Swiss Foundation: Legal Structure, Purposes, and Formation Process

The term Swiss foundation refers to a distinct legal entity under Swiss law, typically created to serve public or private purposes with assets irrevocably dedicated to a specific mission. Switzerland’s legal framework grants foundations a high degree of stability, confidentiality, and autonomy, making them a preferred structure for philanthropy, family asset protection, or long-term project funding.

Overview of the Swiss Legal Framework for Foundations

Foundations in Switzerland are governed by Articles 80–89 of the Swiss Civil Code (ZGB). A Swiss Stiftung acquires legal personality upon entry into the commercial register. Its assets are permanently separated from the founder and must be used solely for the purpose defined in its charter.

Unlike associations or companies, a Swiss foundation does not have shareholders or members. Control is exercised through a board of trustees, which oversees the fulfilment of the foundation’s objectives. The absence of private ownership makes foundations suitable for long-term strategies that require legal and financial independence.

Swiss law recognises several types of foundations:

• Public-benefit foundations, which pursue charitable or educational goals;

• Family foundations, which support specific family members (allowed only under limited conditions);

• Employee benefit foundations, often linked to occupational pension schemes;

• Mixed-purpose foundations, combining public and private interests.

Purposes and Use Cases of a Foundation in Switzerland

The establishment of a foundation in Switzerland allows for flexible structuring while ensuring asset protection. Common purposes include:

• Philanthropy (education, science, arts, human rights)

• Cultural or religious preservation

• Scientific research funding

• Asset protection and inheritance planning

• Employee pension schemes

• Long-term project financing (e.g. climate, innovation)

While Swiss foundations are often associated with wealthy individuals and high-net-worth families, they are also used by corporations and NGOs for mission-driven projects.

A Swiss family foundation, however, is more limited in scope. According to Article 335 of the Swiss Civil Code, family foundations may only support education, welfare, or similar needs of descendants. Commercial activities or unrestricted distributions to family members are not permitted.

Steps to Establish a Swiss Stiftung

Forming a Swiss Stiftung involves several mandatory steps and requires professional legal structuring. Below is a simplified overview of the process:

Philanthropic foundations are supervised by the Swiss Federal Supervisory Authority for Foundations (ESA). This authority ensures that the foundation’s assets are used in line with its public-benefit mission.

In contrast, a private Swiss family foundation is not subject to the same level of supervision, provided it meets the restrictions set by law.

Tax Treatment of Foundations in Switzerland

Switzerland offers favourable tax treatment for foundations, particularly public-benefit ones. If a foundation is recognised as pursuing charitable purposes, it may benefit from tax exemptions at the federal, cantonal, and communal levels. To obtain such status, the foundation must demonstrate that its assets are used exclusively and irrevocably for public benefit.

The criteria include:

• No economic benefit to founders or board members

• Transparent and effective use of funds

• Irrevocability of the charitable purpose

The Swiss foundation must apply to the relevant tax authorities and submit annual financial statements to maintain its exemption.

In contrast, a Swiss family foundation is generally not eligible for tax exemptions. Distributions made for education or basic welfare may still enjoy certain allowances, but the structure is more constrained from a tax perspective.

Governance and Supervision

A foundation is managed by a board of trustees, which must act in accordance with the foundation charter and applicable law. Swiss foundations do not require local board members, but the domicile of the foundation must be in Switzerland.

Supervision ensures compliance with the stated mission. Public-benefit foundations are overseen by the ESA (Eidgenössische Stiftungsaufsicht) or a cantonal authority. Foundations must submit:

• Annual reports and financial statements

• Updates on activities and projects

• Auditor's reports (if required by law or the charter)

While supervision ensures accountability, Swiss law also protects the foundation in Switzerland from interference, allowing it to operate with high legal certainty.

Confidentiality and Asset Protection

One of the major advantages of the Swiss foundation is confidentiality. Unlike many common law trusts, a foundation is a legal person in its own right and does not require public disclosure of beneficiaries (in the case of public foundations) or founders (in certain structures).

For wealthy families, this makes a Swiss family foundation an attractive tool for estate planning. Since the assets are owned by the foundation itself, they are legally separated from the estate of the founder. This can shield them from inheritance claims, bankruptcy, or litigation in certain jurisdictions.

However, Swiss foundations are not anonymous in the same way as offshore trusts. The foundation deed is public, and any misuse of the structure for tax evasion or money laundering is subject to strict regulatory enforcement.

Recent Developments and Compliance Considerations

Switzerland has adapted its regulations in response to international pressure for transparency and compliance. The Federal Council has aligned supervisory practice with FATF recommendations, and certain reporting obligations apply, especially for cross-border foundations or those with assets in multiple jurisdictions.

Foundations involved in cross-border charitable work or high-value asset holding must ensure:

• Proper reporting under AEOI and CRS

• Disclosure of ultimate beneficial owners if applicable

• Compliance with AML regulations (especially for financial activities)

Legal practitioners recommend that every Swiss Stiftung conduct periodic reviews of its structure and operations to align with evolving standards.

Comparing Swiss Foundation with Trusts and Other Legal Forms

Switzerland does not have a domestic trust law, but foreign trusts are recognised under private international law. However, many clients prefer the foundation model due to its civil-law origin and local integration.

Common Misconceptions

• A Swiss foundation can distribute assets freely to family members.
  False. Only within limits defined by the Civil Code.

• Foundations are tax shelters.
  False. Only tax-exempt foundations with proven public benefit can obtain tax relief.

• Foundations are secret and unregulated.
  False. Supervision and public registry ensure accountability.

• Foundations are only for the ultra-wealthy.
  False. While initial funding is needed, smaller foundations also exist with defined missions.

Disclaimer. This article is for informational purposes only and does not constitute legal or tax advice. We recommend consulting a qualified attorney or fiduciary expert for specific cases or to establish a Swiss foundation in compliance with all applicable regulations.

FAQs

1. What is a Swiss foundation?
A Swiss foundation is a legal entity established under Swiss law to pursue a specific public or private purpose. It holds assets irrevocably and operates independently of its founder.

2. How do I set up a Swiss foundation?
To establish a Swiss foundation, you must draft a charter, contribute a minimum capital of CHF 50,000, notarise the deed, and register the foundation in the commercial register.

3. What is the difference between a Swiss Stiftung and a trust?
A Swiss Stiftung is a legal person with its own rights and obligations, while a trust is a contractual relationship. Switzerland does not have a domestic trust law but recognises foreign trusts.

4. Can a Swiss foundation be used for family asset planning?
Yes, a Swiss family foundation may support education and welfare of descendants but is subject to restrictions under Swiss law and cannot operate as a discretionary wealth distribution tool.

5. Are Swiss foundations tax-exempt?
Public-benefit foundations in Switzerland can apply for tax exemption if they meet strict criteria. Family foundations generally do not qualify for tax relief.

6. Who supervises Swiss foundations?
Depending on their purpose, Swiss foundations are supervised by either the federal ESA (Eidgenössische Stiftungsaufsicht) or a cantonal authority to ensure compliance with their charter.

7. What is the minimum capital for a Swiss foundation?
The legal minimum capital for a Swiss foundation is CHF 50,000, though certain foundations may require more depending on their purpose or supervisory requirements.

8. Can foreigners establish a foundation in Switzerland?
Yes, foreigners can create a foundation in Switzerland, provided the foundation has a Swiss domicile and complies with local legal and regulatory standards.