With more flexible mechanisms if compared to trusts, charitable or non-profit organizations are getting more and more approval because of their reduced costs, lenient regulative mechanisms, beneficial taxes, and strong security. Many individuals seeking for a structure to keep assets decide on trusts, and it’s particularly the case in Anglo-American legal systems. But private foundations setup, as applied in civil legal systems, has many benefits, and Anglo-American legal systems have recently amended laws to offer them as solutions for asset keeping or for purposes that benefit the community.
Main features of foundations
Contrary to trusts, the foundation has a legal personality and is administrated by a manager, who can often be a non-citizen or even a non-resident. The specter of legal responsibility for a trustee is mostly greater compared to a foundation manager, as the later is itself responsible for its operation. Hence, the core advantages of this vehicle are flexibility, favorable taxes, and a long list of respected jurisdictions.
Preferable jurisdictions
In general, to hold assets, investors decide on one of the below-mentioned territories:
- The Cayman Islands;
- Curacao;
- the Isle of Man;
- The Republic of Panama;
- the Channel Islands;
- Guernsey;
- Liechtenstein.
Setting up private non-profit organizations: main peculiarities
- Most above-mentioned countries have enacted and introduced laws aiming to ensure duly operation for structures in the respect of asset keeping or doing charity.
- In all countries, a founder of a private foundation is required to pass through full Anti-Money Laundering/ Know Your Client processes to ensure a proper operation.
- Obligations towards capital or assets do not differ a lot from country to country.
- One of the territories with a reduced cost for formation and simplified administration obligations is Curacao.
When choosing the most suitable country for a private foundation set up, quality, time for responses and personalized, expert support offered should contribute as much to your final choice as the legal system and regulative peculiarities.
Classification of non-profit organizations
In terms of regulatory obligations, there are 2 main classes of non-taxable charitable institutions:
- Public charities (financed by a plethora of public sources) and
- Private foundations (privately financed or endowed).
Charities are freed from taxation, however, private foundations should pay at least 5% of their net investment assets every year in the form of charitable grants. This type normally directs ore regulative and supervisory regulations from authorities than public charities.
There is a condition that persons may receive tax deductions for making donates to charities to the extent of 60% of their income (AGI) for cash donates and 30% of income for gifts of appreciated assets, covering stocks and real estate. For contributions to private institutions, however, the borders are 30% of income for contributions and 20% of income for appreciated assets.
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