Establishing and Administering an Isle of Man Foundation (2 of 3)

Isle of Man Foundations

Since Foundations have been written into Manx law, they have been used frequently as part of intermediaries’ offshore wealth planning for any number of purposes, but all must conform to the same constitutional principles.

This is the second in a three-part series we have produced on Foundations, building up to a webinar hosted by experts who can help you to meet your clients’ needs. If you are unsure of the duties or definitions discussed in this piece, please see an Isle of Man Foundations for Offshore Planning – An Introduction (Article 1 of 3).

In this article we’ll be discussing the nuts and bolts of an Isle of Man Foundation (IOM Foundation), to further or refresh your understanding:

What do I need to establish an Isle of Man Foundation?

As required by the Isle of Man Registrar of Foundations (Registrar), and under the Foundations Act 2011 (the Act), the application must be made by an Isle of Man Registered Agent (IOM RA) holding a class 4 license from the Isle of Man Financial Services Authority. The IOM RA will generally also be the Nominated Officer, as defined within the Beneficial Ownership Act 2017.

The IOM RA, typically a Corporate Service Provider like Dixcart, must also make a declaration that:

  • They will act as Registered Agent on establishment;
  • The Isle of Man address provided is the business address of the IOM RA;
  • That the IOM RA is in possession of the Foundation Rules, which have been approved by both the IOM RA and the Founder.

There are several options with regards to the application and its turnaround time, currently: a standard fee of £100 for establishment within 48 hours, £250 within 2 hours if received before 14:30 on a business day, or £500 for a ‘while you wait’ service if received before 16:00 on a business day.

On approval, the Registrar will make note of the names and addresses of the foundation, Council Members and IOM RA, its Objects and provide a Certificate of Establishment and registration number. Once established, the IOM Foundation gains legal personality and, for example, now has the ability to enter into contracts, sue and be sued.

There are several constitutional elements of an IOM Foundation that must be present for an application to be acceptable; this includes a completed application form, correct fee as detailed above and the Foundation Instrument (Instrument), and a redacted copy of the Foundation Rules (Rules) – in fact it is an offence for a Foundation to not possess these documents. We will examine the noteworthy facets of the Instrument and Rules in more detail within the following sections.

Isle of Man Foundation Instrument

By law, all IOM Foundations must have an Instrument (also known as the Charter) written in English that complies with the Act. A copy of this document is incorporated into the application proforma and supplied to the Registrar on application.

IOM Foundation Instrument – Name

Among other things, the Instrument will detail the name of the IOM Foundation; which must also comply with The Company and Business Names etc. Act 2012, which provides direction and limitations on the name of an IOM Foundation. The Registrar has produced a Guidance Note to assist with ‘Choosing Your Company or Business Name’.

The IOM Foundation’s name can be altered if permissible under the Instrument and Rules, but notice of this must be given to the Registrar and supplied to the IOM RA. Alternatively, the Instrument and Rules can prohibit any changes to the name, if desirable.

IOM Foundation Instrument – Objects

The Instrument will also note the IOM Foundation’s Objects, providing broad information; the Instrument does not need to detail the specific purposes or classes of beneficiaries etc., it simply needs to ensure that the Objects are ‘certain, reasonable, possible, lawful and not contrary to public policy or immoral’. The Instrument should also detail whether the Objects are to be Charitable, Non-Charitable or Both, and that these are to be administered in accordance with the Rules.

IOM Foundation Instrument – Council Members and Registered Agent

Finally, the Instrument must detail the names and addresses of all Council Members and the IOM RA. These parties can be altered in line with the Rules in the future, but again, notification must be provided to the Registrar and IOM RA where appropriate.

There can be a minimum of one Council Member. An individual acting as a member must be aged at least 18 years, of sound mind and not disqualified. The Founder can be a Council member. Council Members can be appointed or removed in line with the Rules throughout the lifetime of the IOM Foundation.

As previously stated, whilst the IOM RA can be altered, this role is mandatory from establishment and throughout.

In many ways the Instrument is like the Foundation’s incorporating document, giving notice of certain key persons and their regulatory roles and the IOM Foundation’s Objects. It is similar to a memorandum, giving the Registrar the headline information.

Isle of Man Foundation Rules

If the Instrument is the memorandum, the Rules are, as their name suggests, the rulebook on how the Foundation should be administered. This document is specific to the individual Objects, functions and purpose of the IOM Foundation.

The Rules are a legal requirement under the Act and can be written in any language, but an English copy must be supplied to and retained by the IOM RA.

IOM Foundation Rules – Objects

The Rules must stipulate the manner and form of amends to the IOM Foundation’s Objects. Where the Foundation is established for specific purpose, or to benefit any person or class of persons, this will include how these details can be amended. For example, how beneficiaries can be added, removed or the classes extended.

