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General Information About Panama Foundations
The Panama Private Interest Foundation is an entity that is a crossbreed between a trust and a corporation. In reality it is neither. A Foundation is an entity that is different from any other legal entity known in Anglo-Saxon law because it is not the legal personification of a person or group ofpersons (as with a corporation), rather it s a legal entity that does not have owners (share-holders, participants, or partners), and it traditionally has a specific purpose for the benefit of a general group of individuals.
We also need to make the distinction early on 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 the client’s circumstances. The discussion here introduces the concept of the Foundation and its origins as well as modern uses. Much of this applies to the Panama Charitable Foundation as well, but for more specific information on it please click here.
The Panama Private Interest Foundation is a legal entity that was developed based on the Private Interest Foundation models from three different jurisdictions including the Principality of Liechtenstein, Switzerland, and Luxembourg. The Panamanian Government carefully designed the Panama Private Interest Foundation with the intentions of creating a more modern, more flexible, and more affordable estate planning vehicle for people from around the globe. The assets of the Panama Private Interest Foundation take on a separate legal identity from the personal assets of the Founder, Protector, Council, or Beneficiaries.
The Panama Private Interest Foundation offers clear advantages for international estate planning, providing the ultimate in privacy, anonymity, and protection to the Protectors, Founders, and Beneficiaries of the Foundation. The Panama Foundation is a solution to a global need for an affordable, anonymous, flexible, private, 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.
A Panama Private Interest Foundation comes into existence upon its registration in the Public Registry. No approval from any public authority is required. Law No. 25 of June 12, 1995 regulates Panama Private Interest Foundations.
Brief History of Panama Foundations
The concept of a "Foundation" began during the Roman Empire, under the influence of Christianity. As an example, the Catholic Church was considered a divine foundation, and the various sub-organizations within the church had the legal control for administrating its' patrimony. The original foundations were not created for serving a private need for a specific individual or family, rather they were formed for serving the needs of a community. Several centuries later, the legal entity denominated as a "Foundation" continues to exist and is widely used and accepted around the globe for personal and private needs.
The concept of a "Private Interest Foundation" began when the Principality of Liechtenstein created the "Law of Persons & Companies", the 20th of January, 1926 (Personen und Gesellschaft Recht - P.G.R.), which created the "Family Foundation", (for the private benefit of the members of one or more families) and the "Mixed Foundation" (for the private benefit of not only families, but also for other persons or institutions).
Historically, wealthy families in Europe have established Family Foundations incorporated in the Principality of Liechtenstein (a Neutral jurisdiction for purposes of wars, etc.) for the purpose of estate-planning necessities, to ensure the safe transition of assets to the family's beneficiaries. Today, Liechtenstein Foundations can cost upwards of US$25,000 to incorporate, and around US$10,000 per year to maintain.
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, Panama Private Interest Foundations are used by people who wish to control and maintain ownership of foreign corporations, however, they do not wish to own their corporations themselves directly, due to the Controlled Foreign Corporation (CFC) rules in their home countries. Several highly taxed countries such as the UK, Canada, USA, Australia, New Zealand, France, Italy, Spain, etc. have CFC rules which require that their citizens submit declarations (reports) to the appropriate tax authorities, in which 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), and transfer ownership 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 in the following scenario: In many cases, 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 any one 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, Private Interest Foundations 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.
Elements of a Panama Private Interest Foundation
The Foundation has a Founder, a Council, a Protector, and Beneficiaries. Below we have explained what role each of them plays in the Foundation:
Founder: The Founder is the person or entity that establishes the Foundation in the Public Registry of Panama. Our law firm is generally the Founder of each Foundation that we establish, since it is our law firm that goes to the public registry to incorporate the Foundation. The Founder has no influence over the control of the Foundation, and is only recognized as the individual who presented the Foundation articles in the public registry when the entity was originally registered.
Council: The Foundation's Council serves the same purpose as the board of directors on a corporation. The council members are each registered in the public registry with their names, addresses, and identifications as council members to the Foundation.
