Panama Private Foundations
It well known within the offshore services industry that a major step forward was taken by the Principality of Liechtenstein with the adoption of the Law on Persons and Companies of January 20, 1926 which created the Family Foundations (for the private benefit of members of one or more families) and the Mixed Foundations (for the benefit not only of family members, but also of other persons or institutions). The family foundation as a legal entity also exist in Austria without much international recognition, however, due to the fact that this country is not deemed as an offshore centre. Additionally, there are the Luxembourg foundations with substantial differences to Liechtenstein and also of reduced international recognition.
Significant advantages are offered by the Panama Private Interest Foundation. The following are some highlights:
- Total exemption of taxes in the Republic of Panama, including without limitation, income tax, wealth tax, real estate tax, inheritance tax, sales and transfer tax and others.
- Total confidentiality and anonymity. The law on Private Interest Foundations state that the Foundation Council, the protector and the resident agent and any persons or institutions which by reason of their function obtain information related to the activities, transactions or operations of the Private Interest Foundation shall at all times be obligated to maintain strict secrecy, even after its liquidation. Violation of this rule shall be fined with imprisonment of up to six months and penalties of up to US$50,000 without limiting the respective civil liabilities arising therefrom.
- There is no legal requirement to disclose the name of the real founder, beneficiary or protector.
- There is no requirement to file any annual tax return or financial statement.
- There is no obligation to hold an annual meeting of the foundation council, the founders or the protectors
- Fast incorporation.
- Simple administration and management procedures.
- Reasonable incorporation and maintenance fees.
- There is no legal requirement of maximum authorized capital.
- The payment of the foundation capital is not required for the incorporation of the foundation and there is no maximum time or deadline to make such contribution.
- There is no limitation in respect of perpetuities, accumulation of capitals and other restrictions which are required in similar structures in other jurisdictions, such as the anglosaxon or common law trust.
- The private interest foundation can engage in any business or civil transactions (only in exceptional cases) in part of the world and in any currency.
- The founders, members of the foundation council, beneficiaries and protectors may be individuals or corporations of any nationality.
- The members of the foundation council need not be founders.
- The founders, the protectors and the members of the foundation council may be beneficiaries of the foundation.
- There is no limitation on the maximum permitted number of founders, members of the foundation council, beneficiaries or protectors.
- The founders and the members of the foundation council may hold their meetings in any country and may be represented by proxy.
- The foundation books and accounting books may be maintained in Panama or abroad.
- The foundation charter can be signed by an attorney in fact or by a trustee without the need to disclose the name of the founder.
- Private Interest Foundations incorporated in other countries can be redomiciled or continue existing as Panama Private Interest Foundations and viceversa following a simple continuation procedure.
3. Differences between Private Interest Foundations and Trusts
There are certain similarities between Private Interest Foundations and Trusts due the fact that the foundation council enjoys considerable decision and control powers over the foundation assets by reason of the lack of ownership of the foundation. This fact creates a requirement of absolute confidence between the client and the foundation council, which is a fundamental similarity of the confidence between the client and the trust company. However, there are substantial distinctions between the Panama Private Interest Foundation and the Panama Trust:
The trust is a legal act by means of which a person called the settlor transfer assets to a person called the trustee, who will manage or dispose of them in favor of a beneficiary, who can be the same settlor. The trustee is normally a firm or company engaged professionally and customarily in the business in managing properties, investing liquid assets and transferring assets which are legally under the ownership of said trustee, but subject to the provisions of the trust instrument. On the contrary, the registration of the foundation charter at the Public Registry of Panama grants independent legal personality to the Private Interest Foundation and, as a consequence, the foundation can purchase and hold assets of any kind and can enter into any agreements. The foundation, different from the trust, is the owner of its own assets which are managed by the foundation council, which has the function to fulfill the objectives and purposes of the foundation.
The use of the foundation as a structure or vehicle for the ownership of any movable or immovable assets is not applicable to trusts due to the fact that trusts per se do not form a legal entity different from the trustee. In order to transfer the authority of the settlor over the trustee and over the assets managed by the trustee, it is required to execute other formal documentation with the same requirements to that by means of which the settlor transferred the assets to the trustee.
The control and administration of the assets given in trust is the power of the trustee. In the Private Interest Foundation, this power of control and administration is in the hands of the foundation council.
The trust allows the appointment of one or more trustees without a minimum or maximum. The foundation council requires a minimum of three (3) individuals or one (1) corporate director.
The trust law does not contain provisions for asset protection against future claims from creditors. The Private Interest Foundation legislation has very clear provisions limiting legal claims against the founder.
The trust is used mainly to substitute wills and to execute commercial transactions such as purchases of real estate, opening an administration of bank accounts, investment in stock markets and mutual funds, and the entering into international agreements. On the contrary, the Private Interest Foundation is a discreet vehicle to open an operate bank accounts and are created principally for testamentary protection, to manage and administer the distribution of moneys and families properties, to act as philanthropic or ecclesiastic institutions, and to become holding entity that operate as owner of corporations.
4. Practical Uses of Private Interest Foundations
- As a Holding of shares, participations or interests in private or publicly listed companies.
- To protect family business providing continuity to second and third generations.
- To protect defenseless persons such as minors, disabled and persons incapable of managing their assets.
- 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 members of the family.
- 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.
- As a sophisticated and efficient substitute of the testament or will.
- As a vehicle for the collection of royalties.
- As a vehicle to invest in shares, bonds, mutual funds, bank deposits or other assets.
- As a vehicle to own real estate or other assets of considerable value such as art works.
- As a vehicle to protect assets against excessive taxes, claims by creditors, political instability or forced heirship.
- To operate bank accounts in any part of the world.
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.