Liechtenstein Anstalts & Stiftungs – IRS explains trust versus company classification

The concepts in this  IRS Generic Legal Advice AM 2009-012  is the key to innovative and successful international tax planning.  

Domestication of a foreign trust

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.


Here,  the IRS has provided their opinion as to the tax classification of these foreign entities. Tax classification controls both income taxes and estate taxes.

American tax law classifies all entities (except for domestic limited liability companies and banks) based upon their legal characteristics and not their name. Foreign entities are very difficult since foreign legal doctrines are different from American tax law doctrines.  

If you are dealing with any foreign entity other than a “per se” corporation (on this link) or a single member foreign LLC, you need to read this.

Here are some highlights quoted from the IRS opinion in blue print.  My author notes include the regulations issued that follow Supreme Court’s case on business trust (Morrissey v. Commissioner).

 Under this Supreme Court doctrine, an incorporated entity must have both (i)” associates” and (ii) an “objective to carry on business”  to be classified as a corporation.  In this legal advice, the IRS ignores the need for associates and looks at “an objective to carry on business.”  

If you need more information or want to brainstorm your tax concerns, then please call me, Brian Dooley,  at 949-939-3414.

The Liechtenstein Anstalts Facts

Based on the information you provided to us, an Anstalt, or Establishment, may be formed by either a natural or a legal person, known as a Founder. A person may form an Anstalt for himself, or for another party under a power of attorney or through a fiduciary arrangement.

Founders are usually Liechtenstein attorneys or trust companies that protect the anonymity of the actual owner or beneficiary of the Anstalt. The Founder signs the Anstalt’s articles. An Anstalt is established and achieves the legal personality when the Founder enters the Anstalt into the Register.

To register, the Founder must submit the articles, the constitutive declaration, proof that capital has been paid in, and evidence that the official registration fees have been paid.

The Founder has the same powers with respect to the Anstalt that are generally attributed to shareholders in a company. The Founder also possesses “Founder’s rights,” which provide unlimited control and powers of administration (including the power to dismiss directors, distribute profits, or liquidate the Anstalt). The Founder may transfer the rights given him by law and by the articles, in whole or in part, to one or more assignees or successors. The Founder’s rights may also pass through inheritance.

An Anstalt must have a Board of Directors (called a Board of Management or Administration) to represent it in its dealings with third parties. In most cases, the Founder will be a member of the Board. The Founder usually appoints the members of the Board for a term of three years but may appoint for lesser or longer terms.

The Board may consist of one or more natural or legal persons. At least one member of the Board, authorized to represent the Anstalt and conduct business on its behalf must have a registered office in Liechtenstein. This member must also be authorized to practice as a lawyer, trustee, or auditor, or have other qualifications recognized by the government.

The Board has power with respect to all matters that are not specifically reserved to the Founder. The Founder may give authority to the Board to exercise some or all of the Founder’s rights. The Board may give signatory or agency authority to its own members, or to others, on behalf of the Anstalt.

The Board may assign its management and executive responsibilities partially or completely to one or more of its members, or to third persons. In carrying out its management and representation functions, the Board must observe all limitations on its authority contained in the articles in instructions and/or regulations issued by the Founder.

The Anstalt’s beneficiaries are those natural or legal persons designated by the Founder, or the person holding the Founder’s rights, as entitled to receive the profits and/or liquidation proceeds of the Anstalt.

The right to appoint beneficiaries is usually outlined in the articles and may be reserved to the Founder or granted to the Board or to third persons. If no beneficiaries are appointed, the Founder or his successors are presumed to be the beneficiaries.

The capital of an Anstalt is usually not divided into shares. Anstalts may hold patents and trademarks, hold interests in other companies, and may conduct any type of business except banking.

If the articles permit the Anstalt to engage in commercial or industrial activities or a trade, the Anstalt is required to keep proper books and records as well as prepare annual financial statements. The liability of an Anstalt is limited to the extent of its assets. No personal liability extends to the Founder, the Anstalt’s Board, or the beneficiaries.

You have indicated that in most situations you have seen, the primary purpose for the establishment of an Anstalt is to conduct an active trade or business and to distribute the income and profits from that place to the beneficiaries of the Anstalt.

