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In recent years, several private foundations have gained prominence in the media, and raised public awareness of their causes. Foundations are often created with one philanthropic goal in mind. However, as the grantors often realize, establishing your own foundation can often make smart money sense, as well.
Plus, your last name does not have to be Rockefeller or Getty to start your own.
Setting Up Foundation
The Role of the Foundation
A Private Family Foundation (PFF) is a separate entity, privately funded by you. It is created with the specific purpose of contributing to various charitable causes.
As a distinct, legal entity, the Private Family Foundation:
Contributes to a charitable cause and takes a tax deduction, while relinquishing personal control over your gift;
Minimizes your estate tax liability;
Avoids capital gains tax on the sale of appreciated property contributed to the charity of your choice;
Provides continuing employment and activity for your family members;
Identifies and preserves your family name for years to come;
Where Global Premier can Register your
Private Interest Foundation
Set Up Foundation!
Create and Control Your PFF
Any Private Family Foundation must be created with a charitable “intent.” The Foundation is managed by a Councilor or executive director that oversees the Foundation’s investments and distributes the Foundation’s assets.
You can even appoint yourself as the Councilor of your own Foundation. This way, you maintain control over the assets contained in the Foundation. Instead of making a one-time gift to a public charity (and losing control of that gift), you can monitor your favourite charities. If one non-profit changes its focus, or if a more meaningful cause comes along, you can reallocate your Foundation’s support.
Foundations may be established for the benefit of a person or persons, a family, or a specific social purpose.
Uses and Advantages of Private Foundations
In general, Private Foundations are used by people who wish to control and maintain ownership of foreign corporations; however, they do not wish to own their corporations themselves directly, due to the Controlled Foreign Corporation (CFC) rules in their home countries. Several highly taxed countries such as the UK, Canada, USA, Australia, New Zealand, France, Italy, Spain, etc. have CFC rules which require that their citizens submit declarations (reports) to the appropriate tax authorities, in which they declare that they are the shareholders of such foreign corporations.
Instead of holding the corporations’ shares in their personal name or in bearer form, they establish a Private Interest Foundation in Panama that holds or owns the shares of their foreign corporation(s), thus avoiding the CFC reporting rules. Hence, the advantage of using the Foundation as a shareholder for their corporation is to remove ownership from one’s personal name (or through a Bearer Share arrangement), and transfer ownership to the name of a foreign entity which does not have owners, rather has privately appointed beneficiaries, which are anonymous. In this way, there is no question as to who owns the company, since the company’s shares are issued to the Foundations’ name.
Another advantage of utilizing the Foundation as a shareholder applies in the following scenario: In many cases, when opening corporate bank accounts or investment accounts, the financial institutions require that you reveal the beneficial owners of the corporation. Through the Foundation ownership strategy, one can state that the Foundation is the owner of the corporation. Again, the objective is to remove ownership from their personal name, to the name of a foreign entity whose ownership is anonymous.
The Private Foundation provides additional advantages other than just ownership. Some people donate their funds to their Panama Foundations and later use the Foundation to give educational or special grants to their children, grandchildren, or any one else they choose. The advantage in this case, is to avoid fiscal regulations surrounding donations, where some governments impose “gift taxes” and exhaustive reporting requirements.
In general, Private Foundations may not engage in habitual profit-making commercial activities as a corporation can. Nevertheless, they may carry out commercial activities from time to time, as long as the profits of those activities are used for the objectives of the foundation. For example, a Private Interest Foundation may engage in banking or investment activities, such as investing in bank time deposits (Certificates of Deposit – CD’s), stocks, bonds, mutual funds, options, money markets, etc. so long as the proceeds from these investment activities are for the benefit of the beneficiaries of the Foundation.
Elements of a Foundation
The EU Directive and Regulations relating to IP protection have been fully transposed into Cyprus national legislation. As a result, with a single IP registration in Cyprus, IP rights which are owned by a Cypriot resident company may enjoy full protection in all EU Member States, as well as by the signatories of all major IP treaties and protocols.
The new provisions provide exemptions from tax of the income related to IP. More specifically:
80% of worldwide royalty income generated from IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax.
80% of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax.
Any expenditure of a capital nature for the acquisition or development of IP is claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line.
All the above exemptions are also available for IP acquired or developed before January 2012
Overall an effective tax rate of 12.5% one of the lowest in the EU is applied. The amount subject to tax under the new rules is calculated by deducting the writing down allowance, the costs (including interest) of financing the acquisition or development of the assets and any other direct expenses from the revenue earned, and dividing the resultant amount by five. Applying the Cyprus corporate income tax rate of 12.5% produces an effective tax rate of 2,5% of the net income.
This rate compares very favourably with the competition: the United Kingdom’s optional new “patent box” regime gives an effective rate of 10%on relevant income. The Irish scheme is more complex and it is not possible to directly compare rates, but it will generally produce a rate close to the UK rate. The Luxembourg and Netherlands schemes are somewhat better, with effective tax rates of 5.76%and 5% respectively, but they are both considerably less beneficial than Cyprus.
