At a foundation in Liechtenstein, asset management with real estate can play an important role. Thus, asset management with real estate also offers some tax advantages. For this purpose, we want to focus on three scenarios: the home of the founder, real estate he rents in Germany and foreign real estate. When transferring the home, the aspect of asset protection is particularly important. For leased properties, however, a transfer to a German GmbH & Co. KG, which establishes the family foundation in Lichtenstein, makes sense. This has the advantage that the rental income is subject to taxation in Germany only with 15 % corporation tax. In addition, the sale of the property can then be tax-free after ten years. When transferring foreign real estate, on the other hand, the tax conditions on the spot are decisive. Finally, a foundation in Lichtenstein that operates asset management with real estate helps to avoid a gift tax or inheritance tax that would otherwise be incurred sooner or later.

Family Foundation in Liechtenstein:

0-15 % taxes on shares, real estate, participations

We explain how taxation of foundations in EU/EEA countries avoids in Germany.

1st Foundation in Liechtenstein: Reasons for asset management with real estate

If a founder builds a family foundation with real estate, in Germany, or, as illuminated in our article, in Liechtenstein, then various motives can be decisive. On the one hand, it is often the case that asset protection is in the foreground. On the other hand, asset management with leased properties by a foundation in Liechtenstein can also offer tax advantages. This includes in particular the question of avoiding gift tax or inheritance tax, which would be incurred if real estate were instead to be transferred to the next generation, as is often the case in practice.

Although much of the topic discussed here also applies to foundations in Germany as well as in other countries, we now want to focus primarily on foundations in Liechtenstein, because there are very advantageous tax conditions here.

asset management of a foundation with real estate: asset protection

One of the most important reasons for a transfer of real estate to a foundation is asset protection. In particular, entrepreneurs who potentially have to expect a personal liability case have the opportunity to save their home from the access of potential creditors. Finally, real estate is the easiest asset to attach after cash and other cash.

Now we look at how to transfer the home as tax-advantageously as possible to a family foundation in Liechtenstein in such a case. In principle, there are two alternatives. If the founder follows the first option, he gives his house to the Family Foundation in Liechtenstein. If he follows the second, then he sold it to his foundation. There is no real estate transfer tax for the gift, but a gift tax. Conversely, one does not have to pay gift tax on a sale, but the real estate acquisition tax does.

As a rule, however, one chooses the way of gifting when transferring one's home, because one can integrate a residential right reservation here. As a result, the founder and other persons named by him, usually also family members, can live there free of charge for a lifetime. This reserved usufruct reduces the value of the property, because instead of being able to rent the property, the foundation must now leave the house to the rightful owner. In this way, the gift tax can be significantly lower than a real estate acquisition tax. However, this depends significantly on the age and gender of the founder. This impairment is calculated on the basis of its statistically average life span and thus determines the expected useful life in the course of the reservation of residence rights.

By the way, the transfer of a home to a family foundation in Liechtenstein is also a good alternative to transfer to a life or spouse. Because if such a relationship comes to an end at some point, then the property remains the founder through the foundation.

The asset management with leased properties of a foundation in Liechtenstein is a case of its own. This is less about asset protection – even if this can also be booked as an advantage here – but rather about the tax structure. Because asset management with real estate of a foundation in Liechtenstein can contribute to the fact that only 15 % corporate tax is incurred on the rental income. But this requires a special structure. These are built in three steps.

3.1. Establishment of a foundation in Liechtenstein and establishment of a Immobilien-GmbH & Co. KG in Germany

The first step towards asset management with real estate is, of course, the establishment of a foundation in Liechtenstein. The Liechtenstein Foundation then establishes a partnership in Germany, preferably a GmbH & Co. KG. This has the advantage at GmbH & Co. KG that the founder can then enter the company as a limited partner and then take over the management there. In this way, a commercial form of the otherwise normally commercial company takes place. What tax advantage this has, we explain in connection with taxation in asset management.

3.2. Transfer of real estate to Immobilien-GmbH & Co. KG

How does the founder transfer his rented properties to his foundation in Liechtenstein? The answer may be surprising at first, because he does not do that at all. Instead, he now sells the properties to the GmbH & Co. KG previously founded by his foundation. It is true that there is a one-off property transfer tax, which is subject to a different tax rate depending on the federal state. However, this sale ensures a tax-wise very attractive asset management with the properties that indirectly belong to the foundation in Liechtenstein.

3.3 Advantageous asset management with real estate by the Liechtenstein Foundation

Since the management of GmbH & Co. KG now has a natural person in a managerial capacity in addition to the General Ltd, which is a corporation, the company is considered to be commercially distinct. Consequently, their activity can include all seven types of income, which then includes renting and leasing. This has the following two advantages: on the one hand, rental income can be withdrawn from business tax, because this no longer constitutes a commercial activity due to depreciation. Anyone who reads our articles regularly may now remember that you can also reach the trade tax at a GmbH via the so-called property reduction. Then it must be the second aspect of the deformation, which grants the additional advantage. That is how it is. Because of the commercial design, the GmbH & Co. KG can sell the properties after the expiration of the ten-year speculative period as tax-free as a private person.

Actually, the taxation of the rental income of GmbH & Co. KG takes place at the level of the holding foundation in Liechtenstein. After all, GmbH & Co. KG as a partnership is tax transparent. However, since the foundation as a corporation is subject to limited taxation with its income in Germany, it is subject to corporate tax here with a tax rate of 15 %. As long as the foundation does not carry out any actual commercial activity, it can make use of the extended land reduction.

Another advantage that arises here is that the increase in the value of the property owned by the partnership naturally also indirectly benefits the foundation in Liechtenstein.

Foundation in Liechtenstein: Asset management with foreign real estate

If a founder has real estate assets abroad and also wants to transfer this to his foundation in Liechtenstein, then the following aspects may seem important.

On the one hand, the question of avoiding multiple taxation in the case of gift or inheritance in different countries is of particular importance. Because if a person transfers a foreign property to a recipient who is taxable in a third country, and all three countries collect a gift tax or inheritance tax, then it is easy to see how useful an early strategy to avoid these three taxes is.

On the other hand, the decision of a founder whether to transfer a foreign property to his foundation in Liechtenstein in order to generate profits through asset management naturally depends heavily on the tax law in the respective local state. Therefore, we refrain from further blanket statements at this point. Instead, we recommend a factual country-specific analysis.

5th Foundation in Liechtenstein: Avoidance of inheritance tax and substitute inheritance tax

The donation, but at the latest the inheritance of real estate assets is by far the norm in Germany when transferring real estate to subsequent generations. However, as we can show, with the Foundation in Liechtenstein, whose asset management primarily comprises real estate, there is a more tax-advantageous alternative in the long term. Although one could also set up a family foundation in Germany, with the help of which one can also avoid gift tax or inheritance tax. But you also have to think of the substitute inheritance tax, which applies to the foundation assets every 30 years. However, such a substitute inheritance tax is completely unknown in Liechtenstein.