How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
Private Client (2nd edition)
A family company is established as any other Israeli company (filing certain forms with the Israeli Companies Registrar, as well as the company’s articles of association), and certain notice is required to submitted to the Israeli Tax Authorities for such company to be classified as such for Israeli income tax purposes. A partnership is established in a very similar manner, with the main difference being that a limited partnership is required to submit a partnership agreement (and not an article of association). A partnership which is not a limited partnership is not required to submit its partnership agreement. A trust is created merely by a contract.
All three structures referred to above are governed firstly by common law and secondly by specific statutory enactments.
The private limited company is constituted by the subscription of the shareholders to a constitution. The constitution must be filed, together with a Form A1, with the Companies Registration Office in Ireland in order for the company to be validly incorporated. A copy of the constitution will be available to members of the public. Following implementation of certain aspects of Article 30 of the Fourth Anti-Money Laundering Directive (EU 2015/ 849), by virtue of the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 which came into operation on 15 November 2016, all companies must keep a register of beneficial ownership. In due course, companies will be required to file this information with a central beneficial ownership register.
A trust will normally be established either by an express deed or declaration of trust, or under the Will of a testator. For a trust to be valid, there must exist three certainties: certainty of intention, certainty of subject matter and certainty of objects. With regard to a class of discretionary objects, it is necessary that it is possible to ascertain whether a particular person is or is not a member of the beneficial class at any given time. There is no governmental registration requirement. There is no central register of beneficial ownership or interests.
A partnership will normally be formed by written agreement executed by the partners, but a partnership can come into existence by oral agreement or indeed by the conduct of the parties. A limited partnership must be registered with the CRO.
A civil/family partnership can be constituted by signing a private deed. It has no legal personality and is subject to only a limited number of legal provisions, which leaves the partners a great deal of flexibility to organise it as they wish. Therefore, it remains a useful instrument to structure and transfer private wealth, although it recently has become a less discrete entity than before.
Domestic trust structures, including trusts with a charitable component, are created pursuant to the governing law of a state or other jurisdiction of the US. The various states compete against each other to provide favourable trust law (including the extension or repeal of the rule against perpetuities, the limiting of beneficiaries’ rights to receive information on trust assets, and the creation of favourable laws relating to trustees and protectors) and tax law to attract trust business. Generally, the creation of a domestic trust does not require the filing of the trust instrument with any governing authority or regulator, and the trust may remain private. If a US gift tax return is filed to report a gift or sale to a trust, it is common to include a copy of the trust instrument with the return. US gift tax returns are confidential and not subject to public exhibition. US income tax returns that may be required for domestic trusts are likewise confidential.
As in the case of trusts, domestic private foundations, FLPs and FLLCs are created pursuant to the governing law of a state or other jurisdiction of the US; and the various states compete against each other to provide favourable partnership and corporate law applicable to these entities. Private foundations may be formed as a trust or as a corporation (the latter provides additional flexibility and less court oversight), and in general, the creation of a private foundation or FLP or FLLC requires the filing of a certificate of incorporation or of limited partnership with the office of the Secretary of State of the chosen state. Annual tax reporting must be made to the IRS and, depending upon the chosen state, may be required to be made to the state. Annual information returns filed by a private foundation with the IRS are public documents. Annual income tax returns of FLPs and FLLCs are confidential.
A Cyprus international trust is constituted by a trust deed, on which stamp duty of €430 is payable. The trust is governed by the trust deed, the terms of which can be tailored to the settlor’s requirements, subject to very few restrictions.
Trustees and service providers are required to notify their respective supervisory body (the Cyprus Bar Association, the Central Bank, the Cyprus Securities and Exchange Commission, the Institute of Certified Public Accountants, the Real Estate Registration Council, the National Betting Authority and the National Gambling and Casino Supervisory Authority) of the following information relating to trusts they administer:
- the name of the trust;
- the name of the trustee at all relevant times;
- the date of creation of the trust;
- the date of any change in the law governing the trust;
- the date of termination of the trust.
