Private Foundations in Liechtenstein: An In-Depth Guide

Liechtenstein has long been a premier destination for establishing private foundations. Renowned for its robust legal framework and favourable tax environment, it offers individuals and families a secure means of asset protection and estate planning. In this guide, we explore the intricacies of private foundations in Liechtenstein, providing valuable insights into their establishment, management, and the benefits they offer.

Private Foundations in Liechtenstein: An In-Depth Guide

Understanding Liechtenstein Private Foundations

A private foundation in Liechtenstein, known as a Stiftung, is an independent legal entity created by a founder to achieve specific objectives. Governed by the Liechtenstein Persons and Companies Act, these foundations are typically established to serve private interests, such as managing family wealth or facilitating succession planning.

Unlike companies, private foundations have no shareholders or members. Instead, they are self-owned entities with beneficiaries who may receive distributions. The foundation holds assets independently, ensuring they are protected and managed according to the founder’s wishes.

Liechtenstein recognises several types of foundations:

• Private Foundations: Established entirely or mainly for private (personal or family) interests.
• Foundations for Public Purposes: Created to pursue charitable, cultural, scientific, or humanitarian objectives.
• Mixed Foundations: Combining both private and public-benefit purposes.

Private foundations are particularly attractive due to their flexibility and confidentiality. They allow founders to tailor the foundation’s statutes to meet specific needs while keeping details about beneficiaries and internal regulations private.

In practice, private foundations serve as effective tools for individuals seeking to protect assets from creditors, manage complex family structures, or navigate succession laws. Liechtenstein’s stable political environment and sophisticated financial services enhance its appeal as a foundation jurisdiction.

Establishing a Foundation: Registration Process

Setting up a private foundation in Liechtenstein involves a clear legal process. The foundation is established through a written declaration by the founder, who can be one or more individuals or legal entities. This declaration outlines the foundation’s purpose, initial capital, and governance structure.

For private foundations not engaging in commercial activities, registration with the Commercial Register is generally not required. Instead, a notification of the foundation’s creation must be sent to the Office of Justice within 30 days. This process maintains the foundation’s privacy, as registration details remain confidential. However, if the foundation intends to conduct commercial operations, registration becomes mandatory, and it acquires legal personality only upon entry into the register.

The minimum capital requirement is 30,000 Swiss francs, euros, or US dollars, which must be fully paid up. The founder endows the foundation with assets that become its property, separate from the founder’s estate.

Foundations established for public purposes must register and are subject to supervision by the Foundation Supervisory Authority (STIFA). This ensures they comply with their statutory obligations and public interest objectives.

When establishing a foundation, careful consideration of the statutes and internal regulations is essential. The statutes act as the foundation’s constitution, detailing its purpose, governance, and rules concerning amendments and dissolution. Internal regulations can specify beneficiaries and distribution policies, offering greater confidentiality as they are not publicly filed.

Founders and Beneficiaries: Roles and Rights

The founder plays a pivotal role in shaping the foundation’s objectives and governance. While the foundation becomes the owner of its assets upon establishment, the founder can retain influence through the statutes and internal regulations. The founder may even be included among the beneficiaries or serve on the foundation council.

Beneficiaries are the individuals or groups who benefit from the foundation. Their rights are defined by the founder and can be tailored to specific needs. These rights may include entitlements to income, capital distributions, or benefits upon certain events, such as the foundation’s termination.

Beneficiary rights can be structured in two main ways:

• Fixed Rights: Beneficiaries have clear, defined rights to receive specified distributions. For example, a beneficiary may be entitled to an annual payment of a set amount.
• Discretionary Rights: Distributions are made at the discretion of the foundation council, allowing flexibility in managing assets and responding to changing circumstances.

One key advantage is the ability to keep beneficiaries’ identities confidential. By detailing beneficiary information in internal regulations rather than the public statutes, privacy is maintained for both the founder and beneficiaries.

However, excessive founder control can undermine the foundation’s independence and risk legal challenges. It’s advisable to balance control with proper governance structures, ensuring the foundation operates effectively while respecting the founder’s intentions.

Foundation Management and Key Documents

The management of a Liechtenstein private foundation is entrusted to the foundation council. This executive body is responsible for administering assets, ensuring compliance with statutes, and representing the foundation legally. The council must consist of at least two members, who may be individuals or legal entities.

The foundation’s statutes are its primary governing document. They include essential details such as the foundation’s name, purpose, duration, initial capital, and appointment of the foundation council. The statutes may also provide for additional bodies, like protectors or advisory boards, who offer oversight or guidance.

Internal regulations complement the statutes by outlining confidential details, such as beneficiary identities and distribution plans. Since these are not filed publicly, they enhance privacy.

For effective management, additional officers or agents can be appointed. A common practice is to appoint a protector, who oversees the foundation council and ensures adherence to the founder’s intentions. This is particularly useful when the founder wishes to influence operations without direct involvement.

If the foundation lacks a physical presence in Liechtenstein, a local representative must be appointed. This individual or entity is responsible for receiving official communications and liaising with authorities on the foundation’s behalf.

Proper governance and clear documentation ensure the foundation operates smoothly, achieves its objectives, and complies with legal requirements.

