The Panamanian Private Interest Foundation

In 1926 the principality of Liechtenstein created the Family or Mixed Foundation (also called a "Stiftung"). These entities have been used for over 75 years by wealthy Europeans, particularly in Switzerland. The Family Foundation is a structure for the private benefit of members of one or more families. The Mixed Foundation is for the benefit of family members as well as other persons or institutions.

Using the Liechtenstein law as a model, in June of 1995 the Panamanian Congress passed the now famous "Public Law Number 25", which provided for Foundations of Private Interest, or, as they have come to be called, Private Interest Foundations.

The Panamanians improved on certain aspects of the Liechtenstein law creating one of the most private, asset protection and estate planning vehicles in the world. Many professionals consider it to be the best structure available for these purposes.

WHAT IS IT?

The Private Interest Foundation is a cross between a corporation and a trust, but it truly is neither. It is a distinct legal entity, completely separate from its founders or beneficiaries.

The foundation is a "Juridical" (legally distinct) person, which is equipped by its Founder with determinated (definite, distinct) assets which constitute a separate patrimony (property endowed to an institution, assets) of the Foundation once it has been transferred. These properties are managed by a Foundation Council, which is named by the Founder with the purpose to accomplish the objectives of the Foundation.

It should be established with a patrimony of no less than $10,000 which can be transferred to the Foundation, although there is not a mandated timeframe during which this needs to be done nor any requirement of what the assets must be.

The Private Interest Foundation is not owned by anyone. It does not have shareholders or members. It is created by a declaration of the Founder and generally has as purpose the preservation of an established patrimony for the benefit of the Founder or third parties.

As a separate legal entity, its assets are legally independent of and do not form a part of the private estate of the Founder. It has the capacity to conduct its affairs as set forth in the founding documents.

BENEFITS

• Tax-free: In Panama, Private Interest Foundations are exempt from taxes.
  1. Income tax
  2. Capital gains tax
  3. Interest income tax
  4. Sales tax
  5. Beneficiary transfer tax
  6. Property tax (on non Panamanian property)
  7. Estate tax
  8. Gift tax
  9. Inheritance tax
  10. Stamp tax
  11. Inventory tax

There is no:

In general, the foundation should not engage in regular commercial business, but can own the stock of companies that do.

In short, aside from a flat $300 annual tax, Panama does not tax foundations.

Please note: these are Panama's tax regulations. The primary purposes of a Panamanian Foundation are privacy, asset protection and estate planning. Foundations are not vehicles to evade taxes in your home country. And they should not be used as such.

Tax evasion is a crime. Don't do it.

Tax avoidance is not.

You are completely within your legal rights to arrange your affairs in such a way as to pay the least possible tax. These matters should be discussed with your tax professional.

Over and over again the courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everyone does so, rich or poor, and all do right, for nobody owes any public duty to pay more tax than the law demands; taxes are enforced extractions not voluntary contributions."
- Federal Appellate Judge Learned Hand

The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or to altogether avoid them by means which the law permits, cannot be doubted."
- United States Supreme Court, Gregory v. Helvering, 293 US 465
(1934)

• No Meetings: There is no requirement to hold annual meetings of the Council, Founder or Protector.
• No Reporting: There is no legal requirement to file any annual tax return or financial statement or reports of any kind.
• Meetings Anywhere: The Founders and foundation Council may hold their meetings in any country and may be represented by proxy.
• Records Anywhere: Any foundation books and accounting may be maintained in Panama or another country.
• IBC owner: If you have an International Business Corporation (IBC), the Foundation can confidentially serve as the holding entity for the shares of the corporation. Private Interest Foundations are designed primarily for non-profit activities. They can engage in some commercial activity if it forwards the purposes of the foundation, but it should be incidental. If you are going to conduct commercial activity, it such, should be carried out through an IBC. The Foundation can very legitimately be the owner of the corporate stock of the IBC and can be the beneficial owner of the corporation's bank account. Thus, confidentiality is maintained with regard to the ownership of the IBC, and it can be controlled via the Foundation.
• Bank and Business Confidentiality: Today, banks require statements of beneficial ownership when opening accounts. The Foundation can serve as the beneficial owner when opening bank or brokerage accounts for its own use and or that of a corporation keeping the individual names private.

Panamanian Law No. 25, mandates that all persons involved in any transactions or operations related to the Foundation must maintain full secrecy and confidentiality. