Establishing Foundations in Switzerland: A Guide

The Making of a Foundation

A foundation is an independent legal entity consisting of assets permanently dedicated to a specific purpose. It has no owners or shareholders and has its own legal rights and obligations. The foundation determines its purpose with considerable flexibility, which is then binding for the foundation board and can only be changed with the consent of the Swiss Federal Supervisory Authority for Foundations (FSAF) and to the extent that the foundation is tax-exempt, the consent of the competent tax authority.

Foundations established in Switzerland can be divided into:

• Charitable foundations
• Religious foundations
• Employee benefit funds (pension funds)
• Family foundations
   

Charitable and religious foundations as well as employee benefit funds are generally tax-exempt, whereas family foundations are not. Tax-exemption is granted by the competent tax authority on request, if certain legal conditions are met. An exempted foundation is not liable for gift, inheritance, profit and capital taxes.

Please note that the Swiss Federal Counsil was commissioned by Parliament to prepare a legislative proposal aimed at improving the conditions for family foundations. Below, we concentrate on charitable foundations. Should you require information on other foundation types, please contact us directly.

The Charitable Foundation

The essence of a charitable foundation lies in its purpose, which can be philanthropic, social, cultural, or scientific. Such foundations are not allowed to serve private interests or focus on profit. While they are typically established by one or more private individuals, companies or the public sector can also establish foundations. 

In contrast, family foundations pursue an economic purpose. They are designed to preserve family assets and/or provide financial support to family members. 

Requirements for Establishing a Foundation in Switzerland

Founders have flexibility in naming the foundations; however, its formation is subject to specific legal provisions, in particular Articles 80 to 89c of the Swiss Civil Code (ZGB), which must be complied with upon establishment: 

• Foundation Purpose: The purpose of a foundation is freely determinable, but it must not be unlawful or indecent. 
• Relationship between Purpose and Assets: The assets of a foundation are permanently dedicated to a specific purpose, and there must be a reasonable relationship between them.
• Initial Capital of CHF 50,000.00: According to the practice of FSAF, an initial capital of CHF 50’000.00 is required. If not provided at the time of establishment, the foundation must provide proof of sufficient contributions to FSAF at a later stage.
• Inter Vivos or Mortis Causa: The foundation may be established during the founder’s lifetime by a public deed or by a will or a contractual inheritance agreement. In practice the setup during the founder’s lifetime is more advisable to shape the culture and practice of the foundation and additional funds may be provided to the foundation after the founder’s passing. 

The deed determines the foundation’s purpose, the initial capital dedicated to this purpose, the foundation’s name, the organizational structure, and the administration. While these legal requirements may seem straightforward, it is advisable to consult an expert for clarification and the drafting of the relevant documentation. 

When establishing a charitable foundation, the wording of the charitable purpose must be sufficiently clear, but at the same time enough future-oriented, since this purpose can later only be changed with supervisory and tax authority’s consent. For the granting of tax-exemption, the articles of the charitable foundation must provide for an exclusive use of the dedicated assets and the non-refund of the contributed assets to the founder must be ensured.

KENDRIS established numerous foundations under Swiss law. Contact us for a non-obligational conversation to learn more about our services.

Costs for Establishing and Operating a Foundation

When establishing and operating a foundation in Switzerland, both one-time and recurring costs are incurred:

One-time Costs: These include the fees for the foundation’s establishment, such as notarial costs for the public deed, registration costs for the commercial registry, as well as consulting fees. Consulting is beneficial for the wording of the articles, particularly to set the charitable purpose, ensuring tax exemption, and determining the foundation’s organization.

Recurring Costs: These include administrative costs, accounting and auditing costs, and expenses for fulfilling the foundation’s purpose. Foundations must also comply with the requirements of the FSAF, which results in generally bearable reporting and monitoring. Professional management by a partner ensures transparency and predictability of costs.

