Foundations have existed in parts of Europe since the Middle Ages, when they were originally only used for charitable or religious purposes. In modern times, foundations have increasingly been used for private wealth management purposes, as pioneered in civil law jurisdictions such as Liechtenstein, Panama and Austria. In recent years, numerous common law jurisdictions have introduced foundation legislation, and the popularity of private interest foundations continues to rise.
What is a Foundation?
A foundation is a registered separate legal entity, without owners. Its initial assets are donated to the foundation by its founder. A foundation’s council (analogous to a company’s board of directors) manages and administers foundation assets for the benefit of the beneficiaries in accordance with the terms of its charter and regulations. The founder may reserve (to himself or another person, such as a protector) certain rights relating to the foundation, such as the right to appoint or remove councillors or beneficiaries.
Seychelles foundations are provided for under the Foundations Act 2009 as amended by the Foundations (Amendment) Act 2011 (together the “Act”). The Act strikes an effective balance between sound regulation and market attractiveness.
Private foundations are often formed for wealth management purposes including to hold and to protect family wealth and for ‘outside estate’ succession planning. Foundations are commonly used to hold investments such as company shares, bonds and real estate or as part of a family office structure.
Foundations are increasingly being used as an alternative to trusts. Analogous to a trust, the wealth protection benefits of a foundation stem from the divestment of ownership of assets by the founder. When a founder donates (gifts) assets to the foundation, those assets cease to belong to him and the foundation itself becomes the sole owner of the assets.
While the founder has no ownership interest in the foundation or its assets, he may be a beneficiary of the foundation. The beneficiaries also do not have any ownership interest in the foundation or its assets; a beneficiary only receives a benefit as and when an unconditional distribution of foundation assets is made to him in accordance with the foundation’s charter or regulations.
Why Set Up A Private Foundation?
For Enhanced Wealth Protection & Succession Planning:
(a) As the founder has no ownership interest in foundation assets, the assets of a foundation (in the absence of fraud) are protected from attack by creditors of the founder.
(b) As the assets of a foundation do not belong to the founder and, therefore, do not form part of his estate on death, the benefit of foundation assets can be passed on from one generation to the next, outside of the founder’s personal estate – avoiding the cost and formalities of probate and, where applicable, estate tax.
(c) A foundation affords stronger asset protection than a company. As a company owner’s interest in shares is a ‘personal asset’ belonging to him, the owner’s interest in the company is vulnerable to attack from his creditors during his lifetime and on his death his interest in the shares falls within his estate for inheritance purposes.
Common uses of private foundations include:
• Asset and investment holding and accumulation
• Family office
• Asset protection
• Consolidation of the ownership of worldwide assets in a centralised location
• Outside estate/probate free succession planning
• International income, capital gains and estate tax / inheritance tax planning
• Private philanthropy and charitable purposes
• Special purpose vehicles in relation to business applications, e.g. employee pension and share option plans and subordinated debt arrangements.
SEYCHELLES FOUNDATIONS – KEY BENEFITS
Value for money – competitive government registration and annual renewal fees.
Nil Seychelles taxation – A Seychelles Foundation is exempt from Seychelles taxation on its income and profits and is exempt from Seychelles withholding tax and stamp duty.
Privacy:
• The names of beneficiaries, councillors and protectors of a Seychelles Foundation are not required to be filed with the Registrar and are not otherwise publicly-accessible.
• Use of a nominee founder is permissible in Seychelles, in which case the founder’s rights may be transferred to the ultimate principal after registration of the foundation.
Wealth protection:
• A Seychelles Foundation’s assets are the property of the foundation only.
• Strong asset protection provisions (including a 2 year claim limitation period) protecting foundation assets from attack by creditors of the founder.
• Specific exclusion of foreign forced-heirship laws.
• Beneficiaries’ rights to information may be restricted.
• Provision may be made to disentitle a beneficiary who challenges the foundation, the transfer of any assets to or by the foundation, or any decision of a councillor, protector or founder.
Succession planning – A Seychelles Foundation’s assets can be administered for the benefit of successive generations, outside of the founder’s personal estate and without the involvement of executors or probate formalities.
Ease of administration:
• No annual audit requirement in Seychelles
• No requirement to prepare or file financial accounts or annual return in Seychelles.
Seychelles Foundation Council – A foundation must have one or more councillors, who may be individuals or corporate entities. A councillor is not required to be resident or licensed in Seychelles.
Low minimum initial assets – The initial assets of a Seychelles Foundation must be of a value of not less than US$1 or the equivalent in any other currency, which may be endowed after registration.
Reserved powers – Powers may be reserved, under the Seychelles Foundation charter or regulations, to the founder or a protector, such as the right to appoint or remove councillors and beneficiaries.
Independence of Seychelles – Seychelles is a stable and independent Country (having gained independence from the UK in 1976). Not being a dependent overseas territory of a European state, Seychelles is not subject to EU Directives.
TYPES OF FOUNDATIONS
Common types of private foundation include:
(a) A (founder) revocable foundation – the constitutional documents of which reserve to the founder the power to direct the revocation (dissolution) of the foundation along with power to make fundamental decisions such as the power to amend the foundation’s constitutional documents and the power to approve foundation investments or distributions.
(b) An irrevocable foundation – under which the Council is in full control and the founder does not have power to dissolve the foundation or to amend its constitutional documents. Commonly, its charter will permit the foundation to be dissolved by resolution of councillors (or as otherwise provided for under section 92(1) of the Act) and to amend its charter by resolution of councillors. While the Council will have the final say on most matters (including relating to investments or distributions), the founder may still reserve certain powers to himself (or to a protector), such as the power to add or remove councillors or beneficiaries.
