General Information

a.) The German Foundation – Forms of appearance

The German law differentiates between

  • foundations under private law with legal capacity; they gain legal capacity through conferment by the state (secs. 80 et seq. of the German Civil Code (“Bürgerliches Gesetzbuch“ (BGB) and the foundation laws of the Länder (federal states).

- ”Familienstiftung“ (family foundation)

- ”Unternehmensstiftung“ (company foundation) / ”Unternehmensverbundene Stiftung“ (foundation affiliated to a company)

- Charitable foundation, “Bürgerstiftung“ (civic foundation)

- ”Doppelstiftung“, combining a charitable and a family foundation; furtherrelated models

  • foundations without legal capacity (foundation trusts). These are economically independent assets invested with articles and serving a specific purpose that are irrevocably passed on by the trustor to a third person that permanently manages the funds in accordance with the foundation’s articles. The holder of the foundation (trustee) becomes the formal but not beneficial owner. In principle, every natural or legal person (foundation, Verein, GmbH) can be trustee of an independent charitable foundation trust. Frequently, banks act as foundation trustees.

  • church foundations under private law

- charitable foundation, in part referred to as ”Bürgerstiftung“

  • foundation under public law with legal capacity

The following only relates to foundations with legal capacity under private law and under the federal states’ foundation laws!

b.) Characteristics of the foundation with legal capacity

The foundation is an independent legal entity that is designed to achieve specific, permanent purposes of the foundation. A foundation is an economic structure with an individual purpose, an own legal estate and an own organisation that comprises neither members nor partners.

The foundation’s purpose has to serve interests other than of its own. A “foundation for the founder“ is not admissible under German law. In contrast to the legal systems going back to the Code Civil (Belgium, France, Italy, Portugal, Spain) and similar to the legal situation in the U.K., foundations are not restricted to public purposes in Germany. Purely private purposes (i.e., unique family foundations) are admissible.

c.) Reasons for the Formation of a Foundation

  • permanently keeping up a fortune
  • preserving a company on a long term (foundation affiliated to a company
  • non-material reasons and social matters of concern – public utility
  • support of specific institutions
  • succession and estate planning vis-à-vis absent or unsuitable-seeming heirs
  • unforeseen increase in wealth
  • tax incentives (sec. 10b EStG)

d.) Special Characteristics of Foundations with Legal Capacity

Family Foundation:

  • typical foundation in the interest of private parties
  • sustained, permanent conservation of a fortune, permanent avoidance of fragmentation by shares of inheritance
  • avoidance of compulsory portions
  • permanent support of (also disabled) relatives
  • alternative to permanent executorship
  • for assets not suitable of being split up (collections)
  • no shares in it, no partners, no cancellation, not liable to execution

Foundation affiliated to a company

The foundation affiliated to a company is a suitable instrument to secure the succession to the enterprise: It provides for the permanent conservation of the company which is either conferred upon the foundation or permanently affiliated to it.

There can be found:

  • “Unternehmensträgerstiftung“

- e.g.: Zeiss Stiftung up to 2003 (since then: AG)

- its legal form is not suitable to manage a company

  • “Beteiligungsträgerstiftung“

- sole or majority stock holder of a company organized in a different legal form

- enables conducting a business under permanent family influence

- makes companies resistant to takeovers

- break-up of executive power and assets

  • “Komplementärstiftung“

- “Stiftung & Co. KG“

- e.g.: Lidl & Schwarz Stiftung & Co. KG

- trade tax-free administration of assets!

The Concept of a “Doppelstiftung“

The “Doppelstiftung“ is a combination of two foundations that serve public and private purposes respectively to permanently keep up a fortune and assure the support of defined individuals at the same time. Making skilful use of sec. 10b of the German Income Tax Act, ample benefits in taxes on earnings are possible.

  • foundation 1: non-charitable family foundation
  • foundation 2: charitable foundation
  • below: asset-administering company

- disproportional participation

- in assets

- in rights to vote

- in profits

  • part of the profits are earmarked for the founder and the beneficiaries
  • design largely resistant to changes and takeovers


· Inheritance tax (“Erbschaftsteuer“ – ErbSt) and taxes on the substituted inheritance right can be avoided for important parts of the assets.

· Nevertheless, important parts of the profits flow to the founder and the beneficiaries.

