A Curaçao private foundation is a flexible legal person used by residents and non-residents for asset protection and estate planning purposes. If the foundation generates passive income only, hence does not operate as a company it may enjoy financial benefits, such as profit and capital gain tax exemptions.
The private foundation was originally established by religious and non-profit or charitable organizations and is still frequently utilized by religious and non-profit organizations. Distributions are restricted by law to distributions with a charitable or social purpose.
A Curaçao private foundation (or “stichting” in Dutch) is a separate legal entity utilized to protect assets and estate planning. For international tax and estate planning, the private foundation has been introduced as a flexible variant of the long existing “common” foundation which variant is comparable to a trust. the Dutch name is Stichting Particulier Fonds, abbreviated SPF. The Stichting Particulier Fonds (“SPF”) law enacted in 1998 governs the formation, management, and liquidation of private foundations in Curaçao.
A private foundation is established by notarial deed executed before a civil law notary in Curaçao. A foundation has no capital or shares or shareholders. The founder of the foundation can contribute assets to the foundation upon the establishment of the foundation or any date thereafter. The founder’s assets owned by the foundation are protected from creditors. The founder creating the private foundation can be a citizen of any country and can also reside anywhere.
The articles of incorporation of the foundation must include the name of the foundation, including the word ‘foundation’ or a translation thereof, its purpose, the first management board and the manner in which managing directors are appointed and dismissed and the powers of the management board, the statutory seat of the foundation and the designation of the balance after liquidation in the event of dissolution of the foundation or the manner in which the designation shall be determined. A foundation may also have a supervisory board which services the board in accordance with the articles of incorporation. The founder of the foundation and members of the management board and the supervisory board cannot participate in the assets and/or profits of the foundation.
Economic owners of the foundation -also known as beneficiaries- are third parties who benefit from the foundation’s ownership and custody of the founder’s assets. Economic owners/beneficiaries can be citizens of any country and reside in other countries. Beneficiaries are economic owners of the assets and are also protected from their creditors.
Registration and taxes
Private foundations do not register with the government unless they pay taxes and therefore the founder and economic owners are not named in public records.
Private foundations receive a 100% tax exemption from all taxes including corporate tax, income tax, gift tax and inheritance tax. Passive income from investments or acting as a holding company for corporate entities with shares or investments in private or public companies will not be taxed. However, American taxpayers and others paying taxes on global income must declare all income to their governments. Tax exemptions do not apply if the private foundation actively engages in profit making business(es).
With an unlimited lifespan, private foundations provide a family with generations of estate planning. A private foundation can be formed within a couple of days.
Real estate and the SPF
Potential homeowners who want to purchase real estate in Curaçao, often use the SPF as their investment vehicle of choice. By holding real estate in an SPF, the purchaser effectively can rent-out the property without paying personal or corporate income taxes in Curaçao on rental income. Furthermore, the ownership of the property can be easily transferred to other beneficiaries, without any (inheritance) taxes being owed in Curaçao.
Besides the tax benefits of the SPF, the vehicle is often used for (international) wealth protection purposes. With the SPF resembling the trust, the vehicle might lose appeal in international tax structures. Also, the Curaçao government has indicated that the tax treatment of the SPF might change negatively in future.
PYGG is happy to assist in setting up, maintaining, and running an SPF. With PYGG, the average cost for setting up an SPF is $3,000 including the work of the notary public. $3,000 is also a realistic budget indication of the annual cost of an SPF, including management, time spent and financial statements.
Especially if you consider purchasing real estate in Curaçao, make sure to get acquainted with this structure before the purchase. Feel free to contact us for more information.
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