Panama Private Interest Foundation
|Formation Package||1st Year||USD 3,999||2nd Year||USD 3,599|
- Panama Foundation Formation
- Registered Address and Agent
- Company Secretarial Maintenance
- Government fees
- Original Deed of Foundation Charter in both English/Spanish
- Certificate of Good Standing
- Foundation Seal
- Courier Delivery
Nominee and Management Services:
- Corporate Foundation Council
- Corporate Founder
- One General Power of Attorney in favor of the beneficiary only
- Bank account
- E-Banking facility for wire transfers
Overview of a Panama Private Interest Foundation
The Panama Private Interest Foundation (PPIF) is a type of offshore private foundation, carefully designed by the Panamanian Government as an offshore asset protection solution under the laws of Panama. It is based upon the Liechtenstein “Stiftung” (a family foundation), as well as private foundation structures of Switzerland and Luxembourg.
The main difference between an offshore private foundation and an offshore company is that a private foundation cannot engage directly in any business activity that is commercial in nature. It may, however, own investments such as real estate, other companies, stocks, bonds, etc.
Different from any other legal entity known in Anglo-Saxon law, a Panama Foundation is not the legal personification of a person or group of persons (as with a corporation). No owners exist in a Panama Foundation.
The assets of the Private Interest Foundation in Panama take on a separate legal identity from the personal assets of the Founder, Protector, Council Members or Beneficiaries. Traditionally, it has a specific purpose for the benefit of a general group of individuals. To convey the manner in which the assets of the foundation should be handled after the Founder’s death, a Letter of Wishes may be drafted.
It is imperative to make the distinction between the Panama Private Interest Foundation and the Panama Charitable Public Foundation – or what could be termed the Panama “Public Interest” Foundation – that is one which operates as a charity for charitable purposes only. Both have their unique uses in offshore planning, depending on your circumstances.
Benefits of a Panama Foundation (PPIF)
- Affordable anonymous, flexible and private international estate planning vehicle that can be used to hold assets such as corporations, trusts, bank accounts, investment accounts, real estate, or any other type of asset.
- Protects assets – because the PPIF has no owners, the assets of the PPIF cannot be claimed if the founder, council members, protector or beneficiaries have unpaid debt.
- Non-Freezable Assets – according to Panama law, the assets of a PPIF are non-freezable, if the money has been in the foundation for more than 3 years.
- Can be used to help family members financially according to the protectors instructions; forced heirship rules are specifically excluded.
- Use it to collect royalties.
- Tax-free for income derived outside of Panama. Local bank interest is also tax exempt.
- No approval from any public authority is required – a PPIF comes into existence upon its registration in the Public Registry.
Things to Consider About a Panama Foundation (PPIF)
- Foundations are mainly used for philanthropic or estate planning purposes.
- Functionally, a foundation cannot engage directly in commercial business activity, although it may own investments such as property, stocks, bonds and companies.
- There are no owners to a Panama Foundation. A “Letter of Wishes” may be written by the founder to specify how the foundation’s assets should be handled following the founder’s death.
Panama Foundation Tax Advantages
Panama is a 100% “tax haven.” Hence, Panama Foundations offer the following tax advantages:
- No tax reporting requirements
- No income tax
- No capital gains tax
- No interest income tax
- No sales tax
- No tax to beneficiaries
- No beneficiary transfer tax
- No capital tax
- No property tax (for non-Panamanian property)
- No estate tax
- No gift tax
- No inheritance tax
- No stamp tax
- No succession tax
- No inventory tax
Top Uses of Panama Foundations
Panama Private Interest Foundations may be established for the benefit of a person or persons, a family, or a specific social purpose.
In general, you may want to consider a PPIF if you wish to control and maintain ownership of foreign corporations, however, you do not wish to own your corporations directly, due to the Controlled Foreign Corporation (CFC) rules in your home country.
Several highly taxed countries (such as the UK, Canada, USA, Australia, New Zealand, France, Italy, Spain, etc.) have strict CFC rules. These rules require that their citizens submit declarations (reports) to the appropriate tax authorities, wherein they declare that they are the shareholders of such foreign corporations.
Instead of holding the corporations’ shares in their personal name or in bearer form, they establish a Private Interest Foundation in Panama that holds or owns the shares of their foreign corporation(s), thus avoiding the CFC reporting rules. Hence, the advantage of using the Foundation as a shareholder for their corporation is to remove ownership from one’s personal name (or through a Bearer Share arrangement).
