What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?

Private Client (3rd edition)

Colombia Small Flag Colombia

In Colombia, charitable projects are usually carried out with foundations in Colombia. Foundations are characterised as the union of assets dedicated to a social benefit activity.

Foundations are incorporated either through a private document or a deed of foundation, with compliance of requirements established by law. These must be registered before the chamber of commerce of the entity’s domicile. The governor of the corresponding jurisdiction (or the mayor, in the case of Bogota) exercises surveillance and control over foundations. Specific documents must also be filed before these entities.

Italy Small Flag Italy

Philanthropic and not- profit activities are usually carried out in Italy by Italian foundations and associations (see also18). Furthermore, under the new Law No. 216 dated 6 June 2016 (hereinafter, “Third Sector Reform Law”) foundations, associations and other private entities other than companies, upon certain conditions, can assume the status third sector entities (hereinafter, “TSE”) which is relevant for tax purposes since it allows benefitting from several favourable tax reliefs. However, please note that currently the Third Sector Reform Law has not been fully implemented due to i) the lack of the implementation of the national TSE register and ii) the issuance of the European Commission’s authorization concerning the tax treatment.

Cyprus Small Flag Cyprus

The most commonly established forms of entities for charitable, philanthropic or non for profit purposes are the Associations and Foundations (according to the new Associations and Foundations Law (104(I)/2017)), the Charitable Trusts (in accordance with the Charities Law, Cap 41) and the private non for profit companies (registered in accordance with the Companies Law, Cap 113).

Hong Kong Small Flag Hong Kong

a. In Hong Kong, a charity can be established through one of the following structures:

i. a company incorporated under the Companies Ordinance (CO). It could be a company limited by shares or by guarantee or a company incorporated overseas and registered under CO.
ii. an unincorporated association which may or may not be required to be registered under the Societies Ordinance;
iii. a trust; or
iv. a statutory body established under a specific Hong Kong Ordinance.

b. For an institution or a trust to be considered “a charity”, it must be established for purposes which are exclusively charitable. The purpose of which must be one or more of the following:

• the relief of poverty;
• the advancement of education;
• the advancement of religion; and
• other purposes of a charitable nature beneficial to the community not falling under any of the preceding heads

c. Charities would need to separately make an application to the Commissioner of Inland Revenue pursuant to Section 88 of the Inland Revenue Ordinance to obtain tax exemption status.

Mexico Small Flag Mexico

In Mexico, two types of moral persons can be constituted for charitable or philanthropic purposes: the civil association (“A.C.”) and the private assistance institution (“I.A.P.”).

A civil association is a non-profit private entity with full juridical personality made up of individuals for the fulfillment of cultural, educational, dissemination, sports or similar purposes, in order to promote among its members and / or third parties any social activity.

The steps to constitute a civil association are the same as those regulated to constitute any entity in Mexico and basically consist of the following:

  • The association must be made up of at least two people, who must be natural persons in accordance with the Mexican Federal Civil Code.
  • The corporate name or name of the association must be chosen, which must be registered before the Ministry of Economy of the Mexican federal government.
  • The statutes of the association must be drawn up, where the corporate purpose must be indicated. The corporate purpose cannot pursue lucrative purposes.
  • These statutes must be notarized before a notary public.

Regarding their administration, these associations may have an individual or collegiate administrative body, which shall be called Director or Directors, without having any additional requirements for their appointment.

Finally, it should be noted as to the heritage of these associations that unless they are authorized as an authorized grantee (“donatarias autorizadas”), they may freely acquire, dispose of and / or tax their assets, without requiring any prior authorization or have to give some notice or notification in this regard.

For their part, people who want to perform philanthropic or welfare work in Mexico can also do so through a private assistance institution.

Like public associations, private assistance institutions are also legal entities intended for assistance, with the following differences:

  • Social object, it is important to distinguish that private welfare institutions, unlike a civil association, which may have other purposes, comply solely welfare purposes.
  • As for its form of constitution, the A.C. do not require authorization or special permission to be constituted, instead the I.A.P. needs to obtain the prior approval of their bylaws by the Private Assistance Board, a work plan must be added, and they must be subsequently notarized and registered in the Public Registry of Legal Entities of its City.
  • Regarding its Social Reason, in the constitution of the A.C. the corresponding authorization must be requested from the Ministry of Economy, unlike the I.A.P. where the request is made directly before the Private Assistance Board, who will give a reply within 15 working days.
  • Regarding its Heritage, in the I.A.P., the members cannot alienate immovable property of the institution without prior authorization from the Board of Private Assistance.