Where Charitable Objects have been exclusively specified within the Instrument, the Rules cannot contain any provision for the alteration of these Objects to non-charitable pursuits.

IOM Foundation Rules – Council Members

The Rules must also establish a Council to administer the IOM Foundation’s assets and oversee its Objects. The proceedings of the Council are detailed within the Rules. In doing so, the Rules must also detail how Council Members can be appointed or removed and where appropriate, remunerated.

IOM Foundation Rules – Registered Agent

An IOM RA is a perpetual requirement for an IOM Foundation, and must be accounted for within the Rules. This will include the procedure for appointment and removal, to ensure an IOM RA is always appointed. The Rules will also cover the remuneration of the IOM RA as appropriate.

The removal of an IOM RA does not take effect until another appropriately licensed IOM RA has been appointed.

IOM Foundation Rules – Enforcer

An Enforcer can be appointed to ensure that the Council carries out its duties to further the IOM Foundation’s Objects and in compliance with the Rules.

Where an Object of the IOM Foundation is a specified non-charitable purpose, an Enforcer must be appointed. However, where the Object is simply to benefit a person or class of persons, it is an optional appointment and not a requirement.

Where an Enforcer is present, the Rules must provide the Enforcer’s name and address along with their remit and procedure for appointment, removal and remuneration – the remit can include the ability to approve or veto Council actions. Apart from the Founder and the IOM RA, a person may not be both a member of the Council and its Enforcer.

IOM Foundation Rules – Dedication of Assets

An IOM Foundation does not need to hold any assets at the time of establishment, but where a dedication is made from outset, details must be provided within the Rules. Additional assets can be dedicated at any time, and by persons other than the Founder, unless prohibited by the Rules.

If further dedications are contributed, the Rules must be amended to reflect the details of the dedication. It is important to note that Dedicators do not gain the same rights as the Founder after providing assets to the IOM Foundation.

IOM Foundation Rules – Term and Winding-up

The Rules may stipulate the length of the IOM Foundation’s lifetime and the procedure for winding-up the vehicle. The term, unless otherwise stated, is perpetual. The Rules can detail certain events or a lifespan that determines when the IOM Foundation is dissolved. Where desirable, full details must be included within the Rules.

Beneficiaries do not have an automatic legal right to the IOM Foundation’s assets. However, if a person becomes entitled to benefit in accordance with the Instrument and Rules, they may seek a Court Order from the High Court enforcing that benefit.

Legal Challenges to an Isle of Man Foundation

The Act provides that any legal challenge to the IOM Foundation, or the dedication of its assets, will be the jurisdiction of the Isle of Man Courts and subject to Manx law only:

s37(1)

“…must be determined in accordance with the law of the Island without reference to the law of a jurisdiction outside the Island.”

Therefore, the establishment or dedication of assets cannot be deemed void, voidable, set aside or invalidated by a foreign jurisdiction because:

  • It does not recognise the structure;
  • The structure defeats or potentially avoids a right, claim or interest imposed on a person by the law of a jurisdiction outside the Isle of Man; or
  • Of the existence of forced heirship rights; or
  • It contravenes the rule of law within that jurisdiction.

It is important to note that, due to the relatively recent introduction of this structure into Manx law, the IOM Foundation has not yet been legally tested on these matters. It is also worth noting that the exclusion of foreign law is only in respect of otherwise compliant IOM Foundations or dedicated assets – for example, the Founder or Dedicator must have legal title to the assets being contributed.

Record Keeping

The Act sets out various documents and records that must be maintained at the registered address of the IOM Foundation or such other Isle of Man address as the Council determines. This includes various registers and also accounting records.

The IOM Foundation must also submit an annual return to the Registry, due each year on the anniversary of establishment. Failure to submit an annual return is an offence.

Supporting the Establishment and Administration of Foundations

At Dixcart, we offer a full suite of offshore services to advisers and their clients when considering the establishment of an IOM Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent, Council Member or Enforcer as well as to provide specialist advice when required. 

From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.

Get in touch

If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Steve Doyle at Dixcart: advice.iom@dixcart.com. Alternatively, you can connect with Steve on LinkedIn.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Introduction to Bruce Watterson – Dixcart Guernsey, a Member of our Funds Team

This month we would like to introduce Bruce Watterson. He is delighted that the Dixcart office in Guernsey was licensed in May 2021, and now provides Private Investment Fund (PIF) administration services.