Our firm can either appoint a "Nominee Foundation Council" to fill the council positions, so to provide additional privacy and confidentiality for our clients or the client his or herself can nominate the council. If that is the case it is best that the client choose non-family members, and/or others who will have no beneficial interest in the Foundation itself. When we appoint a nominee council, we provide our client with pre-signed, undated letters of resignation from each nominee council member so that our client can replace the council at any time. The nominee council has no control over the Foundation or any of its' assets, they are only there to fill in the blanks in the public registry.
Protector: The Protector is the person or entity who ultimately Controls the Foundation and all assets held within it. The
Protector is appointed by the Foundation Council when the Foundation is created, however, once the Protector is empowered, the Protector can then remove the council members at any time without consent of any one else. The Protector can be appointed privately, through a Private Protectorate Document, signed by the Foundation Council. Hence, the Protector can maintain this position free of public knowledge.
We can appoint our client or some other trusted family member as Protector of the Foundation, through a notarized Private Protectorate Document so that our client maintains complete control over the Foundation, in a private and anonymous manner.
Once the Protector is appointed, it can always be changed per the Protectors wishes. However, a Protector is not required and if you prefer, you can choose to not use a Protector, or to use a nominee Protector.
Beneficiaries: Unlike a corporation that issues share certificates to certify who the owners are, the Panama Private Interest Foundation does not have owners, rather it has Beneficiaries. The Foundations Beneficiaries are appointed by the Protector through either a simple, privately written Letter of Wishes, or through a more formal set of Foundation By-Laws (Foundation By-Laws should be written with the assistance of a Panamanian Attorney). Either way, the privacy and confidentiality of beneficiaries can be protected through their appointment in the Letter of Wishes, or By-Laws of the Foundation, since the contents of the Letter of Wishes or By-Laws may remain private and need only be known to interested parties. Also, a Panama Foundation may be set up so that the Protector is the sole beneficiary until his or her death, at which time the foundation continues for the benefit of other beneficiaries. Many like to choose one or more charities as beneficiaries.
Letter of Wishes: The Letter of Wishes is a simple letter, written by the Protector, which specifies exactly how the Foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the Protector. The Letter of Wishes should also state whether the Foundation should continue existing, and have a new Protector appointed, or if the Foundation should be dissolved upon the death of the Protector. There is no specific format that the Letter of Wishes must be written, and it can be written or changed at any time after the Foundation is incorporated, per the Protectors wishes. The Letter of Wishes can be held privately, or can be registered publicly. Generally, most people prefer to maintain the Letter of Wishes privately, so that the Beneficiaries and Protector remain anonymous and private.
Foundation By-Laws: The Foundation does not need to have By-Laws, since a Letter of Wishes is legally sufficient for expressing the Protectors' requested testamentary instructions. However, if one wishes to have a more formal Foundation testamentary document, written and signed by a Panamanian Attorney, and notarized by a Panamanian notary, then one can request the assistance of a Panamanian attorney to draft the Foundations By-Laws. The Foundations By-Laws essentially handle the same function as a Letter of Wishes since the By-Laws should specify exactly how the Foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the Protector. The By-Laws should also state whether the Foundation should continue existing, and have a new Protector appointed, or if the Foundation should be dissolved upon the specified triggering event(s). There is a specific format that the By-Laws must be written, yet the contents of the By-Laws can be changed at any time after the Foundation is incorporated, per the Protectors wishes. The By-Laws can be held privately, or can be registered publicly. Generally, most people prefer to maintain the By-Laws privately, so that the Beneficiaries and Protector remain anonymous and private.
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
· 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.
· Directors: Every Panama Foundation must have a council (same as directors of a corporation), who's 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.
· Corporate Books: 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.
· Convenience: 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
· Re-Domiciliation: 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.
· Corporate Seal: A Foundation seal is optional. We also offer Foundation seals if you want one. Please see our Fee Schedule for pricing details.
· Legal Address: 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 address as Resident Agent and Registered Office.
Panama Foundation Tax Information
Panama is a 100% "tax haven". 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