There has seldom been a worse time to be a wealthy person in France. Since taking power Francois Hollande has imposed several new tax laws specifically targeting wealthy individuals. It is no surprise that as a result of this systematic attack many wealthy French nationals have fled their homeland and even more have moved their assets outside of France.
But short of becoming a Russian citizen, are there any structures French nationals can legally use to shelter their hard earned wealth from Hollande and his percepteurs? The answer may lie in a 100 year old solution; a Foundation.
What is a Foundation?
The origins of Foundations can be traced back 100 years to Western Europe. It was around this time that Liechtenstein began using them for estate and asset planning. Since that time they have become popular around the world, especially in civil law jurisdictions such as France, where the use of Trusts is often not an option.
A Foundation is a separate legal entity, without members or shareholders, and is generally established to reflect the wishes of its founder, who may be an individual or a corporate entity.
As an incorporated entity, a foundation can transact in its own name but it has no ‘owner’ as such, so the founder cannot be liable for its debts.
However, the founder can retain a great deal of control over the assets of a foundation, especially when compared with the settlor of a trust. Furthermore, foundations can exist in perpetuity unlike trusts.
Why use a Foundation?
- Recognised in Civil Law Jurisdictions (France, Holland and many countries in South America)
- Excludes forced heirship
- Full legal capacity and title – removes trust-related concept of ‘dual ownership’ by the legal owners and the equitable owners
- Limited public filing requirements
- Beneficiaries can be named on establishment or at a later date
- No initial assets required on establishment
- Limitation on liability – a foundation is a separate legal person, meaning that all liabilities remain liabilities of the foundation and do not attach to foundation members
- Flexibility and control – the founder can be a member of the foundation council and reserve powers to themselves, be a beneficiary or an enforcer of the foundation
- No perpetuity period – allowing a perpetual arrangement for the management of wealth
- Suitability for planning – ideal for controlled management of assets and careful provision for families
Isle of Man Foundations
Foundations began in Western Europe and are particularly widespread in countries such as Belgium, Lichtenstein and Luxembourg. The Isle of Man is a recent addition to this list and has some key features that we believe make it the perfect choice.
Advantages of the Isle of Man
The Isle of Man has an international reputation as a responsible and co-operative tax neutral jurisdiction and appears on the OECD ‘white list’ of countries complying with the global standard for tax co-operation and exchange of information.
Some other benefits of the Isle of Man:
- High regulatory standards
- High service levels and quality international reputation
- Professional infrastructure with well-established and experienced corporate and trust services industry
- Standard & Poor’s AA+ and Moody’s AAA rated jurisdiction
- Clear and simple tax regime
- Stable legal and political environment
Isle of Man Foundations
The Isle of Man has long been established as one of the premier destinations for the structuring, administration and preservation of private wealth. However, as a common law jurisdiction, trusts and companies have traditionally been the favoured vehicles for wealth management. This changed with the introduction of the Foundations Act 2011 and has placed the island at the top of the list against its peers.
The Isle of Man Foundation is designed to blend the highly attractive features of both Isle of Man companies and Isle of Man trusts. It provides a suitable alternative to companies and trusts as a financial planning vehicle for wealth management and charitable purposes.
The Isle of Man Foundation is an entirely new type of Isle of Man legal entity and is not an exact equivalent or copy of any foundation established in any other jurisdiction, as it has been modelled on the best features present in the laws of other jurisdictions, tailored to suit the Isle of Man.
Isle of Man Foundations allow the founder the maximum possible freedom of choice while at the same time ensuring that the structure is not susceptible to abuse for money laundering or terrorist financing purposes.
Taxation
A foundation is treated on the same basis as a company for Isle of Man tax purposes. The current standard rate of corporate tax is 0% for all income other than income received from banking business or land and property in the Isle of Man, where income is taxed at 10%.
Fees
In some jurisdictions the high fees and ongoing costs of a Foundation can be a big barrier to their creation and use. This is another area where the Isle of Man represents real value to a client.
The fees for creating and running a Foundation will vary slightly depending on the individuals situation and the assets that are placed inside it. However, at the base level the Isle of Man is significantly cheaper than other jurisdictions such as Belgium. Roughly speaking a Foundation can be created on the island for €5,000 and maintained for only €3,000 per year.