This information must be forwarded to the competent authority within 15 days of the establishment of a new trust or the adoption of Cyprus law as the law governing the trust.
Subsequent changes in any relevant information, including termination of the trust or a change in the governing law from Cyprus law, must similarly be notified within 15 days.
Each of the competent authorities maintains a register of the information it receives. These registers are not open to public inspection.
The 2018 amendments to the Anti- Money Laundering Law include a new requirement for trustees of any express trust governed by Cyprus law or any other analogous legal arrangement to obtain and hold adequate, accurate and up-to-date information on beneficial ownership of the trust or arrangement, including the identity of the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries and any other natural person exercising effective control over the trust. This information must be provided by the trustees and held in a central register when the trust generates tax consequences in Cyprus. The police, the Customs Department, the Tax Department and the Unit for Combatting Money Laundering and Terrorist Financing (MOKAS) and the supervisory authorities named above will have direct access to the information kept in the register, and obliged entities will have access to their own information for the purposes of their due diligence and KYC procedures.
The 2018 amendments also provided for the creation of a central register of beneficial owners. Service providers must obtain the requisite information to establish the identity of the beneficial owner, including details of the beneficial interests held. Persons who can prove a legitimate interest will have access to the name, the month and the year of birth, the nationality and country of residence of the beneficial owner, and the nature and extent of the beneficial owner’s rights. Access to this information will be regulated by the Processing of Personal Data (Protection of the Individual) Law.
Every limited liability company, every partnership and every private foundation is registered in the public companies register with its shareholders, partners and founder.
The beneficial owners must be entered in the register of beneficial owners. In the case of the private foundation this also includes all beneficiaries.
The rules on private foundations are provided for in the Bulgarian Non-Profit Legal Entities Act.
A foundation is established by a unilateral constituent act of the founder whereby property is provided gratuitously to the foundation for the accomplishment of specific non-for-profit goals. A foundation may be established by an inter vivos gift (notary form is required) or upon death by means of a will. There is no minimum threshold for the constitutive gift to be valid. There are also no limitations on the type of property that can be provided to a foundation. The founder determines the scope and type of activity that will be carried out by the foundation.
Private benefit foundations have a governing body (either collective or individual). However, more complicated two tier management systems are also possible. Most private benefit foundations in Bulgaria have a single director. The founder is entitled to reserve certain rights for himself or for a third person and hence ensure that his consent is required for all material decisions, such as dissolution, changes to bylaws, election of new management body members, changing the scope and type of activities or the aim of the foundation.
- Under Law 214 of 27 February 1936, the main criterion for an individual willing to settle a trust in Monaco is to be a national of a country providing for a substantive trust law, such as common law countries. The trust will thus be substantially settled according to the national law of the settlor.
A testamentary trust must be settled according to the formal requirements applicable under Monegasque law to wills by public act or mystic wills. Furthermore, for a trust to be valid under Law 214, the settlor must designate a trustee entitled to exercise in Monaco.
Inter vivos trusts must comply with the formal requirements applicable under Monegasque law to inter vivos gifts.
Under Article 11 of the Ministerial Decree n°2012-182 of 5 April 2012, Monaco-based trusts must keep on an annual basis an updated balance sheet.
- Single family offices: there are no statutory provisions under Monegasque law governing the creation of single family offices. However, the common practice is for an individual to set up a limited corporation with a civil purpose (Société Anonyme Monegasque, hereafter a “SAM”). These structures are governed by Sovereign Ordinance of 5 March 1895. A SAM must have at least two shareholders who can be either individuals or legal entities. The share capital must be at least 150.000 €. The Memorandum and Articles of Association are established by a Monegasque notary. The Memorandum and Articles of Association of the SAM must be approved by a ministerial order.
- Law 1.439 of 2 December 2016 governing the creation of multi-family offices provides that the activity of a multi-family office must be constituted in the form of a SAM, subject to the prior administrative authorisation issued by ministerial order and the authorisation of the Commission for the Control of Financial Activities, pursuant to the conditions set out by Law n°1.338 of 7 September 2007.
