Foundations vs. Trusts

Mauritius approved legislation for Foundations in June 2012.  Frontière Finance, as a licensed Management Company can now assist in the establishment of Mauritian Foundations.

A Foundation is a legal person that does not have shareholders.

A Trust, on the other hand, is an  arrangement between donors and trustees and is not a legal person or entity in itself.  In Mauritius, a Foundation is registered with the Registrar of Companies, just like a company.  Trusts are not registered.

The most famous and biggest foundation is the Bill and Melinda Gates Foundation, holding $37.4 billion (2010), and founded in 1994.

Foundations can be either Charitable or Non-Charitable, or a combination of both.  A Mauritius Foundation can opt to be tax resident or not.  Tax residence means that the Foundation is taxed at 15%, and if it has a Global Business Category 1 license, this rate can be reduced to 3% or less.  If the Foundation is not resident for tax then it is not taxed.

If a Foundation is founded by a non resident or a holder of a GBC 1 License, and its beneficiaries are also non resident or hold a GBC 1 License, the Foundation shall not be taxed.  Furthermore, any distributions by the Foundation shall treated as tax free dividends.

How Does A Foundation Work?

The person (the Founder) or the executor of the estate, can endow (donate) assets to a Foundation.  The Foundation has a Charter and Articles, which are drawn up by the founder establishing the rules of how these assets are to be applied, pretty much the same as a trust deed.  The charter also establishes the beneficiaries or class of beneficiaries of the Foundation – like a trust does.

The Foundation is run by a Council that must include at least one person.  The Council is responsible for the administration of the assets of the Foundation and must carry out the objects of the Charter, the same way Trustees look after Trust property.  The appointment of Council members can be made by the Founder, or someone appointed by the Founder.  The Foundation must also have a Secretary and a Registered Office.  Frontière Finance is licensed to be the secretary, and our office address is usually the Registered Office.

Foundations can also have a Protector, who watches over the Foundation and has the power to veto any action taken by the Foundation, like a trust.

Foundations are really useful for family wealth protection and if established and run properly, can ensure maintenance, growth and enjoyment by the descendants of the founder, over many generations.  Foundations protect wealth from dissipating as a result of taxation, divorce, spendthrift beneficiaries, creditors, and other misfortunes common to unmanaged estates.

Another great use for a foundation is as a holding entity for companies, property or other assets.

Contact us to see how a foundation might be the best solution for your international business activities.

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