Corporate Taxation

Tax exemption of charitable foundations: Change in practice of the Canton of Zurich

The Tax Authority of the Canton of Zurich has published significant changes to its practice regarding the tax exemption of charitable foundations. The changes are intended to enhance the Canton of Zurich’s attractiveness as a location for foundations in Switzerland. The improvements to the tax framework, effective as of 1 February 2024, are briefly summarised below:

Remuneration of foundation board members

Under the previous practice, tax exemption was in principle granted only if the foundation’s board members served without compensation. The change in practice now allows for reasonable compensation of the board members without jeopardising the tax-exempt status of the foundation.

It is assumed that any compensation paid has already been reviewed and deemed appropriate by the Foundations Supervisory Authority and is therefore generally accepted from a tax perspective. The Tax Authority of the Canton of Zurich limits itself to monitoring potential abuses and only intervenes for an audit if there are doubts about appropriateness.

Activities abroad

Previously, tax exemption for foundations with activities abroad was only possible if the activities  took place in emerging or developing countries and had a positive impact on Switzerland. This was an obstacle for internationally active foundations.

Now charitable activities in Switzerland and abroad are in principle treated equally, provided they are deemed worthy of support from the perspective of Swiss society as a whole and the tax loss associated with the tax exemption can be justified. Additional requirements for activities abroad are that they have a positive impact on Switzerland and that the flow of funds is fully documented all the way to the actual recipient abroad.

Entrepreneurial funding models (Impact Investing)

The change in practice also means that the use of entrepreneurial funding models no longer precludes tax exemption. Entrepreneurial funding models, such as loans (notably social impact bonds), participations or convertible loans, are characterised by the fact that a return of funds – in contrast to à fonds perdu contributions – is not excluded from the outset.

Such a return of funds to the foundation (e.g. repayments of and interest on loans, investment income or profit sharing) does not affect the tax-exempt status, provided that these funds are reutilised for charitable purposes. However, it must be proven that the funds are only used in areas where there is no existing market (yet) and that the investment would not typically be made by profit-oriented third parties.


The recent change in practice  by the Canton of Zurich is a positive and welcome development. It resolves the previously objectionable situation, where tax-exempt foundations were allowed to pay (unlimited) market-based fees to third parties, but were restricted from compensating their own board members for the same activity. It is likely that other cantons, which still maintain disproportionately high requirements for the tax exemption of charitable foundations with regard to the remuneration of board members, will adopt the practice of the Canton of Zurich in the future.

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