Italian foundations are granted legal personality through a process of recognition by the authorities, which ascertain, among the others, the social benefit purpose and the availability of adequate financial means. They are also subject to on-going supervision.
The Italian non-commercial partnership is created by notarial deed.
Provisions setting out the general framework of the register of beneficial owners of companies and commercial partnerships (but not Italian non-commercial partnerships) and trusts/foundations have been recently enacted. The implementing provisions are still to be issued.
A trust may be constituted by a trust deed and the main rules that govern Bermuda-law governed trusts are contained within the Trustee Act 1975 and the Trust (Special Provisions) Act 1989.
There is no requirement for trusts to be registered, or for there to be disclosure to an authority or regulator in Bermuda.
Trust companies, or persons who carry on “trust businesses” must be licenced.
A PTC is exempted from the licensing requirements, although on the written notice for the exemption they are required to state the nature and scope of their business (being that business which is set out in the Memorandum of Association).
19.1 A family investment company, like any other company, may be established under English law by incorporation, which in broad terms involves one or more intended members choosing a name and registered office for the company, adopting constitutional documents, deciding whether to own shares in, or provide a guarantee to, the company and in either case in what amount, appointing one or more directors, and registering certain information and documents with the registrar of companies (§20.1).
19.2 A trust is established when specified property is transferred by one person (called the settlor) to other persons (called the trustees), or else comes to be held by the settlor himself as trustee, for the benefit of specified persons or a defined class of persons (called the beneficiaries), so that the trustees are legally obliged to hold and administer those assets for the benefit of the beneficiaries.
19.3 A trust (§19.2) under which a beneficiary (§19.2) is entitled to income as it arises to the trustees is called a life interest trust, and a trust under which beneficiaries have no fixed entitlement but may benefit at the discretion of the trustees (§19.2) is generally called a discretionary trust. A trust under which the trustees hold assets as mere nominees for a beneficiary or beneficiaries, who (if adult) can call for those assets to be transferred to them at any time, is generally called a bare trust.
19.4 Normally, the terms of a trust (§19.2) are set out in a trust document, but English legislation will (so far as it applies to a trust) generally give the trustees (§19.2) a range of standard administrative and other powers if these are not set out in that document. All interests of beneficiaries (§19.2) under a trust (other than a charitable trust (§26.1)) governed by English law must vest within 125 years of the creation of the trust.
19.5 Trusts (§19.2) do not have separate legal personality and can be created without any registration process. However, trustees (§19.2) with UK tax liabilities are generally required to disclose to HMRC certain details, including details of the settlor (§19.2), beneficiaries (§19.2) and assets of the trust, and HMRC may in turn provide those details to other UK public authorities and non UK tax authorities with which the UK has reciprocal arrangements.
- Domestic trusts:
In Colombia only those companies duly authorized by the Colombian financial authority (Superintendencia Financiera de Colombia) may offer trust services and act as trustees (i.e. compañías fiduciarias). Such entities are subject to SFC supervision and regulation.
Colombian tax law treats local trusts as flow-through entities for tax purposes. Thus, trusts must determine their profits annually and the beneficiaries have to include such profits in their own income tax returns for that same year and pay the relevant taxes.
The title to the assets that an individual contributes to the trust fund must pass to the trust fund (exceptions apply – for example, for the guarantee trust) or otherwise such assets would have to be declared by the individual as part of her/his equity and thus be subject to net worth taxes.
Additionally, if the individual receives fiduciary rights over the trust fund because of said contribution, he or she would be obliged to report such rights for Colombian income tax purposes.
Whenever the settlor or any of the beneficiaries receive income from the trust, they must pay the relevant taxes in Colombia. Income tax regulations establish that the results of any activities of the trust and all equity increases must be included in the income tax return of the beneficiaries.
