A Foundation can be either a public or private interest venture and are the creation of Civil Law countries which include most Continental countries. The primary benefit of a Foundation is that it will own its own assets and be recognized in law as the owner of those assets.  Foundations have long been used in civil law jurisdictions, but have come into wider use in recent years.


A Foundation is similar to a Common Law Discretionary Trust but unlike a Trust, the Foundation is generally treated like a private limited company and therefore the usual provisions of anti-trust legislation applicable in most Common Law countries are irrelevant,

i)      A founder is able to maintain greater control over Foundation assets than in the case of a Common Law Discretionary Trust.

ii)   A Foundation will have a Charter Document (Generally recorded with a local Registry), which describes the purpose, basic structure and operational policies of the Foundation and a Regulatory Governing Document.

iii)  Foundation Regulations will have well drafted “Anti-Duress” or “Flee” Clauses.... which become effective where third parties such as foreign courts might apply pressure on the Founder by threatening contempt of court if they do not use their influence to comply with a court’s instructions. Simplistically, if the governing body or Foundation council has reasonable grounds to believe they have received instructions from their Founder under duress they must then ignore the instructions.

 

When might a Foundation be considered?

Before Marriage; It is generally accepted that English courts do not fully respect prenuptial agreements. A wealthy individual resident in the United Kingdom might consider establishing a private interest Foundation in advance of marriage. It is accepted that at the time of any disposition to a Foundation only surplus assets are transferred and that there is no intention to defraud or mislead which might render any transfer void.


To avoid future Income, Inheritance and Capital Gains Taxes; Individuals both domiciled and resident in the UK are taxed on their worldwide income. It is possible with appropriate tax advice and planning for a UK domiciled and resident individual to create a Foundation to shelter assets and income from UK taxes. Unlike a Trust, once a Foundation has been established its assets are no longer associated with the founder, or the UK.

Non-Domiciled but Resident in the UK; Previously a non-domiciled individual resident in the United Kingdom was taxed only on income and gains generated in or remitted to the UK.  However, from 6 April 2008 a £30,000 levy was imposed in the UK for the continued use of the remittance basis of taxation by non-domiciled individuals. Wealthy foreigners residing in the UK wishing to preserve their wealth can use a Foundation to limit potential exposure of their worldwide wealth to UK taxation.

Asset Protection & Confidentiality; Apart from tax mitigation, a Foundation can also be used to separate and protect assets from future litigation. This is particularly attractive for individuals seeking high indemnity insurance and  a high degree of confidentiality.

Protecting Future Generations; Private Interest Foundations can be established in such a manner that will allow a Founder to dictate the terms of  use and/or disposition of Foundation assets during their lifetime and after death. As with a traditional trust it is possible for a Foundation to continue after the death of the Founder

Which jurisdiction should a Private Interest Foundation be established?

Whilst public Foundations can be established in virtually any civil law country, the three most widely used jurisdictions for private interest Foundations (PIFs), for both legal and tax reasons are Panama, Liechtenstein, and Switzerland.


Panama for cost reasons is the most popular jurisdiction for Foundations although it is generally accepted that Liechtenstein and Switzerland have better regulatory and legal frameworks for maintaining and administering a Foundation. Irrespective of the jurisdiction a Foundation must have properly drafted Regulations to meet the specific criteria of the founder. Strong regulations should be augmented by an independent Foundation council with excellent anti-duress clauses.