Foundations vary hugely from country to country and it is difficult to provide an overall summary since there are fewer common threads which draw them together than in the case of other legal vehicles such as companies and trusts. Accordingly more detail is provided in the country specific entry for each type of foundation. Foundations can generally be seen as somewhere between a trust and a company. They have legal identity separate to their founders and will generally be administered by either a single administrator or a board (or council) of administrators for the benefit of their beneficiaries (who may be nominated or identified as a class of persons) and/or a philanthropic cause. In most countries they are restricted in that they cannot directly engage in commercial activity, though they can usually own subsidiaries which do so. In some countries they may be required to have at least some charitable aspect but this is by no means the norm.Foundations are usually divided into charitable (sometimes called purpose foundations) and private. Most sophisticated legal systems allow for some form of foundation and they are considerably well established in the civil law systems with some commentators tracing their roots back to ancient Greece or Rome. Foundations are widely used in estate planning (especially in countries which do not recognise trusts or where the application of trust law is uncertain). Foundations are also less associated with tax avoidance than trusts so they may attract less scrutiny from tax authorities.

Separate Legal Personality
Foundations have their own identity, they can own property in their own name and open and operate bank accounts. This is an important difference from the trust which does not have its own legal identity and instead is a contractual relationship between trustee and beneficiaries. This separate identity and the resulting lack of intermingling with trustees assets (as may be the case in a trust) given the relatively less flexible legal treatment of foundations make them more popular than trusts in many cases and especially in civil law systems.

Ownership and Management
Foundations are established by a founder.The role of the founder is only relevant to first formation but the founder may wish to continue to be involved in the ongoing administration of the foundation in some capacity. Foundations do not have identifiable owners, rather their benefit is enjoyed by the beneficiaries. In the case of private foundations with a nominated list of beneficiaries the owners for money-laundering reporting purposes may be held to be the beneficiaries but the situation is more complicated where there are no nominated beneficiaries or where there is discretion about whether nominated beneficiaries will receive anything from the foundation. This lack of identifiable owners may have the advantage of achieving a greater degree of privacy and anonymity than is possible with a limited company but may make banking difficult since banks will generally need to satisfy themselves of the identity of underlying beneficiaries (except in the case of genuinely philanthropic foundations). Foundations are managed by an administrator or a group of administrators (sometimes called council of administrators) who may be supported by a protector (a role which varies greatly from country to country and may be specific to the drafting of each foundation). The scope of their activity, their appointment, removal and replacement and the reporting and operation of the foundation itself is usually specific to the foundation in question. In general terms the administrator must administer the foundation in accordance with the wishes of its founder as they are set out in the constitutional documents and any “letter of wishes” or similar document as may be permitted in the country where the foundation is registered.

Use In Avoiding Controlled Foreign Corporation (CFC) Rules
Most countries attempt to some degree to tax and regulate  foreign entities which they feel are being used to avoid tax due to them or which they feel falls within their remit due to being operated within their borders. The principle basis for these rules is the location of the management; specifically where the directors spend the majority of their time. Therefore a foundation incorporated in country A may also be taxable in country B if the administrators spend most of their time there. Where foundations are taxable in more than one country there may be dual taxation arrangements in place however if one of the countries is a low or no tax area this is likely to defeat the tax planning reasons for which the foundation was established. Various methods have been used to attempt to avoid this situation with different degrees of success. The method of simply holding meetings in the country of incorporation is, for example, likely to be ineffective in almost all cases. The method of appointing local administrators where the foundation is registered may, if operated properly, be effective in avoiding CFC rules based on management alone. More sophisticated anti-avoidance rules may seek to attack a foreign entity on the basis of a lack of substance or that it is wholly or mainly artificial and therefore should be ignored for tax purposes. For information on establishing substance please see our main article on buisness incubation. More sophisticated systems may also base taxation of companies not simply on their management but also on their ownership and voting rights on the basis that the shareholders having the right to appoint and remove the board of directors are effectively in control of the company. Since foundations do not have owners they may be extremely effective in avoiding anti-avoidance rules of this nature provided they are properly administered.

The reporting requirements for foundations vary hugely from country to country and depends on what type of foundation has been registered. In general it has broadly the same reporting requirements as a company, specifically the preparation of an annual return and the preparation of some form of accounts which may need to be audited.

Limits on Operation
Whilst foundations cannot generally be used for commercial trading purposes they may be suitable in place of a holding company and they may enjoy a more favourable treatment in Civil Law countries where trusts are not recognised, not fully understood or strongly associated with tax avoidance. Also they may afford a greater degree of privacy and anonymity than a holding company if correctly structured. Finally they are also useful for benefiting charitable purposes and for estate planning.

Use in Estate Planning/Asset Protection
Since foundations can in theory continue indefinitely they are widely used for estate planning and afford a much greater discretion than is possible with a will alone. They may also be used for asset protection purposes such as to keep family estates intact or to limit the right of spendthrift heirs to capital. In this way they are very similar to trusts but since they are registered entities (unlike trusts) they may be treated more favourably by courts in civil law jurisdictions where a trust may be treated with suspicion, lack of understanding or ignored entirely.

Charitable Purposes
The main purpose of foundations is philanthropic and they are widely used as a form of charity to benefit either a class of person or to achieve social purposes. In this regard they are wider in their application than trusts which are generally limited to either identified or identifiable beneficiaries and generally are not suitable for a purpose without beneficiaries.



Hybrid Company

Where a holding vehicle is intended to avoid Controlled Foreign Corporation (CFC) anti avoidance rules based on ownership (rather than management alone) an alternative to the foundation is a Company Limited by Guarantee which has members who instead of holding an asset (such as shares) hold an obligation to provide funds to the company in the future if requested. Sometimes these companies are structured with both shares and guarantee members (sometimes referred to as ‘Hybrid Companies’). Also since this obligation extinguishes on death so the ownership of the company may not form part of the shareholder’s estate on death, making them useful as an alternative to trusts and foundations as an inheritance tool.

Private Company

For trading a limited company is the appropriate vehicle and in most cases it will also be the most appropriate holding vehicle. Their strength lies in their international recognition, well established legal certainty regarding their operation and their great flexibility both in their operation and distribution of profits.


Trusts are essentially identical to foundations in their aim and operation however they do not have a separate legal identity (the assets under trust are the property of the trustee and this may lead to intermingling of trust and private assets). The law surrounding trusts is not codified to the same extent as foundations making their operation generally less certain especially in countries which do not recognise trusts or having recognising them fail properly to implement them. Trusts are generally as appropriate as foundations in common law countries (such as England, the US and the former areas colonized by the British) but the foundation is preferable in civil law countries such as continental Europe. Finally trusts are generally not a suitable alternative to a foundation in cases where a specific aim must be realised but without readily identified beneficiaries, such as a disaster relief fund.