Following the introduction of the IP box, considerable savings can be achieved by locating the IP owner in Cyprus and having it license the use of the rights direct to the end users, eliminating (or at least reducing) foreign withholding taxes via a double tax agreement or the EU Interest and Royalties directive, which provides a uniform tax regime for royalties paid throughout Europe.
In addition to tax savings, the elimination of a corporate layer in a different jurisdiction will allow considerable savings to be made in administrative and compliance costs.
The new rules will also enhance the degree of legal and jurisdictional protection, given that the legal and corporate governance affairs of the IP structure will be governed by the laws of Cyprus, so ensuring an increased level of legal certainty, asset protection and predictability.
Cyprus’ wide double tax treaty network and access to the EU Interest and Royalty Directive serve as additional means for the group to achieve tax optimization when it comes to IP exploitation through Cyprus.
Frequent Foundation Facts
No Reporting Requirements or Taxes;
Anonymous Ownership and Control;
The Protector and Beneficiaries need not be publicly registered;
No Capital Requirements;
Directors – Every Foundation must have a council (same as directors of a corporation), whose names and addresses are registered in the public registry. The council members can be either individuals or entities of any nationality and resident of any country. If the council is made up of individual persons, then it requires 3 council members (President, Secretary and Treasurer). If the council is an entity, then only one council member is required;
Nominee Foundation Council – We offer our clients the optional service of using our “Nominee Council” for their Foundation(s). For purposes of confidentiality, most of our clients prefer that we provide nominee council members for their Foundations. When we appoint nominee council members for the Foundations that we establish for our clients, we always provide our clients with pre-signed, undated letters of resignation from the council members so that our client can replace those council members at any time;
Directors or Beneficiaries Meetings – Annual general meetings of council members of the Foundation are not mandated or required. However, if meetings are held, they can take place anywhere in the world by proxy – via telephone, email or other electronic means. Any resolutions passed are valid regardless of whether they are signed on different dates or in different jurisdictions;
Corporate Books – The Registered Agent is not required to keep any records for the Foundation, however, it is recommended that every Foundation should maintain a minute (council meeting) record book, which can be held anywhere in the world;
Convenience – It is not necessary for the interested parties to be present in the jurisdiction of registration for the purpose of establishing a Foundation. We can handle everything for you without your physical presence;
No Business License Requirement to operate internationally;
Legal Address – When registering a new Foundation, it must have a legal physical address that is included in the articles of incorporation. Our firm provides a legal physical address as Resident Agent and Registered Office;
Foundation Tax Information
Most Foundations usually offer the following tax advantages:
No tax reporting requirements.
No income tax.
No capital gains tax.
No interest income tax.
No sales tax.
No tax to beneficiaries.
No beneficiary transfer tax.
No capital tax.
No property tax (for non-Panamanian property).
No estate tax.
No gift tax.
No inheritance tax.
No stamp tax.
No succession tax.
No inventory tax
Advantages of the Foundation
The Assets placed inside a Foundation are sole and separate property and cannot be seized to satisfy any personal judgements or obligations of the founder or the foundation’s beneficiaries. Assets inside a Foundation cannot be attached in order to satisfy any claims against the founder, including judgements for divorce, lawsuit and other liabilities.
The Foundation offers the best of a trust and the best of an offshore corporation.
While the Foundation cannot technically engage in business activities, it can own the shares of a company engaged in business activities. It is also permissible for the foundation to engage in any activity, which will increase the value of assets. This means that a Foundation can be the owner of bank accounts, securities brokerage accounts and real estate holdings.
Since there are no shares of ownership in a Foundation, the founder does not own the Foundation and as such gains important tax reporting and protection benefits with this.
In reality, there are quite a number of practical uses and strategies for the use of a Foundation. As an asset protection vehicle, there is probably no better entity in any jurisdiction at the present time for this purpose.
For more information on how to use a Foundation as part of an overall asset protection strategy, and to hear about ways we have assisted other clients, please contact our office.
Why Global Premier?
What separates us from our competitors is that our services don’t end with the registration of your company. We offer a wide range of additional services others can’t or just won’t offer, such as lifetime free support.
Whilst most providers either specialise on personalized consultation at relatively high rates or run bulk registration factories without any support, we want to offer the positive aspects of both types.
Therefore Global Premier combines professional advice, worldwide registration services, reasonable fees, customized order processing, lifetime support and fast processing. Where others see company formation services as a bulk registration with no support and no individual assistance, we do care about your business needs.
Should you have any question or matter
You would like to discuss or clarify with us
Should you like to receive further Information
About our services and fees, …
Our multi-lingual team of business advisors is happy to assist you with all upcoming questions and issues in relation to your company.
You may call or email us, and we will be happy to assist you in a fast and efficient manner.
You can also come and visit us at our Limassol offices to discuss issues face to face if you prefer. Just arrange an appointment and we will be happy to meet with you.