Bruce Watterson

Director

MSc FCA TEP

bruce.watterson@dixcart.com

Bruce Watterson manages a portfolio of structures for high net worth clients, acting as corporate director, trustee and adviser, as is appropriate. In today’s fast changing international business landscape, working closely with top tier professional tax advisers, lawyers and fellow accountants is a key strength of his approach.

Increasingly he is identifying fund solutions to meet the different demands of his varied portfolio of clients.

Bruce holds degrees in Geology and Geotechnical Engineering, is a Fellow of the Institute of Chartered Accountants in England and Wales and a qualified Trust and Estate Practitioner.

Bruce provides services to corporations, individuals and families from all around the world, with a high number of clients in India and Sub-Saharan Africa. His extensive network of professional contacts is particularly strong in the UK. 

He is expert in a number of international service areas including;

  • establishment of trusts and foundations for estate, succession planning, asset protection and wealth management structures
  • commercial and residential property projects including; special purpose vehicle company  incorporation, property acquisition, project development and financing
  • mining and mineral exploration structures from top holding company down to operations company management
  • Private equity and Private Investment Fund structures, side structures for carried interest, securitisation and structured product structures
  • listed company services,
  • payroll structures
  • company migrations, and
  • economic substance planning

Bruce joined Dixcart in the Isle of Man in 2008, where as well as having a portfolio of clients, he was also responsible for business development. He moved to the Dixcart office in Guernsey, to join the Board, during 2010.

In his spare time Bruce actively supports Guernsey Round Table (President 2017-18) and is thereby heavily involved with community and fund raising efforts. He also enjoys spending time with his family, getting out and about and enjoying Guernsey’s fantastic scenery either running, cycling or swimming. Reading and cooking, when time allows.

Malta Funds – What Are The Benefits?

Background

Malta has long been an established choice for fund managers seeking to set-up in a reputable EU jurisdiction whilst being cost-effective.

What Type of Funds Does Malta Offer?

Since Malta became an EU member in 2004, it has incorporated a number of EU fund regimes, most notably; the ‘Alternative Investment Fund (AIF)’, the ‘Undertakings for the Collective Investment in Transferable Securities (UCITS)’ regime, and the ‘Professional Investor Fund (PIF)’.

In 2016 Malta also introduced a ‘Notified Alternative Investment Fund (NAIF)’, within ten business days of completed notification documentation being filed, the Malta Financial Services Authority (MFSA), will include the NAIF on its online list of notified AIFs of good standing. Such a fund remains fully EU compliant and also benefits from EU passporting rights.

EU Collective Investment Schemes

A series of European Union Directives allow collective investment schemes to operate freely throughout the EU, on the basis of a single authorisation from one member state

Characteristics of these EU regulated funds include:

  • A framework for cross-border mergers between all types of EU regulated funds, allowed and recognised by each member state.
  • Cross-border master-feeder structures.
  • Management company passport, which allows an EU regulated fund established in one EU member state to be managed by a management company in another member state.

Dixcart Malta Fund Licence

The Dixcart office in Malta holds a fund licence and can therefore provide a comprehensive range of services including; fund administration, accounting and shareholder reporting, corporate secretarial services, shareholder services and valuations.

The Benefits of Establishing a Fund in Malta

A key benefit of using Malta as a jurisdiction for the establishment of a fund is the cost savings. The fees for establishing a fund in Malta and for fund administration services are considerably lower than in many other jurisdictions. 

The advantages offered by Malta include: 

  • An EU Member State since 2004
  • A highly reputable financial services centre, Malta was placed among the top three financial centres in the Global Financial Centres Index
  • Single regulator for Banking, Securities and Insurance – highly accessible and robust
  • Regulated quality global service providers in all areas
  • Qualified professionals
  • Lower operational costs than other European jurisdictions
  • Quick and simple set-up processes
  • Flexible investment structures (SICAV’s, trusts, partnerships etc.)
  • Multilingual and professional work-force – an English-speaking country with professionals usually speaking four languages
  • Fund listing on the Malta Stock Exchange
  • Possibility of creation of umbrella funds
  • Re-domiciliation regulations are in place
  • Possibility of using foreign fund managers and custodians
  • The most competitive tax structure within the EU, yet fully OECD compliant
  • An excellent network of double taxation agreements
  • Part of the Eurozone

What are the Tax Advantages of Establishing a Fund in Malta?

Malta has a favourable tax regime and a comprehensive Double Tax Treaty network.  English is the official business language, and all laws and regulations are published in English.

Funds in Malta enjoy a number of specific tax advantages, including:

  • No stamp duty on the issue or transfer of shares.
  • No tax on the net asset value of the scheme.
  • No withholding tax on dividends paid to non-residents.
  • No taxation on capital gains on the sale of shares or units by non-residents.
  • No taxation on capital gains on the sale of shares or units by residents provided such shares/units are listed on the Malta Stock Exchange.
  • Non prescribed funds enjoy an important exemption, which applies to the income and gains of the fund.

