News & Views

Dixcart News features a selection of topical Articles. Please feel free to use ‘Search’ or the Filters below to locate the Article that best matches your needs and interests.

Foundations – Why? And Consideration of Various Jurisdictions: Guernsey, the Isle of Man, Malta and Nevis

Low Tax Trading opportunities

Foundations are useful tools in terms of wealth management and asset protection. The jurisdictions of Guernsey, the Isle of Man, Malta and Nevis are attractive locations in which to establish a foundation. Each of these jurisdictions offer a number of potential advantages and the most appropriate jurisdiction will depend upon each specific situation.

Dixcart and Foundations

Dixcart can assist with the formation and management of foundations in Guernsey, the Isle of Man, Malta and Nevis.

Foundations: A Definition

A foundation is a self-owning legal entity, separate from its founder, officers and any beneficiaries. A foundation is established by a founder who then gives assets to achieve the objects of the foundation. Assets placed in a foundation become the property of the foundation itself, both legally and beneficially.

Characteristics of Foundations

Foundations offer a number of important and distinctive characteristics. These include:

  • A foundation is recognised by law in the majority of European States and most South American countries.
  • A foundation has legal personality and can enter into contracts in its own name.
  • A foundation is a registered entity and is therefore relatively transparent.
  • Legal charges can be placed against a foundation and can be recorded.
  • The removal or addition of beneficiaries can be implemented by an amendment to the constitution documentation.
  • A foundation is relatively unlikely to be challenged as a “sham” as it exists under defined laws and has its own personality.

Additional Benefits of Foundations

  • Amendment of Foundation Powers

During the lifetime of a foundation, powers can be altered to take account of changing circumstances. Tax implications need to be taken into consideration when dealing with control, but the foundation can change its powers.

  • Control over Beneficiaries

A simple alteration to the by-laws of a foundation can be used to include or exclude beneficiaries. It is also possible for additional beneficiaries to be required to sign up to the regulations of the foundation before they are allowed to become a beneficiary.

  • Use of Foundations as Fund Vehicles

The use of foundations as fund vehicles can make the fund easier to administer. Each investor can be required to sign up to the manner in which the fund/foundation is to be managed.

  • Orphan Vehicles and Confidentiality

The founder can form a foundation with no specified beneficiary, but with a procedure in place to appoint one or more in the future. This can be useful for financial institutions where securitisation of assets is an issue.

The appointment of one or more beneficiaries may only need to take place when a distribution is made or a change to the by-laws is implemented. Assets can therefore be held in a transparent manner with no owner, which can assist confidentiality.

  • Use of Foundations for Commercial Purposes

The use of a foundation for commercial purposes can be achieved by interposing one (or more) underlying companies into the structure, with the shares owned 100% by the foundation. This offers the protection and advantages of a foundation, while allowing for a wide variety of business to be carried out by the underlying companies.

Guernsey Foundations

Guernsey Foundation Law came into effect on 9 January 2013.

A Guernsey foundation must be registered with the Registrar of Foundations in Guernsey. Documents to be provided to the Registrar include a declaration signed by (or on behalf of) the founder, the names and addresses of councillors and guardians and their consent to act, together with the address and telephone number of the registered office. Payment of the registration fee is also required.

A council comprising of at least two councillors is required to manage a Guernsey foundation, unless the constitution permits a single councillor. If at least one of the councillors or guardians of the foundation is not a Guernsey licensed fiduciary, the foundation must have a Guernsey resident agent to maintain the foundation’s records.

Certain limited information must be made public, including the name and registered number of the foundation, names and addresses of the councillors and guardians, and details of the registered office.

  • A unique feature of Guernsey Foundation Law is the ‘Disenfranchised Beneficiaries’ provisions, which allow for a class of beneficiary with no rights to information. Whilst they may well benefit from the foundation, they are not in a position to hold the council to account. This is a welcome feature of Guernsey Foundation Law and may appeal to founders with minor children, or where the founder does not want each of the beneficiaries to have information relating to their interests or the interests of other beneficiaries.

