During the last years the basic conditions for private foundations have changed following rulings pronounced by the Supreme Court which have caused more red tape and a loss of same advantages.
While the cancellation of the inheritance and gift tax has allowed to pass on assets and to make donations free of tax, the transfer of equity within the foundation is subject to a tax of at least 2,5%. In case the foundation acts are not revealed to the Tax Administration the tax rate is increased to 25%. The payment of dividends by the foundation, including hidden reserves, is subject to a 25% capital gains tax rate.
The abolishment of the gift tax brings a disadvantage regarding the equity transferred to the foundation. This means that the capital gains tax rate of 25% not only to the foundation.
The only remaining fiscal advantage for private foundations is the taxation of interest receipts and of profits related to the alienation of holdings which continues to be subject to a rate of 12,5% instead of 25%. In reality, however, this is only a delay of the obligation to pay taxes up to the moment of the payment of profits to the founders or other beneficiaries.
The Annual Financial Act 2009 introduces an additional change for foundations with holdings abroad. With this regard foundations will be put on a par with incorporations. Dividends received from foreign holdings, which consist of low passive income, such as for example only interest receipts, will in future be subject to the corporate income tax.
Also the so-called portfolio dividends (dividends related to holdings of less than 10%) with origin in a non member country of the EU will be fully taxed in the future. Considering the wording of the law it cannot be excluded that this regulation will apply also to holdings of more than 10%.  Unlike corporations, also previously private foundations were not entitled to claim the exemption of profits related to intercorporate holding in a member country.