Finally, it is important to mention that both types of companies can obtain authorization from the tax authorities to receive tax-deductible donations for the persons who perform them, provided that they process their authorization to be an authorized grantee (“Donataria Autorizada”) before the tax administration service.

India Small Flag India

There are three types of entities that are commonly used for charitable purposes i.e. a public trust, a charitable company or a society. Establishing a society is not often preferred by individuals as it requires a minimum of seven persons to associate for charitable purposes. Private individual philanthropists prefer establishing a public trust or a company registered under section 8 of the Companies Act, 2013.

The procedure to set up a public trust depends on the state in which the trust is to be set up. For example, if a public charitable trust is in the state of Maharashtra or Rajasthan, then it is to be registered by the charity commissioner and regulated under the respective state acts. Charity commissioners are provided with wide powers of oversight and control with respect to the operation and management of the public trust. Various states do not have any legislation governing public trusts and the trust would merely have to be set up through a trust deed registered under the Registration Act, 1908.

With respect to a charitable company, an application for registration under section 8 of the Companies Act, 2013 is to be made before the registrar of companies. A registration is granted provided the company is for specific objects (such as promotion of art, education, social welfare, religion, charity, etc.), the profits are to be applied for promoting such objects and payment of dividends are prohibited. The company is also highly regulated and is subject to various compliances.

Liechtenstein Small Flag Liechtenstein

Charitable trusts and charitable foundations (whether purely or preponderantly charitable) are the most common legal forms used for the pursuit of charitable purposes in Liechtenstein. Besides these, other legal forms (in particular, establishments or trust enterprises) may also be considered for charitable purposes. Under Liechtenstein law, purposes are regarded as charitable if the intended activities of the trust or foundation foster the public benefit in charitable, religious, humanitarian, scientific, cultural, moral, social, sporting or ecological fields, even if the activities are only in favour of a determined circle of persons.

The minimum statutory capital for a charitable foundation is CHF 30,000. Charitable foundations must have an auditor who is appointed by the court upon proposal by the founder. Charitable foundations come into existence upon entry in the Commercial Register and are subject to supervision by the Foundation Supervisory Authority ("Stiftungsaufsichtsbehörde").

As opposed to charitable foundations, there is no minimum capital or minimum trust fund required for charitable trusts. A charitable trust is created by

– a written instrument (trust deed) between the settlor and the trustee;
– a written unilateral declaration by the settlor, which must be followed up by a written acceptance by the trustee; or
– a will;
and, in each case, the transfer of the trust property to the trustee.

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 deposited with the Commercial Register within twelve months from its formation. The Liechtenstein courts as the supervisory authority have jurisdiction over a trustee of a Liechtenstein trust (whether charitable or not).

Monaco Small Flag Monaco

Foundations and associations are the most common charitable / philanthropic structures in Monaco.

Both require administrative approval and foundations also require a declaration of intent before a notary.

Poland Small Flag Poland

Polish law enables setting up, operating and managing foundations established for charitable and socially-approved reasons, such as health and safety, development of economy and science, education, culture and arts, social welfare, environmental safety or protection of historical monuments.

Foundations may be established both by individuals and legal persons; an appropriate declaration of intent must be made in the form of a notarial deed. Foundations acquire legal personality and come into existence upon being entered in the National Court Register (KRS). They are subject to supervision by the relevant Ministry in terms of the foundation’s scope of operations and business objects.

A foundation operates in accordance with applicable regulations (Act on Foundations) and its statute, being represented by the members of its management board.

Portugal Small Flag Portugal

Philanthropic or charitable entities usually take the legal form of associations or foundations. Conversely to what occurs with associations, the creation of a foundation is subject to an authorization procedure.

Please refer to point 6 above.

Russia Small Flag Russia

There is no special form for charitable entities. For charitable purposes citizens may establish funds, public organisations (associations), institutions, etc. They are registered by the Ministry of Justice and regulated by the Federal Law on Charitable Activities and Charitable Organizations. The following documents shall be submitted to the Ministry of Justice or its territorial body when setting up the charity for a revision which may take up to a month:

  • duly signed application for registration;
  • constitutional documents;
  • organisational minutes establishing the organisation, approving constitutional documents and appointing governing bodies;
  • information on the founders including documents confirming the legal status of the founder(s) if the founder(s) is a foreign national;
  • permanent address (location) through which communication is to be carried out with the organisation;
  • confirmation of entitlement for the use of intellectual property (in specific cases of use in the name of the organisation);
  • confirmation of payment of the state fee.

