Panamanian Private Interest Foundations

The Panamanian Private Interest Foundation is a legal entity separate from its creators, constituted through one sole donation or several donations that form an independent and autonomous estate for a definite purpose. The Foundation is a legal entity that is different from any other entity known in Anglo-Saxon Law, as a Foundation is not the legal personification of any other person or persons but a body corporate that has no owners (shareholders, participants or partners), which are strictly non-profit organizations.

Private Interest Foundations are an excellent choice for the planning of international assets, adapting the European Foundation model into an instrument much more flexible and with undeniable benefits.

The most common uses for a private foundation include:

Acting as a holding company, in the ownership of shares, interests and stocks of private companies.
Ensuring succession planning between generations, and to ensure continuity of family businesses.
Guaranteeing payments or distributions to family members for subsistence, education, clothing and other living expenses, or to enable children or grandchildren to benefit from the wealth of previous generations.
Distributing assets or earnings to other individuals (either friends or loved ones) designated as Beneficiaries of the Foundation.
Acting as the administrator of employee profit distribution plans and employee pension plans.
As a substitute for a will, thus avoiding complicated inheritance procedures and any provisions on forced heirs.
As a vehicle for collecting royalties and other types of returns.
As an investment vehicle, including cash, stock markets, real estate and art works.
Providing protection of assets against different adverse situations.

ADVANTAGES

Foundations have certain legal advantages that make them attractive for offshore use:

They are not subject to any form of taxation in the Republic of Panama (except for an annual tax charge of US$300). Consequently, they are exempted from income tax, estate tax, real estate tax, inheritance tax and sales tax.
The Private Foundation Law mandates that strict confidentiality must be maintained, even after termination. Failure to do so may result in imprisonment of up to six months and a fine of up to US$50,000, not precluding the corresponding civil liability.
The identities of the real Founders, Beneficiaries or Protectors are protected.
There are no annual income returns or financial reporting requirements.
There is no requirement to hold annual meeting of the Foundation Council, Founders, Protectors or supervisory bodies.
There are no restrictions on the maximum assets allowed.
Contributions to the Foundation Assets do not need to be deposited as a requirement for the constitution of the Foundation, and there is no maximum period of time for the endowment to be made.
There is no limitation whatsoever as to perpetuities, accrual of capital and other restrictions that are enforced in similar legal entities of other jurisdictions such as Anglo-Saxon type trusts.
The Foundation may (non-habitually) carry out any kind of civil or commercial transactions, anywhere in the world and in any currency.
Founders, members of the Foundation Council, Beneficiaries and Protectors or Superintendents may be natural persons or corporations of any nationality domiciled anywhere in the world.
Founders need not be Foundation Council members.
Founders, Protectors or Superintendents and members of the Foundation Council may be Beneficiaries of the Foundation.
Founders and Foundation Council Members may hold their meetings anywhere in the world and may be represented thereat by proxy.
Accounting records may be kept in Panama or abroad.
Foundations from other jurisdictions may change their domicile to Panama and continue existing as Panamanian Private Foundations, or vice versa.

ELEMENTS OF PRIVATE FOUNDATIONS

A Private Foundation consists of the commitment of one or more "founders" to transmit assets of at least US$10,000, that they have undertaken to contribute or donate which, together with any other assets contributed by "third parties," may be managed by a "Foundation Council", overseen or not by "protectors" (known in the law as "supervisory bodies") for the benefit of the "beneficiaries."

The Founder may be one or more persons, whether natural persons or bodies corporate, Panamanian or foreign. The administration of a Foundation is entrusted to the Foundation Council, which is charged with the fulfillment of the Foundation's aims and objectives under the supervision or not of a "Protector." Save if the Foundation Council should be a body corporate, the number of members comprising it shall not be less than three, of any gender or nationality.

The legislation on Foundations refers to "supervisory bodies" that are made up of natural persons or bodies corporate that may be appointed in any way. In most cases, such bodies consist of one sole person known as the "Protector." In practice, the Protector is usually the client himself or someone he trusts. His functions are specified in the Foundation Charter. His main functions are the supervision of the Foundation Council, demanding and receiving the Statement of Account, adding or removing beneficiaries and authorizing the acts of the Foundation Council.

The Foundation's aims and objectives consist, in the last instance, in benefiting the foundation's "Beneficiary" or "Beneficiaries." Such Beneficiaries have the right to receive the earnings or interest earned by the Foundation Assets, and to receive the Foundation Assets upon fulfillment of the conditions set down in the Foundation Charter.

The Beneficiaries may be natural persons or bodies corporate and are appointed in the Foundation Regulations. The Beneficiaries may sue the Foundation in exercising their legitimate rights concerning the Foundation Assets, demand the judicial removal of the Foundation Council members, demand the rendering of accounts and object to any acts of the Foundation that impair their rights. The Beneficiaries are not the Foundation's owners or creditors, such that they may not claim rights from it aside from those granted in the Foundation Charter, the Regulations and/or the resolutions of the Foundation Council.

For more information on Panamanian Foundations, please contact Carlos Guzman at carlos.guzman@cnifs.com.

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