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Private Foundations

May 12, 2010 Comments off

We can help you to establish a Private Foundation. Essentially, Private Foundations act as a holding entity for assets transferred to them.  The transfer is usually in the form of a gift, by a person referred to as the donor and in some jurisdictions, the term “settlor” is used.

The Private Foundation have traditionally been used over the centuries for benevolent or charitable purposes, often being associated with pieces of art or other valuable collections. The Private Foundation works well for individuals desiring a straight forward asset holding/protection structure designed to provide beneficiaries with an asset-derived income.

Foundations cannot be used for trading activities or for conducting financial service business activities.  However, the buying and selling of assets (real estate, shares in trading companies, investments etc.) is not considered a trading activity. Foundations can act as a shareholder but not a director or officer, in a trading entity like a corporation.

There is no gift tax to pay at the time a Foundation is established, and earnings generated by the Foundation are tax exempt. However, incomes paid by Foundations to its beneficiaries, once declared by beneficiaries, might be subject to local taxation at their place of domicile.

Because the Foundation’s assets are gifted, the donor receives no payment in return. The Foundation becomes the owner of the assets endowed to it and, as such, the entity has a separate legal personality. It is in this area that Foundations fundamentally differ from trusts, since trusts are not considered to be legal entities.  In the case of a trust, legal title of its assets is held in the name of the trustee.

In order for the Foundation to function, the assets need to have been endowed and placed at the disposal of the Foundation and its officers.  This endowment satisfies the tax inspector’s question “has the property ceased to be the asset of the tax-payer (donor)”. One of the documents required at the time of registration of a Foundation is a Certificate of Initial Assets signed by its officers. This declaration must confirm that assets of not less than US$ 10,000 in value have been endowed to the Foundation. Upon receipt of the Certificate of Initial Assets, the Registry will issue a ‘Certificate of Endorsement of Statement of Value of Initial Assets’.  The specific assets endowed at the time of registration need not be named and additional assets can be gifted at anytime, again without any public record of their value or their source.

Unlike trusts, once assets are placed in a Foundation, they cannot be withdrawn at will by the donor.  A statement relating to the endowed assets also needs to be included in the Memorandum of Endowment signed by the donor and submitted with the application to register. The Memorandum is not filed, but is returned to the Foundation attached to a Certificate of Endorsement of Documents issued. An ‘Extract of Particulars of the Memorandum of Endowment’, signed by the Secretary of the Foundation is filed. The names, addresses and specimen signatures of the appointed officers and the Secretary, and details of the address to be used for the service of documents to the donor are included in this Extract. The name of the donor does not appear in the Extract and, therefore, need not become public information. In addition, more than one donor is permissible, and there are no restrictions on residency or nationality of the donor.  However, a donor cannot act as an officer or be appointed as the Secretary of the Foundation, but can participate in its supervisory board, if one is appointed.  Moreover, the donor can be one of the beneficiaries.

Management responsibility of a Private Foundation sits with its officers who determine the distribution of income and capital in accordance with the donor’s instructions.

A minimum of three officers need to be appointed, and at least two officers must be physical persons. One of the officers can also act as the Secretary, and a corporate Secretary is permitted. Consent to Act declarations for each officer and the Secretary need to be submitted with the application to register the Foundation, and these are filed together with the Extract. As with the donor, there are no restrictions on residency or nationality for the officers and/or the Secretary. Officers can delegate their powers to one another. To assist in the management of a Foundation, the officers may decide to appoint a Supervisory Board comprised of at least three physical persons.  Private Foundation Law permits a donor to participate on the Supervisory Board.

The Supervisory Board must be established as a body that is independent of its officers and beneficiaries. The Board acts like the Protector of a trust. Similarly, auditors may also be appointed. The procedural rules for running a Foundation are set out in the Management Articles, a document that is very similar in scope to the bylaws of a corporation. The Articles are signed by the donor and submitted with the application to register the Foundation. Like the Memorandum, the Management Articles are not filed, but returned to the Foundation attached to a Certificate of Endorsement of Documents.