Accounting, Reporting, and Compliance Requirements

Compliance with accounting and reporting obligations is crucial for transparency and legal adherence. Foundations engaging in commercial activities must maintain full accounting records according to accepted principles. This includes preparing annual financial statements and, if required, undergoing an audit.

Foundations not conducting commercial operations have less stringent requirements. They must keep records of asset transactions and retain supporting documentation. This allows for oversight and ensures financial activities can be reviewed if necessary.

Non-commercial foundations not permitted to engage in such activities by their statutes are required to submit a declaration to the Commercial Register within six months after the financial year’s end. This confirms their non-commercial status and compliance with legal obligations.

Foundations supervised by STIFA or those engaged in commercial activities must submit annual financial statements to the Tax Administration. They are also subject to audit requirements. An independent auditor verifies that the management and use of assets align with the foundation’s objectives.

Compliance with anti-money laundering regulations is essential. Foundations must implement due diligence procedures, especially when dealing with beneficiaries or counterparties in higher-risk jurisdictions. This includes verifying identities and monitoring transactions to prevent illicit activities.

Adhering to accounting standards and compliance obligations not only fulfils legal requirements but also enhances the foundation’s integrity and reputation.

Impact of Sanctions on Liechtenstein Foundations

As of December 2024, Liechtenstein, though not an EU member, participates in the European Economic Area (EEA) and the European Free Trade Association (EFTA). Consequently, it has adopted EU sanctions, including those targeting Russia. These sanctions significantly impact Liechtenstein private foundations connected to Russian individuals or entities.

Under Article 5m of EU Council Regulation №833/2014, there are prohibitions on registering and providing services to trusts or similar legal arrangements where the founder or beneficiary is a Russian citizen or resident, or entities controlled by them. This extends to foundations and effectively prevents the establishment or administration of Liechtenstein foundations for persons connected with Russia.

For existing foundations with ties to Russian individuals or entities, these sanctions introduce uncertainty and potential legal risks. Service providers must exercise caution to ensure compliance. Failure to adhere to regulations can result in severe penalties and reputational damage.

Thorough due diligence on founders, beneficiaries, and related parties is crucial. Regular reviews of sanctions lists and ongoing monitoring are essential components of a robust compliance framework.

Foundations must stay informed about international sanctions and regulations to manage risks effectively and maintain lawful operations.

Redomiciliation of Foundations: Options and Process

Redomiciliation allows a foundation to transfer its domicile from Liechtenstein to another jurisdiction without dissolving and re-establishing the entity. This can be a strategic move in response to regulatory changes or to benefit from more favourable legal environments.

In Liechtenstein, redomiciliation is permitted under certain conditions:

1. Continuity: The foundation must continue in the same legal form under the new jurisdiction’s laws.
2. Supervision: The destination country must provide adequate supervision of foundations.
3. Compliance Report: A report confirming that the foundation’s assets have been managed according to its objectives and that transfer is permissible under its documents.

The redomiciliation process involves:

• Resolution to Redomicile: The foundation council adopts a resolution, as allowed by the statutes.
• Notification and Approval: For STIFA-supervised foundations, a notification is submitted to obtain permission.
• Application to the Commercial Register: Once approvals are secured, an application is made to effect the change of domicile.
• Final Notices: After redomiciliation, the foundation files a final notice in Liechtenstein, including necessary documentation from the new jurisdiction.

Redomiciliation offers advantages such as accessing more flexible legal frameworks or mitigating sanctions risks. It’s essential to consider legal and tax implications in both countries and to comply with all procedural requirements.

Considering Alternatives: Seychelles Private Foundations

Given the challenges posed by sanctions and regulatory changes, the Seychelles presents a compelling alternative for establishing or redomiciling private foundations. The Seychelles Foundations Act 2009 offers a modern, flexible legal framework tailored to international clients’ needs.

Key advantages of Seychelles private foundations include:

• Flexibility in Redomiciliation: The Act allows foundations to redomicile into and out of the Seychelles, maintaining continuity of legal personality and assets.
• Confidentiality: Strong privacy protections limit disclosure requirements for beneficiaries and activities.
• Tax Efficiency: Exemption from taxes on income and gains derived outside the Seychelles enhances appeal for international asset holding.
• Simplified Administration: An efficient regulatory regime reduces operational costs and complexity.
• Asset Protection: Robust legal provisions safeguard assets from creditor claims.

When considering redomiciliation to the Seychelles, engaging experienced advisors is crucial. They can navigate the legal requirements and ensure compliance with laws in both Liechtenstein and the Seychelles.

Redomiciling to the Seychelles can offer strategic benefits, providing a stable and favourable environment for private foundations.

Conclusion

Private foundations in Liechtenstein offer a robust solution for asset protection, estate planning, and wealth management. However, the complexities of legal compliance and the impact of international sanctions require careful consideration. Exploring alternative jurisdictions like the Seychelles may provide additional benefits and flexibility.

As a corporate services provider operating in over 30 jurisdictions, we are equipped to assist with establishing, managing, or redomiciling private foundations. For more detailed information on Liechtenstein foundations and how we can support your needs, please visit our comprehensive guide.