Summary

Maltese funds are popular due to their flexibility and the tax efficient features that they offer. Typical UCITS funds include equity funds, bond funds, money market funds and absolute return funds.

Additional Information

If you require any further information regarding establishing a fund in Malta, please speak to your usual Dixcart contact or to Jonathan Vassallo at the Dixcart office in Malta: advice.malta@dixcart.com

Why Use Switzerland For Asset Protection and Why Use a Swiss Trustee

Background

Switzerland is a very attractive jurisdiction for the coordination of asset protection for a number of reasons, including the stability of this international centre and the highest level of confidentiality that is guaranteed. 

An English, Guernsey, Isle of Man, Maltese or Nevis Law based trust, with Swiss Trustees can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.

Dixcart can establish and manage such trust structures.

Reasons Why Switzerland is a Favoured Location

  • Political, Financial, Social and Economic Stability

The economy of Switzerland is one of the world’s most advanced. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranked first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.

The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.

  • Banking Advantages

Switzerland offers one of the strongest and most commercial banking centres in the world.

It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.

The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy

  • Trusts and Private Trust Companies as Asset Protection Vehicles 

Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.  

A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland the Settlor (the individual who settles assets into the Trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries. Professional advice should be taken.

Reasons to Use a Swiss Trustee

  • Taxation of Trusts in Switzerland

The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.

In terms of Swiss Law:

  • A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
  • Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.
  • Regulation of Swiss Trustees

Swiss Trustees have to be registered as financial intermediaries in accordance with Swiss Anti Money Laundering Law. They can be registered with the Central Regulatory Authority or with a self-regulatory organisation (SRO), which must be recognised by the Swiss Federal State.

  • Protection

Under Common Law the Trustee is the owner of the assets and is required to administer the trust assets separately from his own assets. In the event of death or bankruptcy of the Trustee, the assets are not considered as belonging to the Trustee but are submitted to the trust’s protection and held separately for the Beneficiaries. The trust’s assets are therefore segregated from the Trustee’s estate.

  • Confidentiality in Switzerland

Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.

SATC provides that: “Any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees.”

A breach of confidentiality, whether professional or commercial, would only be permitted by law in the event of criminal liability.

Dixcart and Swiss Trustee Services

The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).

The Swiss Federal Act on Financial Institutions (FINIG), came into effect at the start of 2020 and Family Offices and Trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA meets all of the required regulatory obligations and continues to do so.

Additional Information 

If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

UK

Moving to the UK: Tax and Succession Matters to Consider

The UK has for many centuries been a popular hub. As we start to come out of the pandemic, people will start moving again.

This Article briefly reviews key current lifestyle reasons why people seek to move to the UK. It is by no means an exhaustive analysis.

When any move of residence to a new jurisdiction takes place, a thorough review of how a family’s wealth is held, needs to be undertaken. In order to avoid costly errors, this should happen before the move has occurred.

  • If you are moving to the UK, Dixcart can help ensure that the actions you take are as tax efficient as possible and meet family objectives, taking into account the location of assets and of family members.

Dixcart can also be of assistance, with pre-exit planning, should you be considering a move from the UK to another country

Key Lifestyle Considerations – Why People Move to the UK

  • A multi-cultural environment that has welcomed diversity for many decades and encouraged and incentivised the ‘entrepreneur spirit’. Innovation is  applauded and rewarded.
  • The UK is ranked by the world bank as being the 8th easiest place to do business out of the 190 countries assessed.
  • An education system whose quality is recognised throughout the world, both at school and university level.
  • A robust and durable legal system used as the template in an extensive number of countries across the world.
  • The opportunities that Brexit has created.
  • Pound sterling is one of the strongest currencies in the world, and the UK is the 5th  largest economy in the world and the second largest in Europe.
  • An attractive regime whereby persons resident but not domiciled in the UK can elect for the remittance basis of taxation. This means that they will only be taxed in the UK, on UK source income and gains, and only on foreign income and gains in so far as these are remitted to the UK.
  • A number of appealing visa options to enable a move to the UK to take place.
  • Home of cream teas, a ground breaking fashion industry, football, fish and chips and Harry Potter with a depth of history, variety and quality of the arts.

Matters to Consider Prior to Moving

As indicated above, it is important that families evaluate their tax and succession arrangements well ahead of any move, a practical list of some of  the factors that should be taken into consideration is detailed below:

Practical matters:

  • Travel documents (visas)
  • Formal enrolment in country/jurisdiction of ‘arrival’, including communication with tax authorities, healthcare and schooling.

