In Panama, Private Interest Foundations are regulated by Law 25 of June 12, 1995.
In Panama, Private Interest Foundations are regulated by Law 25 of June 12, 1995.
The Private Interest Foundations, like the Panamanian corporations or limited liability companies, are legal entities that are organized with the purpose of protecting a certain economic activity.
In particular, the Private Interest Foundations constitutes an efficient legal instrument for the planning and administration of your estate, including both real estate and personal assets. With a Private Interest Foundation, its Founder can partially or totally segregate his state of its Founder.
Moreover, Private Interest Foundation may serve as a useful tool for the post-mortem disposition of assets, thus overcoming costly hereditary-legal processes. Equally positive results are found when using the Foundations for the acquisition of goods.
It is important to clarify certain aspects of the Private Interest Foundation in order to make an informed decision:
Estate Planning, Protection of Identity and Assets, Hereditary tool
Private Interest Foundation are commonly used by our clients for:
- Estate Planning: the Private Interest Foundation is an excellent tool for the planning and administration of your state. The assets of a Private Interest Foundation are separate from the personal state of the beneficiaries of such Foundation. The assets of the former are not subject to claims for the fulfillment of the obligations acquired personally by the latter (the beneficiaries). Such “separation” allows to control the risks on the protected assets. Likewise, current regulations on Private Interest Foundations allow the founder to decide on how the assets will be managed, and how the profits and interests will be distributed. In summary, the founder can take all the safeguards to manage the estate, from the constitution of the Private Interest Foundation until its dissolution.
- Protection of Identity and Assets: Assets registered in the name of a Private Interest Foundation are protected as to the identity of their owner (beneficiaries). The legal protections afforded to foundations include the confidentiality and reserve of the names of its beneficiaries. Additionally, the assets of Panamanian foundations are not subject of seizure or confiscation, and they cannot be prosecuted, except for obligations acquired by the Foundation itself, since they constitute a state separate from the assets of the Founder or the beneficiaries.
- As a hereditary tool: The private document signed by the guardian acts as a testament but without the need of being subjected to legal-hereditary process. The death of the founder or of one of the beneficiaries does not extinguish the Private Interest Foundation. If the Foundation has the proper internal regulation (foundational act), it will continue to work in accordance with said document (foundational act). Consequently, hereditary trials could be avoided.
- For educational purposes: through a foundation, parents can establish a fund for the education of their children, who would be designated as the beneficiaries.
- As a means to facilitate the international transfer of funds and goods: The Foundation is an entity that can acquire and transfer goods of any kind without legal restrictions, both inside and outside of Panama. This feature enables them to be used as vehicles for the international transfer of both real estate property and other assets.
- To minimize the payment of taxes for offshore activities: Private Interest Foundations do not pay taxes for income generated outside the Republic of Panama. Private Interest Foundations can be holders of real estate property or other assets located outside the Republic of Panama without having to pay any kind of taxes within Panama. This benefit is also extended to the transfers received from foreign banks to their bank accounts.
In summary, a person who wants to separate the risks generated by their commercial or professional activity from their personal assets; protect their assets and goods from any obligations that may affect them; or simplify the legal processes for the distribution of their assets in the event of death, has the option of using a financial management instrument that has been created specifically for this set of purposes: the Panamanian Private Interest Foundation.
The Private Interest Foundation is a legal entity subject to rights and obligations to which the Founder can transfers his/her assets, and over which the Foundation maintains its control and administration.
Panamanian Private Interest Foundations offer many advantages over other international legal entities:
- Confidentiality: the law governing Panamanian private foundations prohibits the disclosure of any information related to the activities of the foundation. Any breach to this confidentiality protection is subject to a legal process, which may result in jail for the offender and a $50,000.00 USD compensation for the Foundation.
- Prevention: in the event of an illness, incapacitation or the passing of the Founder and/or Administrator, it can be previously established who will take over the administration.