Auditor, Regulator and Tax Authority

Once established, the foundation is subject to an audit of the annual financial statement. Furthermore, a report including the annual financial statement has to be produced and filed to the regulator, i.e. to the Swiss Federal Supervisory Authority for Foundations (FSAF). The tax authority of the canton in which the foundation is registered may request information and documentation to verify eligibility for the tax exemption.

The audit of the financial statement by an external auditor and the supervision by the regulator ensure – also and especially in the long term – that the foundation’s assets are used in accordance with its specific purpose, that the legal requirements are met, and that the foundation is properly managed and administered. Professional support can help you meet these requirements efficiently and legally.

Advantages and Disadvantages of Establishing a Foundation

Establishing a foundation entails both advantages and disadvantages, which should be carefully considered.

Advantages of a foundation in Switzerland:

• Tax Exemption of Charitable Foundations: Charitable foundations benefit from tax exemption, not only with respect to gift and inheritance taxes, but also from profit and capital taxes, enabling the efficient and optimized collection, growth and use of the dedicated funds. 
• Sustainable and Long-Term Achievement of the Objectives: Foundations enable the sustainable and long-term achievement of the objectives set by the founder during their lifetime.
• Legal and Financial Independence: Foundations are legal entities and act independently of the founder.
• Estate Planning: Foundations are an effective estate planning tool preserving assets of the founder and providing a lasting way to sustainably pursue philanthropic goals.

Disadvantages of a foundation in Switzerland:

• Initial Costs: The initial costs related to the establishment (notaries, entry in the commercial register, etc.) must be borne by the founder or by the foundation.
• Administration: The administration of a foundation requires ongoing effort and compliance with legal requirements. Although administration and monitoring are associated with costs, proper administration and monitoring also ensure that the foundation’s funds are efficiently, sustainably and long-term used in accordance with the specified purpose of the foundation.
• Committed Funds: The assets contributed to the foundation are permanently dedicated to the purpose, bound, supervised, and cannot be misused, neither by the management nor can they be used for private purposes of the founder.

You can generally mitigate the above disadvantages of a foundation under Swiss law through professional advice and adequate structuring by a competent partner. We shall be happy to support.

Establishing Foundations in Switzerland: How to Proceed

Establishing a foundation typically involves the following steps: 

Step 1: Purpose and Planning

• Define the purpose of your foundation. Consider what goals you want to pursue and how those goals can be achieved over the long term.
• Planning of the foundation’s financial resources, considering the minimum initial capital of CHF 50,000.00 as well as the ongoing financing needs to achieve your objective.

Phase 2: Legal Documents

• Drafting of all legal documents for the establishment of the foundation and filing of a tax ruling for the confirmation of the tax exemption of the charitable foundation. Your consulting firm will ensure that these documents meet all legal requirements. Let KENDRIS help you with the wording of these documents. KENDRIS is best suited to provide comprehensive services for the establishment and administration of foundations, including accounting and reporting.

Phase 3: Establishment Process

• Establishment of the foundation by a public deed at the notary. Once established, the foundation is registered with the commercial register.

Phase 4: Administration and Operation

• The operational set-up includes the opening of a bank account (or several bank accounts) for the foundation, the transfer of the initial capital and the provision of the chart of accounts for the accounting system. The recurrent operations have to be managed and controlled to achieve the objectives of the foundation. The foundation’s assets have to be managed and administered, including the accounting, reporting, and organization of meetings of the board of the foundation. Either charitable projects have to be developed and operated, or funds have to be distributed to properly selected organizations that run charitable projects that are in line with the foundation’s purpose.
• Professional support from KENDRIS helps to manage your foundation efficiently and legally – and to comply with all legal requirements and to comply with the expectations of the supervisory authority for foundations at any time. 

Establishing a foundation in Switzerland involves careful consideration of numerous strategic, legal, and administrative aspects. At KENDRIS, we support at every step of the process, from initial planning and legal structuring to the ongoing management of your foundation. With many years of experience and a full range of tailored service, we stand by your side as a trusted and competent partner.

Contact us to learn more about how we can assist you in successfully establishing your foundation in Switzerland.