date | theme

23. February 2021 | Management of a foundation in Liechtenstein – using organs sensibly

18. February 2021 | Asset management of bank assets of a foundation in Liechtenstein (this contribution)

17. February 2021 | Foundation in Liechtenstein: 6 advantages over a German foundation

11. February 2021 | Establishing a foundation in Liechtenstein: Requirements & Procedure

20. January 2021 | Family Foundation in Liechtenstein: no income tax in Germany

With a foundation in Liechtenstein you can manage different types of assets. Liquid funds in the form of bank assets are a possible asset. In the asset management of bank assets of a foundation in Liechtenstein, both overnight money accounts and equity portfolios or funds are used as liquid investment funds. But even with the transfer of the foundation assets you can save taxes in Germany. Because if you assign the foundation assets to the foundation instead of by donation via a claim, then you can design future distributions to this extent as repayment of the claim. However, it is more advantageous here that the sale avoids a gift of the bank assets and thus a gift tax. Furthermore, such a loan is associated with interest. In Germany, this is subject to capital gains tax, while Liechtenstein does not levy any withholding tax on it. But also the increase in value and possible dividends of shares can remain tax-free at the foundation in Liechtenstein if they are incurred abroad.

Foundation in Liechtenstein: Establishment and construction

Asset management of a foundation in Liechtenstein: the 3 relevant asset classes

When it comes to the asset management of a foundation in Liechtenstein, one thinks in particular of three asset classes. On the one hand, you can equip a foundation with real estate as foundation capital. Secondly, it is possible to provide the foundation capital by means of a company participation. And the third possible asset class, which we also want to deal with in this article, is banking assets.

2. asset management of banking assets

In the asset management of a foundation in Liechtenstein that has banking assets, further subdivisions can be made. On the one hand, this can represent, for example, money in a day money account. On the other hand, it can be a stock portfolio that is kept in one or more bank accounts. Of course, other securities also play a role here. Funds can also be considered here. But their importance in the asset management of banking assets is basically the same.

Of course, you can use money to invest in stocks or securities as well as funds. In the best case, you get both a dividend and a return. In both cases, new investment capital is available to the Foundation’s asset management in Liechtenstein. The cycle begins again.

But before we enter this cycle, we want to share with you some thoughts about the tax-optimized transfer of the foundation capital to a foundation in Liechtenstein. Because if you transfer bank assets to the foundation in Liechtenstein by donation through a normal foundation business, this triggers gift tax in Germany. Fortunately, there is a tax more attractive solution.

For this purpose, the foundation is set up in Liechtenstein and transferred to it a loan in the amount necessary to purchase the bank assets. Thus, the foundation in Liechtenstein is able to acquire the bank assets from the founder. Although this leads to a discovery of hidden reserves, which are then subject to taxation in Germany as a profit, the often more extensive gift tax is thus avoided. If you consider that the allowances for such a gift amount to only EUR 20,000, but the family foundation in Liechtenstein is only financially interesting from a foundation capital of EUR 1,000,000, then you can certainly see that the avoidance of a gift tax is much more advantageous.

Asset management of a foundation in Liechtenstein: Taxation of income

In the asset management of a foundation in Liechtenstein, income from the management of banking assets raises the question of taxation. Here, Liechtenstein is an enormous advantage. While a foundation in Germany as a corporation in this country is taxable without restriction and thus has to tax its worldwide income, a territorial tax regime applies to the foundation in Liechtenstein. In other words, the Liechtenstein Foundation will only tax its income locally if it receives income from the asset management of its Liechtenstein-based banking assets. Of course, this can be taken into account when designing asset management, so that income from banking assets only arises abroad – and thus remain tax-free, if no tax arises there either.

Only interest income in Liechtenstein is taxed. It takes place within the framework of the collection of the corporation tax there at a regular tax rate of 12,5 % (Article 61 SteG).

Saving Taxes in Liechtenstein: IP Box and Foundation

Asset management of a foundation in Liechtenstein: loan repayment instead of payment

If the foundation in Liechtenstein now generates the income anticipated by the founder, then the beneficiaries receive a corresponding payment, which they must tax in Germany. Finally, the world income principle applies to the taxation of persons taxable in Germany. However, the foundation in Liechtenstein can also use its income to refund the loan tax-free.

However, it should be noted that a normal market interest on the loan takes place. However, this is hardly important at the current level of market interest rates.

Asset management of a foundation in Liechtenstein: advantage of tax-free asset growth

An important point that we would like to touch on here is the taxation of the increase in the value of banking assets. The asset management of a foundation in Liechtenstein makes it possible that future increases in the value of banking assets also play no role in taxation, provided that the above-mentioned tax exemption of income in Liechtenstein also remains guaranteed. In contrast, a foundation in Germany receives a so-called substitute inheritance tax every 30 years, with the interim capital gains being fully relevant.

7th Advantage of the compound interest effect when taxing a foundation in Liechtenstein

Finally, a seemingly small advantage of asset management for a foundation in Liechtenstein, but it can reach considerable size. Because the lower taxation of a foundation in Liechtenstein compared to that which is subject to a foundation in Germany means that a higher amount is available for reinvestment in asset management year after year. Due to this compound interest effect, the foundation in Liechtenstein, viewed over a longer period of time, can accumulate significantly higher assets than a foundation in Germany. But this is basically also the great advantage of liquid funds, because especially in the asset management of bank assets, the income often flows as a reinvestment in new bank assets.