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8 September 2020

Swiss Charitable Foundations

The Swiss charitable foundation is an asset planning tool suitable for international philanthropists. It offers a globally recognised solution for private assets that benefits society as a whole. Swiss foundations enjoy great freedom in terms of structure and governance. For this reason, Switzerland is usually regarded as the jurisdiction of choice for the establishment of charitable foundations, particularly among non-Swiss founders such as international families and large charitable institutions or corporations.


Legal Characteristics

Overview of the Legal Framework

The Swiss legal framework for charitable foundations is provided by the following set of civil and tax rules:

  • The Swiss Civil Code (see Articles 80 to 89bis);
  • The Swiss Federal Income Tax Act (see Article 56(g));
  • The Swiss Federal Act on the Harmonization of Income and Wealth Taxes of Cantons and Municipalities (see Article 23(1)(f);
  • Circular No. 12 of the Federal Tax Administration of 8 July 1994, and Guidelines of 18 January 2008 issued by the Swiss Tax Conference for cantonal tax authorities.


The incorporation of a foundation requires the assignment of assets for a specific purpose. The purpose can be of any kind, provided that it is lawful, and neither impossible nor immoral. 

There must be a reasonable relationship between the assigned assets and the purpose to be pursued. According to the practice of the Federal Supervising Authorities on Foundations, the initial capital must be at least CHF 50,000. The assets transferred to a foundation can be of any kind (cash, securities, real estate, corporations, intellectual property, etc.)

Form of Incorporation

A foundation is incorporated either by a public deed or a testamentary disposition (last will and testament or inheritance agreement). The foundation is entered into the commercial registry based on the Foundation Charter and indicating the members of the Foundation Council.


The Foundation Charter must indicate the organs of the foundation and the nature of its administration. For the most part, the foundation is free to determine its own organisation. The way the foundation is organised can be set down in more or less detail, depending on the needs of the foundation. However, it is important that the organisation fosters the most efficient use of the foundation’s funds. The superior organ within a foundation is the Foundation Council, which is responsible for the supervision of the foundation’s business. The Foundation Council assumes all competences which are not expressly delegated to another body either in the Foundation Charter or the respective regulations.

It is common practice that a Foundation Council consists of at least three natural persons or legal entities. Foundations with an international character must have at least one member of the foundation council with sole signature rights who is a citizen of Switzerland or any member state of the European Union and resident in Switzerland.

Administration of the Foundation’s Funds

Provided that neither the Foundation Charter nor the foundation’s regulations stipulate investment rules, the principles of liquidity, return on investment, security, risk diversification and safeguard of substance are to be observed when investing the foundation’s assets.

Auditors and Accounting

The most superior organ of the foundation nominates the auditors. The foundation is further required to keep adequate accounting records.

Supervision and Reporting

Foundations are subject to supervision by the community (federal, cantonal and municipal) to which they belong according to their designation. Foundations with an international scope are usually supervised by the Federal Authorities. In order to perform the legally required controls, foundations are required to file an annual report on their activities, annual financial statements, consisting of the balance sheet, the profit and loss statement and attachments, the auditors’ report, the approval of the reporting by the Foundation Council as well as an up-to-date list of the members of the Foundation Council.

Liquidation and Change of Purpose

The competent authority dissolves the foundation upon request or by operation of law if its purpose has become unattainable and the foundation cannot continue to operate by a simple change of the Foundation Charter, as well as if its purpose becomes illegal or immoral. However, Swiss law does not recognise a general right to dissolve a foundation. On the other hand, it is possible to change the foundation’s purpose upon request of the founder or based on his testamentary disposition if a change of purpose has been provided for in the foundation charter and if at least 10 years have elapsed since the foundation’s incorporation or since the last change requested by the founder.

Tax Exemption

General Remarks

According to Swiss Tax Law, legal entities which pursue a public or charitable purpose are tax-exempt with respect to profit and capital that is exclusively and irrevocably dedicated to such purposes. In order to obtain a tax exemption, the following cumulative general requirements must be met:

  1. Legal entity: The taxpayer must be a legal entity. Foundations are – due to their legal nature – best suited for this purpose.
  2. Exclusive application of funds: The tax exempt activity must be exclusively dedicated to a public or charitable purpose. The purpose of the foundation may not be linked with direct business interests or other interests of the legal entity itself or of its members. However, if the legal entity pursues both charitable and business purposes, it may under certain circumstances be able to apply for a partial tax exemption.
  3. Irrevocable purpose: The funds dedicated to the tax exempt purpose must be irrevocably tied to such purpose. The Foundation Charter must exclude all possibility of redirecting the funds to the founders. Consequently, the Foundation Charter must irrevocably provide that, in case of dissolution of the respective legal entity, its funds will be transferred to another tax exempt entity with a similar purpose.
  4. Effective activities: The main purpose of the entity must effectively be to carry out activities within the framework of the purpose set out in the Foundation Charter. For example, foundations that collect capital and/or funds by establishing reserves out of income in no reasonable relation to the future tasks of the foundation according to its purpose are not entitled to a tax exemption.

Requirement of charitable purpose

  1. Public interests: The basic requirement for a tax exemption based on a charitable purpose is the pursuit of a public interest. Such public interest may be pursued through activities in general charitable, humanitarian, constitutional, ecological, educational, scientific or cultural areas. For example, activities in art, science and teaching may be qualified as pursuit of a public interest. Whether a certain activity may be qualified as pursuit of a public interest will be decided with reference to public opinion. Principles of legal ethics as they are reflected in the Federal constitution, Swiss statutes and case law may serve as important sources for determining such public opinion. According to the Swiss legislative body, such public interest is not limited to activities carried out within the borders of Switzerland but may be extended to the worldwide activities of a Swiss legal entity as long as its activities pursue a public interest and are completely altruistic. An interest may only qualify as public if the range of third parties that benefit from the legal entity’s sponsorship and support is in no way limited.
  2. Altruism: The term “charitable purpose” contains not only the objective element of pursuit of a public interest but also the subjective element of altruism. The existence of a charitable purpose in the sense of tax law will only be assumed if the activity is not only dedicated to pursuing a public purpose but is also based on an altruistic spirit. For an activity to qualify as altruistic, the members of the legal entity or third parties must sacrifice their own interests in order to pursue a public interest. Consequently, it is a requirement for obtaining a tax exemption that the activities of the entity applying for exemption do not involve any pursuit of personal interests. Self-help institutions and associations with the purpose of encouraging leisure activities lack such altruistic purpose.

Further requirements for a full or partial tax exemption based on a charitable purpose are the absence of any self-help purpose or any intention to generate income. This requirement, in particular, implies that board members must carry out their activities on a voluntary basis and, in principle, cannot be remunerated (expenses can, however, be reimbursed). Remuneration is only admissible when performing special tasks that are outside the usual scope of a governing body and in the field of expertise of the relevant board member. Compensation of the management and other employees in accordance with market conditions is of course permissible.

Are you planning to establish a charitable foundation? We will be happy to discuss your options. 

Photocredit: Shutterstock, ITTIGallery

Topics: Private Client  Tax  Charity & mission-driven Organisations 

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