date | theme

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

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

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

18. February 2021 | Asset management of banking assets of a foundation in Liechtenstein

23. February 2021 | Management of a foundation in Liechtenstein – using organs wisely (this contribution)

Some bodies are necessary for the administration of a foundation in Liechtenstein, while others make sense. In particular, if neither the founder nor a destinatary or a third person subject to instructions is to appear for the administration of a foundation in Liechtenstein, a suitable design is appropriate here. Only if such a potential or actual influence is excluded can grants from the Liechtenstein Foundation remain tax-free in Germany. At the same time, the founder thus ensures the continuation of the foundation’s purpose without having to administer it directly himself. This is particularly relevant when considering the question of the transfer of a bequest of the founder.

Foundation in Liechtenstein: Establishment and construction

1. administration of a foundation in Liechtenstein in the sense of the founder

When a founder sets up a foundation in Liechtenstein – be it a family foundation or a charitable foundation – then he pursues a specific purpose. After all, this is about the transfer of assets to a corporation which is solely intended to fulfil this purpose of the founder. So it is inevitable that the founder deliberately defines the goals in the foundation statutes, which he strives for through the assets of the foundation. However, a foundation, as faithful as it may be to the will of the founder according to its statutes, is dependent on other actors. Because as a legal person, it needs at least one natural person to represent it.

2. The 3 organs for managing a foundation in Liechtenstein

Up to three different bodies can play a role in the administration of a foundation in Liechtenstein. In setting up the Foundation, the Founder shall appoint the members of the bodies which he or she has designated. Later, other mechanisms (change of statutes, dismissal) as well as a voluntary departure of one of the members can change the composition of the organs.

In general, members of bodies of a foundation in Liechtenstein can be engaged on a voluntary basis. However, there are also experienced providers in Liechtenstein who can professionally implement the management of a foundation in Liechtenstein and thus ensure permanent support. On the other hand, external management of foundations with legal capacity in Germany is at best the case in exceptional cases.

Organs for the administration of a foundation in Liechtenstein: the Board of Trustees

First, of course, a management body is required to manage a foundation in Liechtenstein. After all, a foundation in Liechtenstein as well as in Germany is a legal entity that needs a representative body to develop its legal will (declaration of will). This representation then takes place both in court and out of court. So for a foundation in Liechtenstein, we are talking about the foundation board, which corresponds to the board of a German foundation.

This body may be composed of two or more members. The number of members on the Board of Trustees depends primarily on the size of the foundation assets to be administered. Alternatively, the structure of the foundation’s assets may also require more than two members of the foundation council. This is particularly useful in the administration of a foundation in Liechtenstein, whose foundation assets are available in different asset classes, each under the supervision of an experienced specialist. In addition, at least one member of the Foundation Board must have a professional qualification that roughly corresponds to a German tax consultant.

It goes without saying that the Board of Trustees should be composed of members who loyally serve the purpose of the founder’s foundation. In this respect, purely hypothetically, the founder himself comes into question here. However, when managing a foundation in Liechtenstein, it is not advisable that a German founder is a member of the Foundation Council. But more on that elsewhere.

2.2 Organs for the administration of a foundation in Liechtenstein: the Supervisory Board

In order to supervise the activities of the Board of Trustees of a Liechtenstein foundation, a supervisory body can be introduced by statute. This is the Supervisory Board, which can also be composed of one or more members. However, an appointment with an odd number of Supervisory Board members is recommended in order to exclude a stalemate in the event of a tie. Otherwise, the institution will be unable to act. Of course, the founder should appoint only those members of the Supervisory Board to whom he can be responsible for the independent monitoring of the achievement of his foundation purpose.

The creation of a Supervisory Board is an important step if the founder himself renounces any further influence on the foundation assets, but at the same time wants to ensure the achievement of his foundation purpose by the Foundation Board in the long term. Thus, the Supervisory Board is also to be seen as a significant reinsurance with which the founder can hold the Board of Trustees to comply with the purpose of his foundation beyond the end of his life. Of course, it stands to reason that the founder is a member of the Supervisory Board.

2.3. Bodies for the administration of a foundation in Liechtenstein: the Board of Trustees

Another instance that can be involved in the administration of a foundation in Liechtenstein is the Board of Trustees. However, it only has an advisory function. Nevertheless, an embodiment which provides an odd number of members is also useful here. More important, however, is that the administration of the foundation in Liechtenstein can draw on the expertise of a team of specialists. The Board of Trustees should therefore include professionals who have in-depth knowledge of the assets concerned and can provide advice on which the Foundation draws its revenue to fulfil its purpose. After all, even the most noble intention has no chance of success if there is a lack of the means to implement it.

Although the separation of the founder from the organs in the administration of a foundation in Liechtenstein is not absolutely necessary. After all, this is quite permissible under the foundation law of the Principality of Liechtenstein. But if a German founder wants to set up a foundation in Liechtenstein so that the foundation remains tax-free in Germany, then he must already rule out being a member of the foundation council with the foundation statutes. Thus, the administration of a foundation in Liechtenstein must be independent of the potential or actual influence of the founder. Only then will there be a complete separation of the foundation assets from the founder. Of course, this also means that no one can sit on the foundation board who is otherwise under the influence of the founder (for example, employees subject to instructions). Incidentally, the same applies to any influence that any destinataries could have on the management of the foundation in Liechtenstein.

In § 15 AStG, such indirect or even direct influence of the founder or the beneficiaries on a family foundation in EU/EEA countries is a reason for exclusion for the recognition of such a foundation. Rather, an influence of the founder on the foundation assets means that § 15 AStG allocates the profits achieved by the foundation to the founder. This would eliminate the tax exemption of the foundation at a founder taxable in Germany.