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Keeping Your Assets Safe With A Swiss Foundation

Switzerland has low taxes, a decentralized government, and a business-friendly environment. Bordered by France, Italy, Germany and Liechtenstein, it is a federation of 26 cantons with four official languages: German, Romansch, French and Italian. Despite this linguistic diversity, this landlocked European country has enjoyed much tranquillity along with a sound democratic system. This article will discuss Swiss Foundations, a Civil Law legal instrument similar to Common Law Trusts.

 

TYPES OF SWISS FOUNDATIONS

The standard definition of “Foundation” is “a legal instrument holding assets that a founder has dedicated to a specific purpose.” In the case of Foundations, the founder delegates management of part of their wealth and unties from it. That is, the Foundation and the founder are two separate legal entities.

The term “public utility” often replaces “charity” in Switzerland’s legislation. According to a Credit Suisse report, at the end of 2020, Switzerland counted over 13,500 foundations which collectively amassed CHF 100 billion in assets. According to its geographical influence, foundations will be supervised at the communal, cantonal or federal level. Red Cross, for example, is handled federally.

The Swiss Civil Code (SCC) covers Foundations in articles 80 to 89, which make room for private-benefit and charitable entities. Other Foundation categories are leisure and culture, social services, health, environment, education, research and religion. Special ones exist, such as staff pension funds, investment foundations, and family foundations.

I have handpicked an excellent read on trust for you.

 

Map of Switzerland

Map of Switzerland

HOW DOES A SWISS FOUNDATION WORK?

The founder benefits from “founder’s freedom,” in other words, they can define the purpose and stipulate the organization’s structure and regulations. It is worth noting that the wording of such a purpose must fulfill the principle of legal certainty. In other words, it must be expressed so that future Foundation's governing agents cannot twist its meaning. It must act as the fundamentals upon which future generations and Supervisory Authorities will keep an eye on the Foundation. Consequently, the founder can protect their influence when setting up the Foundation as they can grant themselves certain rights, become the president of any Foundation’s Department, including the Foundation Board, form an electoral body, and determine the features the future trustees must possess, etc. Since conflicts of interest may arise, founders are encouraged to appoint independent expert panels (similar to a Trust protector) along with some internal commissions. Appointing trustworthy members is crucial.

The Founder can also equip this instrument with several purposes that may be pursued in a particular order or cumulatively, or even change the Foundation's objectives (under certain circumstances and always with the permission of the proper Supervisory Authority). This is called the right to change the foundation purpose. Only the founder can reserve this right. However, it must be noted that the following conditions must be fulfilled to use it:

  • There is a charitable purpose after the previous one was replaced.
  • After establishing the foundation or modifying the purpose, at least ten years must pass.
  • The Founder stipulated that the Foundation’s purpose could vary.

On top of that, although the purpose must be “altruistic,” a Foundation can be mixed-purpose, meaning it can combine charitable and private objectives. Interestingly, it cannot act for individual interest, but it is possible to establish it for political purposes. If managed correctly within the legal framework, the founder can simultaneously protect his net worth and work on his charitable views.

 

Wealth Protection

A Swiss foundation offers your money great protection

Supported by the Foundation Charter (i.e. Founder’s Deed or Deed of Foundation) paired with the registration, the Foundation must enter the Commercial Register. This Charter can be a testamentary disposition or inter vivos (established during the founder’s lifetime). This document shall comprise the following:

  • A clear intent of creating the Foundation.
  • A purpose
  • A set of assets

In terms of assets, a Foundation must exclusively possess those which can fulfill its purpose (purpose/means relationship). Assets include intellectual property, real estate, securities, cash, etc. To establish this structure, a minimum of CHF 50,000 capital is required. Here, you must take care because the SCC allows Public Authority to intervene and even grab the assets to assign them to a Foundation according to a similar purpose. In other words, it is essential to ensure that the assets’ value is enough or at least justify that the Foundation will receive sufficient future donations. Umbrella foundations are common, too, as in some cases, a small foundation is not viable, so a larger one may absorb it and pursue its purpose along with its original ones.

Here’s another handpicked article for you to further protect your wealth.

 

Swiss Francs

Your money will always be protected by a foundation

SWISS FOUNDATION AND TAXES

Only Foundations with charitable objectives may benefit from tax exemption, unlike the ones for a private benefit which are regarded as another legal entity in terms of taxation. The founder of tax-exempted Foundations can enjoy up to a 20 % deduction in their taxable income except for the canton of Basel-Land, where the deduction is unlimited. However, this privileged category must be under the control of the Tax and Supervisory authorities. The donors (including the Founder) who contribute freely, money or even resources get a deduction on their income tax and taxes on profits.

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ROLE OF THE TRUSTEE IN A SWISS FOUNDATION

Trustees are responsible for the proper management and risk allocation of assets and must use them to the best of their knowledge, capacity and judgement. Other principles they must maintain are risk diversification, liquidity, and profitability. Although there is sometimes a blurred line between the types of investment, they are:

  • Socially Responsible Investmentsinvesting in companies that largely consider the social and environmental impacts.
  • Impact investments: a subset of socially responsible investments devoted to the conscious creation of social impact through investment.
  • Entrepreneurial funding models: consist of investing in companies aligned with the Foundation’s goals.

Aside from the above duties, here are some other responsibilities they have to perform:

  • Getting value for money and, by extension, aid the foundation in materializing its purpose.
  • Financial recording and bookkeeping.
  • Preparing and approving financial statements.
  • Ensuring proper financial management.

In addition, other relevant duties are notifying imminent insolvency or excessive debt and publicly sharing their salaries. Due diligence responsibilities obligate them to stay up to date about the Foundation’s situation. A board of trustees must deal with several regulations and internal, everyday problems requiring extensive knowledge about many fields such as law, financial matters, asset management, etc. Therefore, hiring external professionals to care for these problems is common practice. Then, these activities must be observed so there are no conflicts of interest. Despite the founder’s freedom, there is also the governing bodies' autonomy. In other words, if circumstances demand a temporary change of goals, the trustees can maneuver as long as they still preserve the identity of the Foundation.

 

Zurich, Switzerland

Zurich, Switzerland

Conclusion

All in all, a Swiss Foundation can be used like a Trust if operated correctly. If it is given the charitable foundation status, it will be tax-exempted, and even its donors (including the Founder) get tax deductions. Another relevant aspect is how dynamic this legal instrument is. Since it offers the chance to vary its purpose according to specific circumstances and the cumulative achievement of goals, founders can plan how the foundation will act in the short, medium and long term. However, it is a must to take care of conflicts of interest and the vigilance of the day-to-day operations and register the Foundation with a sufficient amount of assets value.

 

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Mikkel Thorup

Written by Mikkel Thorup

Mikkel Thorup is the world’s most sought-after expat consultant. He focuses on helping high-net-worth private clients to legally mitigate tax liabilities, obtain a second residency and citizenship, and assemble a portfolio of foreign investments including international real estate, timber plantations, agricultural land and other hard-money tangible assets. Mikkel is the Founder and CEO at Expat Money™, a private consulting firm started in 2017. He hosts the popular weekly podcast, the Expat Money Show, and wrote the definitive #1-Best Selling book Expat Secrets - How To Pay Zero Taxes, Live Overseas And Make Giant Piles Of Money.

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