St. Martin Private Foundation / SPF
A St. Martin Private Foundation (SPF), also known as St. Maarten, is a flexible separate legal entity with features normally only found in trusts. The Dutch name is “Stichting Particulier Fonds”, with abbreviation of “SPF”. The assets are in its own name for greater asset protection.
Foreigners can create and fully participate in a SPF. With no members or shareholders, a SPF does not even have to include beneficiaries.
Unlike most private foundations, the SPF can make distributions to the incorporators and others without having a social or charitable purpose. Beneficiaries, if named, can have general or limited rights.
St. Maarten was a former Dutch colony situated in the Caribbean Sea near Venezuela. Currently, the island is a sovereign state member of the Netherlands Kingdom.
It has a democratically elected parliament and independently runs its domestic affairs while Holland provides military defense if the need arises.
English is one of its official languages. All legal documents can be prepared in English.
St. Martin Private Foundation Benefits
A St. Maarten Private Foundation (SPF) can take advantage of these benefits:
• Total Foreign Participation: An SPF can be formed by a foreign founder and have foreign beneficiaries.
• No Taxes: The SPF is totally tax exempt unless actively engaged in business or enterprise activities for profit. However, U.S. residents and everyone subject to global income taxes must report all income to their governments.
• Privacy: If beneficiaries are appointed, their names never appear in any public records.
• Fast Formation: SPF’s can be formed and registered in one or two business days.
• English: One of the official languages is English
St. Maarten Private Foundation (SPF) Name
Every private foundation must select a unique name so as not to confuse third parties with other legal entities in St. Maarten.
Every SPF must include the word “Foundation” at the end of its name or the Dutch abbreviation “SPF”.
Most private foundation laws in other countries prohibit their foundations from actively conducting an enterprise or business for profit. However, Book 2 of the St. Maarten Civil Code encourages a SPF to actively invest its assets. This includes acting as a holding company or participating as a partner in a limited partnership. None of these activities are regarded as “conducting a business” according to Book 2 of the Civil Code. Therefore, there are no limits to these types of investments.
Formation of a Private Foundation
A SPF is formed (incorporated) by the execution of a written legal document (Foundation Deed) in front of a local civil law notary. The deed is similar to a corporate articles of incorporation as it details the purposes, objectives, initial assets, and operations of the foundation.
The Foundation Deed should include the by-laws of the foundation along with the following information:
• The foundation’s name including either the wording or abbreviation “SPF” or “Foundation” at the end of its name;
• Purpose and objectives; and
• Appointment of administrators, protectors, and enforcers.
The notarized Foundation Deed must be filed with the St. Maarten Chamber of Commerce’s Register of Foundations. Once filed, the SPF becomes a valid legal entity.
The person who created the foundation is known as the “founder”. The law allows a founder to possess great latitude when establishing a SPF. This includes the ability to dictate in the deed how management acts regarding making distributions of the income and/or assets. Unlike other countries’ laws restricting how, when, and the types of distributions their private foundations can make, the SPF is not subject to such restrictions.
Every SPF must appoint an administrator (or authorized representative) to manage the assets and administer the distributions of the income and assets.
Founders and beneficiaries (if any are named) must be non-residents in order to avoid paying corporate and income taxes on the SPF’s profits.
Residents are subject to a gift tax rate of 25% when transferring capital to a SPF. Non-residents are exempt from this gift tax.
Periodic payments to non-resident beneficiaries are not taxable to the recipients.
SPF’s are exempt from profit taxes (corporate and income taxes). This exemption rests upon one condition: the SPF does not operate a business or an enterprise for profit. However, the law states that investment activities and acting as a holding company do not qualify as business or an enterprise.
Tax returns are not required from a SPF unless a tax is owed. The Tax Inspector has the right to demand annual financial statements if there exists a suspicion the SPF engages in enterprise or business activities.
If an SPF engages in an enterprise or a business, the corporate tax rate is 34.5%.
Note: U.S. taxpayers must disclose all global income, as do everyone subject to worldwide income taxes, to their tax authorities.
Definition of Business and Enterprise
St. Maarten case law clarifies what a business or enterprise involves:
• Normal asset management is not considered operating an enterprise or a business. Lack of influence over the operations and decisions indicates the absence of a business or enterprise. For example, holding investment portfolios will not be regarded as operating a business or an enterprise.
• Lack of participation in economic and social life, even if the activity results in a profit, will not result in operating a business or an enterprise. Therefore, the profits are exempt from profit taxes.
Examples of Acceptable Activities
The following are acceptable investment activities not considered “business or enterprises”:
• Holding Company – An SPF may act as a typical passive holding company. The percentage of shares in a company held by the SPF will not affect whether it is active or passive. The involvement with the management of the company determines whether the role is active or passive.
• Investment Activities – SPF’s can invest in a variety of investments such as: bonds, commodities, deposits, financial instruments, mutual funds, securities, and stocks. As long as the investments are passive and not involving active participation.
• Passive Financial Activities – An SPF can loan money to relate or third parties. The SPF may borrow funds and loan them to others. Interest can be charged.
• Annuities, Insurance, and Pensions – SPF’s can invest funds to cover future annuity, insurance or pension obligations. Such policies may be contributed to an SPF. These activities may be restricted to one group like a family without creating a business or an enterprise. However, such activities involving a large group of unrelated beneficiaries could be interpreted as engaging in a business or an enterprise.
• Real Estate – SPF’s can own real estate. However, actively buying and selling real estate may be considered a business or enterprise. Collecting rent from tenants in owned real estate is not a business or an enterprise.
The public records do not include the names of any beneficiaries (if appointed).
Time for Formation
The SPF can be written and registered in one or two business days.
A St. Maarten Private Foundation (SPF) obtains these benefits: complete foreign participation, privacy, tax exemption, fast formation, and English is one of its official languages.