You further indicated that the beneficiaries of an Anstalt are usually the previous owners of the business assets contributed to the Anstalt and that in most situations the Founder acts as a nominee or agent of the beneficiaries in conducting the active trade or business of the Anstalt.

Liechtenstein Stiftungs

A Liechtenstein Stiftung, or Foundation, is a legal entity under Liechtenstein law. A Stiftung does not have members or a board of directors. The Founder transfers specific assets to the Stiftung that are then endowed for specific purposes. The assets pass from the personal estate of the Founder to the Stiftung.

The Founder states the objectives of the Stiftung and appoints its administrators. Based upon the information you have provided, a Stiftung cannot be organized to engage in the active conduct of business, but Liechtenstein law provides that in certain cases commercial activities may be undertaken by a Stiftung if such activities serve its non-commercial purposes.

A Stiftung may be a family foundation established to provide benefits to members of a designated family, or a charitable or religious foundation.

A Stiftung may be formed by filing a foundation charter or by will or testamentary disposition. A Stiftung is entered onto the Register in Liechtenstein and must have a minimum amount of initial capital.

A Stiftung exists for the benefit of those named in its formation documents as being appointed as beneficiaries. A Stiftung only has legal liability up to the amount of its contributed capital and net assets, and it cannot be made liable for liabilities more than them.

The Stiftung does not have a board of directors but has Foundation administrators, called a Council of Members. The Founder may appoint himself as an administrator. The duties and obligation of the administrators are outlined in the Stiftung’s articles and includes the conduct of the Stiftung’s affairs.

This includes the investment and management of its assets and the distribution of income and/or capital to the beneficiaries as per the provisions of the Stiftung’s articles. Under Liechtenstein law, the administrators are responsible for the proper management and conservation of the Stiftung’s assets. The Founder may reserve for himself the right to discharge and appoint administrators.

IRS’s Opinion with the reminder that their opinion would vary case by case.


Based upon the information submitted, we believe that, subject to the facts and circumstances of each situation, Liechtenstein Anstalts generally are not properly treated as trusts under § 301.7701-4(a) of the regulations because, in most cases, their primary purpose is to actively carry on business activities. Further, Liechtenstein Anstalts are not subject to special treatment under the Code. Therefore, Liechtenstein Anstalts are generally classified as business entities under § 301.7701-2(a).

However, it is important to note that if the facts and circumstances indicate in a particular case that an Anstalt was created for the primary purpose of protecting or conserving the property of the Anstalt on behalf of beneficiaries, the Anstalt in such a case may be properly classified as a trust under § 301.7701-4.

In such a case, it will be necessary to confirm that all of the elements of a trust are present: (1) a grantor, (2) a trustee that has legal title and a legal duty to protect and conserve the assets for the designated beneficiaries, (3) assets, and (4) designated beneficiaries. See Swan v. Commissioner, 24 T.C. 829 (1955), aff’d and rev’d on other grounds, 247 F 2d 144 (2d Cir. 1957).

Author Note:  Here is the key:  Accordingly, it is important to analyze the facts and circumstances of each Anstalt to determine whether a particular Anstalt was established primarily to conduct a trade or business or to protect and conserve assets for the designated beneficiaries of the Anstalt.

Liechtenstein Stiftungs

Based on the information submitted, we believe that, subject to the facts and circumstances of each situation, Liechtenstein Stiftungs generally are properly treated as trusts under § 301.7701-4(a) of the regulations. In most cases, the Stiftung’s primary purpose is to protect or conserve the property transferred to the Stiftung for the Stiftung’s beneficiaries and is usually not established primarily for actively carrying on business activities.

However, it is important to note that if the facts and circumstances indicate in a particular case that a Stiftung was established primarily for commercial purposes as opposed to the purpose of protecting or conserving property on behalf of the beneficiaries, the Stiftung in such case may be properly classified as a business entity under § 301.7701-2(a). (Author note: a corporation, a foreign corporation).

Accordingly, it is important to analyze the facts and circumstances of each case to determine whether a particular Stiftung was established to protect and conserve property of the Stiftung or alternatively, was created as a device to carry on a trade or business.

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