„I’d like to set up a trust.“ We hear this from clients across continental Europe more often than you’d expect, usually right after they’ve read some article about British or American family offices who supposedly just „put their assets into a trust.“ The trouble with that request: in most cases, these clients don’t need a trust at all. What they actually need is something quite different that only sounds similar, and in practice tends to work rather better for them.
Two Concepts From Two Entirely Different Legal Worlds
Strictly speaking, a trust isn’t a legal entity at all. It’s a fiduciary relationship under common law: the settlor transfers assets to a trustee, who formally holds them as owner but manages them exclusively for the benefit of the beneficiaries, according to the trust deed. That split between legal and beneficial ownership simply doesn’t exist in any continental European civil law system.
A foundation, on the other hand, is a standalone legal person under civil law. It can enter contracts, open bank accounts, sue and be sued, much like a company, only without shareholders. The concept originated in Liechtenstein, first codified in 1926 under its Persons and Companies Act (PGR), historically intended more for churches and monasteries than for entrepreneurs.
Where the Trust Actually Belongs
Unsurprisingly, the trust originated in England, grown out of centuries of case law. Less well known: Singapore, as a former British Crown colony, is also a genuine common law jurisdiction, where trusts work perfectly naturally under its own Trustees Act, without the recognition problems that continental Europeans typically run into.
The same, often overlooked, holds for Ireland: geographically and politically firmly in Europe, but legally part of the common law family, where trusts are recognised natively, without the contortions its continental neighbours need. So if you’re already resident, or planning to become resident, in one of these systems, a trust deserves serious consideration for what it is there: a proven, native instrument.
Why the Trust Rarely Works in Most Continental European Jurisdictions
Germany has never ratified the Hague Trust Convention, and neither has Austria. In both countries, a foreign trust isn’t recognised as what it is in its home jurisdiction, but is often treated for tax purposes as though the settlor had never given up the assets at all.
In Germany, the reason sits in Section 15 of the Foreign Tax Act (Außensteuergesetz): as long as the settlor retains effective control over the trust assets, say through a power of revocation or instruction rights over the trustee, the tax office attributes the income directly back to them. The result is uncomfortably concrete: you keep paying domestic tax on income that formally belongs to a trustee in the Channel Islands, on top of the running costs of the structure itself.
A Look Beyond Germany and Austria
The same pattern repeats, with local variations, across much of continental Europe. France signed the Hague Convention but has never ratified it, and instead created its own, considerably narrower competing instrument in 2007, the „fiducie.“ Since a 2011 reform, foreign trusts face one of the harshest regimes in Europe: trust assets are attributed directly to the settlor for France’s real estate wealth tax (IFI), as though the trust didn’t exist, on top of strict reporting obligations carrying an 80% penalty for non-disclosure.
On gifts or inheritance, a 60% tax rate also applies, regardless of family relationship, chiefly when the trust was set up after 11 May 2011 by a settlor who was French tax resident at that time, or when the trustee sits in a jurisdiction France classifies as non-cooperative. Where beneficiaries in the direct line are clearly identified, the ordinary top rate of 45% can apply instead.
Belgium has likewise never ratified the Convention, and instead created its own regime, known domestically by the nickname „Cayman tax.“ Since 2015, Belgium has attributed income from both trusts and low-taxed foreign foundations directly to the founder, exactly as if the structure simply didn’t exist. Spain follows a very similar pattern for foundations, as we showed recently using Spain as an example: if the founder retains effective control, the Spanish tax authority will simply disregard the structure for tax purposes.
Two European Special Cases: The Czech Republic and Italy
The Czech Republic, by contrast, has gone its own remarkable way. Under its 2014 civil code reform, modelled on the Canadian province of Quebec, it created its own domestic vehicle, the „svěřenský fond,“ a civil law trust equivalent with no separate legal personality. In practice, though, comparatively strict Czech tax law undercuts exactly the advantages that make a trust attractive elsewhere.
Italy, alongside the Switzerland already mentioned, is one of the notable exceptions among continental European civil law states. It actually ratified the Hague Convention, effective from 1 January 1992, despite having no domestic trust law of its own, much as Luxembourg (2004) and the Netherlands (1995) took the same step.
Out of that grew, in Italy’s case, the practice of the „trust interno“: a trust with Italian parties and Italian assets, formally governed by foreign law, but fully recognised within Italy. Of the countries discussed here in detail, Italy is, alongside Switzerland, genuinely a case where a trust works.