Existing foundations can be migrated to Guernsey. This jurisdiction offers a high quality of support and service and has extensive experience in establishing and  managing wealth management structures.

Isle of Man Foundations

The Isle of Man Foundations Act 2011 was passed and became Isle of Man statute law in November 2011.

The creation of an Isle of Man foundation is by registration, following application to the Registrar. The application needs to be filed by a corporate service provider, such as Dixcart, in the Isle of Man.

A Manx foundation has a legal personality, capable of forming contracts and holding assets to achieve its objects.  It has the rights, powers and privileges of an individual, although it may not directly engage in “commercial trading that is not incidental to the attainment of its objects”.

The foundation’s objects as well as other specified information must be contained in the foundation instrument.  As detailed in the foundation rules there must be an administrative board, which is called the Foundation Council, and a registered agent.

  • A distinctive feature with regard to Isle of Man foundations, unlike foundations in other jurisdictions, is that Isle of Man foundations will not always require a guardian or enforcer (unless the foundation has been established to carry out a specific non-charitable purpose).

Malta Foundations

Foundations have been recognised under Maltese law for more than one hundred years. Under Maltese law foundations can either be “Private Foundations” for the benefit of a named person or persons, or “Purpose Foundations” to carry out a specified purpose.

A Maltese foundation must be constituted by a public deed, drawn up by a public notary, or by means of a will. A Purpose Foundation can potentially exist in perpetuity, while a Private Foundation is limited to a maximum period of one hundred years.

The founder may also be the beneficiary, with an external administrator then being  required. The founder, or any other person permitted by statute, may amend or add to the purpose of a foundation after it has been established. A person resident in Malta needs to be appointed to act as the local representative of the foundation if all of the foundation administrators are non-Maltese residents.

  • An attractive feature of foundation law in Malta is that it is legal to establish segregated cells within a Maltese foundation to achieve specific purposes with particular assets. Maltese legislation also allows for the redomiciliation of a foundation into and/or out of Malta. A Maltese foundation can also be converted from an existing trust.

For tax purposes, foundations in Malta are generally treated in exactly the same way as companies. Foreign beneficiaries of a private foundation generally enjoy a reduction in the effective Malta tax rate to 5% through application of Malta’s tax imputation system.

Nevis Multiform Foundations

The Nevis Multiform Foundations Ordinance came into effect in October 2005 and provides that each Nevis foundation has a stated “multiform”. The constitution of a foundation details how it is to be treated; whether as a trust, a company, a partnership or as an ordinary foundation.

Five requirements need to be met to establish a Nevis Multiform Foundation:

  • It must have a Nevis based registered agent
  • It must have a registered office in Nevis
  • It must have an acceptable name
  • It must have a management board and secretary
  • It must have a memorandum of establishment

Mobility of foundations in to and out of Nevis is provided for in the Nevis Foundation Ordinance and entities can be converted or transformed, continued or consolidated and merged into Nevis Multiform Foundations.

Forced heirship is specifically addressed in Nevis Foundation Law and a foundation cannot be set aside due to the law of a foreign jurisdiction.

Nevis foundations are exempt from tax in Nevis, irrespective of their specified status as detailed in their constitution.

Summary

Foundations are attractive asset protection vehicles which can offer a number of tax advantages with regard to wealth management.

Dixcart can provide advice, and deal with the formation and management of foundations in Guernsey, the Isle of Man, Malta and Nevis.

Additional Information

Please speak to your usual Dixcart contact regarding the establishment of a foundation or to the Dixcart office in Guernsey: advice.guernsey@dixcart.com, the Isle of Man: advice.iom@dixcart.com, Malta: advice.malta@dixcart.com or Nevis: advice.nevis@dixcart.com.

Please also see our Family Office page.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

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

Updated October 2018

Back to Listing