In considering whether or not to set up charitable foundations, it is useful to consider the advantages of offshore charitable foundation. Offshore charitable foundation can serve both as an investment and wealth planning tool while accomplishing good in ways which are both legal, and consistent with the noble objectives of an altruistic philanthropist.
Barriers to Entry,A Key Reason to Move Offshore.
Establishing charitable foundations (???) in China often meets a number of barriers to entry and activity. There are extensive documentation requirements to establish such foundations, and the Ministry of Civil Affairs, which registers such bodies, has wide- discretion to deny registration. Charitable foundations in China are required to operate under a system of ual management in which they must generally first obtain the sponsorship of a rofessional leading agency such as a government ministry or provincial government agency, then seek registration and approval from the Ministry of Civil Affairs in Beijing or a local civil affairs bureau, and remain under the dual control of both agencies throughout their organizational life. In practice, it is not easy to obtain such sponsorship, particularly if a social organization lacks good connections in the government or is operating in sensitive sectors such as advocacy, legal aid, labor, religion and ethnic minority affairs.
The ual management requirements and broad prohibition clauses apply to all types of organizations, including social organizations, foundations, and other groups. But the barriers to entry do not end there. For example, the Regulations on the Registration and Management of Social Organizations (1999), the governing document for the largest sub-sector of Chinese nonprofits, also stipulate that applicant organizations must comply with a wide range of other requirements and undergo a lengthy application and approval process. Such applicants must have at least fifty individual members or thirty institutional members; a fixed location; staff with qualifications appropriate to the professional activities of the organization; minimum assets of 100,000 RMB (~$16,000) for national organizations and 30,000 RMB (~$4,800) for local organizations; and must supply the registration and management agency with a wide array of organizational documents. After registration, a charitable foundation may seek approval in a separate process for an official seal and to open a bank account. Separate permissions must be sought from the relevant government management agencies to establish a branch or subsidiary of the group; to modify their registration or to amend their charter; to change their legal representative, and for other purposes. The government is provided with broad discretionary authority to close chartable foundations or other charitable organizations.
There are, however, few barriers in terms of access or operation to international charitable foundations. In general, China has no restriction on how offshore charitable foundations can invest their capital or how they can expend their charitable resources. Such foundations do have to align with the local government when conducting social work, but there are no restrictions or regulatory requirements as regards who they can donate to.
The Ability to Build and Accumulate Capital,another Reason to Move Offshore.
According to Chinese regulations, charitable foundations have to donate 70 percent of their annual surplus, at least 5 percent of their previous year's assets, and pay one- to two- percent tax on their maintained and incremental income of the. If this capital were in an offshore charity, there would be no payout requirement and no tax. Offshore charities funded with after-tax onshore money can grow into multi-billion dollar foundations primarily because of the accumulating power of not having to meet annual disbursement quotas. As such, offshore charitable foundations are more favorable than onshore ones because the appreciated and accumulated value of the investment assets ultimately available for charitable purposes is much greater.
Business Restrictions on Chinese Charitable Foundations
If a charitable foundation engages in business which is not directly related to the charity purposes, it will almost certainly attract regulatory scrutiny from the Ministry of Civil Affairs and unrelated business income tax at corporate tax rates. There are seldom similar problems in offshore charities. Because these offshore charities operate in such low tax jurisdictions, there is no incentive for the regulators to put up tax barriers to charities carrying on business. Many charitable endeavors such as consulting on environmental issues and marketing educational materials in a more economically sustainable manner if they are operated on a business rather than a charity model. The offshore environment enables charities to develop business plans which are funded by revenue producing activities in charitable endeavors so they are sustained year after year without requiring new donations each year.
Given the low tax environment, it will usually be better for offshore charities to own and operate such businesses in for-profit corporations. This is possible because of the combination of low taxes, no excess corporate holdings restrictions and no disbursement quota payout requirements. This business modus operandi also attracts wealthholders who are philosophically opposed to harity because they believe charity creates dependence and reduces the self-worth and initiative of recipients reduced to living on the dole. Offshore charities whose trustees are committed to the philosophy that the only true charity is to give a person gainful employment can implement this philosophy without harassment by Chinese regulators.
Setting up a Charitable Foundation in Seychelles.
