Simon Mitchell, attorney and consultant to Mayfair Trust Group, examines the Seychelles trusts and foundations and considers how they are ensuring the jurisdiction continues to make ‘extraordinary progress’ as an IFC.
Over the last 15 years, Seychelles has made quite extraordinary progress as an international financial centre. There are over 60 licensed corporate service providers operating in Seychelles and an impressive 80,000 Seychelles IBCs (tax exempt companies incorporated under the International Business Companies Act 1994) have been incorporated. The success of the IBC has paved the way for more value-added financial services products. In this article I examine Seychelles trusts and, in particular, foundations.
Seychelles trusts are proving to be increasingly popular in the global offshore trust market, especially irrevocable discretionary trusts for high-net worth families. Trusts under Seychelles law have a statutory basis, namely, the International Trusts Act 1994. English and other Commonwealth trust case law is persuasive, but not binding, in Seychelles courts.
As well as the usual Common law trust features, the International Trusts Act 1994 puts in place robust asset protection provisions (beyond that offered by general insolvency law) protecting dispositions to a trust from challenge from creditors of the settler, and a two-year statute of limitations for creditors’ claims. Specific provision is also made for exclusion of foreign inheritance laws.
Although the trust deed is not filed with any Seychelles’ government registry or department, a Seychelles trust is ‘registered’ with the Seychelles International Business Authority and a registration number is allocated to the trust. There is no requirement to file particulars of the settlor or the beneficiaries (except for any beneficiaries who are Seychellois nationals) with any Seychelles’ government registry or department. There is a requirement that at least one of the trustees of a Seychelles trust must be a licensed resident trustee. There are no Seychelles law restrictions on having a non-resident as a co-trustee and a Seychelles trust is not subject to tax in Seychelles in respect of foreign sourced income or profits.
While Seychelles trusts are already very attractive, particularly from an asset-protection perspective, government is presently reviewing the International Trusts Act 1994 with a view to modernising and enhancing Seychelles trust law. Proposed amendments to the law being considered include:
As a trust is managed and controlled by the trustee (rather than the settlor) and the assets of a valid trust are owned by the trustee (and do not form part of the settlor’s personal property), trusts are commonly used for tax and succession planning as well as for risk management purposes. In general terms, both trusts and foundations share the common characteristic of providing a legal means for a person to divest himself of legal ownership of assets while still retaining some influence over the way the assets are enjoyed and distributed.
While use of foundations for wealth management purposes was pioneered in civil law jurisdictions (including Liechtenstein, Panama, Netherland Antilles and Austria), in recent years a growing number of common law jurisdictions have introduced foundation legislation (including Jersey, Bahamas and Anguilla). Notwithstanding that use of foundations continues to primarily be in civil law jurisdictions (partly due to issues over legal recognition and tax treatment in some Common law countries), interest in foundations for wealth management purposes is certainly on the increase around the world.
Indeed, with the steadily increasing global emphasis in exchange of information, I think we will see a shift from high-net wealth individuals simply focusing on “mere” IBC usage to more robust legal structures comprising trusts and foundations with offshore companies.
While trusts will continue to be popular in many markets, it is easy to see why many professional advisors are increasingly promoting foundations, especially in some of the larger emerging markets, including China and Russia. Significant factors in the attractiveness of the foundation over the trust include:
The Foundations Act 2009 (the Act) added the foundation to Seychelles’ financial services product repertoire.
A foundation is a separate legal entity, which may hold property in its own right (in contrast to a trust, which may only operate and own property through a trustee). Once the founder of a foundation transfers assets to the foundation, those assets become the sole property of the foundation. As neither the founder nor beneficiaries of a foundation have any ownership interest in foundation assets and as management and control of a foundation is typically with the foundation’s council (which may be located in a tax-favourable jurisdiction), a foundation is a highly useful entity for tax planning, asset protection, wealth management and “outside estate” succession planning.
A Seychelles foundation is established by a charter made in writing and signed by one or more founders and on the issuance of a certificate of registration by the Seychelles International Business Authority (SIBA) upon registration of the foundation under the Act. The sole document to be filed when applying for registration of a Seychelles foundation is the foundation’s charter. On registration, a foundation is a separate legal entity. A competitive fee of US$200 is payable to SIBA on establishment of a Seychelles foundation and an annual renewal fee of US$200 is payable annually thereafter to the Registry (due on the day before the foundation’s initial registration anniversary date).
