The charter of the foundation is a public document and governs general topics like the name of the foundation, its seat and whether it is revocable or irrevocable and whether the founder has foreseen the possibility to amend the charter of the foundation or not.
The important details like
• the names of the beneficiaries,
• the payments which have to be effected to the beneficiaries and
• the total amount of assets endowed to the foundation
are included in the non-public by-laws.
The founder can denominate any beneficiary he thinks of and can, denominate additional or new beneficiaries whenever he likes to do so.
What happens after the founder has deceased ?
One of the major benefits is, that the death of the founder does not have any impact on the situation of the foundation, neither taxwise nor otherwise.
When the founder has endowed his assets to the foundation they become legal property of the foundation and therefore will not form part of the accrual left for the heirs. Logically there is nothing left to be inherited and as a consequence there is also no inheritance tax coming due. Rights embedded in the position of being a founder cannot be inherited according to Austrian law.
The non-public by-laws of the foundation usually foresee, that after the founder has died those individuals or corporate entities or associations whom he has foreseen in the non-public by-laws will become beneficiaries.
Becoming beneficiary of an Austrian private foundation does not trigger any inheritance tax or estate tax.
The rights of the founder
The rights of the founder of an Austrian foundation are very far reaching:
• he selects the first board of management
• he can amend the charter and the non-public by-laws at any time
• he can determine how much is paid to whom and when
• he can determine what happens after he has died
• he can give guidelines to the management board of how to invest and into what
• he can revoke the foundation at any time
• he can determine additional or new beneficiaries at any time
The Austrian Private Foundation Act governs that the foundation has to have a minimum of corporate bodies, which are:
• the management board
and
• the auditor
The management board
The first management board is selected by the founder, otherwise the court nominates the board, but only, if the founder has not foreseen a different regulation in the charter.
Auditor
Law determines that the annual accounts have to be audited by a Certified Public Accountant every year. Furthermore every member of the foundation's board has the right to request such an extraordinary audit by lodging such a request with the competent court.
Taxation of a foundation
Domestic Austrian tax law foresees a tax exemption on domestic and foreign dividends as well as on domestic and foreign capital gains resulting from the sale of shares in other companies. To some extent also interest income can be achieved tax-free with the help of a foundation.
The minimum capital which has to be endowed to the foundation is € 70.000,--, which of course can be used for investment purposes later on and is not locked up.
The net asset value received by the foundation when it is established is exposed to only a one-time 2.5 % tax.
There is
• no net worth tax
• no gift tax
• no inheritance tax
levied on the foundation or the settlor or the beneficiaries.
Taxation of the beneficiaries
In case of non-resident beneficiaries living in non-treaty countries payments made to such beneficiaries are due to a 25 % withholding tax at source.
Provided such a beneficiary is living in a treaty country the relevant tax treaty regulations have to be applied.
The general rule is that payments from foundations are considered as other income and therefore only taxable in the country where the beneficiary is resident, if at all. This is the case in the majority of the 88 tax treaties Austria currently has with other countries. Only in case of a treaty with a country, which does not have an extensive definition of dividend income in Art 10 of the very tax treaty, the right to levy taxes upon such payments is left in Austria. Nevertheless in almost all cases of such treaties the withholding tax is significantly reduced, ranging between 5 % and 15 %, whereby the recipient of such a payment will be granted a foreign tax credit in his home country.
Conclusion
Using an Austrian private foundation can lead to enormous advantages not only taxwise but also be very helpful in preserving and protecting assets and net wealth for a family.
Furthermore an Austrian foundation might open ways to avoid problems concerning formalities of a will or claims of spouses or other family members in case of an inheritance.
Together with a generally friendly tax climate in Austria the Austrian Private Foundation is a perfect tool for
• dynastic wealth planning
• managing wealth tax-free
• preserving assets for a family
• Sharia compliant structures
• legally avoiding income tax and inheritance tax burdens
I may therefore invite you to go the Austrian way, it pays off !
Vienna, August 2011
