Liechtenstein foundations are a very well-known family planning instrument as they can easily be set up and maintained. However in the international tax and civil law field, especially where the assets are not only located in Liechtenstein, some additional concern should be given by the founders and/or beneficiaries. This short article tries to point out some very important elements giving an example with people having relevant connecting factors in Switzerland (from the tax and civil law point of view).

General introductory remarks

Any person can form a Liechtenstein foundation for his own purposes. However the professional formation of foundations for third parties is only allowed by professional licensed trustees/lawyers and trustee companies regulated according to the law on trustees (Liechtenstein law gazette LGBl. 1993 No. 42 with amendments).

Most Liechtenstein foundations are set up as family foundations and are versatile instruments which can be used:

  • for enhanced anonymity;
  • for protection of the foundation’s assets in general;
  • for planning for a period of several generations;
  • for protection of separate family members;
  • for protection against the claims of creditors (segregation);
  • for tax and estate planning.

Foundations may also have as purpose to safeguard the interests of a company, or to have a mere welfare purpose or in general to invest and manage the foundation’s assets and to make distributions to beneficiaries in accordance with the by-laws and regulations. So-called "purpose" foundations are therefore also possible.

Foundations are not necessarily registered on formation. This depends on the purpose of the foundation.

According to Art. 557 al. 2 PGR code, ecclesiastical foundations, pure and mixed family foundations and foundations whose entitled beneficiaries are specifically designated or definable (a family to be named as potential beneficiaries is sufficient) acquire legal personality without being entered in the Public Register. This provision is important for non family foundations who may have no definable beneficiaries: Those family foundations, and non-profit foundations (foundations in the public interest; purpose foundations) without defined beneficiaries must register in order they acquire legal personality.

Foundations which acquire legal personality without registration in the Public Register must deposit the foundation deed as well as the articles with the Public Register. The deposit of the foundation deed is a regulatory requirement in order that the authority can fulfil its supervisory obligations (Art. 554 PGR code), however, failure to deposit will not invalidate the constitution of the foundation.

An obligation to register exists for those foundations which, for the attainment of their non-economic purpose, pursue a trade conducted in a commercial manner or if the nature and scope of the participations held by the foundation involve a commercial operation.

Liechtenstein taxes

Capital tax:

The annual tax for a foundation amounts to at least CHF 1'000.00 p.a., or 0,1 % of the capital including disclosed reserves. If the capital plus reserves are over CHF 2 million, the part from CHF 2'000'001 to CHF 10'000'000 is taxed with 0.075 %, the capital plus reserves of over CHF 10 million is taxed with 0.05 %.

Stamp duty at incorporation:

Foundations normally pay a stamp duty of at least CHF 200.00 (or 0,2 %). The rate of duty for capital in excess of CHF 5 million is reduced to 0,1 % and for capital in excess of CHF 10 million to 0.06 %.

Registered Foundations with commercial activity do not pay any stamp duty for the capital not exceeding CHF 250'000.00. For the capital above CHF 250'000, the duty amounts to 1 %. The rate is further reduced to 0.5 % for capital in excess of CHF 5 million and to 0.3 % for capital in excess of CHF 10 million.

As long as the founder and the beneficiary live outside of Liechtenstein, no gift/donation tax or inheritance tax, nor any income tax will be levied in Liechtenstein.

Taxes abroad (example with Swiss domiciled persons)

a) General

The following points need careful attention:

  • The purpose of the foundation;
  • Where does the founder live?
  • Where do the beneficiaries live?
  • is it possible to reduce the fixed beneficiary rights to a certain percentage (e.g. below 50 %), and leave the remaining at the discretion of the foundation board?
  • The nature of taxation of the founder and the beneficiaries;
  • Specific problems of the countries involved.

The international use of Liechtenstein foundations has become less attractive in the last years because of defence measures by foreign tax authorities which have tried to make the international tax, estate and family asset planning through the use of Liechtenstein foundations more and more difficult, but not impossible.