In contrast to other jurisdictions, which impose a higher initial asset value requirement, the assets of a Seychelles foundation must be of a value of not less than US$1 or the equivalent in any other currency. The initial assets may be endowed after registration of a foundation. Also unlike in other foundation jurisdictions, it is not mandatory to state in the charter, or to otherwise file at the Registry, the names of the councillors of a Seychelles foundation. This preserves privacy, in that the filed charter is accessible by public search. Additionally, it is not obligatory to state in the charter, or to otherwise file at the Registry, the names of the beneficiaries. While the charter of a foundation is required to be filed at the Registry, there is no requirement to file a foundation’s regulations. While a foundation must have a charter, it may adopt regulations. A foundation will commonly adopt regulations to ensure that matters pertaining to foundation beneficiaries and distribution entitlements remain non-public.
The objects of a Seychelles foundation may be charitable, non-charitable or both, and may be to benefit a beneficiary or beneficiaries, or to carry out a specified purpose, or to do both. A foundation’s objects must include the management of the foundation’s assets and income and the distribution thereof to its beneficiaries or, in the case of a foundation which has a specified purpose, in fulfillment of that specified purpose.
A foundation’s council manages the foundation and is responsible for carrying out the foundation’s objects, including the administration and distribution of the foundation’s assets. A Seychelles foundation must have a minimum of one councillor, who may be a natural person or corporate entity. A founder may be a councillor, but a founder cannot be a sole councillor. A protector of a foundation may be a councillor, but a protector cannot be a sole councillor. In contrast to a number of other jurisdictions, there is no mandatory requirement for the appointment of a Seychelles resident and licensed councillor. A Seychelles foundation must have a registered agent in Seychelles, being a company licensed by SIBA to conduct foundation services.
A foundation is exempt from Seychelles business tax on its income and is exempt from Seychelles withholding tax, social security contributions and stamp duty (except in relation to any permitted lease of Seychelles real estate for own office use). A foundation may own assets worldwide. However, the assets of a foundation may not include any Seychelles real estate or other Seychelles property (subject to various exceptions under the Act, including shares in Seychelles IBCs, interests under a Seychelles trust, limited partnership or another foundation, or a Seychelles bank account, etc).
The founder of a Seychelles foundation is the person who subscribes his name to the charter establishing a foundation, acting either on that person’s own account or on behalf of another, and who endows the foundation with its initial assets. Consequently, nominee founders are permissible. In common with other foundation jurisdictions, it is mandatory to state the name of the founder in the charter. As a foundation’s charter is filed at the Registry (and is therefore publicly accessible), a nominee founder is commonly used to enhance privacy. A founder may be a natural person or a corporate entity, and a founder may be a foundation beneficiary but not the sole beneficiary. A founder may reserve, in the foundation charter or regulations, to the founder or for other persons, various rights – such as the right to approve investment activities of the foundation and the right to appoint or remove councillors, protectors and beneficiaries. The founder may, in the foundation charter or by written instrument, assign or transfer all or any part of his rights, powers and obligations as founder to such person or persons as the founder shall determine.
The appointment of a protector (otherwise known as a guardian) is optional. A protector may be a natural or legal person. Typically, where appointed, a protector is given limited veto power in that the protector’s prior approval will be required in respect of certain foundation decisions, such as the addition or removal of a beneficiary or councillor. A founder, beneficiary or councillor of a foundation may be appointed as a protector, but a sole councillor or a sole beneficiary may not act as a protector. If required, the appointment of a protector may be effected by a foundation’s regulations, so that the protector’s identity is not publicly accessible (as a foundation’s regulations, unlike its charter, are not filed at the Registry).
Seychelles foundation assets are the property of the foundation only, that is, neither the founder nor the beneficiaries have any ownership interest in foundation assets. Once a founder has transferred assets to a foundation, those assets belong solely to the foundation and cease to be property of the founder. Foundation assets do not become the assets of a beneficiary unless distributed in accordance with the provisions of the foundation’s charter or regulations. The Act further provides robust foundation asset protection, as follows:
While a Seychelles foundation is required to keep proper books of account and records as its council considers necessary in order to reflect the financial position of the foundation, it is not subject to a mandatory annual audit requirement or to any requirement to file financial accounts in Seychelles. The Act provides for continuation of foreign foundations in Seychelles and for continuation of Seychelles foundations overseas. The Act also provides for two or more existing foundations to consolidate into a new foundation and for an existing foundation to merge into another existing foundation.
In conclusion, the Seychelles foundation is an innovative and robust yet versatile entity, with various competitive advantages, including strong asset protection features, ease of formation and administration, value for money and privacy.
Simon Mitchell, Seychelles Attorney-at-Law and Consultant to Mayfair Trust Group Limited, Seychelles