Setting Up a Foundation in Guernsey: Charitable and Private Structures

Guernsey Foundations: A Hybrid Vehicle

The Foundations (Guernsey) Law 2012 introduced a foundation regime that combines the flexibility of a trust with the separate legal personality of a company. This hybrid vehicle has no direct equivalent in English law and draws on civil law foundation concepts found in Liechtenstein, Panama, and the Netherlands.

A Guernsey foundation is a legal entity (not a contractual arrangement like a trust) that:

• Has its own legal personality, separate from its founder, councillors, and beneficiaries
• Can own assets, enter into contracts, and sue or be sued in its own name
• Is governed by a charter (equivalent to articles of incorporation) and rules (equivalent to by-laws)
• May exist for the benefit of named or ascertainable beneficiaries, or for any lawful purpose (including non-charitable purposes)
• Has no shareholders or members — it is an "ownerless" entity

Types of Guernsey Foundation

Charitable Foundations

Guernsey foundations can be established for exclusively charitable purposes. Charitable foundations must be registered with the Guernsey Registry and are subject to oversight provisions to ensure that the foundation's activities are consistent with its charitable objects.

Private Foundations

Private foundations may be established for:

• Wealth succession — as an alternative to a trust for passing wealth to the next generation
• Family governance — providing a formal governance structure (council, guardian, protector) for managing family wealth and making distribution decisions
• Corporate holding — holding shares in operating companies or investment vehicles where an "ownerless" entity is required (e.g., orphan structures in securitisation)
• Mixed purposes — combining charitable and private objectives (unlike a trust, which must generally be wholly charitable or wholly private)

Purpose Foundations

Like Guernsey's Purpose Trusts Act, the Foundations Law permits foundations to exist for specified purposes without any ascertainable beneficiaries. A purpose foundation must have a guardian appointed to enforce the foundation's purposes.

Governance Structure

A Guernsey foundation is governed by a council (equivalent to a board of directors), which is responsible for:

• Managing the foundation's assets
• Making distributions to beneficiaries (if any)
• Carrying out the foundation's purposes
• Complying with the foundation's charter and rules

Council Members

• A foundation must have at least two council members
• There is no requirement for council members to be Guernsey-resident (though substance considerations may require it)
• Council members may be individuals or corporate entities

Guardian

A foundation may (and in some cases must) appoint a guardian — a person responsible for:

• Overseeing the council's compliance with the charter and rules
• Enforcing the foundation's purposes (particularly important for purpose foundations without beneficiaries)
• Approving or vetoing significant council decisions (if the charter so provides)

Founder

The founder is the person who establishes the foundation by signing the charter and endowing the initial assets. The founder may:

• Reserve powers (similar to a settlor's reserved powers in a trust)
• Be a council member
• Be a beneficiary
• Retain the power to amend the charter and rules (if the charter so provides)

Formation Process

Step 1: Draft the Charter and Rules

The charter is the public document that establishes the foundation. It must include:

• The foundation's name (which must include "Foundation" or an approved abbreviation)
• The foundation's objects or purposes
• The initial endowment
• The names of the initial council members
• The registered office address in Guernsey

The rules are the private document (not publicly filed) that sets out the detailed governance provisions, distribution policies, and succession arrangements.

Step 2: Register with the Guernsey Registry

The charter is filed with the Guernsey Registry together with:

• A registration fee of £200
• A declaration of compliance by a Guernsey advocate or authorised service provider

Step 3: Endow the Foundation

The founder transfers the initial endowment (assets) to the foundation. There is no minimum endowment — a nominal amount is sufficient at incorporation, with further assets transferred subsequently.

Timeline

Registration is typically completed within 3-5 business days from submission of a complete application.

Tax Treatment

A Guernsey foundation is treated as a company for tax purposes under the Income Tax (Guernsey) Law 1975. It is therefore subject to the standard corporate tax rate of 0% (unless it derives income from banking, regulated financial services, Guernsey property, or cannabis cultivation).

• No capital gains tax on the disposal of foundation assets
• No withholding tax on distributions to beneficiaries or payments to third parties
• No inheritance tax or estate duty
• No stamp duty on the endowment or transfer of assets to/from the foundation

International Tax Considerations

The tax treatment of a Guernsey foundation in the founder's or beneficiaries' home jurisdictions is critical:

• UK: HMRC may treat a Guernsey foundation as a trust or a company depending on its characteristics. If treated as a trust, the relevant property regime (IHT) and attribution rules (CGT) may apply. If treated as an opaque entity, the CFC rules may apply
• Civil law jurisdictions: Foundations are well-understood in civil law countries (Germany, Switzerland, Netherlands) and are generally treated as separate taxable entities
• CRS reporting: Guernsey foundations are classified as either Financial Institutions or Passive NFEs under CRS, depending on their activities, and must report accordingly

Foundation vs Trust: When to Choose Each

Feature	Guernsey Foundation	Guernsey Trust
Legal personality	Yes — separate entity	No — relationship between persons
Public registration	Charter is publicly filed	Trust deed is private
Governance	Council (formal, structured)	Trustee (flexible, fiduciary)
Beneficiaries required	No (purpose foundations permitted)	No (purpose trusts permitted)
Founder's reserved powers	Expressly permitted	Permitted under Trusts Act 1995
Perpetuity period	No limit (perpetual)	150 years
Familiarity	Preferred by civil law clients	Preferred by common law clients
Asset protection	Firewall provisions in Foundations Law	Firewall provisions in Trusts Act

Common Use Cases

Succession Planning for Civil Law Families

Families from civil law jurisdictions (Germany, France, Middle East) often prefer foundations over trusts because the foundation concept is more familiar and better understood by their local tax advisers and courts.

Orphan SPV Structures

In securitisation and structured finance, a Guernsey purpose foundation can hold the shares of an SPV, providing bankruptcy remoteness without the need for a trust or nominee shareholder arrangement.

Philanthropy

Charitable foundations provide a governance framework for philanthropic activities that is more structured than a charitable trust, with a formal council, guardian oversight, and (if desired) public accountability through the filed charter.

Key Takeaways

• The Foundations (Guernsey) Law 2012 provides a hybrid vehicle with separate legal personality and trust-like flexibility
• Foundations can serve charitable, private, or mixed purposes — with no requirement for beneficiaries
• Formation takes 3-5 business days with a registration fee of £200
• 0% corporate tax rate, no capital gains tax, no withholding taxes, and no inheritance tax
• Foundations are perpetual — no statutory perpetuity period applies
• Preferred by civil law families and for orphan SPV structures where separate legal personality is advantageous