Generalities

Panama's Private Interest Foundations Law date back to 1995 and was inspired by the family foundations of the Principality of Liechtenstein. This is a juridical set up which has as its purpose the administration of assets, in an independent manner from those of its founder, affairs which are handled by means of a foundational council in favor of the beneficiary (beneficiaries).

To establish this type of foundation in the Republic of Panama, principally two documents are required, among one is the Foundational Certificate, which is made public by means of an inscription in the Public Registry, and the other, the so called Regulation, which is eminently private, inasmuch that its dispositions do not require inscription.

It is in the Regulation where the information related to the beneficiaries is documented as well as how the foundation will be managed and its benefits distributed, reason why in the majority of cases it is kept private.

A private interest foundation constitutes an efficient tool to maintain the anonymity of the foundation's beneficiaries and an ideal means for the establishment of instructions in respect of the distribution or administration of assets, even after the death of the founder, duties for which the Foundation Council will be responsible for, in addition to the other entities which may have been created to said effect, for example, the position of the protector and/or supervisory or fiscal auditor.

Advantages of Private Interest Foundations

• In contrast to other foundations, private interest foundations do not require the Panamanian nationality of the Foundation Council members, nor does it require that the minimum capital to set up the foundation be provided in advance of the constitution of said foundation.
• The foundation excludes the figure of "forced heirs" and constitutes a legal means to impede that forced heirs can bring actions against the Foundation's assets independently of the founders address or domicile.
• Privacy of information. The anonymity of the beneficiary (beneficiaries) is preserved, inasmuch that his/her (their) name(s) need not be registered in any document of a public nature.
• The assets of the foundation acquire an autonomous character in respect of the assets of the founder and cannot be encumbered except on account of obligations or damaged caused by the foundation itself in the process of pursuing its objectives.
• The founder can be a juridical entity.
• The foundation's transactions carried out outside of Panama, are exempted from taxes by Panama's laws and it is not required that they present income tax declarations in respect of said activities.

Requirements for the constitution of a foundation

• Name. The only restriction established by law is that the name must be provided in letters of the Latin alphabet, and must contain the word "Foundation"; it must also not coincide with any other previously existing name in the Public Registry.
• Capital or patrimony. It can be expressed in any legal tender currency, but in any case must represent no less than ten thousand Balboas (B/.10,000.00). This capital amount need not be paid in advance of the foundation's constitution and can be increased, which is what occasionally occurs following its constitution. The new capital need not be inscribed in the Public Registry, which allows for discretion in this respect.
• Appointment of the member or members of the Foundation Council. The council of the foundation, or, as it is more commonly known, foundation council, can be constituted by only one person, if it involves a juridical entity, or, by three natural persons, which must document the address or domicile where they can be located.
  The founder can be a member of the foundation council and conditions can even be established such as that all decisions to be adopted must enjoy the unanimous consent of all of the council's members.
• Foundation domicile. The designation of the foundation's domicile in Panama, provides the latter with fiscal advantages, inasmuch that the foundation can be involved in activities the results of which are carried out abroad, but which will not be taxed in accordance with Panama's laws.
• he name and domicile of the resident agent of the foundation in the Republic of Panama. This must be a lawyer or law firm, which will be in charge of approving the foundational certificate. The purpose of this disposition is that vis-à-vis the requirement of any authority, the individuals associated with the foundation can be contacted through their lawyer.
• Foundation's objectives. A private interest foundation-differentiating element when compared to a corporation is the purpose for which it was created. In accordance with current legislation the foundation cannot engage in commerce but rather to purposes having to do with administration, being authorized only to engage occasionally and for the benefit of the foundation, in acts of commerce.
  The foundations are not designed to engage in commerce, but rather to manage the assets from which the benefits are derived, such as, for example, holding companies, which are the corporations which are traditionally used to hold assets and which principally function as administrative units. By virtue of the aforementioned, it is not possible for a holding company to obtain a commercial license but rather it is incorporated exclusively for administrative purposes.
• Appointment of the beneficiary or beneficiaries of the foundation. Earlier we referred to the foundational certificate, which is the foundation's constitutive document, but in addition to this document and perhaps of superior relevance to the foundation, there is the regulation that need not be inscribed in the Public Registry. This is the document in which, based on the fundamental framework set out in the foundation certificate, the rules and proceedings for the application of the benefits and the appointment of the individuals who will receive them are set out and can include the founder.
• Confidentiality. Notwithstanding the privacy advantage, foundations also allow for the appointment in the foundational certificate of the beneficiary or beneficiaries of said foundation.
• Modification of the foundational certificate. The legal possibility of modifying the foundational certificate is usually reserved exclusively to the founder; however should it be desired that another individual be so entitled, and then this must be duly set out in the foundational certificate.
• Duration of the foundation. The duration of the foundation can be perpetual or for a determined period of time.
• Dissolution. The law establishes a number of reasons for the dissolution of the foundation, for example, that the foundation has fulfilled the purpose for which it was constituted or because it is insolvent, among others, but in all cases the treatment accorded the foundation's assets and how they will be liquidated in the event of dissolution must be established. Also, any other type of clause referring to any other aspect of the foundation can be included.

Additional benefits of foundations

The existence of legal dispositions in matters related to inheritance in the founder's domicile or that of the beneficiaries, will not be contrary to the foundation, nor will it affect its validity nor impede the fulfillment of its objectives, as established in the foundations certificate or in the regulation.

This disposition is of particular relevance vis-à-vis legislations that in respect of inheritance matters include the figure of forced heir, in which case the assets transferred to the foundation, will not be affected by the laws of the founder's domicile.

This particular characteristic is even reinforced by the legal dispositions which govern the Panamanian banking system, inasmuch that in this respect, "assets belonging to individuals or for which they are beneficiaries or trust beneficiaries, that are not Panamanian or residents in the Republic of Panama at the time the transfers of assets are perfected", will be subject to Panamanian legislation at the moment they are "transferred or deposited in Banks, be it in the form of a deposit or in the manner of a mandate or trust, or in any other respect", unless there are dispositions which determine otherwise, in respect of the instruments by which said transfers were carried out.

Costs

The cost of incorporation and annual maintenance are also very similar to those of corporations, detailed earlier; they will also depend on the dispositions established in the foundational certificate and/or the regulations.

Fees and taxes

The foundation's revenues will not be taxed as long as they originate from income generated abroad or from deposits in local banks.

Foundations will only be subject to a tax known as Annual Tax Fee, which amounts to two hundred and fifty American dollars (US$ 250.00) for the first year, a sum paid at the moment of the foundation's constitution. For subsequent periods the foundation will pay the annual sum of three hundred American dollars (US$ 300.00), which is required by the law in order to maintain the foundation current.

The payment of this fee has to be carried out before July 15, for those foundations incorporated during the first semester and before January 15 for those foundations incorporated during the second semester. A payment carried out outside this period will generate a one-time surcharge of an additional fifty dollars (USD $50.00). If this annual tax fee were to remain unpaid during two consecutive periods, then the fine will be of three hundred dollars (USD $300.00).