This ownership is transferred to the name of a foreign entity, which does not have owners, rather has privately appointed beneficiaries, which are anonymous. In this way, there is no question as to who owns the company, since the company’s shares are issued to the Foundations’ name.
Another advantage of utilizing the Foundation as a shareholder applies when opening corporate bank accounts or investment accounts. The financial institutions require that you reveal the beneficial owners of the corporation. Through the Foundation ownership strategy, one can state that the Foundation is the owner of the corporation. Again, the objective is to remove ownership from their personal name, to the name of a foreign entity whose ownership is anonymous.
The Panama Foundation provides additional advantages other than just ownership. For example, the Panama Foundation can be useful in transferring funds offshore or receiving funds from offshore. In some cases, people use Panama Foundations as vehicles for these purposes.
Some people donate their funds to their Panama Foundations and later use the Foundation to give educational or special grants to their children, grandchildren, or anyone else they choose. The advantage, in this case, is to avoid fiscal regulations surrounding donations, where some governments impose “gift taxes” and exhaustive reporting requirements.
In general, PPIFs may not engage in habitual profit-making commercial activities as a corporation can. Nevertheless, they may carry out commercial activities from time to time, as long as the profits of those activities are used for the objectives of the foundation.
For example, a Private Interest Foundation may engage in banking or investment activities, such as investing in bank time deposits (Certificates of Deposit – CD’s), stocks, bonds, mutual funds, options, money markets, etc. so long as the proceeds from these investment activities are for the benefit of the beneficiaries of the Foundation.
Panama Foundation Facts
Second Most Popular Jurisdiction in the World
Panama is the registered domicile for over 400,000 corporations & foundations, making it the second most popular jurisdiction to incorporate in the world, next to Hong Kong.
No Reporting Requirements or Taxes
Panama does not impose any reporting requirements or taxes for Panamanian Foundations.
No Piercing the Corporate Veil
Panama does not allow “piercing the corporate veil”, so your Foundations books are maintained 100% private and confidential by law.
Anonymous Ownership and Control
The Protector and Beneficiaries need not be publicly registered. Panama Foundations Protectors can be appointed through a Private Protectorate Document, and the Beneficiaries can be appointed through a Private Letter of Wishes, written and signed by the Private Protector.
No Capital Requirements
Panama Foundations do not require Paid-In Capital.
Every Panama Foundation must have a council (same as directors of a corporation), whose names and addresses are registered in the public registry. The council members can be either individuals or entities of any nationality and resident of any country.
If the council is made up of individual persons, then it requires 3 council members (President, Secretary and Treasurer). If the council is an entity, then only one council member is required.
Nominee Foundation Council
We offer our clients the optional service of using our “Nominee Council” for their Foundation(s). For purposes of confidentiality, most of our clients prefer that we provide nominee council members for their Foundations.
When we appoint nominee council members for the Foundations that we establish for our clients, we always provide our clients with pre-signed, undated letters of resignation from the council members so that our client can replace those council members at any time. There is no additional fee for the use of our nominee council.
Directors or Beneficiaries Meetings
Annual general meetings of council members of the Foundation are not mandated or required. However, if meetings are held, they can take place anywhere in the world by proxy – via telephone, email or other electronic means. Any resolutions passed are valid regardless of whether they are signed on different dates or in different jurisdictions.
The Registered Agent is not required to keep any records for the Foundation, however, it is recommended that every Foundation should maintain a minute (council meeting) record book, which can be held anywhere in the world.
Annual Corporate Franchise Tax:
Panama Foundations should pay an annual corporate franchise tax of US$250 to remain in good standing. The public registry allows a grace period of 90 days from the date of incorporation to pay the corporate franchise tax. After 90 days, if the tax is not paid, there is a US$50 late fee for every year that the tax is not paid on time.
It is not necessary for the interested parties to be present in Panama for the purpose of establishing a Foundation. We can handle everything for you without you having to come to Panama, although you are welcome to arrange a meeting with us in our offices here in Panama.
No Business License Requirement
Panama Foundations DO NOT require a commercial business license to operate internationally.
Foundations from other jurisdictions may be “re-domiciled” to Panama, and vice-versa. Many people who have corporations in jurisdictions such as Liechtenstein, Switzerland, and other jurisdictions are currently re-domiciling their Foundations to more affordable, private and secure jurisdictions such as Panama.
A Foundation seal is optional. We also offer Foundation seals if you want one.
When registering a new Panama Foundation, it must have a legal physical address that is included in the articles of incorporation. Our law firm provides a legal physical Frequently Asked Questions about Panama Foundations
Who needs a foundation for asset protection?