(c) A discretionary foundation – where discretionary format regulations are adopted, the Council has discretionary powers in relation to distributions to beneficiaries and the beneficiaries do not have fixed entitlements. That is, the Council has absolute discretion to approve distributions to all or any one or more of the beneficiaries in such amounts, proportions and generally at such time and in such manner (with or without conditions) as the Council may think fit. The regulations may set out the founder’s wishes relating to beneficiary distribution entitlements, proportions and timings, which shall serve as a non-binding guide for the Council.
(d) A non-discretionary foundation – where non-discretionary format regulations are adopted, the Council will not have discretionary powers as regards beneficiary entitlements; the beneficiaries will have fixed entitlements as provided for in the regulations.
(e) A foundation with beneficiaries – a typical private foundation will have beneficiaries – for example, a “two generational” foundation with parents as the principal beneficiaries and their children being ultimate beneficiaries to whom the foundation assets will be distributed on their parents death, subject to any distribution conditions or age requirements.
(f) A purpose foundation – namely, a foundation without beneficiaries, which is established for the fulfillment of a specific purpose. A purpose foundation can exist for charitable purposes or for another specific purpose, such as, for example, to own the shares of a private corporation or for the maintenance of a park, or for a general purpose such as to further the creation and preservation of fine art or for business purposes including trading.
THE FOUNDER
A “Founder” is the natural or legal person who subscribes his name to the charter establishing a foundation, acting either on his own account or on behalf of another, and who endows the foundation with its initial assets (section 2 of the Act).
As the Seychelles Foundations Act permits a founder to act on behalf of another person, a nominee founder may be used. In common with other foundation jurisdictions, it is mandatory to state the name of the founder in a foundation’s charter. As the charter must be filed with the Registrar and is therefore publicly accessible (as the filed charter is open to public inspection at the Registrar’s office), to preserve privacy it is common to use a nominee corporate founder who acts on behalf of the ultimate principal.
Although usually a foundation will have one founder, the Seychelles Foundations Act allows for multiple founders. For example, where matrimonial property jointly owned by a husband and wife is gratuitously transferred to a newly-formed foundation (as the foundation’s initial assets), the transferor husband and wife will be joint founders.
The founder may be a beneficiary. However, the founder cannot be the sole beneficiary unless the charter or regulations provide for the designation of one or more beneficiaries in the event of the death or legal incapacity of the founder (section 59(2) and (3) of the Act).
Under section 27 of the Seychelles Foundations Act, a founder may reserve, in the charter or regulations, to the founder or for other persons, certain rights or powers, such as the power to approve or direct (i) the appointment or removal of councillors, (ii) the appointment and removal of beneficiaries, and (iii) the amendment of the charter or regulations. A founder of a Seychelles Foundations may retain wide, narrow or no reserved powers, but see paragraph 4.7 below. Where powers are reserved to the founder, the foundation’s council is not permitted to carry out such matters without the founder’s prior written consent. Alternatively, ‘reserved’ powers may be given to a foundation protector (see below). In that event, a founder may reserve the right to remove or appoint protectors. However, a Seychelles Foundation Founder’s reserve powers are subject to a requirement that no disposition of any assets of a foundation shall be made other than through the action or resolution of the council, which shall give effect to the exercise of the reserve powers in accordance with the terms of the charter or regulations or procedures laid down by the council, as the case may be (section 27 of the Act).
The founder of a Seychelles Foundation may, in the charter or by written instrument, assign or transfer all or any part of his rights, powers and obligations as founder to such person or persons as the founder shall determine (section 26(1) of the Act). Any such assignment or transfer shall not be effective until written notice thereof is provided to the foundation’s council and registered agent (section 27(3) of the Act). While usually a nominee founder is used for the purposes of signing the charter and registering the foundation (to avoid the name of the ultimate principal being publicly accessible), it is common for the founder’s rights to be transferred to the ultimate principal after registration of the foundation. Where the founder’s rights in the case of a Seychelles Foundation are transferred, any reference to the founder in its charter, regulations or in the Act is deemed to be a reference to the transferee (current holder of the founder’s rights): section 26(2) of the Act.
THE FOUNDATION COUNCIL
A Seychelles foundation is required to have a council, whose role is to govern and manage the activities of the foundation. Subject to the rights and powers of the founder and any protector, a foundation’s council is responsible for:
(a) Carrying out the objects of the foundation;
(b) Management and administration of the assets of the foundation, in accordance with the foundation charter or its regulations;
(c) Entry into contracts on behalf of the foundation and the performance of such lawful acts as may be necessary or desirable to fulfill the objects of the foundation;
(d) Distribution of foundation assets, in accordance with the provisions of the foundation’s charter or regulations, to the foundation’s beneficiaries or, in the case of a foundation established for a specified purpose, in fulfillment of that purpose.
Under section 32 of the Act, the foundation council is required to consist of one or more councillors, who may be natural persons (individuals) or legal persons (companies or other entities having separate legal personality). A councillor is not required to be resident or licensed in Seychelles.
A founder may be a councillor, but a founder cannot be a sole councillor (section 35(d) of the Act). A protector of a foundation may be a councillor, but a protector cannot be a sole councillor (section 35(c) of the Act). However, in view of potential conflicts of interests, it is not generally viewed as desirable for a protector to also be a councillor.
Under section 35(a) and (b) of the Act, a person shall not be appointed as or remain as a councillor of a foundation:
(a) in the case of a natural person, if the person is a minor or mentally incapacitated or an undischarged bankrupt; and
(b) in the case of a legal person, if the entity is wound up or otherwise dissolved.
