What is a foundation private fund (SPF)?
A Private Fund Foundation, abbreviated SPF, is a unique legal form under Curaçao law for which no direct equivalent exists in the Netherlands. What distinguishes an SPF from a regular foundation is that it may freely make distributions to individuals or institutions, without restrictions as to who those beneficiaries are.
With an SPF, one can, for example, house (family) assets such as a securities portfolio or bank account, with the founder determining who receives distributions from those assets when and under what conditions – for example, on a particular event or milestone.
For Dutch residents, the contributed assets are considered by the Tax Authorities as private assets of the contributor. As a result, there is no gift tax on the transfer to the SPF. Fiscally, therefore, this offers no advantage, but also no disadvantage. The real added value is in the civil law protection.
Legal protection of private assets
From a civil perspective, the assets placed in the SPF are separated from the personal assets of the founder. It belongs to the SPF itself. This principle can be particularly valuable in certain situations. Some practical examples:
- Protection against professional risks: A professional such as a doctor, lawyer or notary who wants to shield his or her private assets from possible professional liability can place his or her assets (such as a home or investments) into an SPF. For example, he or she can designate family members as beneficiaries. Should the individual face claims or bankruptcy, the SPF’s assets are in principle beyond the reach of creditors – provided that the transfer is not considered a so-called “Paulian” act.
- Estate planning within composite families: consider an elderly widower with children who wants to remarry. If there are concerns about the protection of the children’s inheritance, the SPF offers an opportunity to secure (part of) the assets, without depending on the cooperation of the prospective husband or wife in drawing up prenuptial agreements. This can be an alternative to, for example, usufruct constructions or cold exclusion.
Possible legislative changes and tax concerns
Please note that there are currently draft bills on the books that may change the tax treatment of SPFs. Although not yet final, these plans may have important implications for the use of the SPF structure, particularly for residents of the Netherlands.
The key points of the possible changes are:
- Curaçao profit tax levy: Assets placed in an SPF would now be subject to a 10% Curaçao profit tax.
- Distributions to Dutch residents: A distribution from an SPF to a beneficiary resident in the Netherlands would be taxed in Box 2 (substantial interest), even if it is a one-time distribution.
- Double taxation with Dutch underlying interest: In some cases, this leads to double taxation: 10% income tax in Curaçao and wealth tax in box 3 in the Netherlands. The application of the Netherlands-Curacao Tax Treaty (BRNC) may then be relevant, but the outcome remains complex.
- Comparison with private ownership: Capital gains that one simply holds in private (for example, in Box 3 or as a joint IB company) can currently be untaxed. A basic income tax rate of 9.75% (first bracket) applies, with partners able to split the assets and declare half each.
Practical advice
Given the uncertainty surrounding legislative changes and the complexity of the tax treatment, it is wise to think carefully before placing assets in an SPF. In many cases, it is currently more attractive – and manageable – to keep assets in private.
Please note that if this is real estate that you rent out through the SPF, the operation (e.g., the actual rental activities) must not be with you personally. Otherwise, there is a risk that the tax authorities will classify this as profit from business, with associated tax consequences.
Flexibility and uses
The SPF remains a powerful and flexible instrument under civil law. The articles of association can be completely arranged according to the founder’s wishes. The SPF may invest, for example in shares or real estate, but may not itself conduct a business. It may, however, own shares in a company that conducts a business.
