Liechtenstein law expressly permits pure family foundations and grants the founder extensive freedom in structuring them. In Switzerland, a validly established Liechtenstein foundation is recognized under civil law. For tax purposes, however, its treatment depends largely on whether it is considered a “controlled” foundation.
Cantonal practice presumes a foundation to be controlled even in the presence of isolated indicators of control and treats it as a transparent entity. In the authors’ view, a foundation’s tax status should only be revoked if tax evasion is present. Liechtenstein, on the other hand, treats a foundation as transparent only if the founder has reserved the right of revocation.
Under the CH-FL Double Taxation Agreement, a Liechtenstein foundation is considered resident—and thus entitled to a refund of withholding tax—only if there are no rights of revocation, amendment, or instruction, nor any enforceable claims by the beneficiaries, and if it is not taxed as a private asset structure.
For a settlor resident in Lucerne, the tax consequences depend significantly on how the foundation is classified. If it is considered a controlled foundation, assets and income continue to be attributed to the settlor. Otherwise, they are attributed to the foundation itself or, in the case of a fixed group of beneficiaries, to the beneficiaries. This determines, in particular, which estate tax rate applies and whether the municipal inheritance tax on descendants must be taken into account. Furthermore, the retroactive estate tax on gifts made within five years prior to the founder’s death must always be considered. If Switzerland and Liechtenstein treat the foundation differently or if beneficiaries are resident abroad, there is also a risk of double taxation.
Given the unclear legal situation, it is advisable to secure the tax treatment in advance through tax rulings in Switzerland and Liechtenstein.
