Offshore foundations have for several years proven their usefulness in providing privacy to persons and corporations that seek means of protecting their assets in one way or the other. Contrary to Common Law countries where Trusts are the structures used for this purpose, offshore foundations were once peculiar to countries where civil law is practiced, such as Liechtenstein.
The uses of foundations may vary according to the basis on which they are set up, such as in the case of Private or Public Foundations and Ordinary or Exempt Foundations. Some offshore foundations are set up solely for guarding personal interests, for charity, protecting corporate interests or strictly family possessions. Other people may just require an offshore entity that provides a relatively high level of privacy when doing business such as managing offshore bank accounts and international market investments, which can be both done by the offshore foundation without having to reveal the identity of anyone who is involved in the foundation.
The concepts of foundations and trusts have often been confused or even been used interchangeably by persons who thought that the two structures were the same. However, although offshore foundations and trusts both serve the same purpose with regards to providing privacy, shielding wealth and managing assets, offshore foundations and trusts reveal fundamental differences in structure. For example, an important aspect of an offshore foundation that clearly distinguishes it from a trust is the fact that absolutely no one has claims over a foundation’s assets and unlike a trust there is no one owns a foundation. From this point of view, offshore foundations tend to provide a much stronger vehicle for protecting assets from litigation and claims. Trusts are also restricted by a limited period of time after which the assets held in a trust are required to be transferred to a beneficiary, whereas, an offshore foundation has a perpetual lifespan. Both structures, however, are ideal for avoiding transfer tax, since assets such as real estate, for instance, held in either a trust or foundation can be transferred by simply making the inheritor of the assets a beneficiary to the foundation or trust.
In recent times the use of offshore foundations has been more widespread in jurisdictions which traditionally would provide offshore financial services such as offshore company incorporation and offshore banking facilities. The addition of offshore foundation legislations in jurisdictions such as Anguilla (2008) and St. Kitts (2004) was done in an attempt to meet the international market demand for corporate structures that would provide a secure and trusted means of asset protection in an increasingly globalised world. The formation of offshore foundations in these jurisdictions improves their level of competitiveness on a global scale in rendering premier offshore services, while establishing laws that would provide a secure legislative framework for locally registered offshore entities. In Panama, for example, Panama offshore foundations are widely available and are popular used as a result of Panama’s strict privacy laws.
Offshore foundation laws may differ from one offshore jurisdiction from another, although the laws governing the functioning, structure and formation of offshore foundations are quite the same. Offshore foundations all have the same basic structure comprising of a founder, the person or corporation forming the offshore foundation, a foundation council – which administers the foundation’s assets according to the founder’s desires; and the foundation beneficiary – the individual(s) or corporation that inherits or acquires the assets belonging to the offshore foundation. The wishes of the founder of an offshore foundation are put forth in a foundation charter which contains the offshore foundation’s by-laws as well as the founder’s wishes. In jurisdictions such as St. Kitts, offshore foundations are required to have a secretary. A basic feature of offshore foundation law is that all offshore foundations are required to be administered in the best interests of the beneficiaries and formed in accordance with the offshore formation laws of the jurisdiction where the foundation is incorporated.
It is also seen that different jurisdictions may add and highlight special features that give their offshore foundations competitive edge. For instance, in Nevis, a small Caribbean nation forming part of the Federation of St. Kitts and Nevis, established a peculiar offshore foundation, which is called the Nevis Multiform Foundation. Offshore foundations in Nevis acquired this due to their high degree of flexibility and mobility in being capable of continuing to Nevis, seeking domicile out of Nevis and merging with other corporations to form a Nevis offshore foundation.
Currently, selecting an ideal well regulated yet private offshore jurisdiction for forming an offshore foundation or any other entity is important. This is a result of the pressure applied by institutions such as the Organisation for Economic Cooperation and Development (OECD) in combating fraudulent financial activities has compelled many jurisdictions to reinforce their respective offshore laws and measures that prevent offshore entities from being exploited by some individuals and corporations. For example, the EU Tax Savings Directive, which was established in 2005, is one of the measures that offshore jurisdictions within the EU including their dependencies were required to implement. Although offshore foundations and other entities are not directly affected by the directive, strict information exchange agreements were put in place.
Offshore foundations originated in Liechtenstein and were used as early as the early twentieth century. The benefits of offshore foundations were sought by people and companies from around the world that needed a corporate tool that would help to protect wealth. Offshore foundations are formed by families seeking a secure way of maintaining family estate while passing it on from one generation to the other. Offshore foundations ensure that the assets held in the foundation are distributed according to the founder’s wishes.
Offshore foundations are trusted offshore entities in that they are independent legal entities that are capable of entering agreements, opening and managing bank accounts, making investments and holding assets for long periods of time. The assets held in an offshore foundation cannot be claimed by anyone, not even its founder, since the only way that assets can be transferred or removed is through the due transfer of those assets to the beneficiaries of the foundation at a stipulated point in time.