Serbia Small Flag Serbia

Please see answer to question No. 18.

Switzerland Small Flag Switzerland

In Switzerland, charitable foundations and associations are vehicles used for philanthropic endeavours.

Over 13,000 charitable foundations exist in Switzerland. Foundations are legal entities registered with the commercial register and supervised by a supervisory authority. They are established by endowment of assets for a particular charitable purpose, either by way of a public deed or by testamentary disposition. Once established, the assets become independent of their founder. The foundation has no shareholders or specific beneficiaries.

Swiss charitable foundations and associations can apply for tax exemption.

United States Small Flag United States

Individuals in the US commonly establish private grant-making foundations, private operating foundations, public charities, and supporting organizations, which are tax-exempt charitable organizations typically structured as either charitable trusts or nonprofit corporations. Individuals may also establish split-interest trusts, which are trust arrangements that allow individuals to make charitable contributions of property, while retaining (or transferring to non-charitable beneficiaries) a temporal interest in the property transferred.

Private grant-making foundations are nonprofit organizations primarily funded by one donor, family or business. The private foundation’s endowment is invested to generate returns, and the foundation uses its endowment to fund its operations and to make grants to other charitable organizations chosen by the foundation’s governing body.

Private operating foundations are private foundations that directly conduct charitable activities. Examples of private operating foundations include certain museums, zoos, and libraries that do not receive substantial support from donations by the general public.

Public charities are publicly-supported organizations, meaning that they receive significant support in the form of contributions from government units and/or the general public. Public charities make grants to other charitable organizations and directly provide charitable services.

Supporting organizations are charitable organizations that support one or more public charities by providing them with financial resources and/or conducting charitable activities that the public charities would otherwise have to undertake themselves.

To establish a private grant-making foundation, private operating foundation, supporting organization, or public charity, an individual must first establish a legally-recognized trust or corporation in the state in which the charitable entity will be located. Then, to receive federal tax-exempt status, the individual must apply for recognition of exemption from the IRS.

Split-interest trusts are trust arrangements in which an individual retains (or transfers to non-charitable beneficiaries) either an income interest for life or a term of years or a remainder interest in the trust property, while passing the other trust interest to a charitable organization. The individual may receive income, gift and estate tax charitable deductions for the present value of the property that is expected to pass to charity. In order to establish a split-interest trust, an individual need only create a legally valid trust arrangement, but there are strict rules regarding the language required in the Trust Deed.

Singapore Small Flag Singapore

The three most common legal structures for non-profit organisations in Singapore are that of (i) a society, (ii) a company limited by guarantee (“CLG”) or (iii) a charitable trust.

Of the three, only CLGs benefit from limited liability (limited to such an amount that the members had guaranteed to contribute to the assets of the company in the event that it is wound up). CLGs may also be registered as charities, allowing them to benefit from income tax exemptions. However, CLGs also suffer from a greater number of administrative requirements in their setting up, including the need for a registered office, requirements as to directors and more complex annual reporting requirements.

Like CLGs, societies may be registered as charities and benefit from the associated tax exemptions. An advantage that societies have over charities is their fewer administrative requirements (for example, their officers are not subject to statutory qualifications). However, societies do not have a separate legal identity from their members and members may be personally liable for any liability incurred.

Finally, charitable trusts are a useful structure for the investment and disbursements of assets for the purpose of charity. They also benefit from limited public disclosure and tighter control; generally, there need not be an auditor or audited financial statements unless required by the trust deed, and control resides entirely with the trustees. Like societies, however, charitable trusts have no independent legal personality and trustees must bear all legal liabilities.

Oftentimes, it is not just a question of selecting a structure for the charitable intents of the client. Charities and the manner of giving have developed over the years and many clients’ philanthropic objects have devolved beyond the traditional concept of giving. Most charities presently include the concept of empowerment: giving in a manner such that the project would generate profit to be self-sustaining, or running a social enterprise that will benefit the underprivileged without sacrificing profits entirely. A structure would thus have to be created to allow such entrepreneurial intents whilst capitalising on the incentive schemes and benefits that a charity is entitled to.