· Problem arising from this: Possible recognition as an abuse of formally admissible arrangements (sec. 42 of the German Tax Code)

Charitable Foundation:

  • The foundation exclusively and directly pursues charitable purposes in the sense of the German General Tax Code.
  • The foundation’s purpose is in accordance with the catalogue of tax‑privileged purposes in sec. 52 para. 2 of the German General Tax Code.
  • Frequently, the formation of a foundation will also be connected with charitable purposes.


An independent foundation under private law comes into being by endowment; this requires the written form (but not recording by a Notary Public). However, notarized form is advisable because of the long-term dedication of the foundation’s assets.

The articles of the foundation must include its name, seat, and purpose as well as the foundation’s assets and the appointment of its first bodies. The articles must further include the statement that the founder is willing to erect a foundation, and that the foundation shall be endowed with a specific sum to enable it to pursue certain purposes.

The Länder regulations concerning foundations differ widely; consequently, the respective State laws may stipulate further mandatory or optional provisions.

Furthermore, a permission of the Federal State in which the foundation is to have ist statutory seat is required. The foundation gains legal capacity only when this permission is given by the authority competent for foundations.

Capitalisation and Financing

The foundation’s assets are designated by the founder. As the foundation is generally only allowed to operate on its capital gains, setting up a foundation is reasonable only from a capital of 250,000 Euros upwards. However, permission will be granted from a minimum of 50,000 Euros.

Board Structure

The appointment of the board of a foundation follows the rules laid down in the articles. It follows from this that the founder may set up certain requirements for the manager or even exclude certain pre-determined persons or groups of persons from this task.

Annual Costs

Costs for tax consultancy and annual financial statements depending on business volume.

Corporate Taxation and Financial Reporting

The foundation is exempt from corporation and trade income tax.

a. Private-Utility Foundations and Non-Charitable Foundations

Foundations of private utility (family foundations) are non-charitable and, thus, do not enjoy tax privileges. Private property gratuitously conferred upon a foundation non tax-exempt is not subject to income tax, but triggers capital transfer tax. In the event of succession, a tax class privilege is granted (inheritance tax).

The conferment of operating assets upon a foundation leads to a taxable disclosure of hidden assets.

Every 30 years, a foundation exempt from taxation is subject to a substituted inheritance tax. This is based on the legal fiction of a succession upon death upon two near relatives. The foundation may demand to pay the substituted inheritance tax in 30 equal annual partial amounts (annuitisation, sec. 24 para. 1 of the German Inheritance Tax Law [“Erbschaftsteuergesetz“ – ErbStG]. The annuitisation is calculated on the basis of an interest rate of 5.5%. In case that the foundation’s assets comprise operating assets or agricultural or forestry assets, an annuitisation over 10 years at an interest rate of 6% is possible upon request (sec. 28 para. 2 ErbStG).

The foundation is subject to corporate income tax, and, in case that business establishment exists, trade income tax.

The foundation’s payments to the beneficiaries are taxable capital gains subject to capital income tax (KapESt) at the beneficiaries’ level.

b. Charitable Foundations

The charitable foundation is exempt from both corporate and trade income tax. Conferment of assets to a tax-exempt foundation is free of tax any without limitations.

Deduction of donations (“Spendenabzug“), sec. 10b EStG

· The upper deduction limit of donations amounts to 20% of the total of income (sec. 10b EStG)

· There is an alternative upper limit for donations from companies at 4 per mill of the total of the overall turnover plus the salaries and wages of one calendar year.

· Unlimited carrying-forward of the donations (however no carrying back!)

· Donations to the main property fund of a foundation can be deducted in the assessment period of the donation itself and in the following 9 periods up to a total of 1 million Euros, in addition to the upper limits following from para. 1 (sec. 10b para. 1a EStG). In case of joint assessment of spouses: twice 1 million Euros.

· Exemption from inheritance and capital transfer tax

· No substituted inheritance tax

· Exemption from capital returns tax, corporate income and trade income tax (as well as real estate tax “B“)

· Reduced VAT rate

· Creation of reserves possible to a certain extent (sec. 58 of the German General Tax Code)

· Support of the founder and his closest relatives is possible up to a maximum of one third of the foundation’s income.

This exemption ceases to exist if the foundation operates a business establishment with an income exceeding 30,678 Euros. This does not apply if the foundation pursues a specified, tax-privileged purpose according to its articles as long as the business establishment immediately serves this purpose. However, a charitable foundation is not exempt from VAT. The reduced tax rate of 7% is applicable.

The pure asset management of the foundation is also tax-free

Employee Participation in Corporate Bodies