Switzerland: More Liberal Than the Rest of the Continent
Switzerland looks quite different, on two levels at once. First, it ratified the Hague Convention back in 2007 and has fully recognised foreign trusts ever since, with real consequences: an estimated 27,000 people there are involved in trusts or trust-like vehicles. A dedicated Swiss trust law was also in the works, parliament tasked the Federal Council with drafting one back in 2018, but in September 2023 the project was shelved for the time being, so there’s still no „Swiss trust“ in the strict sense.
Second, and this is the point that tends to get overlooked, Switzerland applies the incorporation theory quite broadly to foreign legal entities under Article 154 of its Private International Law Act (IPRG). A foundation validly established abroad remains legally valid, regardless of where it’s actually administered from. That generally holds true for a Panamanian foundation too, as long as it was validly formed under Panamanian law. The only limits come from Swiss public policy (ordre public), for instance around forced heirship rules or the prohibition on family entails, where Swiss inheritance law applies.
If the foundation is actually administered from Switzerland, a practical requirement kicks in as well: under Article 160(2) IPRG, at least one authorised signatory has to be resident in Switzerland and registered in the commercial register, much like a branch office of a foreign company. Pure administration from abroad, with only a mailbox address in Switzerland, isn’t enough.
The Foundation: Liechtenstein, Panama, and a Hybrid Model From the Gulf
Panama adopted the Liechtenstein model in 1995 through Law No. 25, deliberately simplifying it along the way. A Panama Private Interest Foundation requires a minimum contribution of USD 10,000, while a Liechtenstein foundation carries a statutory minimum capital of CHF 30,000. The overall costs diverge sharply too: setting up a Panama foundation is roughly ten to fifteen times cheaper than setting up a Liechtenstein one, and the gap in ongoing annual costs is even more pronounced.
When it comes to actual flexibility, the two models sit closer together than you’d expect: both allow the foundation to hold shares in operating companies and collect their profits, and both use a private, freely amendable side document to preserve the founder’s control rights, the Beistatut in Liechtenstein, the Letter of Wishes or Foundation Regulations in Panama. Panama’s edge is the lower minimum capital, plus Article 14 of its foundation law, which explicitly overrides forced heirship rules from the founder’s or beneficiaries‘ home country, along with a short, statutory three-year limitation period for creditor challenges.
For clients already structuring through the United Arab Emirates, it’s worth also looking at the DIFC and ADGM free zones in Dubai and Abu Dhabi. Both have created their own foundation frameworks that combine civil law foundation logic with English common law procedure, a deliberately modern hybrid that’s attracting growing international attention precisely because of that combination.
The Legal Capacity Trap for Continental Europeans
For clients whose actual centre of life sits in a continental European civil law country, there’s a further point that goes beyond cost. Under German private international law, the legal capacity of a foreign legal entity is generally determined by its actual place of administration. For EU/EEA states, the so-called incorporation theory applies, the foundation stays legally valid even if it’s effectively administered from the founder’s country of residence. For third countries like Panama, the stricter real seat theory applies instead.
Germany’s Federal Fiscal Court (Bundesfinanzhof) confirmed exactly this in a comparable case in June 2025: a Swiss family foundation administered from Germany lost its legal capacity there as a result. Austria has a very similar rule under Section 10 of its own Private International Law Act. A Panama foundation would risk the same fate in either country, entirely separate from the attribution problem that already exists under Germany’s Section 15 AStG. Liechtenstein, as an EEA member, isn’t affected by this and is generally the sturdier choice when the actual centre of life sits in a country like Germany or Austria.
One distinction matters here, though: legal capacity under civil law is one question, actual tax residence is a different one. What decides the latter is the so-called place of management under Section 10 of the Fiscal Code (Abgabenordnung), the actual centre of day-to-day operational decisions, not just some incidental part of the administration. If that centre genuinely sits in Germany, even a Liechtenstein foundation becomes fully liable to German corporate tax there, on its entire worldwide income, while remaining resident in Liechtenstein at the same time, a so-called dual-resident foundation. The EEA privilege protects the foundation’s legal existence, in other words, not against ending up taxed in both countries at once.
Where the Trust Genuinely Makes Sense: Cook Islands and Nevis
There’s one scenario, though, where a trust is hard to replace: pure offshore asset protection against lawsuits, regardless of your own tax residence. The Cook Islands, under its International Trusts Act of 1984, is the most established jurisdiction for this. A creditor has to prove there that an asset transfer was made with actual intent to defraud, and to the standard of „beyond reasonable doubt,“ the strict criminal-law threshold.