For tax planning purposes as well as reasons of privacy, it is common for a private foundation council to comprise all or a majority of professional councillors resident in a tax-neutral or low-tax jurisdiction.
It is not mandatory for the names and addresses of a Seychelles Foundation’s councillors to be stated in the charter. Accordingly, to preserve privacy (as the charter is filed with the Registrar and is accessible by public search), it is common to appoint the councillors by the regulations or other document signed by the founder, rather than by the charter. If, however, the founder prefers to state the names and addresses of the first councillors in the charter, then the foundation may file an appropriate notice with the Registrar on the appointment or cessation of appointment, or change of name or address, of a councillor (see sections 36(1)(b), 50(2)(b) and 51(1)(b) of the Act).
On the appointment or cessation of appointment, or change of name or address, of a Seychelles Foundation councillor, the foundation must (within 14 days) give written notice thereof to its registered agent in Seychelles (see sections 36(1)(a), 50(2)(a) and 51(1)(a) of the Act).
Seychelles Foundations are not subject to any mandatory requirement to hold an annual general meeting of councillors.
A councillor of a Seychelles foundation shall act in accordance with the foundation’s charter, regulations and the Act (section 37(1) of the Act).
In exercising his powers and discharging his duties and functions, including in the management and investment of the foundation’s assets, a councillor of a Seychelles Foundation is subject to the following duties of care under section 37(2) and (3) of the Act:
(a) To act honestly and in good faith with a view to the best interests of the foundation;
(b) To exercise the care, diligence and skill that a reasonably prudent person would exercise in similar circumstances;
(c) To take all such steps and do or cause to be done all such things as may be necessary to properly administer the foundation to achieve its objects.
The duties of a councillor referred to in paragraph 5.10 above are owed only to the foundation, i.e. not to the beneficiaries (section 37(4) of the Act).
THE PROTECTOR
In the case of a Seychelles Foundation a Protector – whose role is to oversee administration of the foundation by the council – is an optional appointment (section 52 of the Act). A protector is a person appointed in respect of a foundation where it is desired to retain some supervision over the actions of the councillors (rather than direct supervision by the founder. The protector’s approval is needed prior to the councillors exercising certain defined powers. If a protector is not appointed, typically the founder will retain certain rights and powers relating to the foundation.
A protector of a Seychelles Foundation may be a natural or legal person (section 52(1) of the Act). The appointment of a protector may be effected by a foundation’s regulations or other written instrument, thereby ensuring that the protector’s identity is not publicly accessible (unlike a foundation charter, regulations are not filed with the Registrar).
A founder, beneficiary or councillor of a Seychelles Foundation may be appointed as a protector, but a sole councillor cannot act as protector and a sole beneficiary cannot act as protector (section 52(2) of the Act). However, in view of potential conflicts of interests, it is not generally viewed as desirable for a protector to also be a councillor or a beneficiary.
A Seychelles Foundation protector’s duties include, subject to any contrary provisions of the charter or regulations of a foundation, to: (a) take such action as the protector may deem necessary to ensure compliance by the foundation and the councillors with the foundation’s charter, the regulations and the Act; and (b) generally monitor the management of the foundation by the councillors, including the conduct of the councillors (section 55(2) of the Act).
Under section 55(1) of the Seychelles Foundations Act, a foundation’s charter or regulations may specify the powers of the protector (see also section 27, under which a founder may reserve, in the charter or regulations, certain powers or rights form himself or for any other person). Powers that may be vested in a protector include (without limitation) the power to approve or direct (i) the appointment or removal of councillors, (ii) the appointment or removal of beneficiaries, and (iii) the amendment of the charter or regulations. Wide, narrow or no powers may be reserved for a protector. Where powers are reserved to the protector, the foundation’s council is not permitted to carry out such matters without the protector’s prior written consent. Where powers are reserved to the protector instead of the founder, the founder may reserve the right to remove or appoint protectors.
The protector of a Seychelles Foundation has full right of access to the books, records and accounts of the foundation (section 55(3) of the Act).
Under section 55(4) of the Act, a protector of a foundation shall, in addition to the rights conferred on the protector by the foundation’s charter and regulations, have the right:
(a) to be informed of all meetings of the councillors and to table business to be considered at such meetings;
(b) to attend and be heard but not to vote at such meetings;
(c) where any business of a foundation is conducted by the circulation of documents, to be included in the circulation of documents at the time that they are circulated to the councillors; and
(d) where any business of a foundation is conducted by the delegation of powers to a councillor or an agent, to be informed of the terms and any exercise of the delegation.
A/the protector of a Seychelles Foundation (or a person acting as an officer, employee or agent of a protector or performing any duty on behalf of the protector), is not liable in damages for anything done or omitted to be done in the discharge or purported discharge of the protector’s duties under the charter, regulations or the Act, unless it is proved that the act or omission was done in bad faith (section 58 of the Act).
BENEFICIARIES
While a foundation does not have shareholders or owners, it has beneficiaries. Nevertheless, in the case of a Seychelles Foundation the foundation itself is the sole legal and beneficial owner of foundation assets, and such assets do not become the assets of a beneficiary unless actually distributed to that beneficiary in accordance with the foundation’s charter or regulations (section 71 of the Act).
