liquidation as prescribed in the articles;
  • Under certain circumstances the law requires that the Foundation be wound-up;
  • Conversion to another form of legal entity.

 

The Foundation?s charter will provide conditions pursuant to which the Foundation will be liquidated, and the procedures to be followed. The Founder may provide that the Foundation is perpetual and may not be liquidated, or that it may only be liquidated at a particular point in time, or that it may be liquidated only upon the happening of certain events. Should no provision be made in the charter, then the Foundation may only be liquidated with the consent of all participating parties (the Founder, the administrators, and the beneficiaries). The law may require that the Foundation be wound-up if the objects of the Foundation are no longer realizable (for example: expiration of time, or depletion of assets). A registered Foundation must follow prescribed liquidation procedures, including notice to creditors. An unregistered Foundation need only notify the registry office of the intent to liquidate. There is no required liquidation procedure in the event that the Foundation is to be converted into another type of legal entity (such as an Establishment). Only if the articles of the Foundation provide for the conversion to another type of entity, may the Foundation be converted, in which case the new administrative organs are appointed and articles for the new entity are formulated. If the Foundation is liquidated, the assets are distributed among the beneficiaries in accordance with the provisions in the charter, or articles or by-laws as the case may be.

X. Official Supervision


The following types of Foundations are not subject to official supervision:

  • Pure and mixed family Foundations;
  • Such Foundations the beneficiaries whereof are designated or may be designated, or are natural or legal persons susceptible of being ascertained, or the heirs-at-law and successors of such natural or legal persons;
  • Such Foundations, the sole objects whereof are to manage their assets as well as to hold participations and other rights and to distribute profits and an eventual liquidation dividend;
  • Ecclesiastical Foundations.

 

The registration officials must report to the government concerning such Foundations as must be entered into the Public Registry.

XI. Incorporation Expenses and Taxes


Such Liechtenstein Foundations as have substantial assets and do not carry on business, are given tax reductions beyond those afforded other holding or domiciliary entities.

1. Incorporation Expenses


a) Stamp Tax

Foundations with activities totally or predominately involving the management of assets, pay a stamp tax of two promille on acquired assets, with a minimum of Swiss francs 200,?.

b) Filing or Registration Fee

A Foundation which must be registered must pay a registration fee of at least Swiss francs 700,? and not more than Swiss francs 7.000,? depending upon the value of its assets. A Foundation not required to be registered, must pay a filing fee of at least Swiss francs 350,? and not more than Swiss francs 3.500,?, again depending upon the value of its assets.

c) Notarial Fees

Notarial fees will be several hundred Swiss francs.

2. Annual Taxes


Foundations are subjected to a capital tax on capital and retained earnings. The capital taxes which are levied upon the net worth of the Foundation are:

  • if the capital and retained earnings are less than CHF 2.000.000 1 ?
  • if the capital and reserved earnings are from CHF 2.000.000 ? 10.000.000 ¾ ?
  • if the capital and reserved earnings are more than CHF 10.000.000,? ½ ?

 

The capital tax is a minimum of Swiss francs 1.000,? per year. Foundations have no further tax liability.

3. Tax Position of Beneficiaries


Beneficiaries not resident in Liechtenstein are not subject to tax at source on payments from the Foundation, or on final distributions.

 

XII. Double Taxation Treaties

1. Liechtenstein-Austria


Liechtenstein has only one comprehensive double-taxation treaty, that being with Austria. Its purpose is to avoid the double taxation of income, property, and inheritances. The treaty basically provides:

  • Income taxes may be levied only by the state in which the person receiving the income is resident.
  • In the case of income from immovables, in that state in which the immovable property is located.

 

Provisions which are available to avoid double-taxation are reservations concerning the marginal rate, foreign-tax credits as well as provisions concerning the refund of taxes at source.

 

2. Tax Treaty with Switzerland

 

Before 1995 there was no tax treaty with Switzerland. After the new federal taxation code entered into force on the 1st day of January 1995 concerning direct federal taxes as well as taxes at source, it was necessary for Liechtenstein to enter into a tax treaty with Switzerland in order to avoid the double-taxation of commuters and retired persons at the federal level. The basic premises of the treaty provide that:

  • Interest paid on mortgages may only be taxed by the resident state of the mortgagee.
  • The income of commuters may only be taxed by the country of their residence and no taxes may be imposed by the state where the place of work is.
  • Pensions, annuities and lump sum pensions may only be taxed by the state of residence of the payee.

IMPRINT


Publisher and Copyright Owner:
ArComm Treuhand Anstalt

Editing and Arrangement:
Dr. iur. et lic. oec. Norbert Seeger

Address for Publisher, Editor and all Responsible Persons:
Postfach 1618, FL-9490 Vaduz
Am Schrägen Weg 14
Telefophone: +423 / 232 08 08
Facsimile: +423 / 232 06 30
 
www.arcomm.li  

Disclaimer

 

The material contained in this publication is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. The publisher, the author and editor expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this publication.