Legal framework

The Canton of Zurich’s tax and regulatory framework for charitable foundations is one of the most attractive in Switzerland. Swiss foundation law is governed by Articles 80 to 88 of the Swiss Civil Code (ZGB).

Additional information is available from the Center for Foundation Law at the University of Zurich and in Dr. Thomas Sprecher’s book “Swiss Foundation Law”.

Tax exemption

The Zurich Cantonal Tax Office adheres to an innovative and future-oriented approach in regard to foundations and their needs. Unlike other cantons, charitable foundations are permitted to pay their board members appropriate remuneration, which is monitored by the foundation’s supervisory authority. Furthermore, foundations are permitted to operate abroad, regardless of purpose and location, provided their activities are deemed worthy of support from a Swiss overall perspective. The Canton of Zurich is one of very few locations in Switzerland that allow charitable foundations to use entrepreneurial funding models, such as loans, social impact bonds and development impact bonds, or to make equity investments into social causes.  

A charitable purpose is a prerequisite for tax exemption. A purpose is charitable if it is in the public interest and promotes the common good, e.g. in the domains of social welfare, art and culture, science and education, international cooperation or environmental protection. The group of beneficiaries must be inclusive and not restricted to a narrowly defined group. Furthermore, the focus of the foundation’s activities may not be on profit-making or be self-serving.

Since, under Swiss law, charitable foundations do not have members or owners, a return of the assets to the founder or any other third party is generally excluded. If the foundation is dissolved, any remaining funds must, therefore, be transferred to another charitable organisation that pursues a similar purpose.

Foundations are also prohibited from retaining income for the purpose of accumulating capital. Swiss law does not include a so-called “pay-out rule”, as is common in Germany or the USA. That notwithstanding, foundations in Switzerland are required to use the funds available on a continuous basis; failure to do so will cause the foundation’s supervisory authority to intervene and the foundation’s tax exemption status may be withdrawn.

Foundation supervision

By law, charitable foundations are subject to cantonal or federal supervision depending on the location and scope of the foundation’s activities. Nationally or internationally active foundations are supervised by the federal supervisory authority, while foundations operating in the Canton of Zurich are under the supervision of the BVG and Foundation Supervisory Authority Zurich. A foundation is obliged to submit an audited annual report to the competent supervisory authority for every financial year.