How To Use A Private Foundation

I am often asked can I invest or do business Offshore using a Foundation?


There are limits, at law, to what a Foundation can do. Foundations are designed as passive asset holding vehicles eg to hold cash at bank or to hold a piece of real estate or to hold a parcel of shares. Any asset which you intend to hold onto for the mid-long term can be owned/held by a tax free Offshore Private Foundation.


A Foundation cannot however operate a Trading Operation or a Mercantile style business ie an enterprise which aims to generate a profit from regular buying and selling.


The starting point is to set up a Foundation then, once you want to take out a mortgage or once you want to start buying and selling regularly or once you want to start actively investing (eg trading shares/forex etc regularly) you could/would add a Company to the structure (ie the Foundation would resolve to form a/the Company ie the Foundation would be passive it would just hold the shares of the company).


The Company is your revenue raising machine. The role of the Foundation is to own the Company. Such a structure can deliver both asset protection and tax planning opportunities. Howso?


  1. Because at law a Foundation is both the legal and beneficial owner of any asset it holds. The makes it nigh on impossible for your judgment creditors to seize assets held by or income flowing to the Company.
  2. If you structure and manage the Combo correctly you should only have to pay tax on income paid to you by the Foundation or the Company. The rest of the money earned by the Company can be held and or reinvested offshore potentially tax free (and thanks to the power of compounding you should reach your ideal nett worth goal years if not decades sooner than you would otherwise).


What is the Power of Compounding?


The power of compounding is the snowball effect that happens when your earnings generate even more earnings. You receive interest not only on your original investment, but also on any interest, dividends, and capital gains that accumulate—so your money can grow faster and faster as the years roll on.


Here’s a comparison. Person A and Person B.


Both persons place $100,000 into a Managed Fund which pays 12.5% per annum.


Let’s assume Person A pays 12.5% tax each year on his earnings. Person B doesn’t have to pay tax on his earnings.


After 10 years person A will have $120,000. Person B will have $210,058 in his account (thanks to the Power of Compounding)..


As always local laws can have an impact. So be sure to seek local legal/tax/financial advice before committing to set up an Offshore Corporate structure like that described above.



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