Setting up a foundation in Switzerland
The foundation (Stiftung) is a powerful and often misunderstood instrument. Unlike a company or an association, it has no members: it is a pool of assets dedicated on a lasting basis to a purpose. Whoever creates it transfers assets to an autonomous entity that will administer them forever according to the founder’s will. Let’s see how it works in Switzerland, where the matter is governed by Articles 80 et seq. of the Civil Code.
What a foundation really is
A foundation comes into being when one or more people dedicate assets to a specific purpose. From that moment the assets detach from the founder and become an autonomous legal entity, with its own personality. There are no owners: the foundation belongs, so to speak, to its purpose.
This is both its strength and its limit. The strength: a stable dedication, which outlives the founder and cannot be hollowed out by the heirs. The limit: once created, the founder loses control of the contributed assets and the purpose is extremely difficult to change.
Typical uses
Swiss foundations cover very different aims:
- public-benefit foundations (philanthropic, cultural, scientific, social);
- family foundations, within the narrow limits set by law — which in Switzerland prohibit the pure maintenance foundation;
- occupational pension foundations (pension funds), subject to their own set of rules;
- corporate foundations, which hold shareholdings to ensure the continuity and independence of a group.
How it is established
Establishment requires a public deed (or a testamentary disposition). Three essential elements are needed:
- an initial endowment of assets, sufficient to pursue the purpose credibly — there is no universal legal minimum, but in practice the authorities require an adequate endowment, often cited around CHF 50,000 as a practical benchmark;
- a clear and lawful purpose;
- an organisation (at least the foundation board).
The foundation acquires legal personality upon entry in the commercial register. Ecclesiastical and family foundations follow partly different rules.
The governing bodies and supervision
The central body is the foundation board, which administers the assets and pursues the purpose. Its members have stringent duties of care and loyalty: they manage assets belonging to others, dedicated to an end, and cannot use them for their own interests.
The feature that distinguishes the foundation from every other form is state supervision. Every foundation is subject to a supervisory authority (federal, cantonal or regional, according to the scope of the purpose) that verifies that the assets are used in accordance with the dedication. It is a continuous control, not an initial formality.
As a rule the foundation must also appoint an audit body; the authority may exempt smaller foundations from the obligation, under certain conditions.
Tax treatment
A public-benefit foundation can obtain exemption from taxes on profit and capital, if it pursues aims of general interest on a disinterested basis and its resources are irrevocably bound to those aims. The exemption is a significant advantage — often extended, within limits, to donations from supporters — but it must be applied for and entails real constraints: no distributions to founders, no disguised profit-making purposes.
Foundations without a public-benefit character are instead taxable like any other legal entity.
The points to weigh before starting
Creating a foundation is an almost irreversible decision. Before proceeding it is worth clarifying a few issues:
- is the purpose framed broadly enough to remain relevant over the decades, yet precise enough to be manageable?
- do the endowment and expected income really suffice to pursue it, also covering the costs of management and audit?
- is the board’s governance designed to last and to withstand conflicts?
- is a foundation really the right form, or is a similar aim better achieved with an association or a more flexible corporate vehicle?
How we help you
We support founders and families in designing the foundation: definition of the purpose, governance structure, relations with the supervisory authority, tax exemption and coordination with overall wealth planning. Let’s talk it through together.