Lindemann Law

Why Zurich with changes of tax practice has become most attractive location for charitable foundations?

Switzerland is renowned for its political stability and economic robustness, offering exceptional conditions for charitable organizations. Zurich, distinguished by its role as an international financial hub, leads this narrative. The ongoing refinement of Zurich’s legal and regulatory landscape significantly elevates its desirability, fostering a conducive atmosphere for philanthropic endeavors to thrive.

What makes Zurich an appealing location for charitable foundations?
Zurich’s charm as a haven for charitable foundations is multi-dimensional, anchored in its global financial supremacy. Of the more than 13,000 charitable foundations in Switzerland, Zurich hosts 2,219, managing assets surpassing CHF 18 billion. This prominence is attributed to the city’s supportive political, economic, and regulatory environment, specifically tailored to encourage philanthropic advancement and innovation.

How do charitable foundations contribute to Swiss society?
Charitable foundations are indispensable to Swiss society, bolstering initiatives in the arts, culture, science, and social welfare, thereby enhancing state initiatives. Their influence extends to stimulating innovation, enabling social investment, and venturing into venture capitalism, significantly benefiting Zurich’s and Switzerland’s socio-economic landscape.

What are the basic principles and tax exemptions for charitable foundations in Switzerland?
Swiss foundations, unique for lacking ownership or membership, enable founders to eternally allocate assets to selected causes. Governed primarily by a foundation board and monitored by a supervisory authority, these entities ensure that assets are utilized in alignment with the foundation’s purpose.

Engaging with cantonal tax authorities prior to establishment is essential for tax exemption considerations, especially for foundations focused on public or charitable acts. This exemption, based on the principle of not taxing private initiatives that alleviate state responsibilities, depends on the varying cantonal interpretations of “charitable” and is guided by legal and administrative directives.

How has Zurich’s Tax Office practice changed regarding foundation Board Member compensation?
Zurich’s Cantonal tax policy changes has started 1.February 2024, permitting charitable foundations to appropriately compensate their board members without compromising their tax-exempt status. This represents a significant shift from the erstwhile norm of voluntary service.

The Swiss Civil Code mandates that compensation for foundation board members align with the foundation’s goals and not constitute fund misuse, with the supervisory authorities ensuring compliance. Zurich’s Tax Office will rely on the supervisory authority’s approval unless there’s suspicion of excessive compensation, at which point it may undertake its own evaluation.

This update reflects the legal allowance for compensating non-profit entity managers and acknowledges the substantial responsibilities shouldered by board members. Zurich’s progressive stance sets it apart from other cantons that still adhere to uncompensated board service.

What is Zurich’s stance on international activities of charitable foundations?
Zurich has modernized its tax guidelines, treating international charitable activities on equal footing with domestic ones, thus supporting global philanthropic efforts. This approach is contingent on the activities aligning with Swiss values and potentially benefiting Switzerland.

For tax exemption eligibility, international projects must be meticulously documented, showing clear fund transfers to the intended foreign beneficiaries. Zurich’s Tax Office is committed to ensuring compliance in collaboration with supervisory authorities. 

How does Zurich accommodate entrepreneurial funding models in charitable foundations?
Zurich’s Tax Office endorses entrepreneurial funding models, such as Social Impact Bonds and participatory investments, maintaining a foundation’s tax-exempt status. These ventures are allowed as long as they focus on areas devoid of commercial interest, with the stipulation that any returns support the foundation’s charitable objectives.

This policy encourages foundations to partake in entrepreneurial philanthropy, backing social enterprises that might offer financial returns without engaging in direct market competition.

To optimize your foundation’s impact in Zurich’s dynamic landscape, consider partnering with LINDEMANNLAW. Our deep expertise in Swiss philanthropic sector will provide your foundation with tailored strategies necessary for thriving in Zurich’s vibrant philanthropic environment.

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