The value of a Dutch foundation for international asset protection

According to the Rule of Law Index , the Dutch justice system ranks as one of the most reliable and effective in the world. In general terms, only the Scandinavian justice systems seem to do better. In terms of resistance to discrimination, corruption and undue political influence, The Netherlands is even ranked #1.

Companies that are active on an international level become increasingly aware of the risks involved when engaging business in certain national legal systems, but also of the opportunities differences in jurisdictions present. International asset protection is an important activity in the current business environment. International Asset Protection is the legal process of titling both personal and business assets to put them beyond the reach of future potential threats and creditors. In this respect, multinational companies look for a jurisdiction that best suits their needs in an individual case.

For such sophisticated parties, it can be interesting to set up a Dutch legal entity. An important option in this respect is the Dutch Foundation. In this article, I will detail most of the topics to know before starting a foundation in The Netherlands, in particular a Dutch Administration Office foundation.

What is a foundation?

A foundation is a private legal entity, not associated with the government, that has no members or shareholders and in which the revenues are used for non-profit purposes, such as a charity fund.

Facts and features

Dutch foundations have specific features within the Dutch tax regulations. Although they have legal personality, Dutch foundations differ from businesses because their profits are not used to accumulate personal wealth. Instead, Dutch foundations have a non-profit goal and pay no taxes as long as their activities do not focus on profit or they do not compete with other businesses. As long as this situation remains, Dutch foundations do not need to file tax documents or deposit documents at the Dutch Chamber of Commerce.

The Dutch foundation can only be incorporated by a Dutch notarial deed, and will subsequently be registered by the notary in the Dutch public company register, where the names of the board members are publicly disclosed. There can be one or more incorporators and/or board members. No government authority is involved in the creation of a Dutch foundation and it acquires full legal capacity immediately when it is created. The Dutch foundation has a board, composed of one or more individuals and/or legal entities. It needs an office address in or outside The Netherlands. The directors of a Dutch foundation are not liable for the debts of the foundation, except for instance in cases of fraud.

Stichting Administratiekantoor (STAK)

A so called ‘STAK’ (Dutch: Stichting Administratiekantoor or in English: Administration Office Foundation) is a normal Dutch foundation, but with specific statutes. In short, a STAK is formed to hold the shares of a private company. By using the STAK to hold ‘their’ shares, shareholders are able to separate the economic ownership from the voting rights.

Thus, a STAK can be a voting trust foundation, without shareholders or share capital. When the STAK is used to buy, hold or manage shares of other companies, it must issue exchangeable depository receipts to the original owner of the shares. The STAK thus enters into an agreement with the original owner of the shares, transferring their legal ownership to the STAK, while the original owners maintain economic ownership of the shares. The main regulatory document in this respect is the trust conditions document, drawn up by the notary when forming the STAK. This document stipulates the agreement between the STAK and the depository receipt holders. The original owner of the shares (now the depository receipt holder) may then receive any dividends from the stock, even though he or she is no longer the legal owner of the shares.

A STAK structure can also acquire and manage assets in its own name. It can then issue certificates to the directors attesting to the economic value of the foundation’s assets.

Example of the use of a STAK in respect to international asset protection

The STAK structure has become an effective legal form of asset protection, because the STAK structure separates legal and economic ownership of stock in other companies. This has been proven in e.g. the Yukos cases; several international court and arbitral cases seeking compensation from the government of Russia to the former shareholders of Yukos-based on the claim that Russian courts were not acting in good faith in launching tax evasion criminal proceedings against Yukos, which led to the bankruptcy of the company. The Yukos structure is as follows:

Yukos Capital S.a.r.l., a Luxembourg-based company under two Dutch STAKs – Stichting Administratiekantoor Yukos International and FPH for Stichting Administratiekantoor FPH – that are run by Yukos’s former management, represents all those who held Yukos shares when the company was liquidated in 2007, including about 55,000 minority shareholders, some of which were investment funds. As of 2015, the structures control up to $2 billion in assets.

Tax benefits

There are also tax benefits to forming a STAK. First, holding investments in a STAK is not considered a business activity, and a STAK is taken as transparent for tax purposes. Therefore, it is not a subject to the Dutch corporate income tax. If the depository receipt holders do not live or conduct business in The Netherlands, and their investment are not actually located in The Netherlands, they are not subject of the Dutch tax liability on profits or capital gains.

Other benefits

The STAK structure limits disclosure of ownership since the STAK itself is the legal owner of shares. It can also function as an inheritance planning vehicle.

Note

All information has been prepared for general information purposes only to permit you to learn more about financial law. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. 

6 thoughts on “The value of a Dutch foundation for international asset protection

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