Taxation matters:

  • Confirm the arrangements that affect heirs and family in other countries.
  • Plan for the optimal timing of loss of tax residence, and any exit charges.
  • Consider any action that needs to be taken to ensure assets are held in the  optimal way, prior to moving. Leaving this until after arrival can result in unexpected and large tax bills that could have been avoided.
  • Plan the timing of disposals and acquisitions to ensure the best possible tax outcome.
  • Consider establishing new banking arrangements to segregate income and gains.

Succession and inheritance:

  • Confirm which laws govern succession and if a choice of different jurisdiction law is available.
  • Confirm whether marital/family laws are affected and whether a choice of different jurisdiction law is available.
  • Review estate planning documents (wills, succession, and prenuptial documents), and consider the interaction of wills, appropriate for different jurisdictions.
  • Consider the use of trusts for estate planning, not forgetting that the timing of the settlement of trusts could be key to the taxation outcome.

Implications of transferring physical wealth:

  • Family heirlooms, jewellery, works of art, aircraft, cars and yachts: can they be transferred, are import duties applicable?

Gifts and Donations:

  • Confirm whether gifts or donations should be executed in advance of acquiring the new residency.

Ongoing Matters to be Reviewed at Least Annually

There are a series of important reviews, that should be taken at least annually to take into account both changes in personal circumstances and the law:

  • Review of estate planning documents. These include wills, succession and prenuptial documents.
  • Review of trusts arrangements, structures, and bank accounts.
  • Review of any changes to tax laws and the implications in relation to existing agreements and structures.

How can Dixcart Help?

Dixcart can assist with:

  • Pre arrival and departure tax planning.
  • Advice and assistance with Visas for residence in the UK.
  • Accounting, legal and taxation advice, as well as compliance regarding setting up businesses in the UK or in any of the jurisdictions in which Dixcart has an office.

Additional Information

If you would like to discuss how you should plan ahead, for a potential move of location and/or to ensure that your existing structuring meets your current circumstances, please contact Laurence Binge or Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com.

Malta

Why Choose a Maltese Foundation?

This Article begins by reviewing a number of generic reasons to use a foundation and then considers the specific characteristics and benefits that can be provided by a Malta foundation.

Why Establish a Foundation?

There are numerous reasons why a foundation may be of benefit, each of which are relevant in terms of Malta private foundations: 

  • Asset protection: if a home country is not politically or economically stable, a foundation can be established overseas and assets transferred into it (professional advice should always be taken in the home country, prior to any transfer taking place).
  • Confidentiality: the foundation deed must state the foundation’s name, its registered address, a description of the initial endowment with which it was formed, and its purposes and objects.
  • Lifestyle planning: partners who are not married, or whose family arrangements are not straight-forward, may find that some countries’ legal systems do not provide adequate solutions on their death or separation. In such cases, a specifically drafted foundation can be used to ensure that partners, and children of such partners, are treated as the founder intends.
  • Securitisation vehicle: Maltese law allows for the use of a foundation in place of a trust, as an appropriate vehicle for the securitisation of debt.
  • Spendthrift beneficiaries: foundations can be created to prevent reckless heirs from spending family wealth on the death of their parents, by limiting their interest to income or to capital (at least until they reach a certain age, or until they fulfil certain requirements).
  • Succession planning: a foundation can generate a greater degree of privacy and flexibility than may be possible with a will alone. Foundations can be used to avoid the division of family estates and to prevent disputes between heirs.

Maltese Foundation Legislation

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhances Malta as a jurisdiction for international private asset planning.

Characteristics of Maltese Foundations

  • Maltese private foundations are regulated by the ‘Second Schedule to the Civil Code of the Laws of Malta’. New legislation introduced a registration procedure, which has been designed in a way to safeguard the privacy of Maltese private foundations.
  • A foundation can only be constituted by virtue of a public deed ‘inter vivos,’ drawn up by a notary public or by means of a will. Once the foundation is constituted, it is registered with  the Malta Registrar of Legal Persons.
  • A private foundation is limited to a maximum period of 100 years.
  • In terms of Maltese legislation, it is possible to re-domicile a foundation into and out of Malta.
  • A foundation may be terminated at any time if all of the beneficiaries agree, provided they are all alive, none have been convicted of a crime or are minors. If the founder is still alive his consent would also be required. Termination obligations must be included in the deed.

An interesting feature of a Maltese foundation, is that segregated cells can be established within a foundation to achieve particular purposes with particular assets. The segregated cell does not have separate legal personality, however the assets and liabilities of the cell are ring-fenced from the other assets and liabilities of the foundation, and/or other cells.

