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PANAMANIAN FOUNDATION  

On June 12, 1995, the National Assembly of Panama adopted Law No.25 by which Private Foundations are created and regulated. The idea behind the drafting of this new law arose from the popularity and well deserved good reputation of the Liechtenstein Family (and Mixed) Foundations in certain parts of Europe, especially in Switzerland. This adoption of Act. No. 25 on Private Foundations under the Panamanian law provides a civil law vehicle as an alternative to the trust which has attracted widespread interest especially among the European community. Making good use of this entity can safeguard your interest and guarantee the benefit from tax avoidance.

The principal aim of this instrument is for asset protection, notably for the purpose of settling the succession of private assets. More sophisticated than a trust but less expensive to operate; it offers high confidentiality and flexibility to the “real” founder who can retain such powers as he wishes while his name as well as the successors (beneficiaries) remains absolutely anonymous.

The private foundation, a juridical institution of Roman-Germanic origin, is a legal entity with the Foundation Charter to be filed at the Public Register in Panama whilst the By-laws and Regulations are on strictly private basis which can be completely administered abroad without a notice to the Registry or resident agent. Due to its legal capacity, it can open bank accounts all over the world and be used as a holding devise to hold shares of different companies or be registered at the Registrar of property in any country. The commercial use of a Private foundation is forbidden by law but it can be the owner of commercial companies, and can offer loans to third party (i.e. offshore corporations belonging to the real owner/beneficiaries).

Private assets under the foundation can be legally distributed to the ultimate beneficiaries after the death of the founder and the formalities prescribed for making a Will shall not be required.

A Panama foundation is allowed to emigrate abroad whilst the foreign foundation may immigrate into Panama and continue its existence and legal status subject to the law of the host country.
◆  Foundation v. Trust
◆  Structure of Private Interest Foundation
◆  Taxation
◆  Practical Use of Private Interest Foundation


Foundation v. Trust  

The uses of Foundations are numerous. Primarily it is used as an alternative to Trusts for the setting aside of assets during a donor’s lifetime for the benefit of his dependents after his death. The most glaring differences between a Foundation and a Trust are that a Foundation, unlike a Trust, is a separate legal entity recognised by law, and that the donor (the equivalent of the settlor in a trust) can participate in the direct management of the assets of the Foundation. Furthermore, the donor can himself be a beneficiary of the Foundation. All these differences are highly important to a person who wishes to set aside his assets to benefit his dependents in the future, but at the same time retain direct control over those assets during his lifetime. For many people, handing over their assets irrevocably to a trustee is not an option.

The costs of maintaining a trust over a person’s lifetime can be enormous. The Foundation eliminates this concern since there are no recurrent trustee fees to pay.

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Structure of Private Interest Foundation

Founder: the person or entity that forms the foundation in the public registry. Our firm generally provides a nominee founder, and provides you with a pre-signed, updated letter of resignation from the founder immediately upon incorporation. At that point, the founder holds no control.

Foundation Council:
the council serves the same function to the foundation as directors do to a corporation. The council’s names and passport numbers are registered in the public registry when the foundation is incorporated.

Protector:
performs the function of the ultimate controller of the Foundation. Immediately upon incorporation of the foundation, the council appoints a Protector, through a notarized Private Protectorate Document. Since the document is a private, non-publicly registered document, the Protector remains 100% anonymous. From that point, the Protector has full control over the foundation and all of its assets.

Beneficiaries:
appointed by a Private Letter of Wishes, this is written by the Protector. This document is also private and non-publicly registered, so the beneficiaries remain 100% anonymous. The Letter of Wishes can be changed or modified at any time by the Protector only.

A Panamanian Private Foundation is created when a founder executes a document known as “Foundation Charter” and files the document in the Panamanian Public Registry.
Under the Foundation Charter, the founder undertakes to donate assets worth not less than US$10,000 to the Foundation ( Note: the timing of making the donation is not prescribed by law and is at the discretion of the Founder ) , to be managed by a “Foundation Council” for the benefit of one or more beneficiaries who may be the founder. Foundation Council is similar to a board of directors of a corporation whose membership may be constituted by natural persons or corporations. In the case of natural persons, the minimum number is 3. In the case of corporate membership, the minimum number is 1. There is no Panamanian residential requirement for membership of the Foundation Council and there are no annual or other Council meeting requirements. Once filed at the Panamanian Public Registry, the Foundation Charter creates a new legal entity in the Republic with perpetual existence.

The management of the Foundation is governed by the Foundation Regulations, which contain, inter alia, details of the assets of the Foundation; the powers of the Foundation Council; the procedural aspects of the Foundation Council’s work; details of the Beneficiaries and their entitlement. The Foundation Regulations is a private document between Founder, the Foundation Council and the Beneficiaries. On an ongoing basis, there are no filings or returns of any type that are required by the Panamanian Government. There is no accounting or audit requirement unless such are specifically required by the Foundation Regulations.

In order to provide for the highest level of confidentiality, Panamanian law specifically permits the Foundation Regulations to be sealed and deposited with the Panamanian Registered Agent (which must be a law firm or trust company licensed by the Panamanian Authorities) without them being part of the public records. This ensures that the terms of the Foundation are kept totally confidential, which is clearly a significant consideration.

The Founder may decide on the name of the Panamanian Private Foundation which must end with the word “Foundation”. For the prevention of fraud, there is the usual prohibition on the use of names such as “Bank”, “Insurance” and “Trust”.

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Taxation
  • All foundations are subject to payment of registration fees and annual franchise tax equivalent to those charged to Panamanian corporations. There are no taxes, duties, charges or fees on all kinds of constitution, modification, extinction, transfers or encumbrance regarding the foundation assets and income related with them, if these assets meet the following conditions:-

    1. they are located overseas;
    2. money deposited by natural or juridical persons whose rent is not of Panamanian source or not taxable in Panama;
    all kinds of stocks and securities, issued by corporations whose rent is not of Panamanian source or not taxable by any cause, even though those stocks or securities are deposited in Panama.


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Practical Use of Private Interest Foundation
  • To protect family business providing continuity to the next generations;
  • To protect defenseless persons incapable to manage their assets, such as minors and disabled;
  • To manage payments of money or the distribution of assets to members of the family or to provide for the education, housing, maintenance or profit sharing of family members;
  • To carry on scientific, philanthropic, religious, humanitary purposes, or to manage funds or assets for the benefit of these activities;
  • To manage profit sharing as well as pension plans to employees;
  • To create a sophisticated and efficient substitute of the testament or will;
  • To form a holding of shares, participations or interests in private or public corporations;
  • To create a vehicle for the collection of royalties;
  • To create a vehicle to invest in shares, bonds, mutual funds, bank deposits or other assets;
  • To form a vehicle to own real estate or other assets of considerable value such as art works;
  • To form a vehicle to protect assets against excessive taxes, creditor claims, political instability or forced heirship;
  • To operate bank accounts in any part of the world.

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