Private foundation

Private Foundations

Advantages
• Protect the assets
• Hold together the assets
• Eliminate death taxes and duties
• Determine who will be entitled to the assets
• Detailed charter of the foundation is more effecient than a will

If remarkable wealth has been accumulated, the owner has a to concern with how this wealth could be preserved for future generations.
A private foundation can hold together and protect the assets owned by businessmen and their families for future generations.
The founders may have in mind the wealth their family members have accumulated over the years or the long-term operation of their business, but they may also establish a private foundation to ensure that their assets are properly managed and, of course, that their future subsistence is assured.
An unexpected death should occur, the heirs, who may not yet be ready or lack the experience for managing the assets, or whose lifestyle is unacceptable for the founder, will not run down their inheritance too soon.

Private foundations can effectively manage more complex investment portfolios that can accumulate in market economies too. The assets of a private foundation can be removed from the inheritance cycle, which means that death taxes and duties can also be eliminated.
The board of trustees of the private foundation manages the assets and makes sure that the provisions of the charter and the founder are observed.
The foundation can provide security for the assets since the system of payments and support and the associated conditions and guaranties can be freely adjusted.
In order to reach the goals, the detailed charter of the foundation makes it possible to provide for the assets in a much more complex and flexible way than in case of a will.
The founder of the private foundation can precisely determine, even for several generations, who will be entitled to the assets and under what conditions or to a particular part of the property as well as the benefits stemming from the income generated by it.

The type of the foundation can be:
• ordinary
• exempted
The founder can be neutral person, or legal entity.

 TAX FREE COMPLETELY
By using offshore private foundations registered in St. Kitts and Nevis,  assets and money can be managed tax-free. This tax-planning structure became more and more popular in these Caribbean countries since 2004.
There is no personal income tax in St. Kits and Nevis, so neither the founders nor the beneficiaries have to pay taxes after money or assets they take in or take out from the foundation.  If the foundation is an Exempted foundation, than it doesn’t need to pay fees after the properties handed over for the foundation, or took out from it, as long as the property is not located in the country.  Transactions of securities are also free from taxes. There is no capital income tax in St. Kitts, so the founder and the beneficiaries are also free from the taxation as well.
The goal of the offshore private foundation is serving the interests of the beneficiaries. The members of the advising board are supposed to inform the beneficiaries and handle the assets of the private foundation effectively. It is possible to appoint supervisor over the foundation, to ensure that everything is going according to the founder’s will. This supervision can be done by the founder or the beneficiaries, but a member of the advising board can’t be supervisor.

Advantages of the St. Kitts private foundations
• Complete discretion and anonymity for the beneficiaries
• Tax exemption for the private foundation as long as its connections are not residents of St. Kitts and Nevis.
• No necessary specified minimum found
• Inheritance laws do not affect the goals and activities of the foundation
• Low costs of registration in St. Kits
• It’s possible to migrate private foundations registered in other countries
• The management and assignation of the assets of family members,
• Inheritors, and children are simple and flexible.

Founding process of an offshore private foundation in St. Kitts and Nevis:
• The memorandum has to be handed over to the appointed bureau. (Register of Foundations).
• From the registration the foundation is a separate legal entity, who can collect and keep different assets on its own name.
• Necessary information for the registration:
• The name and address of the private foundation
• Naming the initial assets. The founder must pass the initial assets to the foundation after the registration.
• A declaration about the actions of the advising board, in case of the tax exempt status of the private foundation breaks off

A number of factors have contributed to Malta’s rapid growth in the sector, including the approachability of the Malta Financial Services Authority (MFSA), Malta’s single regulator for financial services, and the high regulatory standards that the jurisdiction adheres to. Malta’s appeal is also enhanced by its highly skilled workforce, multilingualism, extensive tax treaty network, and reliable IT infrastructure.
This document is intended to assist you in setting up your fund in this sophisticated and well established financial centre. We will guide you with respect to:
• Choosing the most suitable fund vehicle for your start-up
• Your start-up solutions
• Legal, regulatory & tax overview
• How we can help you
• Our Fees & MFSA costs
Choosing the most suitable fund vehicle for your start-up
The first question to ask when setting up a fund is ‘who are my intended investors’?
This document is tailored for managers looking to run alternative investment strategies that are more suitable to investors having a certain degree of sophistication or institutionalization. If you are looking market your fund to retail investors please notify us and we will send our retail funds start-up guidance document which providers information on the set-up of UCITS and non-UCITS retail funds in Malta.

