Liechtenstein’s foundation migration
New tax legislation applicable to legal entities including foundations came into effect in Liechtenstein in 2011. Entities taxable in Liechtenstein due to their domicile or place of management became subject to tax at a rate of 12.5 per cent on their taxable earnings. Meanwhile, entities that were only engaged in asset management and did not perform commercial activity could elect to be treated as a private asset structure (PAS) and were required to pay the minimum rate of CHF1,200 per annum. The window for applying for PAS status closed at the end of 2013. It was this tax change which prompted a flurry of Liechtenstein foundations to migrate to Jersey.
Migrating a foundation into Jersey
In Jersey, since the Foundations (Continuance) (Jersey) Regulations 2009 (the Regulations) came into force in mid-2009, it has been possible to apply to the Jersey Financial Services Commission to continue a ‘recognised entity’ as a foundation in Jersey. A ‘recognised entity’ is a body corporate incorporated or established outside Jersey that is within a class of bodies corporate designated by the Chief Minister of Jersey as recognised entities. These currently include, inter alia, Liechtenstein Stiftungs and Liechtenstein Anstalts.
The application to continue a recognised entity as a foundation in Jersey must be made by a ‘qualified person’, i.e. essentially a Jersey provider licensed to provide foundation services. Under the Foundations (Jersey) Law 2009, the name of the foundation must end with the word ‘Foundation’ (or a foreign equivalent), the foundation must have a charter and regulations (a public and private document, respectively), and it must also have a guardian and a council, the latter to include a ‘qualified member’, i.e. again, a locally licensed provider. Notice of the proposed incorporation must be published 28 days prior to the application being submitted and individual notices must be sent to creditors with claims exceeding GBP5,000, giving creditors the opportunity to apply to the Royal Court of Jersey for an order restraining the proposed incorporation. If the foundation were to be insolvent on its incorporation in Jersey, then an Act of the Royal Court must be obtained, stating that the incorporation of the recognised entity as a foundation would not be prejudicial to the interests of its creditors.
As the applicant must certify that the laws of the jurisdiction in which the recognised entity is established or incorporated do not prohibit the application, it is usual to obtain a legal opinion from a lawyer qualified in the law of the originating jurisdiction in support of that certification.
Upon a successful application, the details of the foundation and date of incorporation will be entered in the Jersey register, and the foundation issued with a registration number. The entry in the register of the name of the foundation is conclusive evidence that, on the relevant date, the recognised entity was incorporated as a foundation. The property and rights to which the entity was entitled immediately prior to incorporation as a foundation continue as the property and rights of the foundation. The foundation then becomes subject to any criminal and civil liabilities and any contracts, debts and other obligations to which the entity was subject immediately before incorporation.
Ensuring efficient migration
It would appear that the migration process has proved generally straightforward, although factors that impact on how quickly it progresses are, for example, whether the foundation adopts a new Jersey-law-compliant charter and regulations, or whether bespoke amendments to the existing statutes are made to bring those into line with Jersey law. Timing-wise, it is useful to have direct contact between the Jersey and Liechtenstein lawyers and, of course, deadlines such as that referred to above help to drive the process. It seems that the closing of the window for PAS applications will not necessarily see an end to the flow of foundation business from Liechtenstein, as clients may well wish to domicile their foundation in a tax-neutral jurisdiction.
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