Maltese Foundations: A Choice to be Taxed In One of Two Ways

  • A foundation can either be treated as a trust, OR as a company, which is both resident and domiciled in Malta:

Taxation as a Trust

A Maltese foundation can irrevocably elect, that the foundation be treated as a trust for tax purposes.

An election to be treated as a trust gives rise to beneficial private asset planning opportunities, particularly where the founder and beneficiaries are not resident and/or domiciled in Malta. In such a situation no tax and/or duty will be payable in Malta. This applies on settlement and in relation to the income, attributable to the foundation.

Taxation as a Company

If a Maltese foundation decides to be taxed as a company, as with other companies in Malta, the income and/or gains realised, are subject to tax in Malta on a worldwide basis at the flat rate of 35%.

However, on the distribution of qualifying foreign or local source income, by the foundation in favour of its beneficiaries, the beneficiaries will generally be entitled to a refund of 6/7ths of the Malta tax paid by the foundation, giving an effective tax rate of 5%. This assumes that the beneficiaries are not resident and/or domiciled in Malta.

A number of reliefs are also available to foundations, as well as to companies. These include; the full imputation system, participation exemption, and access to appropriate unilateral agreements, Malta also has a wide network of Double Tax Treaties.

How Can Dixcart Assist?

The Dixcart office in Malta can assist with the efficient establishment and management of a foundation to meet the agreed objects.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Henno Kotze: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Guernsey

Guernsey Expands Their Private Investment Funds (PIF) Regime to Create a Modern Family Wealth Structure

Investment Funds – For Private Wealth Structuring

Following consultation with industry in 2020, the Guernsey Financial Services Commission (GFSC) has updated its Private Investment Fund Regime (PIF), to expand the available PIF options. The new rules became effective on 22 April 2021 and immediately replaced the previous Private Investment Fund Rules, 2016.

Route 3 – the Family Relationship Private Investment Funds (PIF)

This is a new route that does not require a GFSC Licensed Manager. This route enables a bespoke private wealth structure, requiring a family relationship between investors, to be created, which must fulfil the following criteria:

  1. All investors must either share a family relationship or be an “eligible employee” of the family in question (an eligible employee in this context must also meet the definition of qualifying private investor under Route 2 – the Qualifying Private Investor PIF);
  2. The PIF must not be marketed outside the family group;
  3. Capital raising from outside the family relationship is not allowed;
  4. The fund must have a designated Guernsey Administrator, licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987, appointed to it; and
  5. As part of the PIF application, the PIF Administrator must provide the GFSC with a declaration that effective procedures are in place to ensure that all investors fulfil the family requirement.

Who Will this Vehicle be of Particular Interest To?

No hard definition of ‘family relationship’ is provided, which could allow for a wide range of modern family relationships and family dynamics to be catered for.

It is anticipated that the Route 3 PIF will be of particular interest to ultra-high-net-worth families and family offices, as a flexible structure through which to manage family assets and investment projects.

A New Approach to Modern Family Wealth Management

The recognition of traditional trust and foundations structures varies across the world, depending on whether the jurisdiction recognises common law or civil law. The separation between legal and beneficial ownership of assets is often a conceptual stumbling block in their use.

  • Funds are recognised globally as well regarded and well understood wealth management structures and, in an environment of increasing demand for regulation, transparency and accountability, provide a specifically registered and regulated alternative to traditional tools.

The needs of modern families and family offices are also changing and two considerations which are now particularly common are:

  • The need for greater legitimate control, by the family, over decision making and assets, which can be achieved by a representative group of family members acting as the board of directors of the fund management company; and;
  • The need for wider family involvement, particularly next generation, which can be outlined in a family charter attached to the fund.

What is a Family Charter?

A family charter is a useful way of defining, organising and agreeing attitudes and strategies to matters such as environmental, social and governance investing and philanthropy.

The charter may also formally outline how family members can be developed in terms of education, particularly on family financial matters, and their involvement in the management of the family wealth.

The Route 3 PIF offers bespoke and highly flexible options for dealing with different strategies of wealth distribution and management across the family.

Separate classes of fund units might be created for different family groups or family members, reflecting respective levels of involvement, differing family situations, and differing income and investment requirements. Family assets might be pooled, for example, in separate cells within a protected cell company fund structure, to allow management of different asset classes by specific family members and the segregation of different assets and investment risk across the families’ wealth.

The route 3 PIF can allow a family office to build and evidence a track record in investment management.

Dixcart and Additional Information

Dixcart is licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to offer PIF administration services, and holds a full fiduciary license granted by the Guernsey Financial Services Commission.