- Avoidance of legal-hereditary process: In the event of the death of the Founder, the assets can be transferred directly to the beneficiaries without having to go through any judicial processes.
- Administrative control: The Founder can be appointed to act as administrator of the Foundation, thus maintaining control of the Foundation’s assets and goods.
Who can constitute a Private Interest Foundation?
In accordance with the formalities prescribed by Law, one or more natural or legal persons, national or foreign, by themselves or through third parties, may establish a Private Interest Foundation in the Republic of Panama. The Private Interest Foundation will be governed by the foundation’s charter and its regulations, as well as by the provisions of Law 25 and other relevant and applicable legal or regulatory provisions.
A Private Interest Foundation may be set up to take effect, from the moment of its constitution or after the death of its founder, by any of the following methods:
- Through a private document signed by the founder, whose signature must be authenticated by a Public Notary of the place in which constitution is going to take place.
- Before a Public Notary of the place where is going to be constituted.
- Notwithstanding the method of the constitution, the formalities proscribed by Law for this end must be complied with.
Special characteristics of the Foundations
- The Foundations are entitled to carry out transactions of a civil or commercial nature in any country of the world and in any currency.
- The Foundations’ assets constitute the patrimony of the foundation; they cannot be subjected to any type of actions regarding obligations of the Founder or any of its beneficiaries. Consequently, they shall not be subject of seizure or confiscation for such obligations, except in cases were the said assets have been transferred to the foundation in fraud of creditors, which in any case has a statute of limitation of three years.
- The Foundation can be used to carry out any transaction of a civil or commercial nature.
- The Foundation can operate anywhere in the world and without restrictions on the use of a certain currency.
- The Foundation can acquire and possess goods of all kinds, incur in obligations and be a party to administrative and judicial proceedings of all kinds, in accordance with the applicable provisions.
- The Foundation can fix its domicile anywhere in the world.
- Private Interest Foundations’ assets are exempt from any tax, contribution, levy or any other denomination, as long as such assets are:
- Located abroad.
- Deposits made by natural or legal persons whose income is not from a Panamanian source or when their income is not taxable for any reason, even when such shares or securities are deposited in the Republic of Panama.
- Tax exemption will also be provided to any act related to the transfer of real estate, titles, certificates of deposits, securities, money or shares, made in the fulfillment of the purposes or objectives of the Foundation. Also, any of such acts done with the purpose of dissolving the foundation, in favor of the Founder’s relatives within the first degree of consanguinity and his/her spouse, will also be exempted from all taxes.
- The Founder can dispose post-mortem of his property without the need of a will.
- There is no need to register any type of annual income statement or financial statement.
- The Law does not require the disclosure of the name of the beneficiaries.
- The Foundational Act can be signed by the client or through a person authorize by proxy or a fiduciary.
- The Law does not require that a certain amount of the Foundation’s estate be declared.
- The estate may be subject to changes.
- The assets of the foundation can be placed or invested in any country in the world.
- For all legal purposes, the assets of the foundation will constitute a estate separate from the personal assets of the Founder. Therefore, they cannot be seized, confiscated or subject to any action or precautionary judicial measure, except for those obligations incurred, or for damages caused, in the execution of the purposes or objectives of the foundation, or for the legitimate rights of its beneficiaries.
Of the Post-Mortem distribution of the Foundation’s assents
- The Founder’s property can be distributed without the need of a will.
- In the event that the Foundation is constituted to take effect from the death of the founder, it will be considered that it existed prior to his death, with respect to the donations that he made to the foundation.
When is a Foundation duly constituted?
- The registration of the Foundational Act in the Public Registry will grant the foundation legal personality without the need for any other legal or administrative authorization. Its registration in the Public Registry also constitutes a means of publicity against third parties.
- Consequently, the foundation may acquire and possess goods of all kinds, incur in obligations and be a party to administrative and judicial proceedings of all kinds, in accordance with the provisions that are applicable.