Israel Small Flag Israel

There are four legally recognised structures for not-for-profit, philanthropy and charity purposes in Israel: (a) an “amutah'” (a traditional not-for-profit organisation), (b) a charitable company (a non-profit organisation registered as an Israeli corporation), (c) a public '“hekdesh”' (similar to a charitable trust) and (d) a charitable fund (a not-for-profit Israeli corporation aimed at providing grants).

As all these structures are regulated by the Israeli Registrar of Associations - Non-Profit Organisations, and are subject to the same taxation regulations as well as an extensive filing and audits regime, the actual structure of incorporation depends upon whether a separate legal personality is required and the preferred source of law governing the creation of the structure, namely: (a) an “amutah” has a separate legal personality, and is governed by the Amutot Law, 5740 – 1980; (b) a Charitable Company has a separate legal personality similarly to a corporation, and is governed by the Companies Law, 5759 – 1999; (c) a public “hekdesh”, which is a form of charitable trust, does not have a separate legal personality, and is governed by the Israeli Trust Law; and (iv) a charitable fund has a separate legal personality as a corporation, and is governed by the Companies Law, 5759 – 1999.

Hence, sophisticated donors seeking flexibility in terms of ability to retain their control as well as access to up-to-date solutions, usually prefer to incorporate a charitable company or a charitable fund. However, if the not-for-profit organisation is intended to include many members of the public, it is recommended to use an “amutah”, which is easier to manage where a large number of members are involved.

Nonetheless, all four structures require extensive reporting and are subject to extensive scrutiny by the Registrar and the public; hence, a donor that only wishes to provide grants to other not-for-profit organisations may wish to refrain from incorporating or forming any charitable structure while he or she is alive, and to set up a testamentary charitable trust (i.e., a public “hekdesh”) in his or her will.

France Small Flag France

France also strictly controls charitable and philanthropic matters. This is the main reason why it is not a common practice for French resident individuals to establish charitable trusts, company or philanthropic foundations subject to French law.

However, very wealthy individuals wishing to establish charitable or philanthropic structures may consider creating charitable trusts or philanthropic foundations governed by laws of countries (other than France) which encourage private charitable initiatives.

Germany Small Flag Germany

There are three main forms of charitable organisations:

  • Registered associations;
  • Charitable foundations; and
  • Charitable limited liability companies (“gGmbH”).

Charitable organisations in Germany are fully tax privileged. Their recognition requires that the organisation’s activities are dedicated to the altruistic advancement of the general public in material, spiritual or moral aspects. There purposes must be pursued altruistically, exclusively and directly.

United Kingdom Small Flag United Kingdom

26.1 The simplest form of English charity is the charitable trust (§19.2). The named trustees (§19.2) hold and control the assets of the charity in their personal names but must use them for exclusively charitable purposes in accordance with the terms of the trust. This arrangement is suitable for the simplest charities, particularly those which are grant making, do not pursue charitable activities themselves, and will not have employees or own land.

26.2 Another common form of English charity is a charitable incorporated organisation ("CIO"), which is like a charitable company (§26.3) but is regulated only by the Charity Commission for England and Wales (§26.5). The compliance obligations falling on a CIO are somewhat lighter than those falling on a charitable company. A CIO only comes into existence once it has been registered with the Charity Commission for England and Wales, which can take several months.

26.3 Another common form of English charity is a charitable company limited by guarantee. This form is generally less attractive than a CIO (§26.2) because it is regulated by both the Charity Commission for England and Wales (§26.5) and Companies House and filings must be made to both bodies. However, unlike a CIO, a charitable company limited by guarantee can be established very quickly and is a familiar form of legal entity recognised around the world.

26.4 Whatever form is chosen, a trust or body is not a charity for the purposes of English law unless it is established (and its constitutional document requires its property to be used) only for one or more of the statutory purposes and only for the public benefit. The statutory purposes include the relief of poverty, and the advancement of education, religion, health, and the arts, and may be carried on anywhere in the world.

26.5 The Charity Commission for England and Wales is the body responsible for the regulation of charities in England and Wales. Most English charities with an annual income over £5,000 must be registered with and send annual filings to the Commission, which maintains a public register including for each registered charity the names of its trustees, its charitable purposes, and copies of its filed accounts.

Updated: January 17, 2020