On top of that comes a short two-year limitation period, after which a transfer can no longer be challenged, plus the fact that foreign judgments simply aren’t recognised in the Cook Islands, regardless of which country they come from. A German or other European judgment is, to begin with, just a worthless piece of paper there, the creditor has to start entirely fresh in a Cook Islands court, under Cook Islands law and its correspondingly strict standard of proof.
Nevis works on a similar principle, but additionally requires suing creditors to post a bond with the court, raised in 2015 to USD 100,000, before they’re even permitted to file a claim. If you’re genuinely considering setting up a Cook Islands or Nevis trust to protect your own assets this way, budget for setup costs in the low to mid five figures, plus ongoing annual costs in the low to mid four figures.
A Worked Example From Practice
Two clients, two almost opposite answers. One, an entrepreneur based in Zurich, wanted primarily to arrange business succession across several generations. Since Switzerland recognises foreign trusts, he set up exactly what he needed through an established trust structure there, with an independent protector retaining certain control rights, legally anchored in his actual country of residence.
The other, a German client with an international property portfolio, wanted his assets structured and passed down cleanly across generations. A Panama foundation would have walked him straight into the legal capacity trap the Bundesfinanzhof just confirmed. A Liechtenstein foundation, by contrast, is far more solidly anchored under civil law than a Panama one. What still mattered for him, though, was that the actual place of management, the foundation council’s real day-to-day business, genuinely stayed in Liechtenstein. Had it instead effectively sat in Germany, the foundation would have become fully liable to German corporate tax there, on top of its continuing tax liability in Liechtenstein itself.
What Beneficial Ownership Registers Have Actually Changed About Confidentiality
One point older articles on this topic often oversimplify: yes, both Liechtenstein and Panama now maintain beneficial ownership registers, but practically neither one is publicly searchable. Liechtenstein’s register (VwbP), in force since 2019, follows a two-tier model: for ordinary companies, a fee-based disclosure to third parties is possible, but for trusts and foundations, exactly the vehicles Liechtenstein is historically known for, a third party has to demonstrate a proven „legitimate interest“ first.
Panama is even more restrictive: the register introduced in 2020 under Law No. 129 is explicitly designed as a private, non-public system. Access is limited to specific Panamanian authorities, and even they can only get in through a formal request tied to money laundering, terrorist financing, or comparable investigations, or through international mutual legal assistance treaties. A curious journalist or business partner simply has no way in.
Within the EU, things looked different until recently: under the fourth and fifth Anti-Money Laundering Directives, member states originally had to make their registers accessible to the general public. The European Court of Justice, however, struck down this general public accessibility in November 2022, as a disproportionate interference with privacy and data protection. Since then, most EU countries have restricted access to authorities and to persons with a demonstrated legitimate interest, such as journalists or NGOs working on anti-money laundering, and harmonising this model across the EU is planned via the sixth Anti-Money Laundering Directive by July 2026.
Anyone still marketing an offshore structure on the promise of „complete anonymity“ is still wrong, just for a different reason than usually claimed: not because any random interested party could look up the data, but because authorities, regulators, and, in a serious case, foreign investigators via mutual assistance treaties can get at exactly this information, general public searchability or not.
What It Actually Comes Down To
The choice between a trust and a foundation is less a question of „which is better“ and more one of „where do I actually live, and what am I trying to achieve.“ If you’re genuinely resident in a jurisdiction that recognises trusts, whether that’s the UK, Ireland, or Singapore, the trust remains a natural instrument. Switzerland is something of a special case here: unlike those common law countries, it’s equally liberal toward both structures, trusts via the Hague Convention, foundations via the general incorporation theory, so both instruments are genuinely on the table there.
For most clients from continental Europe, the foundation is usually the path with better planning certainty, provided you also pay attention to the jurisdiction it’s set up in, as we showed recently using Spain as an example. Both instruments, incidentally, solve the same underlying problem: legally separating assets from the person who owns them. How well that works out in the end depends less on the glossy brochure from whichever provider you’re talking to, and more on whether the structure is actually recognised where you genuinely live. And unlike a lot of things in this field, that’s something you can actually establish in advance. If you’d like help working out whether a foundation, a trust, or possibly neither of the two is the right answer for your situation, get in touch with us.