- Foreign structures:
There are no civil or commercial regulations regarding the establishment of foreign trusts, private foundations and life insurance policies. However, these are recognized by Colombian tax law and tax authorities.
Colombian tax residents are subject to income tax based on their worldwide source income. Therefore any distributions made by a foreign trust/foundation would be subject to income tax in Colombia at a 10% rate. As from FY 2019, life insurance indemnities are taxed as capital gains, only on the amount that exceeds 12.500 Tax Value Units (approx. USD 136.000).
If a trust/foundation is revocable and controlled by the settlor, then it would be considered as a CFC under Colombian law. Hence, net profits derived from passive income obtained by the trust/foundation shall be recognized immediately in proportion equivalent to the participation in the foundation/trust's capital or profits, and not upon receipt of profits. Which means, no tax deferral would be applicable in this case.
Colombian tax residents shall report on their income tax returns the passive income realized by the trust/foundation, considering the nature and characteristics of said income, as if it was received directly by them.
Assets held by a trust/foundation (which is revocable and directed) are understood to be directly held by the settlor and shall be reported in their Colombian income tax returns, as well as their foreign assets return (Form 160) as part of their own equity. If the characteristics of the trust/foundation are different, the reporting obligation could be of the settlor. This analysis should be carried case by case.
If the underlying assets of an irrevocable and discretionary trust/foundation cannot be attributed to the beneficiaries, the latter must be reported by the settlor. This, without any consideration of the trust/foundation's irrevocable and discretionary character.
The principal trusts legislation in the Cayman Islands is the Trusts Law (2018 Revision). A trust is typically established by a declaration of trust or a deed of settlement, similar to the establishment of trusts in the United Kingdom. Stamp duty payable on settlements or declarations of trust is $40 KYD pursuant to the Stamp Duty Law.
Information and documents in relation to Cayman Islands law trusts is publically available. It is possible (but not a requirement) to register certain types of trusts in the Cayman Islands as exempted trusts. Exempted must pay a registration fee and annual fees to the Registrar of Trusts, and certain documents relating to an exempted trust must be filed with the Registrar of Trusts. However, most Cayman Islands law trusts used in private client structures are not registered.
Cayman Islands companies may be subject to the beneficial ownership regime of the Cayman Islands depending on the particular structure. If a company is in scope with this regime, such company is required to provide the details its beneficial owners, which would be accessible by a Cayman Islands competent authority principally on proper and lawful request made by relevant law enforcement agencies. This register is not available to the public.
Family companies and partnerships, like any other companies or partnerships, my be established under German law by incorporation and, in most cases (there are only exceptions for some partnerships), registration with the commercial register. However, the legal regimes are different: Generally speaking, the legal regime of a partnership is more flexible compared to the one of a company. Both are mainly governed by their articles of association, but there are very significant statutory provisions for in particular companies. In contrast to family partnerships and private foundations the articles of association of family companies need to be notarised and made available to the commercial register.
A private foundation needs to be approved by the foundation supervisory authority (“Stiftungsaufsicht”). It is subject to the rules established in its articles and very few key statutory provisions. The beneficial owners of such a foundation need to be registered in the transparency register which has been established on 1 October 2017.
In practice, generally an express trust is constituted when the settlor and the trustee execute a trust deed establishing the trust. No registration is required and information relating to the trust is protected by confidentiality under the Trust Companies Act – the public has no access to information relating to the trust. On the other hand, professional trustees are required to comply with reporting obligations under the Common Reporting Standard; they may also be obliged to produce trust information to the revenue authority if a valid Exchange of Information request is made by a treaty partner for information relating to a specific taxpayer.
For companies constituting a part of a structure –
- The identities of shareholders, directors and company secretary are accessible by the public;
- Companies are required to maintain a register of beneficial owners and to make the information available to public agencies upon request. However, the information will not be made publically available.
The requirements concerning the constitution of a corporate structure and the corresponding disclosure obligations vary with each kind of structure. In any case, every structure is subject to registry and reporting obligations to the tax authorities.
