Establishment of a German foundation
Setting up a German foundation can be complex. we help.
The term “foundation” stands for different legal forms. Including the family foundation, trust foundation or consumer foundation. These legal forms have in common that they pursue a purpose defined by the founder with the assets they bring in. As an independent estate, a foundation is its own owner. After the establishment, the contributed assets belong exclusively to the foundation.
A withdrawal of the assets once brought into the foundation or a later change of purpose is excluded. It is therefore advisable to act carefully and to get help from experts.
In Germany, a distinction is made between independent and non-independent foundations. Independent foundations are legal persons that form their own legal organization to implement their purpose, unlike the dependent foundation, in which the assets that are transferred on a fiduciary basis are also used for the purpose of the foundation, although no organization under civil law is created.
Requirements, formation costs and minimum capital
In theory, any person or association with full legal capacity can set up a foundation. In order to guarantee a foundation that makes sense from a commercial point of view, a minimum capital between € 25,000 and € 100,000 is required. Foundation law in Germany does not stipulate a minimum capital for foundations under civil law or for trust foundations, however, due to the formation and administrative costs, a trust foundation should at least € 25,000. A foundation with legal capacity requires the start-up capital of € 50,000 prescribed by the competent authority.
With the exception of the consumer foundation, the foundation’s activities are financed exclusively from your investment income. In addition, foundations are legally obliged to invest their assets exclusively in safe forms of investment such as government bonds or real estate. Since only correspondingly low returns are to be expected here, a sufficiently high base stock should be brought in to run the company profitably.
Tax advantages for founders and donors
As a non-profit foundation, you have a special tax position and the founder is offered legal options to reduce the tax burden. Family foundations and consumer foundations that do not have to prove their capital stock are an exception.
1) Special expenses for income tax
Founders are entitled to deduct the capital transferred to the basic stock as a special expense from taxable income. The limit for individuals is € 1 million within ten years. For married couples who are jointly assessed for tax purposes, the limit doubles to € 2 million. Within these ten years, the founder can freely decide when to include this special expense in the tax return.
2) Deduction of donations from income tax
The founder and third parties can contribute their assets to the foundation in the form of a donation, which can be deducted from taxable income as a special expense. The limit is 20% of the taxable income of a period.
3) No inheritance tax for charitable purposes
Heirs who want to donate their assets to a charitable purpose can transfer them to a charitable foundation within two years. After submitting an application to the responsible tax authorities, they are exempt from inheritance tax.
4) Tax benefits of the foundation
Non-profit foundations under civil law are completely tax-exempt in Germany. If you want to avoid the withholding tax that is due for natural persons and companies, the investment income can be used for the purpose of the foundation instead of taxing it outside the foundation and then transferring it to the foundation.
Forms of the foundation
A basic distinction is made between the following types of foundation:
- Family foundation
- Trust foundation
- Consumption Foundation
Each of these forms has its own requirements, rights and obligations. Let our team of experts advise you to find the right legal form for your project and to act in a legally secure manner.
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