There can for example be named Par. 15 of the German Foreign Tax Law (Aussensteuergesetz / Hinzurechnungsbesteuerung) which taxes foreign foundations (and especially Liechtenstein foundations and trusts) in a discriminatory way compared to those of Germany. The European Commission has opened a case against Germany for infringing the relevant EEA contract. As Liechtenstein is member of the EEA (European Economic Area) it has the assurance that its corporate and physical persons have to be treated equally to those of the other EEA member states (25 EU member states and 3 EEA member states (former EFTA)). This means that Germany cannot treat German foundations in another way than Liechtenstein foundations.

Liechtenstein foundations can have different characters as the Liechtenstein law allows for different rights of intervention by founders, beneficiaries and other bodies according to the statutes. Roughly, in practice may be encountered the foundation where the foundation board exercises far reaching discretionary rights concerning the beneficial rights and a foundation where the founder has retained different statutory instruments to exert control or intervention on the foundation or rather its foundation board.

Rights of control or intervention according to the statutes can for example be:

  1. right of revocation by the founder or right to amend foundation statutes by the founder;
  2. the founder is the sole first beneficiary with the right to change beneficial rights;
  3. the founder being the first beneficiary has a right to claim beneficial distributions (amount; time and nature);
  4. identity between founder, foundation board and first beneficiary;
  5. signatory rights on bank accounts or general powers of attorney to move the foundation's funds.

Such a foundation with far reaching rights of control or intervention by the founder may often encounter in international practice the following disadvantages:

  1. risk to be considered "nul and void" by foreign courts, i.e. to have never come into existence ("shame trust");
  2. risk of being considered a "flow-through" entity in terms of civil and tax law which leads to the fact that asset and income are aggregated to those of the founder, even if the foundation is accepted.

A discretionary foundation will have the foundation board as the supreme body of the foundation. The foundation board benefits from all rights and privileges which by law are vested in the supreme body of a corporate entity. The foundation board is responsible for management and representation of the foundation without restriction, vis-à-vis third parties and in relation to all national or foreign judicial or governmental authorities. Distributions to the one or several of the beneficiaries so designated as well as the timing and extent of such distributions are at the discretion of the foundation board. The foundation board has no obligation whatsoever to make distributions within a certain period of time and it may accumulate all or any part of the income or gains as it may consider appropriate without any obligation to distribute any part thereof in any year and may treat the same as an addition to the assets of the foundation. It is expressly stipulated that beneficiaries are neither participants nor owners or creditors of the foundation, and thus may not with validity bring any claims before the foundation other than those founded in the terms of the statutes, by-laws or possible regulations and/or of the resolutions passed by the foundation board. Neither the founder nor the beneficiaries shall have the right or power to revoke the foundation.

Such and more clauses may be found in the statutes of a discretionary foundation. Such a discretion is not a wilful power in favour of the foundation board to do what he wants, but the foundation board has to act according to and is liable to perform within the statutes, by-laws and other regulations set up together with the founder. The founder looses his rights as such ones the foundation is set up, however he may introduce a controlling party like a protector to supervise the foundation board, for example to control the distributions.

The beneficiaries may be defined in the by-laws, or the by-laws may simply stipulate a class of beneficiaries (out of the descendants of the founder).

Liechtenstein does not have any limits to a purpose (as long as they are not illicit) and mere objects to support family members without any conditions are possible. Here the founder being domiciled out of Liechtenstein has to carefully consider if an open purpose of the foundation does not go against his own laws.

b) Switzerland's point of view

Switzerland does not know private foundations with unconditioned family maintenance objectives, and therefore such a Liechtenstein foundation having bank accounts in Switzerland and being set up by Swiss domiciled persons (founders) being also beneficiaries might encounter problems. In one case (BGE 108 II 403) the Swiss Supreme Court decided to apply Swiss law to a Liechtenstein foundation with an unlimited family maintenance purpose because it was set up by a Swiss person living in Switzerland. As the foundation was managed by this Swiss founder in Geneva (having signatories rights), the court considered this foundation as invalid. In another case (Decision 16.12.85) the Liechtenstein foundation with again an open family maintenance purpose and bank account in Geneva was accepted by the court as the founder, first beneficiaries and holders of reversionary rights did not live in Switzerland and the rights were limited to asset management.

