As I get older, I confess that, on occasion, I hanker after the days when I used to work in a bank. Life seemed so much easier in those days. When someone asked me what I did for a living, I could swiftly reply, “I work in a bank”. That would satisfy my inquisitor entirely and the conversation could move on.
It wasn’t even that bad when I first moved to Gibraltar all those years ago. I simply inserted ‘trust company’ in place of ‘bank’ and that did the trick. After all, everyone knows what a trust is, right? So a trust company must just deal with trusts. What could be simpler?
But the world moves on. These days, the group for which I toil daily is more accurately described as an ‘international regulated financial services group’. Cue blank stares. As someone said to me at a recent event, “So what’s that then? Trusts and stuff, is it?” I had to admit that yes, trusts are a significant part of the business but they are by no means the only thing we get up to – hence “trust company” no longer fits the bill.
But what is a trust anyway, and are there other options? These days, trusts are used in a mindboggling range of situations requiring innovative, flexible but, above all, compliant solutions that meet client needs. Traditional trusts are still widely used for estate planning and succession issues, professional advice being essential at every stage.
Readers may recall that I have previously written about special types of trusts used in pension planning such as QROPS, QNUPS and SIPP (just a few of the many acronyms that inhabit our industry). Businesses can also establish their own corporate pension schemes as part of a remuneration strategy to reward employees. To a large extent, all of these schemes require regulated services where some form of trust is involved.
Of course ‘trust companies’ are often able to provide corporate services too. And when we set up companies for a client – sometimes (but not always) in conjunction with a suitable trust – we tend to refer to them collectively as ‘structures’. And if you think this makes us sound like a firm of architects, it may not surprise you to learn that the latest structure that we can offer here in Gibraltar is known as a ‘foundation’.
This type of arrangement has been available elsewhere for many years but, while the ink on the enabling legislation passed by the Gibraltar parliament is still drying, I thought I should attempt to explain what precisely a foundation is and, more importantly perhaps, why it is that Gibraltar has waited until 2017 to introduce them.
First, a brief history lesson. The roots of the foundation go back, if one wants to look that far, to Roman law and to the Byzantine and Canon law, respectively. In Europe, the heads of families would hold assets for the benefit of present or future family members through an entailed estate – termed a fideicommissum.
In England and Wales there was a similar legal concept, known as a ‘trust’. Historians will tell you that the law of trusts was developed in the 12th Century at the time of the Crusades. When a landowner left his home in England to join the Crusades, he would convey the ownership of his land to a trusted acquaintance. This ‘trustee’ would manage the estate and pay and receive feudal dues, on the understanding that the ownership would be conveyed back to the crusader on his return – or to his rightful heirs if he did not.
Trusts and foundations may therefore have begun life in a very similar way but they have diverged significantly in recent times. The foundation structure as we know it today really began in Liechtenstein in 1926, which has since become the jurisdiction with the greatest tradition and success with foundations for private purposes.
Panama established its own version in the 1990s but for the common law jurisdictions with which Gibraltar competes, trusts were overwhelmingly more popular. And herein lies the difficulty. Many civil law jurisdictions are unaware of the concept of a trust, and, in many countries, trusts do not exist and are not recognised in law. As a result, anyone attempting to use a trust can encounter considerable difficulty in so doing.
A foundation differs from a trust in several important respects. Both offer additional privacy, wide-ranging possibilities for their organisation, especially in regard to estate and succession planning, asset protection and business holding, as well as providing, in some circumstances, a favourable tax framework. However a foundation, unlike a trust, has an independent legal identity and holds assets in its own name. This means it can own and manage assets directly in ways that can be more difficult to arrange under a trust, which does not have a separate legal identity from its trustees.
A foundation requires a ‘founder’, who is the equivalent of a ‘settlor’ under a trust. The founder is generally the person who transfers initial assets into the structure. The foundation is then set up and governed by a Foundation Charter, which details the purposes, beneficiaries and guardian of the foundation, as well as the rules on how it should be administered. A copy of this document together with other information must be filed at Companies House where a Register of Foundations is held.
The purposes of a foundation need not be charitable and can be very wide provided they are not illegal, immoral or contrary to public policy. As long as the Foundation Charter permits, the purposes of the foundation can be amended, providing flexibility in the event of future changes of circumstances.
The founder can take on certain powers – again this is generally more difficult for a settlor under trust law. These include the right to appoint or remove members of the Foundation Council, which manages and administers the entity, makes distributions to the beneficiaries and works to achieve the purposes of the foundation. In Gibraltar, a licensed professional firm must be included as a member of the Council, offering immediate reassurance to clients and beneficiaries of the foundation.