The appointment or other designation of a Seychelles Foundation beneficiaries can be through the foundation’s regulations or other private document, so that the names of the beneficiaries are not filed with the Registrar and are therefore not publicly accessible. A foundation’s regulations may specify how and when the beneficiaries may receive benefits from the foundation and any conditions attaching to distribution entitlements. Under the regulations, beneficiary distributions may be ‘fixed’ or may be subject to the Council’s absolute discretion as to entitlements, proportions, timings and any conditions.
A beneficiary of a Seychelles Foundation is required, by reference to the charter or regulations, to be identifiable by name or ascertainable by reference to either a class or a relationship to another person, whether or not living at the time of the establishment of the foundation or at the time by reference to which, under the terms of the charter or regulations, members of a class are to be determined (section 59(1) of the Act).
Although the founder of a Seychelles Foundation may be a beneficiary, he cannot be the sole beneficiary unless the charter or regulations provide for the designation of one or more beneficiaries in the event of the death or legal incapacity of the founder (section 59(2) and (3) of the Act).
Under the terms of a Seychelles Foundation’s charter, the founder is able to limit the extent of a beneficiary’s entitlement to information relating to a foundation and its assets. It is common for a foundation’s charter to only give beneficiaries the right to receive a copy of the charter and to provide that the disclosure to beneficiaries of any other documents or information (such as the regulations or information on foundation assets) is at the discretion of the council subject to the prior approval of the protector or the founder. If the founder requires that the beneficiaries have a broader entitlement to information (for example, an entitlement to information on foundation assets, minutes of council meetings, etc), the charter can be tailored accordingly. If no provision is made in the charter or regulations for information disclosure to beneficiaries, section 61 of the Act provides default provisions which entitle beneficiaries to inspect the charter, regulations, audit reports, financial statements and council minutes and resolutions.
REGISTERED AGENT & REGISTERED OFFICE IN SEYCHELLES
Under section 28(1) and (2) of the Seychelles Foundations Act, a foundation of a Seychelles Foundation must at all times have a registered agent in Seychelles, being a company licensed by the Registrar to conduct foundation services under the International Corporate Services Act. The registered agent is a non-fiduciary position, whose role includes attending to Seychelles filings and acting as a point for service of documents on the foundation (see paragraph 8.3).
A Seychelles Foundation must have a registered office in Seychelles, which is required to be the same address as that of the foundation’s registered agent in Seychelles (section 31(1) of the Act).
Documents may be served on a foundation by service of such documents on its registered agent at the registered office of the foundation (section 31(2) of the Act).
ESTABLISHMENT AND OBJECTS OF SEYCHELLES FOUNDATIONS
A Seychelles foundation is established by a charter made in writing and signed by one or more founders and on the issuance of a certificate of registration by the Registrar upon registration of the foundation under the Act (section 3(1) of the Act). The sole document to be filed when applying for registration of a new foundation is the foundation’s charter.
Pursuant to section 7(1) of the Act, the objects of a Seychelles Foundation:
(a) may be charitable, non-charitable or both, and may be to benefit a beneficiary or beneficiaries, or to carry out a specified purpose, or to do both.
(b) shall include the management of its assets and income and the distribution thereof, as the council may by resolution of councillors determine pursuant to the charter or regulations: (i) to the beneficiaries a foundation; or (ii) in the case of a foundation, with or without beneficiaries, which has a specified purpose or purposes, in fulfillment of that specified purpose or purposes; and
(c) may include any other objects that do not contravene section 7(2) of the Act.
Under section 7(2) of the Seychelles Foundations Act, the objects of a foundation shall not include:
(a) the carrying on of any activity which is unlawful, immoral or contrary to any public policy in Seychelles; or
(b) the carrying on in or from within Seychelles of any activity in respect of which a licence or authorisation under any statute or regulation is required and no such licence or authorisation has been granted to the foundation; or
(c) the carrying on of business in Seychelles, except so far as may be necessary for the carrying out of the foundation’s business outside of Seychelles, and for such purposes a foundation shall not be treated as carrying on business in Seychelles by reason only that:
(i) it opens and maintains an account or accounts with a bank licensed under the Financial Institutions Act 2004;
(ii) it engages the services of or otherwise deals with counsel and attorneys, accountants, bookkeepers, international corporate service providers, foundation service providers, mutual fund administrators or managers, securities dealers, investment advisors or other similar persons carrying on business in Seychelles;
(iii) it prepares or maintains its books and records in Seychelles;
(iv) it holds, in Seychelles, meetings of its councillors or of supervisory persons; or
(v) subject to required approval, it holds a lease of property for use as an office from which to communicate with councillors or supervisory persons or beneficiaries or where books and records of the foundation are prepared or maintained.
There is no ‘rule against perpetuities’ or other statutory limit to the duration of a f Seychelles Foundation. Typically, a Foundation will be established for an indefinite (unlimited) period of time. However, if so required by a founder, a foundation may be formed for a limited duration (if, for example, the foundation is to be dissolved upon the happening of a specified event or on the expiration of a fixed period of time). A foundation’s charter must specify if it is established for an indefinite or limited duration (section 4(2)(i)). A founder may reserve the right to dissolve the foundation.
FOUNDATION ASSETS
A Seychelles Foundation’s charter must require the foundation to have initial assets of a value of not less than US$1 or the equivalent thereof in any other currency (section 8 of the Act).
The assets of a Seychelles Foundation must be exclusively managed, including being realised, applied, administered, invested and disbursed, in accordance with the foundation’s charter, regulations and the Act and for the attainment of the objects specified in the charter and authorised under the Act (section 12(1) of the Act).