For further information on wealth, estate and succession planning and the establishment and administration of family private investment funds, please contact Bruce Watterson or Steve de Jersey at advice.guernsey@dixcart.com

The ‘Qualifying’ Private Investor Fund (PIF) – A New Guernsey Private Investment Fund

A Guernsey ‘Qualifying’ Private Investor Fund (PIF)

Following consultation with industry in 2020, the Guernsey Financial Services Commission (GFSC) has updated its Private Investment Fund Regime, to expand the available PIF options. The new rules became effective on 22 April 2021, and immediately replaced the previous Private Investment Fund Rules, 2016.

Route 2 – the Qualifying Private Investor (QPI), PIF

This is a new route that does not require a GFSC Licensed Manager.

This route, compared to the traditional route, offers reduced operational and governance costs, whilst retaining substance within the PIF through the proper operation of the board and the close, on-going role of the Guernsey appointed licensed Administrator.

The Criteria

A Route 2 PIF must fulfil the following criteria:

  1. All investors must meet the definition of a Qualifying Private Investor as defined in the Private Investment Fund Rules and Guidance (1), 2021. In this case the definition includes the ability to;
    • evaluate the risks and strategy for investing in the PIF;
    • bear the consequences of investment in the PIF; and
    • bear any loss arising from the investment
  2. No more than 50 legal or natural persons holding an ultimate economic interest in the PIF;
  3. The number of offers of units for subscription, sale or exchange does not exceed 200;
  4. The fund must have a designated Guernsey resident and Licensed Administrator appointed;
  5. As part of the PIF application, the PIF Administrator must provide the GFSC with a declaration that effective procedures are in place to ensure restriction of the scheme to QPIs; and
  6. Investors receive a disclosure statement in the format prescribed by the GFSC.

Who Will the Route 2 PIF be Attractive To?

The Route 2 PIF will be particularly attractive to a range of Promoters and Managers as it reduces the overall formation and on-going costs of the PIF, whilst affording an appropriate level of regulation in the highly favoured jurisdiction of Guernsey.

This route allows a PIF to become self-managed (which is likely to further reduce costs) but still allows the flexibility of appointing a Manager if desired.

This route is suitable for investment managers, family office, or groups of individuals to develop a track record of investment management

The GFSC has noted that the new PIF rules do not widen or alter the definition of ‘collective investment scheme’.

Dixcart and Additional Information

Dixcart is licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to offer PIF administration services, and holds a full fiduciary license granted by the Guernsey Financial Services Commission.

For further information on private investment funds, please contact Bruce Watterson or Steve de Jersey at advice.guernsey@dixcart.com

A Quick Guide to Guernsey’s New Private Investment Fund (PIF) Rules – Effective 22 April 2021

Background

The Guernsey Financial Services Commission (GFSC) has updated the Private Investment Fund Rules, to offer three alternate PIF routes, effective from 22 April 2021.

The new PIF options follow on from a GFSC consultation with industry in 2020, and in addition to the existing Protection of Investors (POI) Licensed PIF (Route 1), add two new options – the Qualifying Private Investor PIF (Route 2) and the Family Relationship PIF (Route 3).

The Three Guernsey Routes

  • Route 1 – the POI Licensed Manager PIF is the original PIF model whose criteria is; fewer than 50 investors (although no limit on the number of potential investors who can be marketed to), limits on investors in and out in a 12 month period, and, must have a Guernsey resident POI Licensed Manager appointed.
  • Route 2 – the Qualifying Private Investor (QPI) PIF is a new route which does not require a GFSC licensed Manager and is aimed at investors who meet the criteria of being a QPI i.e. able to evaluate the risks and bear the consequences of the investment. The Guernsey resident licensed designated Administrator of a QPI PIF is required, as part of the application process, to declare to the GFSC that it has effective procedures in place to ensure the fund is restricted to sophisticated investors only.
  • Route 3 – the Family Relationship PIF is the second new route that does not require a GFSC Licensed Manager. This route allows for the creation of a bespoke private wealth structure as a fund and requires a family relationship between investors. This route is only open to investors who either share a family relationship or who are an ‘eligible employee’ of the family and meet the criteria of being a QPI.

Interesting Features – Applicable to All Three Routes

Points common to all three routes are:

  • a one business day turnaround at the GFSC for the PIF applications;
  • no requirements for private placement memorandum (PPM) or other information particulars, although it is common for a PPM style document to be provided to potential investors;
  • can be closed-ended or open-ended;
  • must be audited; and
  • conflict of interest requirements apply to the directors managing the PIF.

Dixcart and Additional Information

Dixcart is licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to offer PIF administration services and also holds a full fiduciary license granted by the Guernsey Financial Services Commission.

