What is a Purpose Foundation?

A Purpose Foundation is a particular type of Private Foundation which, unlike a conventional Foundation (ie which has certain person/s or a category of person/s nominated to be beneficiary/s), can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.


Purpose Foundations are currently used, among other things, in conjunction with asset financing transactions and securitizations.


They are also sometimes used to hold the shares in a Private Trust company (PTC) structure, where confidentiality and control issues are important. A key advantage of using a Purpose Foundation in such a scenario is that there are no registration or disclosure requirements of such Trusts at law generally speaking. Therefore the ownership of the PTC will be confidential, and the shares in the PTC will be immune from an attack on the Settlor (ie the person who sets up the Trust).


Generally speaking, there are two types of Foundations ie Foundation with beneficiaries and Foundations which are set up to fulfil a specific purpose. A Foundation set up to fulfil a specific purpose does NOT needs to name any person or class of person as a beneficiary. Hence, because there are no beneficiaries attached to the Foundation (a) it’s impossible to argue that any particular person has a legal or beneficial interest in Foundation assets and (b) it’s impossible to argue that any particular person is entitled to receive income from the Foundation.


Recently a lawyer friend succeeded in registering a Purpose Foundation in Seychelles where the sole stated purpose of the Foundation was to own 2 Mauritius Companies.


The nett result of deploying a Purpose Foundation in such a scenario?


  1. Assets held by the Foundation should be safe from attack by creditor of the Foundation’s creator; and
  2. If the Foundation is set up in a nil tax jurisdiction, and say it owns a Company incorporated in a nil tax jurisdiction – which Mauritius is – (and provided the Foundation and any Companies it owns are not seen to be controlled from onshore) you may potentially end up with a scenario whereby income streams owned by the Foundation remain beyond the reach of the onshore taxman – In such a scenario, you should only have to report/pay tax on income paid to by any Company owned by the Foundation or on distributions paid to you by the Foundation


Flexibility is everything. No doubt you’ll be pleased to hear that a Purpose Foundation does not have to remain a Purpose Foundation for life; A Purpose Foundation (by amending its Charter) can, later on down the track, morph into a Foundation with beneficiaries!


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DISCLAIMER: Offshore Companies International Ltd trading as www.offshoreincorporate.com are not Tax advisers or Legal Advisers. You should seek local tax, legal and financial advice before committing to set up an Offshore Corporate or Fiduciary Entity.


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