A Seychelles Foundation may own assets worldwide. However, under section 11(1)(b) of the Act, a Seychelles foundation’s assets are not permitted to include any immovable property (real estate) in Seychelles or any shares, debentures or other interests in any legal entity incorporated or registered in Seychelles, except that (under section 11(1)(a) of the Act) a foundation’s assets are permitted to include any of the following Seychelles assets:
(a) shares, debentures or other interests in a company incorporated under the International Business Companies Act 1994;
(b) shares, debentures or other interests in a company licensed under the Companies (Special Licences) Act 2003;
(c) shares, debentures or other interests in a company incorporated under the Protected Cell Companies Act 2003;
(d) any interest in a partnership registered under the Limited Partnerships Act 2003;
(e) any interest or entitlement as a beneficiary under a trust registered under the International Trusts Act 1994;
(f) any company, trust or other entity licensed as a mutual fund under the Mutual Fund and Hedge Fund Act 2008;
(g) any interest or entitlement as a beneficiary under another foundation registered under the Act;
(h) any funds in an account with a bank licensed under the Financial Institutions Act 2004; or
(i) subject to required approvals, a lease of such immovable property in Seychelles as may be required for the use as its own office purposes.
THE FOUNDATION CHARTER
The charter of a Seychelles Foundation must be in the form of a written document and is required to be executed by or on behalf of each founder (section 5(1) of the Act).
For the purpose of registering a Seychelles Foundation, the charter is required to be submitted by the registered agent of the proposed foundation to the Registrar, who shall retain and file it in the Register. Accordingly, the charter is accessible by public search.
Under section 4(2) of the Act, a foundation’s charter must specify (at minimum):
(a) the name of the foundation;
(b) the name and address of each founder;
(c) the objects of the foundation;
(d) the initial assets of the foundation (and a statement that the foundation may not have assets with a total value of less than one United States dollar (US$1) or the equivalent thereof in any other currency);
(e) where the foundation has been established to carry out a specified purpose (irrespective of whether or not the foundation has beneficiaries), the details of the specified purpose;
(f) the establishment of a council to administer the foundation’s assets and to carry out its objects (but the first councillors do not have to be named or appointed in the charter)
(g) the name and address of the foundation’s registered agent in Seychelles;
(h) the address of the registered office in Seychelles of the foundation;
(i) a statement of whether the foundation: (i) is established for an indefinite period of time, or (ii) is to be dissolved on the expiration of a fixed period of time or on the happening of a specified event (including details of the fixed period or event); and
(j) the manner in which a beneficiary is to be appointed.
While a Seychelles Foundation’s charter must specify the manner in which beneficiaries are to be appointed, it is not mandatory to specify the names of the beneficiaries in the charter (the norm is not to do so). Commonly, the charter will state that the beneficiaries are to be appointed as provided for in the foundation’s regulations (the regulations are not filed with the Registrar).
The Seychelles Foundations Act provides that the charter may, on an optional basis, make provision for other matters including (without limitation) supplementary assets, the appointment and removal of councillors, the manner of council decision-making, the addition and removal of beneficiaries, the powers, duties and removal of protectors, the making of regulations, the appointment of an auditor, the amendment of the charter and regulations, the continuation of the foundation outside Seychelles, the reservation of founder’s rights and the appointment of any supervisory person.
A Seychelles Foundation charter is usually prepared in the English language. The charter may also be written and filed in any other language, in which case it shall be accompanied by a translation in English certified, as a true and accurate translation of the charter, by the registered agent of the foundation (section 5(2) of the Act). The registered agent is prohibited from giving such a certification unless it has obtained or confirmed such translation from a qualified translator or such other person as may be acceptable to the Registrar (section 5(3) of the Act).
A Seychelles Foundation’s charter may make provision for its amendment (section 6(1) of the Act). It is common for a foundation’s charter to permit amendments to it (or its replacement) by resolution of councillors (the “amendment resolution”), subject to (if so required under the terms of the charter) the prior written consent of either the founder or protector. However, it is a requirement that a certified copy of the amendment resolution be filed with the Registrar within 14 days of the amendment (section 6(6)(a) of the Act). If a foundation contravenes section 6(6)(a) of the Act, it may be liable to a penalty of US$50 for each day that the contravention continues.
THE FOUNDATION REGULATIONS
While a Seychelles Foundation must have a charter, it may adopt regulations (section 13(1) of the Act). A foundation will usually adopt regulations, to ensure that matters pertaining to foundation beneficiaries and distribution entitlements remain non-public. A foundation’s regulations are a private document (not filed with the Registrar).
Under section 13(2) of the Act, a Seychelles Foundatio’s regulations may, without limitation, include regulations:
(a) determining the minimum level of assets of the foundation in the absence of which no distribution to any beneficiary may be made;
(b) concerning the distribution of assets made, or to be made, by the councillors of the foundation;
(c) providing for the designation of any initial beneficiaries or any beneficiaries to be designated at a later date, of the foundation;
(d) providing for the identification of any remaining beneficiary upon the winding up of the foundation;
(e) providing for the regulation of the foundation council.
The regulations of a Seychelles Foundation must be in writing and shall be signed by each founder, or if there is no surviving founder, by each councillor of the foundation (section 13(3) of the Act).
A Seychelles Foundation’s regulations are usually prepared in the English language. The regulations may also be written in any other language, in which case it shall be accompanied by a translation in English certified, as a true and accurate translation of the regulations, by the registered agent of the foundation (section 14(1)(b) of the Act). The registered agent is prohibited from giving such a certification unless it has obtained or confirmed such translation from a qualified translator or such other person as may be acceptable to the Registrar (section 14(2) of the Act).