For further information on wealth, estate and succession planning and the establishment and administration of a private investment fund, please contact Bruce Watterson or Steve de Jersey at advice.guernsey@dixcart.com

Isle of Man

An Introduction to Isle of Man Foundations for Offshore Planning (1 of 3)

Whilst Isle of Man Trusts and Isle of Man Limited Companies have been mainstays of offshore wealth planning for decades, the relatively recent introduction of the Isle of Man Foundation in 2011 has provided advisers with a blend of features possessed by corporate entities and fiduciary vehicles, to further their clients’ objectives.

Having been the preferred choice of our Civil Law counterparts for centuries, a Foundation offers objectivity and operational structure without compromising on flexibility, where discretion is concerned.

This is the first in a three part series we have produced on Foundations, building up to a webinar hosted by experts who can help you to meet your clients’ needs. In this introductory article, we will discuss the rudimentary aspects of Foundations, to aid or refresh your understanding:

  • What is an Isle of Man Foundation?
  • Foundation vs Trust vs Limited Company
  • What is an Isle of Man Foundation used for?
  • Supporting the Establishment & Administration of Foundations

What is an Isle of Man Foundation?

An Isle of Man Foundation is established and regulated under the Foundations Act 2011, and registered on the Isle of Man. The Act has added the Civil Law entity to the toolbelt of advisers seeking to provide offshore services from a well-established international financial centre.

The blended approach that Foundations offer is unique, with features that make them distinct from more familiar structures such as Limited Companies or Trusts.

The next article in this series will take a dive into the technicalities of all aspects of this vehicle, but for now we have just provided a brief overview of the constituent elements that you need to be aware of:

  • Founder – The person who initially instructed the establishment and agreed the objects of the foundation.
  • Dedicators – Anyone other than the Founder that dedicates assets to the Foundation.
  • Official Documents – There are two official documents, the Foundation Instrument and the Foundation Rules, which set out the details relating to the administration of the foundation and the rights and obligations of the persons appointed under the rules.
  • Objects – Specified in the Foundation Instrument, these detail the specific purpose and objectives of the Foundation.
  • Council – Comprised of one or more members, the Council carries out the administration of the Foundation in accordance with the Official Documents.
  • Registered Agent – All Foundations must have a Registered Agent licensed by the Isle of Man Financial Services Authority. You can find more information on Isle of Man Registered Agents here.
  • Enforcer – If an object of a foundation is to carry out a non-charitable purpose, the foundation must have an Enforcer.  This person ensures that the Council operate in line with the Official Documents and in the best interests of the Foundation.
  • Beneficiary – The party that can benefit from the Foundation.  

Foundation vs Trust vs Limited Company

The table below compares and contrasts the features of Isle of Man Foundations, Trusts, and Limited Companies and may be helpful to determine the most appropriate vehicle to achieve the desired objectives.

Whilst Foundations cannot conduct commercial trade directly, other than trade relating to the Objects, it can hold subsidiary companies which can in turn be used for commercial transactions.

As you can see from the table, both a Foundation and a Trust can be used in very similar circumstances, to benefit successive generations or charitable initiatives. The main differences relate to the flexibility in making operational changes (e.g. appointment and removal of Council Members / Trustees and/or editing the constitutional documents), liability of the managers (i.e. legal action is against the Foundation rather than its Council Members), perpetuity and winding up – each offering discretion or choice in certain areas, which can make it better suited to the client’s needs.

Ultimately, a Foundation provides a living structure that can be reactive and adaptable to changing needs, where provided for, in the Official Documents. Something that can be more limiting when using a Trust structure.

Of course, Foundations can also be used in conjunction with trusts to provide some of the benefits of a trust combined with those of a corporate entity – e.g. diversified interests, to act as trustee and to provide additional oversight and transparency; which might make institutional transactions more attractive.

What is an Isle of Man Foundation used for?

A Foundation holds and owns assets, typically provided for specific purpose; for example, to benefit family members or philanthropic endeavours. With this in mind, uses of Isle of Man Foundations can include:

  • A familiar alternative to trusts for clients from Civil Law jurisdictions;
  • A legal entity for succession planning or philanthropic pursuits;
  • A wealth planning vehicle to hold assets (e.g. private company shares, yachts, aircraft);
  • Use in conjunction with a Trust to provide additional structure and oversight;

Supporting the Establishment and Administration of Foundations

At Dixcart, we offer a full suite of offshore services to advisers and their clients when considering the establishment of an Isle of Man Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent, Council Member or Enforcer as well as providing specialist advice, where appropriate. 

From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.

Get in touch

If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Steve Doyle at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with Steve on LinkedIn

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

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