In order to be efficient, any structure of ownership should be carefully designed and taking into consideration the family members’ personal situation, the importance of the wealth, the nature and location of the assets as well as the objectives of the family.
As already explained, all trusts and companies used in the ownership structure should be properly set up and managed. They should also have another reason than reducing or avoiding taxes.
As a general rule, any trusts, private foundations, French companies involved in the structure of ownership having a connection with France should be disclosed.
The disclosure regime of trusts (which also include foundations and any similar arrangement) illustrates the French tax authorities’ appetite for receiving information.
As from January 1, 2012, if the settlor or one of the beneficiaries is resident in France or if the trust fund contains French assets, the trustee must disclose to the French tax authorities the formation of the trust, any variation of its terms and its termination as well as the market value of the trust assets on the 1st January of each year.
The French Constitutional Court, in a decision dated March 16, 2017, held that the proportional penalties of 5% and 12.5% of the trust’s assets value due in case of absence of reporting were unconstitutional, as disproportionate in regards to the infringement they sought to sanction. As a consequence, as from December 31, 2016, failing to comply with the above reporting requirements triggers the application of a fixed penalty amounting to € 20,000 per missing return (€ 10,000 before December 8, 2013).
In addition, failing to report may also give rise to an additional 80% surcharge (with a minimum of € 20,000) applying to all French tax consequences bearing on the trustee(s), the settlor(s) or the beneficiarie(s) – income tax, wealth tax (ISF and/or IFI), inheritance/gift tax, trustees’ specific 1.5% levy – which may be due in respect of the trust assets and distributions or reportable modifications which may have occurred.
A foundation is set up either inter vivos by the so called «declaration of establishment» or upon death by means of a testament or inheritance contract. The declaration of establishment is a declaration of intent by the founder to set up a foundation.
Private foundations need not be entered in the Commercial Register. They acquire legal personality immediately once the declaration of establishment has been made. Nevertheless, a so-called «notification of formation» must be deposited with the Commercial Register ("Handelsregister"). This notification must contain the foundation's name and purpose as well as the identity of its representative and the members of the foundation council.
The trust comes into existence at the time of formation. Where a trust is created with a term of more than twelve months, it must be registered in the Commercial Register or the trust deed must be deposited with the Commercial Register within twelve months from its formation. It should be set out in the trust deed whether the trust is to be registered or deposited.
For Mexican legal purposes, the fideicomiso is a contract through which the trustor conveys to a fiduciary institution the ownership of one or more assets or rights, as the case may be, to be used for lawful and determined purposes, entrusting the execution of said purposes to the fiduciary institution itself.
As a general rule, there are three different parties in the fideicomiso:
- Settlor: Is the one who constitutes the trust and in turn transmits ownership of the property or assets to the trustee so that it fulfills the specific purpose of the trust. Anyone with the capacity to transmit ownership of the assets or rights subject to the trust, as the case may be, as well as the competent judicial or administrative authorities to do so, may be trustors.
- Fiduciary institution or trustee: Is the person ordered by the trustor to carry out the end of the trust. This becomes the owner of the assets constituted by the goods or rights destined to the realization of such purpose. Only institutions that are expressly authorized to do so may be fiduciary in accordance with the General Law of Credit Institutions (including credit institutions, insurance institutions, surety institutions, brokerage firms, etc.).
- Beneficiary: Is the one in whose favor the administration of the trust assets is exercised. People who have the necessary capacity to receive the benefit that the trust implies can be beneficiary. The Settlor can designate more than one beneficiary or even substitute beneficiaries.
It is important to mention that it is possible to create a fideicomiso without an initial beneficiary, as long as the purpose is legal and determined and the fiduciary institution accepts the assignment.
As for the object necessary to constitute the fideicomiso, we find that in accordance with our Law, all kinds of assets and rights can be the object of the trust, except those that, according to the law, are strictly personal of the owner.
