Checklist of international structuring options

When structuring a foundation in an international context, fundamental considerations and decision-making criteria must be taken into account:

• What are the founder’s structuring objectives?
• Which legal system offers the appropriate structuring tools for realising the objectives?
• Does the domestic legal system recognise the foreign law (Liechtenstein) arrangement?

The checklist illustrates the complexity of the foundation issue and guides you through the key decisions when setting up, managing and terminating a foundation:

Is the foundation the appropriate legal form?

• Have alternative legal forms (corporation, association, trust, establishment) been examined? Family pool?
• Is the founder prepared to part with his assets completely?
• Does the founder wish to exercise strong control?
• Does a long-term commitment to a foundation’s articles of association make sense?
• Do inheritance and compulsory relationships jeopardise the foundation structure?

Development of the foundation’s purpose and setting the course

• Establishing a charitable, private or mixed foundation?
• What type of purpose? Family foundation, corporate foundation, self-purpose foundation?
• Is the planned establishment of the purpose permissible in the planned foundation legal system?
• What taxation is the desired purpose subject to?
• Perpetual foundation or temporary foundation? What is permissible?
• Is international foundation activity permissible? Taxation?
• Is the available capitalisation suitable for a foundation with legal capacity?

Practical and strategic considerations for setting up a foundation

• Can a foreigner set up a foundation in the foundation legal system envisaged?
• Does the establishment of the foundation require official involvement/authorisation?
• Is there a minimum capital requirement? Other minimum requirements?
• What costs and other expenses are incurred when setting up a foundation?
• Is it possible to set up a fiduciary foundation?

What legal status should founders, governing bodies and beneficiaries have?

• Does the founder wish to reserve founder’s rights (right of cancellation, right to change the purpose)?
• Does the envisaged foundation law permit such founder rights?
• Can the founder also be an active Board of Trustees member?
• Can the board members be controlled via mandate agreements?
• What legal recourse does the founder have in the case of disloyal board members?
• How must the administrative bodies be staffed (nationality, professional qualifications, place of residence, number)?
• Is an Advisory Board / other secondary body necessary to advise or monitor the executive body?
• Can the founder determine the remuneration of the board members? (FL yes)
• What remuneration is possible with non-profit status? Elementary considerations and decision criteria
• How is the liability of board members regulated?
• Which persons does the founder want to and can favour?
• Should and can donations be earmarked or unconditional?
• Should and can the beneficiary have their own right to a distribution or should the distribution be at the discretion of the management body?
• Can and does the founder want to grant the beneficiary his own participation and control rights?
• How is the legal protection of beneficiaries organised in the foundation’s legal system?

Influence of the founder on the organisational structure

• Can the founder influence the organisational structure (e.g. specify specific bodies)?

What specifications can the founder make for the management of the foundation’s assets

• Are there requirements for the timely utilisation of funds? Distribution ratio? (FL no)
• Is the foundation allowed to reinvest? (FL yes)
• Does the founder want to and can he set up a foundation that consumes the share capital? (FL yes)
• Is there a requirement to maintain capital? (FL no)
• Are consumption foundations possible? (FL yes)
• What standards and due diligence requirements must the executive bodies fulfil in asset management?
• What liability risks do the executive bodies have?
• What documentation obligations are the institutions subject to?
• Are there certain accounting obligations or obligations to prepare an audit report?

External and internal control of the foundation’s activities

• What state supervisory mechanisms are there in the envisaged foundation legal system?
• Can the founder exert autonomous influence privately?
• Is there a foundation supervisory authority or court jurisdiction for foundation control?
• Does the supervisory body supervise all types of foundation? Legal or specialised supervision?
• What publicity obligations are the foundation types subject to? Entries in a foundation register?
• Can the founder set up his own internal foundation governance system? (FL yes)
• Are internal auditorsor similar control bodies possible or necessary?
• Should or must the beneficiaries be involved in the foundation’s activities?
• Are there self-commitment rules? With what binding effect? (FL no)

Avoidance of structuring errors from a tax perspective

• How does the envisaged foundation law tax the transfer of assets upon formation?
• Taxation of current income from the foundation’s assets?
• Taxation on distribution?
• Taxation on dissolution?
• How can the founder influence taxation?
• Tax consequences for transparent and non-transparent foundations?
• Tax privileges for certain foundation purposes?
• Requirements for charitable foundations? Practical handling?
• Tax assessment of the foundation by the home jurisdiction of the founder or other beneficiaries?
• Is there any additional taxation?
• What are the requirements for full tax compliance in the foundation’s legal system and home country legal system? Is the founder prepared to do this?

Liability of the foundation towards external parties Asset Protection

• Does the founder pursue asset protection goals?
• Which creditors should the foundation protect against? Claims to a compulsory portion, equalisation claims under matrimonial property law, maintenance claims or claims arising from professional liability? Is there an insolvency law background? Fear of arbitrariness of the state in the home country?
• What mechanisms protect the foundation’s assets in the envisaged foundation legal system?
• Are the foundation assets attributed to the founder or beneficiaries or are they treated as special assets without access?
• What liability cases do the various legal systems provide for? What are the rules on access to the foundation’s assets?
• Are there protection mechanisms based on time limits, enforcement privileges or waste clauses?
• Are foreign titles enforced?
• Are the asset protection mechanisms recognised in the different home jurisdiction of the foundation’s participants or are they regarded as a violation of mandatory law?
• Are the foundation assets regarded as part of the founder’s assets with the consequence of additional taxation in the home jurisdiction?

Change of purpose and termination of a foundation

• Under what conditions is it possible to change the purpose of a foundation?
• Is a merger with another foundation possible?
• When and how can the foundation be dissolved?
• Who can be the beneficiary? What are the tax consequences?
• Can the foundation migrate to another legal system?

What other framework conditions in the foundation country may be relevant to the decision

• How stable is the foundation legal system in political, economic and legal terms?
• What are the prospects for the future?
• What is the reputation of the foundation’s location?
• Are there international agreements or other international treaties between the jurisdictions (double taxation agreements, mutual legal assistance agreements, agreements on the automatic exchange of information)?