How are long-lasting foundations (like the Ethereum Foundation) created in Switzerland? What are the advantages and disadvantages of creating the Foundation in Switzerland.
Switzerland is known for a low degree of regulation, an emphasis on private autonomy and a high degree of autonomy to its 26 regions (or cantons). These are the driving forces which motivate many new-age cryptocurrency startups like Ethereum, to set up their base in Switzerland. Setting up a foundation in Switzerland is relatively easy, requires minimal financial external supervision and little government supervision. However, such foundations face criticism for providing a channel to US citizens to avoid paying taxes. Below is a deep-dive of our research into Ethereum-style foundations.
Setting up A Foundation in Switzerland
In Switzerland, setting up a foundation requires one or several founders' assets to be dedicated for a special purpose. The process begins with the drafting of statutes: this will include the foundation's purpose, its resources, and its general organization or bodies and their respective powers. The statutes thus formed are cleared by cantonal or federal authority, depending on the scope of the foundation's activity.
The next step is to apply for tax exemption with the tax authorities. Following approval from relevant authorities, the foundation is formally constituted. It is also registered with the Register of Commerce. The foundation gets its legal personality on registration in the Register of Commerce.
The initial capital required is CHF50,000, and must be contributed by the founder.
Ethereum foundation was registered in June 2014, in Zug, which has positioned itself as ‘Crypto Valley’. Zug has the most friendly regulations for cryptocurrency players. Zug is also known for its long-term regulatory experience in commodities and pharmaceutical sectors.
Ethereum Foundation initially distributed 60,102,216 ethers for $18,439,086. The purpose of Ethereum's foundation is to manage funds that were initially raised from ethers sale.
Advantages of setting up a Foundation in Switzerland
a) Laws of the foundation are governed by civil code, which is recognized as one of the most liberal.
b) The foundation are governed by low degree of regulations and an emphasis on autonomy.
c) Switzerland provides a secure political and economic structures boosting confidence of foundations.
d) The process of registration is easy and the foundation requires only 2 compulsory bodies: the board and auditors.
e) Laws of the foundation provides for great flexibility and the founder has the freedom to determine the structure and governance.
g) The governance in each of the 26 regions (or cantons) has high a degree of control over their own laws. This has motivated a lot cryptocurrency players to set up their foundations in Switzerland.
Disadvantages of setting up a foundation in Switzerland
a) Funds given to a foundation cannot be returned to the donors or be distributed in any way that is not towards the foundation's operations and mission.
b) Remuneration to directors is not allowed as it runs against the principles of altruism.
c) The foundation is supervised by the public authority. This provision allows the cantonal public authority to supervise the activities of the foundation.
a) Ethereum and such foundations have been criticized for selling its developers' services to businesses, which raises the question about conflict of interest.
b) Ethereum and such foundations, which are officially a non-profit, are making many people billionaires (particularly founder and board members) through trading ether on the foundation-developed platform
c) Such foundations have been criticized for giving a channel to avoid paying taxes in the US.
From our research, we can conclude that setting up foundations in Switzerland is easy. The degree of regulations are low and an emphasis on autonomy provided is high. Different regions of Switzerland has autonomous laws, because of which cantons like Zug have attracted lot of cryptocurrencies and are famous as 'Crypto Valley'. These foundations have also attracted lot of criticism, as they are seen as channels of tax-evasion. Additionally, questions have also been raised on increasing wealth of founders and board members.