Switzerland – like Liechtenstein – acknowledges primarily the incorporation theory. However if the place of incorporation is simply fictitious as the place of effective management (operative management) takes place in Switzerland, then the latter jurisdiction becomes relevant. Such clauses does also Liechtenstein have.

It is highly probable that a Liechtenstein foundation with far reaching founder's rights of control and intervention (a controlled foundation) will in terms of taxes never be accepted by Swiss tax authorities and all income and assets be aggregated to the founder or the first beneficiaries.

If the founder sets up a discretionary foundation and where it is 100 per cent made sure that he may never be the first beneficiary, the acceptance of the Liechtenstein foundation in terms of taxes is given.

Which are the taxes of a Liechtenstein foundation which is set up by a Swiss domiciled person and where the first beneficiaries are Swiss domiciled persons (his children or wife for example)?

The transfer of assets into the foundation will cause gift taxes if the relevant cantonal jurisdiction in Switzerland knows such an estate and gift tax (where the founder is domiciled; or in case of Swiss real estate where such a property is located). The canton SZ does not know estate and gift tax and LU does not know gift tax. The canton SG taxes for example gifts to a foundation always with the maximum tax of around 30 % and does not consider any family relationship between founder and first beneficiaries. Some cantons recognise reduced rates whenever there is a close family relationship between founder and first beneficiary (however the tax laws make only reference to foundation objects similar to those of typical Swiss family foundations, and those objects cannot go so far as in Liechtenstein; therefore a ruling is strongly requested). There are no estate or gift taxes in Liechtenstein as long as the founder is not domiciled in Liechtenstein or the real estate is not located in Liechtenstein.

The assets and income of the Liechtenstein foundation's fund (being an accepted discretionary foundation where the assets are not aggregated to the founder) are not taxed in Switzerland, unless the Swiss tax authority considers the place of administration (Verwaltungssitz) to be in Switzerland. This can be the case if the majority of the foundation board members is domiciled in Switzerland, the operative business (management decisions) is done in Switzerland, meetings and accounting are done in Switzerland etc. If the foundation is not taxed in Switzerland, then there is only a flat tax of 0.1 per cent on the foundation fund disclosed, at least CHF 1'000.00. The percentage is reduced for assets increasing CHF 2'000'000.00.

Distributions from accepted discretionary Liechtenstein foundations to beneficiaries living and taxable in Switzerland are income taxed or free of tax. Distributions to persons in public need are free of tax, periodical distributions to beneficiaries (for example for education) are income taxed. Singular (unique) distributions (only made once) and upon free will made by a Liechtenstein foundation to a person living in Switzerland do not suffer from gift tax, unless there is an economic connecting factor like real estate or production plants in Switzerland. A gift is acknowledged if:

  • it is done between persons not yet passed away;
  • given without adequate counter value out of an asset of another person (the foundation);
  • free of charge;
  • free will to gift by the donator (foundation).

Foundations which according to statutes are obliged to make a distribution may never have a free will and any distribution is always considered as income. The Swiss tax authorities have a strong tendency to consider distributions as income, and special care has to be taken by the beneficiaries in order a single distribution in their favour may be considered as a gift and result in no tax as normally the donator (foundation) is responsible to pay any gift tax in his respective country (which is always Nil in Liechtenstein).

The dissolution of a foundation will have the same taxable effects on the beneficiaries like the distribution. And also here must be pointed out that most Swiss cantons see the connecting factor for gift taxes at the domicile of the donator (the Liechtenstein foundation), and therefore there will be no gift tax, unless there are real estates or production plants or similar objects with economic connecting factor in Switzerland concerned. As pointed out before, the Swiss tax authorities will try to also treat such a distribution as income of the beneficiary and tax it as income. The beneficiary has to prove that that income was a gift and not an income.


The example given shows how a Liechtenstein foundation can be used as a family planning instrument if special care is taken. Each jurisdiction where the founder and beneficiaries live has its special tax and civil law situation and should be considered. For situations disclosed it is worthwhile doing it and enhances a long lasting structure fulfilling the founder's wishes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.