The assets that are given in fideicomiso are considered to be used for the purpose for which they are intended and, consequently, only those rights and actions that refer to said purpose, except those expressly reserved by the trustor, can be exercised in relation to them.
As for the duration of the fideicomiso, those whose duration is greater than fifty years are prohibited, when a non-public entity or charity is designated as a beneficiary. However, they may be constituted for more than fifty years when the object of the trust is the maintenance of museums of a scientific or artistic nature that are not for profit.
Finally, it is important to mention that the constitution of the fideicomiso must always be in writing and if any real state is provided to the trust it must be granted before a notary public.
The steps for its constitution are the following: (i) determine what is the purpose to be done and select the goods you want to dispose of to achieve it (the purpose must be legal and determined); (ii) select who will be the beneficiary or trustee: (iii) choose a fiduciary institution to be in charge of the administration and agree with it the conditions of the administration; (iv) define the duration period (taking into account the limitations that will be analyzed later); and (v) sign the contract with the fiduciary institution.
Regarding the main rules governing its operation, we can enlist the following:
- The fideicomiso constituted in fraud of third parties, can at all times be attacked for nullity by the interested parties.
- The fideicomiso whose purpose is real estate must register with the Property Section of the Public Registry of the place where the assets are located. The trust will take effect against a third party, from the date of registration in the Registry.
- The fideicomiso whose purpose is movable property, will take effect against third party from the date of its registration in the Sole Section of the Sole Registry of Secured Transactions of the Public Registry of Commerce.
- The beneficiary has, in addition to the rights granted to him by virtue of the constitutive act of the fideicomiso, that of enforcing compliance with the fiduciary institution; that of attacking the validity of the acts that it commits in its detriment, in bad faith or in excess of the faculties that by virtue of the constitutive act or of the law corresponds to it, and when it is appropriate, that of claiming the assets that consequence of these acts have left the patrimony object of the trust.
- The fiduciary institution will: have all the rights and actions that are required for the fulfillment of the trust, except for the limitations established when it is constituted; will be obliged to fulfill said trust according to the constitutive act; cannot excuse or renounce his assignment except for serious reasons in the judgment of a judge of first instance of the place of his domicile, and must always act as a good father of family, being responsible for the losses or impairments that the goods suffer because of him.
- The fiduciary institution must register the assets or rights attached to the trust account and keep them separately from their freely available assets.
- Secret fideicomiso and those in which the benefit is granted to successive persons who must be replaced by death of the previous one are prohibited, except in the case that the substitution is made in favor of people who are alive or conceived already, at the death of the trustor.
It is important to mention that the fiduciary institutions have their own regulation issued by the Bank of Mexico through general circulars, which indicate their powers, prohibitions, transparency measures and the obligation they must provide to the Mexican authorities.
With respect to the information that the fideicomiso Institutions must share, in accordance with the general rules issued by the Bank of Mexico, they must provide the Financial System Information Directorate of said institution the information on the fideicomisos that they celebrate or administer in the form and terms that, if applicable, this requires.
Notwithstanding the foregoing, as a general rule, the information related to a fideicomiso agreement has the character of confidentiality under the fiduciary secret regulated in article 142 of the Mexican Credit Institutions Act, according to which, the information and documentation related to the trust operations will be confidential, so that the credit institutions, in protection of the right to privacy of their clients and users, in no case may give news or information of these operations or services, but the trustee, their legal representatives or those who have granted power to intervene in the operation or service.
The Brazilian limited liability company (‘sociedade limitada”) is incorporated through an Articles of Association, which must be duly registered before the local Trade of Commerce. The main characteristics of this corporate structure relates to the responsibility of each shareholder which is limited to the amount of their share capital provided that the capital is fully paid-in. The “sociedade limitada” incorporation does not require a high level of formality to be executed and ordinary KYC documents from the shareholders are required by the Trade of Commerce. Moreover, there is no need to have the financial statements published in official gazettes and statutory auditing is not required as well, except if the company exceeds specifics thresholds on total assets and gross revenue.