Every individual who has sufficient wealth to consider establishing a foundation as part of a traditional estate plan must consider asset protection as one of the primary design objectives. Life is full of unintended, unexpected and unforeseen risks. Ignoring them doesn’t mean they go away. Planning for them is good risk management.
What is an asset protection foundation?
All foundation arrangements are for the preservation of assets. A Panama foundation structure enables property to be held in a favorable legal environment. As a legal structure, a Panama foundation can hold assets anywhere in the world so long as those assets are freely alienable. In effect, an asset protection foundation is an integral part of a traditional estate plan which is intentionally settled in a beneficial legal environment.
Who may form a Panama foundation?
One or more individuals or corporations, acting in their own name or through another (i.e. the client’s attorneys in Panama), may constitute a Panama foundation. In other words, the foundation can be incorporated directly by the client or by fiduciary agents or offshore companies acting on his behalf. Our firm may act and provide the fiduciary agent or offshore company.
Is there an ideal comprehensive asset protection foundation plan?
No. Every person has different sorts of assets and different estate objectives. There is no one-size, all encompassing plan to deal with every component of a person’s financial life. Planning for a total estate will always be a compromise of factors.
Estate planning, and in particular estate planning focusing on the objective of the protection of assets, is greatly influenced by the skill, knowledge and biases of the professionals who are planning and drafting the documentation.
Most recommend only those procedures with which they are familiar, even though those techniques may be less effective that others. Asset protection planning is dependent upon two significant variables. Firstly, the specific situation in which the clients find themselves in; and secondly, the abilities of the professional they choose in guiding them through asset protection strategies. If both are in harmony, then there can be some excellent results.
Historically, why has foundation planning been so popular?
The private foundation structure has traditionally been the most flexible and useful means of establishing an estate plan for Continental Europeans and Latin Americans. Estate planning is generally defined as the process of planning the accumulation, protection and distribution of an estate. Foundation planning enables the owner of assets to efficiently and effectively achieve personal objectives, as well as minimize the imposition of taxation. It enables the founder to establish management responsibility for assets and to secure investment advice.
A foundation arrangement allows the founder to be assured that the right assets will go to the right persons at the right time. An estate plan utilizing a foundation is the fundamental international mechanism for enabling the inter-generational transfer of wealth efficiently, effectively and securely.
Can a Panama foundation be profit oriented?
Panama foundations shall not be profit oriented, but they may nevertheless engage in commercial activities in a non-habitual manner or exercise rights deriving from titles representing the share capital of corporations really dedicated to business, provided that the economic result or proceeds from such activities are used exclusively towards the foundation’s objectives. The key concept here is to think of the foundation as a holding company.
What are the minimum requirements to incorporate a Panama foundation?
The main information required is:
- Name and Purpose of the Foundation;
- Names of the Foundation Council Members
- Address of the Foundation
- Appointment of a Registered Agent
What are the formalities to constitute a Panama foundation?
It is worth noting that the foundation charter as well as any amendments may be drafted in any language and must comply with the regulations regarding the registration of acts and titles at the Public Registry for which purpose, it must first be protocolized by a notary public of the Republic of Panama.
If the foundation charter or its amendments are not written in Spanish, the same shall be protocolized together with its Spanish translation made by a certified public translator of the Republic of Panama.
The registration of the foundation charter of a private foundation at the Public Registry shall confer upon it juridical personality without the need for any other legal or administrative authorization. Registration at the Public Registry shall additionally constitute a means of publicity with regard to third parties. This is an extremely important concept of the Panama foundation legislation.
Is the Panama foundation managed like a corporation?
The same way a corporation is administered by a board of directors, the Panama foundation is managed by a Foundation Council whose powers and responsibilities shall be established in the foundation charter or its regulations. Unless the Council is a juridical person (i.e. offshore company), the number of individual members of the foundation council shall be no less than three (3). From a practical point of view, a bank, fiduciary or attorney may form an offshore management company to act as the foundation council of multiple foundations.
Which are the statutory powers and duties of the foundation council?
The foundation council is responsible for carrying out the purposes or objectives of the foundation. Unless the foundation charter or its regulations provide otherwise, the foundation council shall have the following general obligations and duties:
- To administer the assets of the foundation in accordance with the foundation charter or its regulations.
- To carry out acts, contracts or lawful business which are convenient or necessary to advance the purposes of the foundation.
- To inform the beneficiaries of the economic situation of the foundation as stipulated in the foundation charter or its regulations.
