Total wealth of these Chinese HNWIs increased 1.8 percent year on year in 2011, compared with a 1 percent drop in the overall wealth in Asia.
The Asia-Pacific Wealth Report, jointly issued by the two agencies, is closely monitored by global wealth managers, high-end property agents, luxury goods retailers and other businesses for signs of how and where the region ultra-wealthy are investing and how their fortunes are faring. The report stated that Asia's rich, especially those in China, are looking more to offshore wealth centers in search of wider access to products and services, tax advantages and financial confidentiality.
Chinese people may feel puzzled on how to distinguish between two key offshore structures for the protection of their personal wealth: trusts and private foundations. Although both of them can help protect the individuals against such issues as divorce, bankruptcy and inheritance disputes, they have different origins and legal implications that could largely influence how wealthy Chinese investors accept them. Therefore, choosing a well-established offshore center with deep experience in trusts and foundations may help the emerging Chinese HNWIs to ensure strong legal protections and cost savings in investing their wealth and passing it on.
A doubly landlocked alpine country in Central Europe, Liechtenstein is the world smallest but the richest Germanspeaking country. The country is known as a principality as it is a constitutional monarchy headed by a prince. It is also divided into 11 municipalities. Much of its territory is mountainous, making it a winter sports destination.
Bordered by Switzerland to the west and south and by Austria to the east, Liechtenstein total area is just more than 160 square kilometers and its estimated population is around 35,000. According to CIA World Factbook, Liechtenstein has the world highest gross domestic product per person at US$141,100 (2008 estimated) and one of the globe lowest unemployment rates.
Its political and economic stability, its confidentiality, its excellent infrastructure and its central location in the heart of Europe make Liechtenstein an ideal place for administering and managing companies as well as protecting assets of clients from all over the world.
More importantly, Liechtenstein has a solid financial sector, with the majority of businesses located in its capital, Vaduz. It has been a member of the European Economic Area, an organization serving as a bridge between the European Free Trade Association (EFTA) and the European Union, since May 1995. It is also a member of the European Free Trade Association.
Liechtenstein Special Status
What has made Liechtenstein so important in the history of wealth management is that it was the birthplace of modern foundations. Although trusts, which are built upon British common law, could be traced back to the 12th and 13th centuries, the first private foundations were introduced in Liechtenstein in 1926 when the country enacted The Liechtenstein Person and Companies Act of 1926. Nowadays, both trusts and foundations have strong performance in Liechtenstein, and they should deserve recognition from a growing number of Chinese wealthy who are becoming more comfortable with such instruments in managing individual wealth overseas.
Liechtenstein legal entities areformedunder The Liechtenstein Person and Companies Act of 1926 (the PGR Code), which was - and still is - an important cornerstone of the country rapid and successful economic development. The legislation introduced all the forms of companies known and proven in foreign legislations (such as the Trust) and regulated these company forms very liberally to ensure corporate structure flexibility that best serves the entity and founder wishes, according to ClemensLaternser with the Liechtenstein Association of Professional Trustees, a public-law corporation.
The most commonly used types of entities formed under the PGR Code are the Company Limited by Shares, the Establishment (Anstalt), the Foundation (Stiftung), the Trust Settlement and the Trust Enterprise. The PGR Code led to the establishment of numerous domiciliary and holding companies, which established Liechtenstein as a successfully offshore financial pioneer.
Talking about asset protection and other advantages of Liechtenstein, Mr. Laternser said that the PGR Code and the protection of privacy (guaranteed by several laws e.g. banking secrecy) have laid the basis for a long tradition of asset protection for clients.
The Liechtenstein Trust and Foundation are both important vehicles for ensuring asset protection for clients and both offer the possibility for succession planning. Liechtenstein bank and professional secrecy laws still have an important protective function for legitimate needs of clients regarding their private sphere.
In addition, Liechtenstein industrial and financial sectors take advantage of a unique combination in Europe as the country is simultaneously integrated in the European Economic Area (due to the EEA Agreement) and the Swiss economy (customs and monetary union with Switzerland). With the Swiss franc, Liechtenstein has an exceptionally secure currency.
On the tax front, Liechtenstein's new Tax Act of 2011 is very competitive at the international level and additionally complies with OECD and EU requirements. It provides for all legal entities a flat tax rate of 12.5 % on the net income and the possibility of tax deductions from the taxable net income (4 % of the company's capital) respectively a minimum corporate income tax of only CHF 1,200 per annum.
As for Chinese individuals who are not so clear about the mechanisms and benefits of trusts and foundations, Mr. Clemens made a clear explanation on how Liechtenstein can help clients on the two sectors.
Trusts
As Liechtenstein is the only civil law jurisdiction that has adopted the common law of Trusts, it combines the advantages of the common law Trust with the advantages of the civil law system. The Liechtenstein Trust Settlement attracts considerable interest and is commonly used by clients who come from common law countries. A Liechtenstein Trust is set up by a written Trust Deed (agreement) between the settlor and the trustee(s). With that document, the settler assigns a Trust property to a trustee and imposes on the latter the obligation to administer or use the Trust property in his own name in relation to any person in favor of on ore more beneficiaries. A Liechtenstein Trust is no separate legal entity and no minimum capital is required.
Unlike the English Trust law, Liechtenstein law neither prohibits the accumulation of earnings, nor does it have a "rule against perpetuities" in the sense of a limitation to a certain time. The liberal Liechtenstein company law also allows the formation of Trusts according to foreign, e.g., English or American, law (pursuant to Art. 931 PGR, the foreign Trust regulations to be applied must be expressly listed in the Trust document). The ability to form a Trust in accordance with the familiar law of their own country is especially convenient for foreign settlors as already prepared statutory provisions can simply be adopted.
Foundations
The foundation is an independent special purpose fund that has legal attributes. The assets endowed to the foundation become a separate legal entity and are separate from the private assets of the founder. A foundation has no members and no shares. In Liechtenstein, the minimum capital to be paid up is CHF 30,000, EUR 30000 or USD 30,000.
The formation/establishment of a Foundation takes places by the dedication of funds/assets for a specified purpose. In general the founder is free to choose the purpose. The Liechtenstein Family Foundation is the most popular one whose purpose is to safeguard, manage and conserve the funds of a family and to support family members. Family foundations can also focus on charitably activities. The Foundation is administered by the Board of Foundation and has to consist of at least two members (natural persons or legal entities).
Similarities and differences between Foundations and Trusts.Trusts and Foundations are important asset protection vehicles, offering the possibility for succession planning and ensuring the continuity of the administration of the assets in the event of death of the founder/settler.
Further possible purpose of Foundations and Trusts include:
Securing the economic future of family members
Perpetuating the life's work of the founder/settler
Charitable purposes
Moreover, Liechtenstein legal entities can protect against general political or judicial risks. As mentioned above, in Liechtenstein a Trust can be set up according to foreign Trust law, whereas a Liechtenstein Foundation can only be set up according to Liechtenstein law. Unlike the Trust, the Foundation is a separate legal entity that owns the assets managed by the Foundation Council. The assets of a Trust are under the ownership of the entrusted trustee. For a Liechtenstein Trust no minimum capital is required, whereas the minimum capital of the Foundation is CHF 30'000, EUR 30'000 or USD 30'000.
Conclusion
Wealthy Chinese people are expected to grow more comfortable with trusts and foundations as they gradually learn about them and the ways in which they can maintain both flexibility and control over their assets. As a renowned jurisdiction for asset protection, Liechtenstein can provide a more intense level of service and higher level of advice to meet the particular needs of Asian growing HNWIs.