SEYCHELLES FOUNDATION ASSET PROTECTION PROVISIONS
Under section 71 of the Seychelles Foundations Act and except as referred to in paragraph 13.2 below, the assets transferred to or otherwise vested in a foundation shall:
(a) be the assets of the foundation, with full legal and beneficial title;
(b) cease to be the assets of the founder, once transferred to or otherwise vested in the foundation by or on behalf of the founder; and
(c) in the case of a foundation with one or more beneficiaries, not become the assets of a beneficiary unless distributed to such beneficiary in accordance with the Act and the foundation’s charter or regulations.
The Seychelles Foundations Act includes strong asset protection provisions protecting foundation assets from attack by creditors of the founder. Sections 72 and 73 of the Act provide (without limitation) to the following effect:
(a) a transfer of property to a foundation is not void or otherwise liable to be set aside by reference to a foreign rule of forced heirship or any other foreign law;
(b) the capacity of a founder or any other person who transfers property to a foundation shall not be challenged, nor shall any beneficiary or other person be subjected to any liability or deprived of any right, by reason (among others) that: (i) a foreign law does not recognise the concept of a foundation, or (ii) the transfer of property to the foundation contravenes any a foreign rule of forced heirship;
(c) a judgment of a foreign court shall not be recognised or enforced in Seychelles in so far as it is inconsistent with the matters referred to in sub-paragraphs (a) and (b) above; and
(d) notwithstanding any foreign law to the contrary (but subject to section 73(2) to (4) as referred to in paragraph 13.3 below), a transfer of property to a foundation is not void or otherwise liable to be set aside by reason of: (i) the founder’s bankruptcy or the liquidation of the founder’s property, or (ii) any claim by a creditor of the founder.
Section 73(2) to (4) of the Seychelles Foundations Act only allows very narrow grounds for a creditor of the founder to attack foundation property:
(a) Where a claimant creditor of the founder proves that the founder was insolvent, or intended to defraud the creditor at the time when the founder transferred property to the foundation, the Seychelles Supreme Court may declare that the transfer of property was void to the extent necessary to satisfy a proven claim of the founder’s creditor. The onus of proof as to intent to defraud rests on the claimant creditor.
(b) The anti-foundation busting position is further strengthened by section 73(4) of the Act which provides that such claims are barred absolutely (and shall not be made against a foundation) on the expiry of two years from the date of the transfer of the property to the foundation.
Notwithstanding any Seychelles or foreign law to the contrary, it shall be lawful for an instrument of transfer or other disposition, or for the charter or regulations of a Seychelles Foundation, to provide that any estate or interest in any property distributed or to be distributed by a foundation to a beneficiary shall not be alienated or pass by bankruptcy, insolvency or liquidation or be liable to be seized, sold, attached, or taken in execution by process of law (section 74 of the Act).
The charter or regulations of a foundation may provide that a beneficiary shall forfeit his actual or potential benefit, right or interest under the foundation in the event that he challenges: (i) the establishment of the foundation, (ii) the transfer of any assets to or by the foundation, (iii) the foundation’s charter or regulations or (iv) any decision of the founder, a councillor or any protector (section 64 of the Act).
CONTINUATION & MERGER
Part X of the Seychelles Foundations Act provides for: (i) the consolidation of two or more existing foundations into a new foundation, and (ii) the merger of an existing foundation into another existing foundation.
Continuation of foreign foundations in Seychelles:
(a) Sections 78 to 82 of the Act provide for the continuation of foreign foundations in Seychelles.
(b) A foreign foundation that wishes to continue as a foundation registered in Seychelles, is required to file with the Registrar: (i) articles of continuation; (ii) a certified true copy of its foreign certificate of registration (or equivalent document) and its charter (or equivalent constitutional document); (iii) documentary evidence, satisfactory to the Registrar, that it is in good legal standing; (iv) its proposed charter under the Foundation Act 2009; and (v) the continuation fee in the sum of USD200.
(c) Upon registration of the articles of continuation, the Registrar shall, if it is satisfied that the relevant requirements of the Act have been met, issue a certificate of continuation.
(d) On the date shown in the certificate of continuation: (i) the foreign foundation becomes a Seychelles foundation registered under the Act; (ii) the assets of the continued foundation continue to be vested in it and it remains liable for all its pre-existing debts, liabilities and obligations; and (iii) the continued foundation is no longer regarded as a foreign foundation.
Continuation of foundations outside Seychelles:
(a) Subject to any limitations in its charter or regulations, a Seychelles foundation may, by resolution of councillors, continue as a foundation registered or otherwise organised under the laws of a jurisdiction outside Seychelles in the manner provided under those laws.
(b) A foundation that continues as a foreign foundation does not cease to be regarded as a Seychelles foundation unless: (i) it has paid all its fees and any penalty required to be paid to the Registrar under the Act; and (ii) the laws of the foreign jurisdiction permit the continuation and the foundation has complied with those laws.
(c) Where a foundation is continued outside Seychelles (and subject to paragraph (b) above): (i) it ceases to be a Seychelles foundation registered under the Act; (ii) the Registrar is required to strike off the name of the foundation from the Register; and (iii) the foundation continues to be liable for all of its debts and obligations that existed prior to its continuation as a foreign foundation.
ACCOUNTING RECORDS
Under Seychelles law, a Seychelles Foundation is not subject to any compulsory requirement to prepare or file annual accounts or to appoint an auditor. Nonetheless, a foundation is free to prepare accounts or to appoint an auditor if it so wishes.