- To deliver to the beneficiaries of the foundation the assets, properties or resources designated for them by the foundation charter or its regulations.
- To carry out all such acts or contracts which are permitted to the foundation by the Foundation Law and by other applicable legal or regulatory provisions.
These foregoing powers and duties are merely those provided by default in the Foundation Law. Please note that the law expect the founder of the foundation to expressly detail all powers, obligations and duties of the foundation council and any supervisory bodies in the respective charter or its regulations.
May the founder create and appoint any supervisory bodies over the foundation council?
The foundation charter or its regulations may provide that, in order to exercise their powers, the members of the foundation council must obtain the previous authorization of a protector, committee or other supervisory entity appointed by the founder or the majority of the founders.
The figure of the protector or supervisory body is typical of the trust. The protector may be one individual or corporation, or an auditing firm, or a law firm or others. Identical to the powers and duties of the foundation council, regarding the protector, the Foundation Law expects the founder to establish clear parameters, but in default or as a compliment thereof, it sets several general duties and obligations of such protectors.
How are foundation assets protected from creditors?
The assets of the Panama foundation shall constitute an estate separate from the founder’s personal assets for all legal purposes, and may not be seized or attached or be subject to any precautionary action or measure, except in case of obligations incurred, or damages caused by virtue of actions taken fulfilling the purposes or objectives of the foundation, or of legitimate rights of the beneficiaries of the foundation. In no case shall such assets be affected or used to respond for the personal obligations of the founder or the beneficiaries.
This does not mean that a foundation is not subject to litigation. It does mean that if there is litigation, it will have to be brought in that specific jurisdiction and will have to meet the legal requirements of the causes of action which are recognized in that jurisdiction. In some cases, even where a cause of action could be brought, the specific jurisdiction may restrict the time period during which this can happen. Once that statute of limitation period has passed, the right to bring a legal action is legally extinguished.
What kind of assets may be transferred into a foundation?
Virtually, any kind of assets which are capable of being transferred free and clear can be settled into a foundation. Cash, securities, partnership interest, and real estate are typical of some of the types of property which can be suitable placed into foundation. The highest degree of protection is afforded to those kinds of assets which can, in times of legal duress, be physically located away from the jurisdiction or physically transferred away do require additional planning strategies and techniques.
Do fraudulent transfer provisions prohibit the transfer of assets into a Panama asset protection foundation?
The fraudulent transfer provision contained in the Foundation Law is a remedy, not a prohibition. It does not create new liability, but allows a creditor to follow the assets. The fraudulent transfer laws are simply a means by which creditors, under very specific circumstances, can proceed against property which has been transferred, or against the person who now holds the property which has been transferred. These laws do not prohibit or limit the free transfer of any asset. In fact, their operation is entirely dependent upon the assets being transferred.
However, article 15 also clearly states that the rights and actions of such creditors shall lapse at the expiration of three (3) years, counted from the date of the contribution or transfer of the assets to the foundation. A special conveyance proceeding is a separate legal action by the creditor to obtain a legal determination that declares a transfer void, but only if properly filed within the three (3) years mentioned before. The remedies available under the transfer provisions are then applicable, but are limited to the property itself or on persons who hold the property. Until there is a legal prohibition against transfer, anyone may freely transfer his or her own property.
Apart from creditors, are the transferred assets safe and secure from other risks?
Planned safety and security of the assets held under foundation are the hallmark of this type of planning. The foundation council which manages the foundation is approved by the founder and is normally a company or person which engages in foundation business as a professional fiduciary. As an additional security, a foundation protector can be appointed with power to oversee the administration of the foundation operations. This protector is a person or company chosen by the founder, the founder’s attorney or accountant, or can be a professional company which is retained to serve this purpose.
The foundation assets can be invested with an investment advisor as authorized by the foundation council. Assets themselves can be located in whatever financial institution the foundation council designates, but normally the choice is in favor of one of the well-regarded financial institutions related to our firm.
What sort of controls can the founder retain after the creation of the asset protection foundation?
Under the Panama foundation, the founder can exercise different levels of powerful direct or indirect control over the foundation council, the protector, any committees, the beneficiaries or the assets. Nevertheless, control must also be balanced against the desired level of protection to be afforded. More control, less protection.
Is holding property in joint tenancy better than establishing a Panama asset protection foundation?
A joint tenancy is dependent upon both parties staying alive to maintain the protection of assets. If one of the joint tenants should die, then the joint tenancy is broken and the protection is eliminated. Basically, any plan which depends on someone staying alive is a bad method of estate planning. Additionally, there have been some rare court decisions which have broken the joint tenancy or tenancy by the entireties so as to render that form of ownership ineffective for asset protection purposes.
