In times of globally networked asset structures, wealthy families and entrepreneurs are increasingly turning to foundation solutions abroad to secure family assets and succession planning. In contrast to domestic solutions, countries such as Liechtenstein offer greater flexibility, less bureaucracy, and, above all, tax advantages. But caution is advised: without careful planning, you could quickly find yourself in a bureaucratic maze full of unexpected tax and liability pitfalls instead of a tax haven.
What are the advantages of foreign family foundations?
Many legal systems offer more generous options for structuring family foundations than German law, which provides for significantly leaner structures. A foreign solution can be advantageous in individual cases, particularly from a tax perspective: foreign family foundations often enjoy even more favorable taxation and are generally exempt from German substitute inheritance tax. At the same time, the international orientation opens up new opportunities for securing and professionalizing succession. In many countries, foundation solutions also enjoy a high degree of confidentiality and privacy – both in terms of the foundation’s structure and the beneficiaries and assets under management. Too good to be true, right?
What are the risks associated with foundation solutions abroad?
Every foreign structure increases complexity. Germans who contribute assets to a foreign foundation should not underestimate the gift tax, especially because the unfavorable tax class III with low allowances applies.
In addition, depending on the structure of the foundation, the provisions on additional taxation under Section 15 of the Foreign Tax Act (Außensteuergesetz, AStG) can mean that not only income actually received but also retained earnings of the foundation are immediately attributed to the German beneficiaries for tax purposes. This can lead to considerable (double) taxation.
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Anyone who shifts management or decision-making too heavily “towards Germany” risks the foundation being considered domestic, becoming subject to unlimited tax liability in Germany, and thus losing the tax advantages that were actually desired.
In addition, Section 138 of the German Fiscal Code (Abgabenordung, AO) stipulates extensive cooperation and reporting obligations towards the German tax authorities, which must be strictly observed. So it’s not that simple after all.
Substitute inheritance tax, escape clause, and transfer of assets abroad
In 2024 and 2025, the Federal Fiscal Court provided greater clarity on certain aspects: German substitute inheritance tax also applies to foreign foundations that are considered to have legal capacity and are managed from Germany (see BFH, judgment of June 4, 2025, II R 30/22). On the positive side, however, in addition to family foundations in the EU/EEA area, family foundations in third countries will now also be able to benefit from tax privileges such as the so-called escape clause in the future (see BFH, ruling of December 3, 2024, IX R 32/22). This means that even for domestic beneficiaries of family foundations based in third countries, the attribution of the foundation’s income may be waived if they actually have no power of disposal over the foundation’s assets and there is sufficient exchange of information between the countries.
However, this significantly increases the documentation and compliance requirements. With regard to the denial of tax class privileges when establishing a foreign foundation, the ECJ recently confirmed that German law is in conformity with European law: The transfer of assets to a foreign foundation may therefore be taxed (significantly) less favorably than the transfer of assets to a domestic foundation (see ECJ v. 13.11.2025, C-142/24).
International foundation solutions only make sense with individual planning
International family foundations are neither a sure-fire success nor a blanket tax-saving model. They offer attractive options but also involve a great deal of consulting and review work. Without careful tax and legal planning for an individual and sensible solution, there are considerable risks involved. We would be happy to assist you if you are considering setting up a family foundation in Germany or abroad.