The tax treatment of foundations is similar to that of Gibraltar companies – a 10% rate is applied only to profits or gains accrued or derived in Gibraltar from any trade, profession or vocation. Only beneficiaries who are ordinarily resident in Gibraltar will be taxed in Gibraltar on distributions. This provides certainty to international clients and their advisers.
I referred to other common law jurisdictions with which Gibraltar competes and several have now enacted some form of legislation for the establishment of foundations. Locally, the financial services industry has been discussing these issues with government for some time and the local branch of the professional body STEP (Society of Trust and Estate Practitioners) was particularly engaged in the drafting process.
The Gibraltar Parliament approved the Private Foundations Bill in March 2017 and interested readers can find further details on the excellent website at www.gibraltarlaws.gov.gi/bills.php. Minister for Commerce Albert Isola commented that Private Foundations had “long been on the wish list of those professionals who advise their clients in complex financial engineering”. He went on to say that research had shown there to be an international demand for the foundation.
He is not wrong. From my viewpoint, I am delighted that we are now able to offer the foundation in Gibraltar. It gives us another valuable financial tool to attract international families and business owners to use our financial centre. Now it is here, I very much look forward to using it. There’s just one problem. What can I tell people now when they ask me “so what is it that you do again?” Life just keeps getting more complicated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
A foundation is a corporate entity. It is a legal entity with its own separately legal personality. Legally it has the rights and status that a separate and independent individual person has. It can sign agreements, enter into contracts, and own assets including funds in bank accounts in its own name. It can buy and sell goods and assets and own shares or other interestes in companies or other enterprises.
The Seychelles Foundation Act was passed in 2009 by which time jurisdictions like Panama and Liechtenstein had had a long history with foundations. The Seychelles foundation looks at the best practices, features and problems found elsewhere and hopes to improve on them.
In Seychelles it is stated in the Act itself that a foundation has no owners that it is itself the beneficial owner of the foundation assets. This is a very interesting and powerful provision that did not exist elsewhere. It makes a Seychelles foundation very attractive as an ultimate holding entity instead of a trust, a nominee shareholder arrangement or bearer shares.
Our foundation Act is written in simple and modern English so as to be understandable to most people worldwide. Our charter and regulations are also in English.
A founder is a person who establishes the foundation. He is expected to transfer the initial assets into the foundation. If the founder does not, the councillors may request it at a later date.
Banks and other parties dealing with a foundation may carry out due diligence on a founder and may ask for identification and proof of address for the founder.
Yes corporate councillors are allowed. A corporate entity from most other countries can be used without restriction but the corporate entity must still be on the register of companies wherever it is registered and it should be kept in good standing. It’s objects must also allow it to act.
A Seychelles IBC can also be used but it cannot be used in a professional services capacity (also known as a nominee) unless authorized. If a Seychelles IBC is used as a corporate councillor it must act in a real capacity, actually have control, and maintain books of accounts and other records.
Anyone you want can be a bank account signatory. It can be a professional councillor, a protector, a trusted friend or family member, or yourself even if you will not be a councillor or other officer of the foundation.
A bank account signatory is someone who “signs”on an account and is basically someone who can transfer money from an account or sign cheques. It must be someone who is responsible and who can be trusted. A signatory may act alone (a sole signatory – someone who you trust absolutely) or a signatory may only act together with other persons (joint signatory – for when more control is required). You will usually be able to have different groups of signatories. A common arrangement is to have one group of sole signatories and another group of joint signatories so that your business can continue as normal even when key people are away. You may even have two groups of joint signatories with one joint signatory required from each group so that they control each other.
Foundation councillors are generally expected to be bank account signatories, and professional counicillors are usually expected to at least be a joint signatory but this is not a strict requirement. Instead of councillors you may appoint your managers as the signatories. When councillors are active bank signatories, you may be able to use this fact to demonstrate their effective management and control of the foundation and its assets.
Any individual person over 18 years old may be appointed. The person must not have been declared bankrupt, must not not have been convicted of a crime or must not have been disqualified in some other way. It is generally recommended that someone with a good clean record is appointed because a protector’s past is likely to be scrutinized at some point particularly if a bank account will be required. Most banks will reject an application if a person with a “colourful” past is involved.
