The asset management of company shares of a family foundation in Liechtenstein offers tax advantages. On the one hand, as a GmbH shareholder you can achieve a separation from the ownership of the family foundation by transferring the shares to it. As a result, the founder is able to move from Germany abroad without an exit tax. If the destination country is outside the EU or the EEA, the tax deferral is not possible. In addition, Liechtenstein is the only country that offers the option to design a family foundation in such a way that it is also recognised as a trust in countries that have only one trust right instead of one foundation right. These are mainly Anglo-Saxon states. In this way, a departure of the Destinatäre is also easily possible under this aspect, without losing the advantages of the family foundation in Liechtenstein.

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

We explain how the taxation of company shares by a family foundation creates tax advantages.

1st company participation of a family foundation in Liechtenstein: Introduction

If a German entrepreneur is considering establishing a family foundation in Liechtenstein, then one certainly also asks how one can best carry out the transfer of the company’s shareholding for tax purposes. In addition, the extent of such a drastic step must first be fully understood. After all, setting up a foundation means giving up company participation. Anyone who believes that giving up property is easy is mistaken. This is, of course, the higher the amount of assets to be transferred. In return, however, the founder also expects the family foundation to always provide the destinataries with the highest possible donations. So the thoughts of a founder also revolve around whether the family foundation can guarantee this.

2nd transfer of company shares to a family foundation in Liechtenstein

If a founder has now decided to set up a family foundation in Liechtenstein by transferring his company shares to them, the question of the optimal method must be clarified. In principle, two options are considered. On the one hand, the company participation can be transferred simply by donation to the Family Foundation in Liechtenstein. Alternatively, a company share can also be sold to the Family Foundation in Liechtenstein. Which of the two alternatives is the cheaper in individual cases, you have to calculate and decide depending on the situation.

2.1. Company participation transferred by donation to a family foundation in Liechtenstein

Normally, a gift tax is incurred when transferring assets in Germany. However, in the case of the transfer of company shares, up to EUR 26,000,000 of assets apply exemptions, which are intended to facilitate the company succession. This means that company participations are part of the so-called beneficiary assets. As a result, a relief discount of 85 % is legally established in § 13a ErbStG, which is significantly more advantageous in terms of taxation compared to the allowance.

However, special conditions also apply. One of these concerns compliance with the wage bill. As long as it does not fall below 400 % of the initial wage sum in the course of the following five years, the donation remains favourable. The initial wage sum is the average wage sum of the company over a period of five years before the donation. In addition, however, there are also exceptions if the number of employees is less than 16 and in some other specific cases.

In addition, the Family Foundation in Liechtenstein must also comply with a corresponding retention period of five years. If there is nevertheless a sale of the company’s shareholding within the period, then a time-proportional taxation takes place.

If at least 80% of the transferred assets do not constitute administrative assets, then the family foundation can apply for a 100% abatement deduction. To do so, it must meet other criteria. Thus, the period for the payroll period is extended to seven years, at the same time the retention period is extended to seven years. The percentages of the minimum wage sum also increase depending on the number of employees.

Nevertheless, this alternative should be preferred in most cases. After all, it can usually be assumed that these seven-year deadlines are easily met by a family foundation in Liechtenstein, which has received the company participation in order to manage them in the long term.

2.2. Stifter sells company stake in his family foundation in Liechtenstein

The second alternative involves a sale to the Liechtenstein Family Foundation. The advantage here is that you can design the settlement via a loan agreement. In the following years, this loan will receive priority at the Family Foundation in Liechtenstein, so that the founder receives tax-free payments from his family foundation as a destinatary.

No matter how a German entrepreneur transfers his shareholding in a corporation to his family foundation in Liechtenstein, he can now enjoy the tax advantage to move abroad without an exit tax. Because of the foundation business, he is no longer a shareholder of a corporation. Thus, the statutory provision of the External Tax Act in relation to the Exit Tax does not receive any connecting point.

4th Family Foundation in Liechtenstein: Use of Trust Law

However, moving to a country where, unlike in Germany or Liechtenstein, there is no independent foundation law but instead a trust law can also lead to tax surprises. Fortunately, it is possible in Liechtenstein to adapt the statutes of the foundation in such a way that it is recognized in those countries that only know a trust law. These are in particular Anglo-Saxon countries, such as Great Britain or Australia. It is also remarkable, however, that this transformation of the foundation statutes in order to comply with trust law only works in Liechtenstein. Because Liechtenstein is the only country that knows both a foundation law and a trust law. This is why a family foundation in Liechtenstein offers a very special tax advantage, especially in connection with corporate investments.