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Trust Law/Level VIII · Trusts of the world/8.2 Civil-law and religious systems/Lesson 2

Liechtenstein, Switzerland and the foundation

How Liechtenstein built both trusts and foundations into its 1926 company law, how Switzerland recognises foreign trusts without a trust law of its own, and how the civil-law foundation differs from a trust.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. A Liechtenstein foundation granted private asset structure status pays only the CHF 1,800 minimum income tax and is not otherwise assessed (SteG arts 62, 64). Catch: it must apply, confirm the conditions yearly, and hold only passive assets with no economic activity.
  2. A private-benefit Liechtenstein foundation need not enter the public commercial register (PGR art. 552 §14(5)); council members instead deposit a formation notice with the Office of Justice within 30 days (§20). Catch: beneficiaries’ home countries still tax distributions under their own rules.
  3. Switzerland has no trust law but has recognised foreign-law trusts under the Hague Convention since 1 July 2007, so a Swiss resident can serve as trustee of one. Catch: acting as trustee on a commercial basis needs a FINMA licence under the Financial Institutions Act.
  4. For Swiss family wealth a plain gift or bequest is often leanest: every canton exempts spouses from inheritance and gift tax, most exempt direct descendants, and Schwyz levies neither tax. Catch: the canton of the deceased’s or donor’s residence, or of the real estate, decides.
  5. A Swiss family foundation is valid only for education, endowment, support or similar purposes (ZGB art. 335); a pure maintenance foundation is invalid (BGE 108 II 393). Catch: wider family benefit needs a foreign structure, taxed where the beneficiaries live.

MaterialsLiechtenstein’s Persons and Companies Act (Personen- und Gesellschaftsrecht, PGR) of 20 January 1926, especially the trust provisions (arts 897-932) and the foundation law (art 552), on gesetze.liArticle 335 of the Swiss Civil Code (ZGB) on family foundations, on fedlex.admin.chThe HCCH status table for the Hague Trusts Convention (hcch.net), and lesson 1.2.7 on the Convention

Wonder

  1. Who owns the assets of a foundation, given that a foundation has no members or shareholders?
  2. How can a country recognise foreign trusts without having a trust law of its own?
  3. Why might a legal system allow foundations for family purposes but not for simply funding a family’s lifestyle?

Explore

  1. Liechtenstein’s Persons and Companies Act (PGR) of 20 January 1926 brought the trust into a civil-law code. Its provisions on the Treuhänderschaft (arts 897-932) draw on the common-law trust. A law of 10 April 1928, inserted as art 932a, added the Treuunternehmen, a business trust that can have legal personality. The same code also governs the foundation (Stiftung). This lesson describes these devices and the Swiss position; it does not compare them as options for any reader.
  2. A foundation is a legal person: a fund of assets dedicated by its founder to a purpose, run by a foundation council, with no owner, members or shareholders. A trust is not a legal person; the trustee owns the assets and holds them for beneficiaries. Liechtenstein has long allowed private-benefit (including family) foundations alongside public-benefit ones. Its foundation law was rewritten by a 2008 reform (LGBl. 2008 No. 220), in force 1 April 2009, which modernised governance, beneficiaries’ information rights and supervision.
  3. Liechtenstein foundations are not simply tax-exempt. Under the tax law in force since 1 January 2011, a foundation that qualifies as a private asset structure (Privatvermögensstruktur) pays only the minimum annual income tax of CHF 1,800; others are taxed under the ordinary rules. Liechtenstein is also a party to the Hague Trusts Convention, in force for it since 1 April 2006 according to the HCCH status table.
  4. Switzerland has no domestic trust law. It ratified the Hague Trusts Convention on 26 April 2007, and the Convention entered into force for Switzerland on 1 July 2007 (HCCH status table; see lesson 1.2.7). Swiss courts therefore recognise trusts governed by a foreign law chosen under the Convention, and Swiss private international law contains rules on trusts. Swiss residents may act as trustees of such foreign trusts, but no Swiss-law trust exists.
  5. In 2022 the Swiss Federal Council consulted on a draft adding a trust to the Code of Obligations. On 15 September 2023 it decided not to present a bill to Parliament, citing a lack of political support, and Parliament wrote off the motion behind the project in December 2023 (Council of States) and February 2024 (National Council). Switzerland therefore still relies on foreign-law trusts recognised under the Convention.
  6. Swiss foundations are governed by the Civil Code. Article 335 allows family foundations only for purposes such as paying for family members’ education, endowment or support, or similar purposes, and prohibits the old family fideicommissum (Familienfideikommiss). The Swiss Federal Supreme Court has held that a foundation which simply pays family members income to maintain their standard of living (an Unterhaltsstiftung) is invalid (for example BGE 108 II 393). Swiss family foundations are therefore narrower than Liechtenstein’s private-benefit foundations.

Key facts

  • Liechtenstein’s PGR of 20 January 1926 contains trust provisions (arts 897-932), the Treuunternehmen (art 932a, from 1928) and the foundation law.
  • A foundation is a legal person with no owner or members; a trust is not a legal person, and the trustee owns the assets.
  • Liechtenstein’s reformed foundation law has been in force since 1 April 2009.
  • A Liechtenstein foundation with private asset structure status pays the minimum annual income tax of CHF 1,800; it is not simply tax-exempt.
  • Switzerland has no domestic trust law; the Hague Trusts Convention entered into force for it on 1 July 2007, and a 2022 draft Swiss trust law was not pursued.
  • Swiss Civil Code Article 335 limits family foundations to purposes such as education, endowment or support, and Swiss courts have held pure maintenance foundations invalid.

Exercise nine, six, three, one

9CollectList up to 9 features of the Liechtenstein trust, the Liechtenstein foundation or the Swiss family foundation described in this lesson or in a source you are reading (some sources give fewer), such as who owns the assets, who manages them, what purposes are allowed and how they are taxed.
6ClusterSort them into 6 categories: legal personality and ownership, management, permitted purposes, beneficiaries’ rights, tax and supervision, and facts you are unsure about.
3DistillReduce the 6 categories to 3 groups: features of the foundation, features of the trust, and features shaped by Swiss or Liechtenstein law in particular.
1CrystallizeWrite 1 sentence explaining, in your own words, the main difference in ownership between a foundation and a trust.

Fact check

Dates, figures and claims checked against the published sources listed below.

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