As an alternative to individual persons, any corporate entity from anywhere in the world may be appointed. The corporte entity must be in good standing on its register. Also when appointing a corporate protector from the date of incorporation of your new Foundation it is important that the corporate director existed at the date of its appointment and was not formed after the Foundation (i.e. some days later).
A person (whether an individual or a corporation) who is competent and who is responsible should normally be appointed. Protectors supervise the councillors and owe duty of care to the company.
We are assuming you mean a “professional” account signatory. The approved persons who provide professional company directorships would usually be happy to be a bank account signatory for a foundation as well. But while they would be accomodating, they would not follow your instructions blindly. They may well query a transaction and ask for more information before executing it. If they are uncomfortable they may well refuse to act and they may resign. A professional account signatory will not knowingly participate in fraudulent transactions and other illegal activities and there are severe punishments under our anti-money laundering regulations.
Yes you can. The Foundation Act specifically recognizes the appointment of attorneys. A power of attorney is a legal document which gives the appointed person the right to represent the foundation and to act on its behalf. The document lists the terms of the appointment and may allow the attorney to act for the company without requiring the councillors.
The attorney does not have to be a lawyer or someone with legal training, it can be anyone over 18 years old who has not been disqualified in some way to take on a role with responsibility. A power of attorney is issued by the councillors of the foundation. If our professional councillors are asked to give a power of attorney they will first carry out some checks on the person. They reverse the right to refuse if the proposed attorney does not meet their requirements.
A power of attorney can take one of two general forms: A special power of attorney (also called a limited power of attorney); and a general power of attorney. A special power of attorney lists specific actions that the attorney is expected to perform and it usually specifies a very short time period. An example is to give an attorney in Switzerland the power to open an account with a specific bank because the councillors cannot go to the bank in person at the particular time. A general power of attorney allows the attorney to perform almost any legal act on behalf of the foundation and usually it will be issued for 1 year or more. The attorney in this case will be able to do anything in the name of the foundation. Professional councillors much prefer to issue special powers rather than a general power of attorney and will charge extra for having to do extra checks before issuing.
The councillors can issue one or more powers of attorney each with varying powers to one or more persons. You could appoint a special attorney in Hong Kong for the opening of a bank account there and have a general power of attorney to a close family member so that they can act generally when you cannot. An arrangement that has been popular for companies is for a professional director to issue the promoter / beneficial owner with a general power of attorney so that the beneficial owner can be free to run the company in the background. In theory a similar arrangement could be adopted for foundations.
When a power of attorney is issued, the councillors still retain responsibility, and professional councillors will need to perform some checks before the appointment (usually before they accept the professional apppointment) and they will also need to perform checks later to find out what the attorney has been doing. An attorney must not use the power of attorney to execute secret transactions and to open secret bank accounts – the councillors must be informed of everything and we do not recommend that a power attorney be used to have secrecy for the founders. There are also risks to the attorney – if the attorney controls the councillors and the foundation, and actually manage the foundation (and councillors do not do much else) he may be viewed as a councillor which may have adverse tax and legal implications.
Can you provide a ‘nominee’ bank account signatory?
Do we have to pay before you will release documents or process orders?
Can we change the name of a Foundation?
Can we get a certificate of good standing?
What will happen if annual renewal fees are not paid?
We don’t need a Foundation anymore? What are our options?
Can we transfer a Foundation from you to another agent?
Cayman Foundations Law In Force
The Cayman Government said: “It is anticipated that this new Cayman Islands business vehicle will give the financial services industry a competitive advantage through increased versatility in the international market. Similar to how a limited liability company (which is a variant of a company) is infused with functions of a partnership, a foundation company would also be a variant of a company. Foundation companies aim to introduce a special type of company that blends certain key advantages of trusts and of companies in one vehicle. They offer clients a more satisfactory structure, allowing for the ability to have no shareholders and entrenched objectives. Foundation companies can therefore be used in a wide variety of situations, including commercial and philanthropic purposes.”
It noted that foundations are subject to the same transparency and anti-money laundering and countering the finaLabuan International Business and Financial Centre (Labuan IBFC) is at the forefront of international cross-jurisdictional wealth planning, offering high-net-worth individuals a plethora of wealth creation and wealth preservation structures in both conventional and Islamic forms.
High-net-worth individuals will find a comprehensive stable of private wealth management vehicles on offer in Labuan IBFC tanging from common law trusts to civil law foundations. In fact, Labuan IBFC is the only jurisdiction in Asia offering private foundations as a wealth management solution ncing of terrorism provisions as a company.
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