A Seychelles charitable foundation must submit a written charter to the Seychelles International Business Authority together with a prescribed fee, and the authority will in turn issue a certificate of registration in relation to the new foundation. The charter must include the names and addresses of each founder of the foundation and details of its initial assets, as well as the name and address of the mandatory registered agent, which must be a Seychelles resident company or individual licensed to act as the registered agent of a foundation. On registration, a Seychelles foundation becomes a separate legal entity. A fee of US$200 is payable to the Seychelles International Business Authority on establishment of a Seychelles foundation and an annual renewal fee of US$200 is payable annually thereafter to the Registry (due on the day before the foundation initial registration anniversary date). Seychelles Foundations are completely exempted from payment of income, capital gains, stamp duty, withholding or any other form of taxation in Seychelles.
Setting up a Charitable Foundation in the Bahamas.
The Bahamas was the first premier Common Law jurisdiction to introduce foundations. The registration process for a Bahamian foundation is comparable to that of a company registration as it is a legal entity which must be filed with the Registrar General of the Bahamas. Like a company, the name of the Bahamian foundation must be reserved at the Registrar General office prior to submission of the necessary documentation. The Registrar will confirm that the proposed Foundation name is valid for use and that the name has been reserved for a period of 90 days. The Foundation charter must contain a statement that the value of the assets of the foundation may not be less than US$10,000 or the equivalent in any other currency. A foundation can only be established by a licensed bank or trust company, or a financial service provider. It is anticipated that in many cases these service providers will also serve as the founder of record. Online registration is available. The fee for the registration of a Bahamas Foundation is US$500; however, the fee can be prorated by each calendar quarter to take into account that foundations are registered at different times of the year. Bahamian foundations are exempt from Bahamian taxes and business license fees, stamp duties (excepting Bahamian real estate taxes) and exchange controls.
Setting up a charitable Foundation in the Isle of Man.
An Isle of Man foundation is established by an application to the Registrar of foundations. The application must include the foundation instrument, which must specify the name, objects, names and addresses of the members of the council and registered agent of the foundation. Changes in these must be notified to the Registrar within one month. The foundation instrument will be a public document; the name of the founder will not be on the public record. Assets are added to the foundation by dedication. A foundation need not have an initial dedication of assets, and assets can be dedicated to the foundation after it is established in which case the details of the dedication must be specified in the foundation rules. Assets are added to the foundation by dedication. An Isle of Man foundation need not have an initial dedication of assets, and assets can be dedicated to the foundation after it is established in which case the details of the dedication must be specified in the foundation rules. In addition, an Isle of Man foundation is capable of exercising all the rights, powers and privileges of an individual. It can accordingly borrow and lend funds, and may grant security over its assets. A loan agreement with a foundation as borrower would be similar to that for a company, in relation to representations, undertakings and events of default; likewise the security documents. Isle of Man foundations benefit from a corporate tax rate of zero percent.
Setting up a Charitable Foundation in Gibraltar.
A foundation is known in Gibraltar as a "company limited by guarantee." To be incorporated in Gibraltar as a company limited by guarantee and to exercise the role of a foundation, an organization must be established in Gibraltar as company limited by guarantee, with a name that finishes with the word "foundation"; the founding documents of the company must state that "the company is devoted to the maintenance, advancement and education of particular families, persons, causes or objects"; the company must be established with a minimum of £2000 ($~3000); the company must also appoint a person in Gibraltar to be known as the Foundation Officer who may also be a director or shareholder of the company. As long as no Gibraltarian or resident of Gibraltar has a beneficial interest in the foundation it can apply for qualifying status or tax exemption.
Setting up a Charitable Foundation in Liechtenstein.
The formation of a foundation in Liechtenstein takes place through the dedication of a fund (the assets of the foundation) for a certain specified purpose. The settlor is usually completely free to choose the purpose. The founder may be a natural person or legal entity of any nationality or residence. The formation of the foundation is achieved by means of an endowment either in the form of a deed or by testamentary disposition. The foundation deed must state the name and residence of the foundation, its objects, the foundation assets, the method of designating the foundation executive and the use to be made of the foundation assets, should the foundation be liquidated. As a general rule a foundation may not be revoked, nor may its purpose be altered unless the foundation deed expressly so provides. The minimum capital of a foundation in Liechtenstein is CHF30,000 (~$32,000). Most Liechtenstein private-purpose foundations are taxed with 0.1 % of their capital and the reserves. The minimum tax is CHF 1,000 ($1,061).
Many benefits to establish a Charitable Foundation Offshore.
Charitable foundations in China face many barriers to entry. Regulatory scrutiny and disbursement requirements make it difficult to retain control on how Chinese charitable foundations are fun. As such, offshore charitable foundations offer the chance to build and accumulate capital and retain control over when funds are disbursed. As there are significantly less barriers to offshore charities operating in China compared to onshore ones, establishing charitable foundations offshore is a worthy consideration.