However, under section 75 of the Seychelles Foundations Act, a Seychelles Foundation must keep or cause to be kept proper accounting records that:
(a) are sufficient to show and correctly explain the foundation’s transactions;
(b) enable the financial position of the foundation to be determined with reasonable accuracy at any time; and
(c) allow for accounts of the foundation to be prepared (notwithstanding that the foundation is not required under the Act to prepare accounts).
“Accounting records”, in relation to a foundation, mean documents relating to the foundation’s assets and liabilities, receipts and expenditure and sales, purchases and other transactions to which the foundation is a party (for example, bank statements, receipts, invoices, title documents, agreements and vouchers, etc).
A foundation’s accounting records can be kept at such place inside or outside of Seychelles as the councillors think fit.
Where a Seychelles Foundation does not keep its accounting records at its registered office, it is required to notify in writing its Seychelles registered agent of the address of the place at which its accounting records are kept (section 75(3) of the Act).
Where the place at which a foundation’s accounting records are kept is changed, the foundation must inform its Seychelles registered agent in writing of the physical address of the new location of the records within 14 days of the change of location (section 75(3) of the Act).
The accounting records that a foundation is required to keep must be preserved by it for at least 7 years from the end of the period to they each relate (section 76(1) of the Act).
REGISTER & MINUTES
A Seychelles Foundation is required to keep, at its registered office, a register of its councillors, founders, beneficiaries, registered agent, any supervisory persons (including any protector) and any persons authorised as an agent or power of attorney holder of the foundation (section 77(1) and (2) of the Act).
The register is not open to public inspection but on each business day in Seychelles shall be open to inspection by the founder, a councillor, any supervisory person (including any protector) and the registered agent of the foundation (section 77(3) of the Act).
A Seychelles Foundation must keep minutes of all meetings of councillors and copies of all written resolutions consented to by councillors (together the “minutes and resolutions”): section 46(1) of the Act.
The minutes and resolutions are required to be kept at the registered office of a/the Seychelles Foundation or at such other place as the councillors think fit and the councillors are required to inform the foundation’s Seychelles registered agent in writing of the address of such other place (section 46(3) of the Act).
The minutes and resolutions shall not be open to public inspection but on each business day in Seychelles shall be open to inspection by the founder, a councillor and any supervisory person (including any protector) of the foundation (section 46(4) of the Act). The minutes and resolutions that a foundation is required to keep must be preserved by it for at least 7 years from the end of the period to they each relate (section 46(5) of the Act).
A Seychelles Foundation may, but is not required to, maintain a seal (section 70 of the Act).
FOUNDATION NAME
The name of a Seychelles Foundation must end with the word “Foundation” (section 17(1) of the Act).
Under section 17(2) of the Seychelles Foundations Act, a proposed Seychelles foundation shall not be registered by a name:
(a) which includes: (i) “limited” or an abbreviation of “limited”; (ii) “company” or an abbreviation of “company”; (iii) “partnership” or an abbreviation of “partnership”; (iv) a translation of any words conveying a similar meaning to “limited”, “company” or “partnership” in the language or practice of any other country; or (v) an abbreviation of any such translation as is referred to in sub-paragraph (iv);
(b) which in the Registrar’s opinion is the same as or similar to the name of an existing Seychelles foundation;
(c) which in the Registrar’s opinion is misleading, offensive or otherwise objectionable;
(d) which contains the words “Assurance”, “Bank”, “Building Society”, “Chamber of Commerce”, “Chartered”, “Cooperative”, “Insurance”, “Municipal”, “Trust”, “Stock Exchange”, “Securities”, “Royal”, or a word conveying similar meaning; or
(e) which contains any other word that, in the opinion of the Registrar, suggests or is calculated to suggest the patronage of or any connection with the Government of Seychelles or the Government of any other country.
Under section 17(3) and (4) of the Seychelles Foundations Act, the name of a foundation may be expressed in any language, but where the name is not in the English or French language:
(a) a translation of the name in English or French shall be given to the Registrar, certified as a true and accurate by the registered agent of the foundation; or
(b) where a direct translation of the name does not accurately reflect the name’s meaning, a representation of the name in English or French shall be given to the Registrar, certified as a true and accurate by the registered agent of the foundation.
The registered agent of a Seychelles Foundation is prohibited from giving a certification (referred to in paragraph 17.3 above) unless it has obtained or confirmed the translation (or representation) from a qualified translator or such other person as may be acceptable to the Registrar (section 17(5) of the Act).
RENEWAL, STRIKING-OFF, RESTORATION & DISSOLUTION
The annual renewal fee payable to the Registrar for a Seychelles foundation is due on the day before the foundation’s registration anniversary date (section 24(1) of the Act).
If a Seychelles Foundation does not pay its annual renewal fee by the due date (i.e. by the day before its registration anniversary date), an additional fee equal to 10% of the annual renewal fee applies for each month or part thereof during which the annual renewal fee and any additional fee imposed remains unpaid (section 24(2) of the Act).
Where a Seychelles Foundation has failed to pay its annual renewal fee within 180 days of the due date, the Registrar will publish notice in the Gazette and serve on the foundation a notice that it will be struck off the Register if it fails to pay the annual renewal fee (and all late fees) within 90 days of the date of such notice (section 99(1) of the Act). Where a foundation continues to fail to pay the annual renewal fee (and all late fees), on expiry of the 90 day notice period the Registrar will strike the foundation’s name off the Register and publish notice of the striking-off in the Gazette (section 99(2) of the Act). Typically therefore, if the annual renewal fee is not paid within 270 days, the foundation will be struck off.