A typical function of a Private Foundation is to provide beneficiaries with an income derived from an asset(s) endowed to it from a donor(s). As has been outlined above, the donor provides guidelines as to how the Foundation is to be managed and also defines who the beneficiaries will be, what payments should be paid to the beneficiaries, and when payments should occur.

While the officers of the Foundation need to know the names of the beneficiaries, such information is not required to be filed. A donor can also provide further guidance to assist officers to manage the Foundation in the form of a Letter of Wishes and, from time to time, change the beneficiaries. The Letter of Wishes is an internal document and not, therefore, filed.

Once formed, a mandatory annual return for the Foundation, signed by the Secretary must be submitted.  The annual return must confirm that the information filed in the Extract remains correct and that proper accounts have been maintained.  Annual returns are not publicly filed.

The Private Foundation provides a perfect holding structure for emerging financial and asset empires, while distancing the donor from otherwise taxable events.  The Foundation permits income generated from assets held by the Foundation to be available to the donor and subsequently his heirs in accordance with the (changing) wishes of the donor/settlor.   At the same time, the Foundation keeps intact the wealth-generating activities of a family (shipping operation, hotels, property, licenses, royalties, manufacturing or service activities).

The above concept is based on Austrian law and also used in Liberian Private Foundations. Similar foundations are available other places like Panama and Mauritius.

Contact us if you are interested to set up a Private Foundation.

taxmoneyhavens.com

Austria – Introduce new taxes on banks

March 23, 2010 Comments off

Following the recent banking summit, and Despite bitter opposition from its banks, the Austrian government has announced its decision to enter a bank tax in Austria. According to Finance Minister Josef Pröll, it is Merely a “question of justice”.

Austria’s Chancellor Werner Faymann has confirmed that the introduction of a bank levy is now inevitable, with or without backing from the European Union regarding a Europe-wide tax.

Although the precise details of the tax have yet to be determined, Faymann has made known that the new levy could be introduced from as early as 2011. Determined to consolidate the country’s budget, Pröll is eager to Implement the new levy as quickly as possible.

Proposals put forward by Chancellor Faymann include imposing a levy of between 0.07% and 0.1% on the taxable base. Other details, such as who is to pay the tax, and what the basis for calculating the tax will be, as well as the exact tax rate, have yet to be decided. As a benchmark, has proposed Faymann generating a volume of around EUR 500m annually.

A working group consisting of Representatives from the Chancellery, the finance ministry, issuing banks and other banks, will be set up in order to put forward proposals and to firm up details for the new tax. Nevertheless, Chancellor Faymann has underlined the fact that ultimate responsibility rests with both the government and parliament.

Having agreed in principal to the tax, Josef Pröll once again warned of the dangers of imposing too great a burden on the country’s financial institutions, and reiterates that the burden must not be borne by either borrowers or savers. According to Pröll, the greater the pressure imposed on the banks, the greater the pressure to pass that burden on.

taxmoneyhavens.com

OECD removed Austria from the grey list

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Austria has now officially been removed from the Organization for Economic Cooperation and Development’s (OECD) “gray list” of countries Deemed uncooperative in international tax matters.

Indeed, Austria now appears on the OECD’s much-coveted “white list” of countries that have fulfilled the organization’s 12 official requirement to conclude double tax or tax information exchange agreements, Providing for administrative assistance in tax matters under Article 26 of the OECD Model Convention .

According to the Austrian Finance Ministry, Austria has in fact exceeded expectations, having signed 15 bilateral agreements In accordance with the OECD on tax information exchange standard.

Austria gave the go-ahead for the creation of legislation to relax its traditional banking secrecy laws and conform with OECD standards on tax information exchange at the beginning of the month, and has, since then, been busily Negotiating bilateral agreements ahead of the G20 summit meeting. However, it has made clear that its traditional bank secrecy laws will only be lifted for those accounts held by non-residents who are not subject to Austrian tax.

taxmoneyhavens.com

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