In the non-retail sphere, Malta offers two different fund products:
• Alternative Investment Funds or AIFs
• Professional Investor Funds or PIFs
AIFs are funds that are established in adherence with the EU’s Alternative Investment Fund Managers Directive (AIFMD).
PIFs are funds that are established in adherence with Malta Professional Investor Funds rules. The PIF is the typical vehicle employed by start-up managers, offering a low cost base and significant flexibility.
PIFs vs AIFs Comparison table

Types of PIF

As a start-up manager it is likely that the PIF regime is better suited for your current needs. You can ‘graduate’ to the AIF regime at a later stage as your AuM grows; although of course if you expect to start with an AUM of EUR 100 million or thereabouts it is more sensible to opt for the AIF regime at the outset. There are three types of PIF, distinguished by the sophistication of the investor to whom they may be marketed.
A PIF may be promoted to Experienced Investors, Qualifying Investors, or Extraordinary Investors, in ascending order of professional knowledge and financial means of the investors. PIFs promoted to Extraordinary Investors are subject to considerably less regulation due to the nature of their customers.

PIFs promoted to Experienced Investors
An “Experienced Investor”, is a person having the expertise, experience and knowledge to be in a position to make his own investment decisions and understand the risks involved.
An investor must state the basis on which he satisfies this definition, either:
1. by confirming that he/ she is:
• a person who has relevant work experience having at least worked in the financial sector for one year in a professional position or a person who has been active in these type of investments; or
• a person who has reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile, or property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates;
• a person who has made investments amounting to EUR100,000 or USD100,000 within the past 2 years at an average frequency of 3 per quarter; OR
2. by providing any other appropriate justification.
Persons who qualify as ‘Professional Clients’ in terms of the MIFID, automatically qualify as ‘Experienced Investors’.
In the case of ‘joint holders’, all holders should individually satisfy the definition of ‘Experienced Investor’ outlined above or jointly make investments amounting to EUR200,000 or USD200,000.
In relation to investments made by an entity holding on a nominee basis, the underlying investors considered to be the beneficial owners must individually satisfy the definition of “Experienced Investors”.

PIFs promoted to Qualifying Investors
 A “Qualifying Investor”, is required to meet one or more of the following criteria:
1. a body corporate which has net assets in excess of EUR750,000 or USD750,000 or which is part of a group which has net assets in excess of EUR750,000 or USD750,000;
2. an unincorporated body of persons or association which has net assets in excess of EUR750,000 or USD750,000;
3. a trust where the net value of the trust’s assets is in excess of EUR750,000 or USD750,000;
4. case of a partnership its General Partner who has reasonable experience in the acquisition and/or disposal of :
4.1 funds of a similar nature or risk profile
4.2 property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates
an individual whose net worth or joint net worth with that person’s spouse, exceeds EUR750,000 or USD750,000;
5. a senior employee or Director of Service Providers to the PIF;
6. a relation or close friend of the promoters limited to a total of 10 persons per PIF;
7. an entity with (or which are part of a group with) EUR3.75 million or USD3.75 million or more under discretionary management, investing on its own account;
8. the investor qualifies as a PIF promoted to Qualifying or Extraordinary Investors;
9. an entity whether body corporate or partnership wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.

In the case of ‘joint holders’, all holders should individually satisfy the definition of “Qualifying Investor”.
The minimum investment requirement is EUR75,000 or USD75,000. The ‘per scheme’ minimum investment requirement may be applied by umbrella PIFs promoted to Qualifying Investors as well. Similarly, any Qualifying Investor must complete the “Qualifying Investor Declaration Form” in which the investor confirms that he/she has read and understood the mandatory risk warnings and describes why he/she is a “Qualifying Investor” before the PIF can accept the investment.

PIFs promoted to Extraordinary Investors
 An “Extraordinary Investor” is required to meet one or more of the following criteria:
1. a body corporate, which has net assets in excess of EUR7.5 million or USD7.5 million or which is part of a group which has net assets in excess of EUR7.5 million or USD7.5 million;
2. an unincorporated body of persons or association which has net assets in excess of EUR7.5 million or USD7.5 million;
3. a trust where the net value of the trust’s assets is in excess of EUR7.5 million or USD7.5 million;
4. an individual whose net worth or joint net worth with that person’s spouse, exceeds EUR7.5 million or USD7.5 million;
5. a senior employee or Director of Service Providers to the PIF
6. the investor qualifies as a PIF promoted to Extraordinary Investors;
7. an entity whether a body corporate or partnership wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.

In the case of joint holders, all holders should individually satisfy the definition of “Extraordinary Investor”.

The minimum investment requirement is EUR750,000 or USD750,000. The ‘per scheme’ minimum investment requirement may be applied by umbrella PIFs promoted to Extraordinary Investors as well. Similarly, any Extraordinary Investor must complete the “Extraordinary Investor Declaration Form” in which the investor confirms that he/she has read and understood the mandatory risk warnings and describes why he/she is an “Extraordinary Investor” before the PIF can accept the investment