Under section 100(1) of the Seychelles Foundations Act, where a Seychelles Foundation’s name has been struck off the Register
(a) it remains liable for all its debts and obligations and the striking off does not affect the liability of its councillors or other officers;
(b) the foundation, the council and any protector shall not carry on the foundation’s activities or deal with its assets; and
(c) it shall not commence legal proceedings for or in the name of the foundation.
Notwithstanding section 100(1) of the Seychelles Foundations Act, pursuant to section 100(2), where the name of a foundation has been struck off the Register, the foundation or a councillor, creditor or liquidator thereof may:
(a) apply for the restoration of the foundation’s name to the Register;
(b) continue to defend legal proceedings that were commenced against the foundation prior to the date of striking-off; and
(c) continue to carry on legal proceedings that were instituted by the foundation prior to the date of striking-off.
Where the name of a Seychelles Foundation is struck off the Register for non-payment of annual renewal fees, it may, within 10 years of the date of striking off, apply to the Registrar for restoration of its name to the Register on payment of all outstanding fees and penalties (section 102(1) of the Act). If a foundation is struck off for another reason (e.g., it conducts activities contrary to Seychelles written law or detrimental to the reputation of Seychelles), it may, within 3 years of the date of striking off, apply to the Supreme Court of Seychelles for restoration of its name to the Register (section 101(1) of the Act).
Where the name of a Seychelles Foundation is restored to the Register: (i) it is deemed to never to have been struck off; and (ii) an agreement entered into by the foundation during the period in which its name was struck off, is deemed to be valid and enforceable (sections 101(3) and 102(3) of the Act).
If the name of a Seychelles Foundation has been struck off for a period of 10 years for non-payment of annual registration fees or for a period of 3 years for any other reason, the foundation is deemed to have been dissolved (section 103(1) of the Act).
Under section 92(1) of the Seychelles Foundations Act, a foundation must be dissolved where:
(a) it is established for a definite period of time and that period expires;
(b) the object of the foundation is fulfilled or becomes incapable of fulfilment as determined by resolution of councillors and, if so required under its charter or regulations, with the consent of its protector, if any;
(c) a provision of its charter or regulations so requires;
(d) it is unable to pay its debts as they fall due;
(e) the Act otherwise provides that it shall be dissolved; or
(f) the Supreme Court of Seychelles orders that the foundation be dissolved.
Where a foundation is so dissolved under section 92(1) of the Seychelles Foundations Act, a liquidator must be appointed, by resolution of councillors or as otherwise provided in the charter or regulations, to supervise the winding up and dissolution (section 92(2) of the Act). There are no qualification or Seychelles residence requirements in respect of a foundation’s liquidator.
FISCAL EXEMPTIONS
Under section 110 and Schedule 2 of the Seychelles Foundations Act, a Seychelles Foundation is exempted from:
(a) Seychelles Business Tax on its income;
(b) Seychelles withholding tax;
(c) Seychelles stamp duty (except in relation to any permitted lease of Seychelles real estate for own office use).
Section 110(2) of the Seychelles Foundations Act provides that, notwithstanding any written law to the contrary, no estate, inheritance, succession or gift tax shall be assessed or payable by a person with regard to any properties, shares, securities or other assets transferred to or held by or relating to a foundation. This means (without limitation) that beneficiaries are not subject to any Seychelles withholding tax on distributions from a Seychelles foundation.
SEYCHELLES GOVERNMENT FEES
Seychelles Foundation registration or inward continuation fee (establishment and year 1): US$200
Seychelles Foundation annual registration renewal fee: US$200 (due on the day before the foundation’s initial registration anniversary date)
SUMMARY
Whilst there are as many as 10 Offshore Jurisdictions currently offering Foundation Registration Services by far the most popular are Seychelles and Panama.
What I can tell you is that the Seychelles Foundation Law is basically a copy of Panama’s but with a couple of additional (in my view, very attractive) features including:
- The rights of the Founder of a Seychelles Foundation can be assigned. This enables complete privacy because normally the Founder’s name appears in the Charter (which is publicly filed as part of the registration process). However with a Seychelles Foundation you can use a Nominee Founder (who then immediately following registration assigns his rights to you. See sample Deed of Assignment attached)
- The Seychelles law specifically states that the Foundation is both legal and beneficial owner of any assets it holds. This is (a) a fantastic tax planning feature because traditionally onshore tax authorities have taxed such entities on the basis that the beneficiaries are the beneficial owners of the entity. It also means (b) when opening bank accounts or incorporating subsidiaries that you can avoid having to declare to the bank etc the names of the beneficiaries of the Foundation (which are usually you/your immediate family).
- The Seychelles law also states that the beneficiaries are owed no fiduciary duty by the Foundation Council (which bolsters the above proposition ie that it is the Foundation which owns the assets/income for tax purposes)
The Seychelles law also provides additional asset protection provisions eg:
- it specifically says that a transfer of property to a Sey Foundation, shall not be void, voidable, liable to be set aside or otherwise defective in any manner by reference to a foreign rule of forced heirship or any other written law of a foreign jurisdiction
- It also says that a transfer of property to a Sey Foundation, shall not be void the founder’s bankruptcy or the liquidation of the founder’s property; or any action, proceedings or other claims against the founder brought by any creditor of the founder. (See sections 71 to 74 in the Act attached these asset protection provisions don’t appear in the Panama law
- A Seychelles Foundation can be capitalised with as little as $1. A Panama Foundation’s minimum authorised capital is $10,000.
AND The Government Incorp and annual license fee in Seychelles is $100 cheaper than in Panama.
As always local laws can have an impact. Hence you should seek local legal and financial advice before committing to register/create a Seychelles Foundation.
