In the context of international financial planning, foundations are separate legal entities that do not have shareholders but can hold and manage assets in their own right. Traditionally established for philanthropic purposes, foundations have become more common in recent years and can be established in multiple international finance centres worldwide including Gibraltar. The relevant legislation locally is the Private Foundations Act 2017. Beyond philanthropy, foundations are increasingly used for, inter alia, estate planning, wealth preservation and asset protection. 

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The person providing the initial assets to a foundation, known as the founder, may retain certain powers. Unlike companies, foundations do not issue shares, although they may have beneficiaries (though not always). A guardian may be appointed to ensure that the foundation’s purposes are followed. The structure must be managed according to its constitution documentation – the Foundation Charter – that, assuming it is carefully drafted at the outset, will minimise the risk of future misinterpretation. 

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Given a foundation’s more “corporate” governance style compared to trusts, they tend to appeal to clients and their advisers more familiar in a civil law system. Trusts, on the other hand, are prevalent in common law jurisdictions, such as the UK and other anglophone finance centres worldwide, including of course, Gibraltar. For decades, the latter countries did not offer foundations as an alternative structure, but this has changed in the last twenty years, and most have now enacted bespoke foundation legislation. 

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In Gibraltar, foundations must be registered and are regulated in a similar fashion to companies – for example, annual financial statements are filed at Companies House. Foundations are managed by a council, akin to a company board, with councillors overseeing the foundation’s activities. In Gibraltar, at least one of these must be a local resident company licensed as a professional trustee by the Gibraltar Financial Services Commission; of course, Acquarius meets this criterion. 

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Our local legislation may date back less than ten years, but foundations are not new. In fact, almost a century has passed since the enactment of the Liechtenstein Private Foundation Act 1926. This was the world’s first bespoke legislation to deal with this type of structure, known in German as a stiftung. Panama’s version dates back thirty years, and today, modern foundation legislation can be found in several key international finance centres, including Gibraltar.

Foundations must be carefully structured and, as always, the planning stage must include relevant professional tax and legal advice. In common with other fiduciary arrangements, foundations are strictly regulated. They are only available in Gibraltar to clients who have successfully passed stringent “know your client” and anti-money laundering checks. 

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Foundations are versatile tools, used for various purposes, all of which should be clearly set out in the founding documentation. In addition to traditional uses such as intergeneration succession planning and beneficiary protection, foundations are often employed for philanthropic or social causes, with many supporting the arts, for example.

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In conclusion, while relatively new to Gibraltar, foundations have a long history, and their use has evolved alongside developments in international finance and increasing regulatory oversight. They are growing in popularity, and in jurisdictions like Gibraltar, where modern and robust legislation governs them, foundations can be as effective as more traditional trust structures.

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For more information, contact us at Acquarius without obligation to explore whether this type of structure could benefit you or your clients.