International tax advice

Foundation

The main purpose of a foundation is the realization of a religious, charitable, scientific, artistic, educational, social, sporting or tourism work. It is registered at the Trade Register of Luxembourg. This registration is necessary to ensure that the foundation is not deemed to have any commercial purpose.. A foundation does not engage in industrial or commercial operations and does not pursue the realization of material gain.

Structure

A foundation is  established by a deed or  a request submitted to the Ministry of Justice. It does have  a legal form when its memorandum articles are approved by a Grand Ducal decree.

These should include the following:

The initial assets allocated to the foundation must raise a minimum of €250 000. It is composed of either members or associates. It is established for an unlimited period.

The foundation is managed by a board of directors, consisting of at least three members, which has the power to perform all acts necessary or appropriate to achieve the purpose for which the foundation was founded. They exert their function in a collegial manner and are appointed when the institution was founded. All changes, appointments and resignations of directors must be published in the Memorial. Their main function is to represent the foundation towards third parties.

Authority

The authority, in charge of overseeing the foundation, is the Ministry of Justice. Their function is to ensure that the assets of the Foundation are used for the creation of the latter.

Accountancy

The foundation holds a complete accounting and prepares financial statements in accordance with the provisions of the Act of the 19th December 2002. Moreover, it is required to appoint an auditor monitoring the financial position, annual accounts and their legality under the law and memorandum articles.

The directors are required to notify the Department of Justice their annual accounts and their budget each year within two months of the year end. The publication of annual accounts must be in the same period at the Memorial.

Responsibility

The responsibility of a foundation towards third parties is unlimited. The foundation is civilly liable for misconduct of its officers, directors or other bodies that represent it.

Dissolution

If the foundation has become unable of rendering future services for which it was established, the court at the request of an administrator, an interested party or the public prosecutor, may pronounce the dissolution of the institution.

VAT

All entities having a professional economic activity are subject to VAT, without taking into account the purpose and result of economic activity. Foundations do not pay VAT, unless they have a permanent economic activity including an important financial value. In some specific cases, foundations may be exempt from VAT even if they are economically active.

Taxation

The foundation does not have the main purpose of conducting business but they are allowed and will be taxable at regular corporate tax.

All the foundations established in Luxembourg are generally liable for taxation. However, the State agreed that the foundations are automatically exempt from income tax once their creation was approved by the Ministry of Justice by the Grand Ducal decree. They are automatically exempt if they pursue directly and principally for charitable purposes.

An activity carried out abroad is allowed without losing the exemption from taxation. A foundation can pursue activities partly or totally outside the Grand Duchy of Luxembourg, provided that this activity does not generate a permanent establishment abroad.

References:
Act of the 4thDecember, 1967 on income tax
Act of the 21st April, 1928 on non-profit associations and foundations
Bill 3530 ZCH on non-profit associations and foundations

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