Lichtenstein Private Interest Foundations
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SYNOPSIS – Liechtenstein can trace its origins back to 1719 when the regions autonomy was conceded by Emperor Charles VI. It is a landlocked principality with Austria on one side and Switzerland on the other. Its capital is Vaduz whilst the resident population is around 41,000. It has two main sectors, the manufacture of medical and dental equipment and international tax planning/banking. In the latter, it is world famous for its private interest foundations or, in German, Stiftung’s, which have been historically used by wealthy mostly German speakers to protect assets from both creditors and preserve wealth. Its local professionals are highly qualified but as one would image very expensive. The downside is that due to German pressure on the jurisdiction distributions made to German residents are subject to a 25% withholding tax although tax free if made in Liechtenstein itself. Notwithstanding this, there is no denying that Liechtenstein is the ‘Mother’ of all private interest foundation providers with its Stiftung legislation being the basis of virtually all other jurisdictions including Jersey, the Isle of Man and Gibraltar.
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PERSONEN UND GESELLSCHAFTSRECHT or Persons and Companies Act (abbreviated as PGR).
The Liechtenstein PGR legislation originated back in 1926 but was comprehensively revised by the Law of 26 June 2008 on the Amendment of the Persons and Companies Act (PGR) and entered into force on the 1st of April 2009. It should also be noted that although Liechtenstein once had a reputation of being a haven for tax evasion, it is now fully regulated and subject to some of the highest standards in the world. In addition, local professionals are all subject to mandatory insurance which means that all funds/assets are uniquely protected. The downside of establishing a Stiftung is that they are far more expensive to set up and maintain then other high quality and safe jurisdictions making them the preserve of the very wealthy.
Some of the key benefits of PIF’s over trusts include:
- Foundations are considered separate legal entities both in Liechtenstein and in the UK – Under Karl Weiss Stiftung v. Rayner & Keeler Limited [1967] 1 AC 853, it was made clear that PIF’s would be considered as equivalent to limited liability companies with their own separate legal identity. However, unlike a limited liability company, a PIF is literally self-owing and operates for the benefit of its beneficiaries per its Charter and ‘Rules’ or Regulations.
- They have greater flexibility with founders and protectors often having the ability to determine (end) a PIF’s existence and/or amend/change its ‘Rules’, beneficiary list etc.
ADMINISTRATIVE STRUCTURE OF A STIFTUNG
Stiftung’s are governed by their Charter and Regulations subject to the Persons and Companies Act 1926, as revised in 2008. The Foundation Council, consisting of licensed professionals, manage the PIF for the benefit of its beneficiaries be they specifically listed or part of a class of beneficiaries. There will generally also be Protectors to ensure that the PIF is run properly and per its written instruments which will ensure that no inappropriate, imprudent or ultra vires actions are taken against the interests of the beneficiaries. The fact that all firms have to be fully insured is also a positive of the jurisdiction.
ADVANTAGES OF LEICHTENSTEIN PRIVATE INTEREST FOUNDATIONS (LPIF’s)
- They are separate self-owning legal entities recognised in most common and civil law jurisdictions
- They are safe and regulated entities
- Most professionals are English speaking
- Accounts Confidentiality – Details are beneficiaries are not shown on publicly available accounts submissions.
- Can head corporate structures – A LPIF can own other assets and corporate entities to ensure tax treaty benefits apply ensuring tax efficiency and access to tax treaty networks.
- Creditor, Asset & Wealth Protection – LPIF’s offer excellent asset and wealth protection with any properly transferred assets being legally owned by the LPIF and not the original donor or donors. This simple fact means that transferred assets cannot be subject to 3rd party litigation whilst distributions can be made in the most tax efficient manner.
- Pre-Nuptial Agreement Alternative – lPIF’s can act as an alternative to pre-nuptial agreements (PNA’s). The basic fact makes them particularly attractive in countries such as the UK where PNA’s can often be set-aside or even ignored by the courts.
- Re-domiciliation Protection – lPIF’s can be used to separate individuals from surplus assets before they become permanently resident in a jurisdiction that taxes individuals on their worldwide income/assets such as is the case in countries such as France and now, in a de facto manner, the UK.
- Excellent Dispute Resolution mechanisms – Liechtenstein has a legal system which can service the needs of financial and tax planning clients to a standard equivalent to that in the UK.