Wealth planning quick course: the private foundation, Part 3
In the next four posts, we will discuss the foundation, the private foundation, the trust, and the trust foundation in a few thoughts, summarising the most important facts. We will look at all four institutions from the same perspective, which we will summarise in a table for our readers at the end. The topic of today’s post is the private foundation.
According to the Personal Income Tax Act, “a private foundation is a foundation established for the benefit of the founder, the member or the founder’s or member’s relative as a beneficiary under the provisions of the Civil Code”.
It can be seen that this provision helps the establishment of family foundations with assets smaller than the minimum capital required for the establishment of a trust foundation. According to the Personal Income Tax Act, “the conclusion of a trust deed of trust or the establishment of a foundation (joining the foundation) by an individual settlor or an individual who establishes the foundation (joining the foundation) does not give rise to a tax liability.”
Established by registration with the court.
Supervision / Control
The legal supervision of civil society organisations is carried out by the court, which acts ex officio or on request.
A legal entity established by the founder for the continuous pursuit of a permanent purpose; as defined in the articles of association, which may not be established for the purpose of carrying on an economic activity; but which is entitled to carry on an economic activity directly related to the pursuit of the purpose of the private foundation.
A private foundation is a foundation established in the interest of the founder, the member or the founder’s or the member’s relative as a beneficiary in accordance with the provisions of the Hungarian Civil Code.
The purpose is a permanent private interest purpose.
Can be a natural person.
Board of trustees (3 natural persons) or trustee (one person managing director).
Only mandatory if the organisation is seeking public benefit status and its expected annual income exceeds HUF 50 million.
Termination by the founder
The founder may not dissolve the foundation.
Assets contributed / minimum capital
The founder must transfer to the foundation at least the assets necessary to start the foundation’s operations by the date of submission of the application for registration. The founder must transfer all the assets granted to the foundation no later than one year after the registration of the foundation.
Possibility to join
A registered foundation may be joined by making a contribution of assets under the conditions laid down in the foundation deed.
Only natural person may join.
Not required. Auditing is mandatory for organisations whose annual (annualised) income from business activities exceeds HUF 300 million on average over the two financial years preceding the financial year.
Transfer of founder’s rights
Allows the transfer of founder’s rights or the succession to founder’s rights for other reasons. The founder’s rights may also be transferred to the board of trustees, in which case the founder’s rights and the management rights are merged.
Only economic activities directly related to the purpose of the foundation (directness is a new element) may be carried out and the foundation may not be a member with unlimited liability of another legal entity.
Dissolution of a private foundation
A private foundation shall cease to exist if:
- the private foundation has achieved its purpose and the founder has not defined a new purpose,
- the purpose of the private foundation cannot be achieved, and it is not possible to amend the purpose or merge with another foundation, or
- the private foundation has not pursued any activity in pursuit of its purpose for a period of three years.
Does not include dissolution due to the passage of time.
Nomination of the beneficiary
The assets of the private foundation may be used to provide a benefit in connection with the achievement of the foundation’s purpose to the person designated as the beneficiary by the foundation’s articles of association or; in the absence of a provision in the articles of association, by the foundation’s governing body.
Long-term investment contract
A private foundation may enter into a long-term investment contract if it was established for the purpose of making benefit to individual beneficiaries.