The Liechtenstein Foundation
A foundation in Liechtenstein (Stiftung) is an independent legal entity created by the intent of its founder to achieve specific objectives. The status of a foundation is established in the Liechtenstein Persons and Companies Act. A foundation may be established for private or public interests.
Types of Foundations and Their Purposes
| Types of Foundations | Purposes of Creation |
|---|---|
| Private Foundations | Private foundations are established entirely or predominantly to realise private (personal or family) interests. Typically, they are created for the purposes of asset protection and estate planning. |
| Foundations for Public Purposes | Foundations created in the public interest may pursue charitable, cultural, scientific, humanitarian, sporting, environmental, and other non-profit objectives. |
| Mixed Foundations | Mixed foundations can combine both private and public-benefit purposes. |
Registration of a Foundation in Liechtenstein
A foundation can be established by one or more natural or legal persons through a written declaration of foundation. Additionally, a foundation may be created in accordance with a testamentary disposition or an inheritance contract.
As a general rule, private foundations are not required to register with the Commercial Register. It is sufficient to send a notification of the foundation’s creation to the Office of Justice within 30 days. However, a private foundation may choose to register voluntarily with the Commercial Register.
Registration is mandatory only for those private foundations that will engage in commercial activities. Such foundations acquire legal personality only upon registration.
Foundations established in the public interest must be registered with the Commercial Register. Supervision of foundations created in the public interest is carried out by a special body—STIFA—which is part of the Liechtenstein Office of Justice. STIFA may also supervise private foundations that have voluntarily provided for this in their statutes.
The initial capital of a foundation must be at least 30,000 Swiss francs, euros, or US dollars. The minimum capital must be fully paid up.
Founder and Beneficiaries of the Foundation
Unlike a company, a foundation has no shareholders or members. The beneficiaries of the foundation—those for whose benefit the foundation operates—are determined by the founder. Beneficiaries do not manage the foundation but have rights to income from the foundation’s assets or activities to the extent specified by the founder.
The rights of specific beneficiaries may be unconditional or subject to certain conditions, may exist for a definite or indefinite period, and may be granted during the foundation’s operation or only upon its termination. These rights can be:
- Fixed: For example, when a beneficiary is entitled to a regular payment of a specific amount.
- Discretionary: When distributions to a beneficiary are made at the discretion of the foundation council.
The founder endows the foundation with assets that become the property of the foundation and cease to belong to the founder. The founder may be included among the beneficiaries and may also serve as a member of the foundation council (the governing body of the foundation). They may retain the right to amend the foundation’s statutes and to appoint or remove council members. However, in practice, a high degree of control by the founder over the foundation is not always advisable.
Management of the Foundation and Constituent Documents
The governing body of the foundation is the foundation council. It is responsible for achieving the foundation’s objectives, managing its assets, and representing the foundation to third parties. The foundation council must consist of at least two members, who may be either natural or legal persons.
The founder may establish other bodies within the foundation, such as a protector, advisory committee, and so on. These bodies may be granted supervisory or advisory powers.
If the foundation does not have its own address for correspondence in Liechtenstein, it must appoint a representative responsible for receiving official communications and interacting with authorities on behalf of the foundation.
The foundation’s statutes must include all provisions required by law, including the foundation’s objectives. Other provisions can be incorporated into the foundation’s internal regulations. Subsequently, the foundation council may issue additional directives or rules if provided for in the statutes.
The statutes of a private foundation must specify the beneficiaries or indicate the group of persons from whom beneficiaries may be selected and the method of their determination. Alternatively, the beneficiaries or the procedure for their identification can be detailed only in the foundation’s internal regulations, with a reference to this effect in the statutes.
Accounting and Reporting of the Foundation
Foundations that engage, among other things, in commercial activities must maintain accounting records. Other foundations are required to keep records of transactions involving their assets and to retain related documentation.
As non-commercial organisations, foundations are permitted to conduct commercial activities if necessary for the proper investment or management of their assets. Investment or management of the foundation’s assets, as well as holding shares in other organisations, do not, in themselves, constitute commercial activities. The statement of the foundation’s objectives must explicitly indicate whether the foundation will conduct commercial operations.
If a foundation does not conduct commercial activities and is not permitted to do so under its statutes, its reporting obligations are limited to submitting a declaration to the Commercial Register within six months after the end of the financial year. In other cases, the law may require the foundation to submit annual financial statements to the Tax Administration.
Foundations under the supervision of STIFA are subject to audit. An auditor is appointed by the court through a special procedure. The auditor’s duties, as an organ of the foundation, include verifying whether the management and use of the foundation’s assets comply with its objectives.
Liechtenstein and Sanctions
Although Liechtenstein is not a member of the EU, it is part of the European Economic Area (EEA) and the European Free Trade Association (EFTA). The member countries of EFTA, including Liechtenstein, have collectively adopted the EU sanctions imposed on Russia. This means that Liechtenstein has committed to align its policies with the EU’s sanction decisions regarding Russian citizens and legal entities.
The most significant restriction in this context is Article 5m of the EU Council Regulation No. 833/2014, which prohibits registering, providing office or business address services, or management services to trusts or other similar legal arrangements (which can include foundations), where the founder or beneficiary is:
- A citizen of Russia or a natural person residing in Russia;
- A legal entity established in Russia;
- A legal entity in which shares are directly or indirectly owned by Russian citizens/residents or Russian legal entities to more than 50%;
- A legal entity controlled by Russian citizens/residents or Russian legal entities;
- A natural or legal person acting on behalf or at the direction of persons mentioned above.
In effect, this prohibits providers of trust and fiduciary services in Liechtenstein from establishing and administering foundations for persons connected with Russia. This restriction makes the creation of Liechtenstein foundations for the aforementioned categories irrelevant and introduces uncertain risks for existing foundations.
Redomiciliation of the Foundation
Redomiciliation—transferring the domicile (Sitzverlegung) of a foundation to another jurisdiction—is permitted for Liechtenstein foundations.
The procedure for redomiciliation may vary between foundations supervised by STIFA and other private foundations. A supervised foundation must notify the competent authority of its decision to redomicile in order to obtain the necessary permission.
Redomiciliation of a foundation is possible under the following conditions:
- The foundation must continue to exist in the same form under the foreign law.
- Foundations in the new jurisdiction must be subject to adequate supervision.
- A report must be provided on whether the foundation’s assets have been managed in accordance with its objectives and whether the transfer of domicile is permissible under its constituent documents.
If STIFA raises no objections, an application for the change of domicile is submitted to the Commercial Register. After redomiciliation, the foundation council must file a final notice of the foundation’s cessation of activities in Liechtenstein, including an extract from the register.
A Private Foundation in the Seychelles as an Alternative
One viable option currently available is the redomiciliation of a private foundation to the Seychelles. This jurisdiction features modern and flexible legislation on foundations, optimally adapted to the needs of international clients.
The Seychelles Foundations Act 2009 permits both “inbound” and “outbound” redomiciliation of foundations—that is, a foundation can both “enter” the jurisdiction and, if necessary, “exit” it. A foreign foundation with legal characteristics similar to those of Seychelles foundations is entitled to redomicile and continue its activities as a foundation registered in the Seychelles.
A Seychelles private foundation is a legal entity possessing wide legal capacity. Redomiciliation or registration of a foundation in the Seychelles allows for various international corporate, tax, or estate planning objectives to be effectively addressed