Is establishing a Panama asset protection foundation for a client ethical for a professional?
The general rules of ethics provide that a professional has a 100% duty of loyalty to a client. There is no ethical duty to a non-client except that a professional may not “defraud” any other party by his conduct. Fraud in this context does not mean fraudulent conveyance. Fraud connotes deceit and means an intentional misrepresentation or omission made by one party to induce another party to change their position, with the other party justifiably relying upon that misrepresentation or omission, and doing so to their damage. Fraudulent conveyance is a remedy statute and has none of the elements of deceit.
In summary, any client has a right to establish an estate plan which would include a foundation. Any asset can be transferred into an estate planning foundation providing there is no restriction on its free alienability. The fraudulent conveyance laws do not create or establish alien or security interest in another person’s assets. All they provide is a right in the creditor to pursue assets held by a third party. Excepting some very specific criminal statutory requirement such as, for example, those found in UK bankruptcy law, there is no legal or ethical problem for a professional to establish an estate planning foundation for any client at any time.
Are Panama foundations subject to foreign forced heirship rules?
The existence of legal provisions regarding inheritance at the place of domicile of the founder or of the beneficiaries shall not affect the foundation or its validity and shall not prevent the attainment of its purposes in the manner provided in the foundation charter or its regulations (Art. 14). This provision is vital from the point of view of asset protection and protects the founder and beneficiaries from forced heirship rules contrary to the wishes of the founder.
Within reasonable possibilities, all foundation assets should be transferred to the jurisdiction of the foundation or to a country without forced heirship legislation. It is important to express, however, that this Panamanian provision will govern only if the rules of the Panama foundation are enforced. Careful attention and planning should be given to this aspect and our experience in providing solutions should be of interest.
What is the taxation of a Panama foundation?
The acts of constitution, amendment or extinction of the foundation as well as the acts of transfer, transmittal or encumbrance of assets of the foundation and the income arising therefrom, or any other act in connection therewith, are exempted from all taxes, contributions, duties, liens or assessments of any kind , provided they are related to:
- Assets located abroad.
- Money deposited by natural or juridical persons whose income is not obtained from a Panamanian source or is not taxable in Panama due to whichever reason.
- Shares or securities of any kind issued by corporations which income is not derived from a Panamanian source or which are not taxable for whatever reason, even when such shares or securities are deposited in the Republic of Panama.
This is the full text of Art.27 of the Foundation Law, which at the same time, save some small changes, is from the recently enacted Panamanian law on trusts. It is well known that the tax system in Panama is territorial, which means that only transactions or activities producing effect within Panama are subject to Panama taxes, also excepting some cases like the ones mentioned above and others. Since the 1930s, the territorial rule of taxation has prevailed in Panama’s fiscal law. Accordingly, all income from domestic business is taxable, while income from foreign sources remains exempt and freely transferable. This applies both to individuals and to corporations. Panama has not signed any agreements on juridical or information assistance with foreign countries on tax matters.
The only tax payable by a Panama foundation are US$ 150.00 as a fixed annual tax.
Can a foreign foundation change jurisdiction and continue as a Panama foundation?
Indeed, foundations organized pursuant to a foreign law may continue as a Panama foundation by fulfilling the flexible requirements of the Foundation Law. As a result of this simple procedure, multiple Liechtenstein foundations have already elected to change their jurisdiction and continue as Panama foundations.
Are the Panama foundations protected by secrecy and confidentiality?
All members of the foundation council and of the supervisory bodies, if any, as well as public or private employees, who have any knowledge of the activities, transactions or operations of the foundations, must at all times the same in secret and confidentiality. Breaches of this duty shall be sanctioned with imprisonment of six (6) months and a fine of US$ 50,000.00, without prejudice to the corresponding civil liabilities (Art.35). The requirements for maintaining and the sanctions for breaching the secrecy are strong.
Information already of public access like the Public Registry is obviously outside the secrecy rule. However, this secrecy provision should not serve as an excuse against legitimate inquiries through pertinent channels regarding specific criminal actions, such as drug trafficking and money laundering, for which the Republic of Panama has implemented specific legal procedures, in a major effort to improve and protect Panama’s international offshore centre.
While not providing any specific legal or tax counsel, nevertheless for some individuals or companies, offshore companies may offer specific tax advantages over other jurisdictions. Any potential client seeking legal or tax advise should consult with their individual legal or tax advisor.