A Private Interest Foundation (“PIF”) is a legal entity displaying characteristics of both a company and a Trust which is rapidly becoming the astute investor’s tax planning and asset protection tool of choice.
Overview
Unlike Trusts (which are a creature of English common law) Private Interest Foundations are a by-product of European civil law jurisdictions (most notably Liechtenstein) and have existed since the Middle Ages when they were used mostly for charitable purposes. These days Private Interest Foundations are more commonly established to protect family wealth (and as highly effective Tax Minimisation tools – see below).
Like a company a Private Interest Foundation is a separate legal entity (that is it can hold property & sue and be sued in its own right) and its operations are governed by a Charter and Regulations (similar to the Memorandum and Articles of Association of a company). Usually a Private Interest Foundation can only be used as an asset holding entity (though it can carry out certain commercial functions depending on its country of registration).
Management
The day to day management of a PIF is overseen by a Councillor or a Council (like a board of directors in the case of a company). However instead of shares a Foundation, like a Trust, has Beneficiaries who are ultimately entitled to the assets and income of the Foundation. Importantly the creator of the Foundation (usually called a “Founder”– see below) can still steer the direction of the Foundation post registration by being appointed as a Financial Adviser or Protector. Additionally the Founder can have certain powers reserved to him from the outset (eg the rights to appoint or remove Councillors, to exclude or change Beneficiaries or to appoint and remove Protectors).
Private Interest Foundations versus Trusts
The key difference between a Foundation and a Trust is that in the case of a Foundation the legal owner of the Foundation’s assets is the Foundation itself, a separate legal entity (usually) based in a nil tax jurisdiction. This is different to the situation of a Trust where the underling owner of trust assets are the (presently entitled) beneficiaries. This can have a significant impact in terms of tax liability (see below).
Tax Planning Advantages of a Private Interest Foundation
In particular the Seychelles Foundation law is cleverly drafted in that it provides that, until such time as Foundation property is actually transferred to the beneficiaries, the beneficiaries hold no legal interest in Foundation property. The legal owner of property held by the Foundation is the Foundation itself! When you register a Seychelles Private Interest Foundation to hold the shares of an IBC the assets of the IBC remain safe from your creditors reach AND the income potentially remains un-taxable onshore (until such time as its actually paid to you as a distribution from the Foundation).
Other common features of Private Interest Foundations include:
- Limited record keeping requirements
- No requirement to file an annual return
- Corporate Councillors can be appointed (which has major privacy advantages)
- No income tax is payable in the country of registration
Whilst a number of Offshore Financial Centres offer Foundation Products by far the most popular places to register a Tax free Private Interest Foundation are Panama and Seychelles. For more information Contact Us or click on any of these links:
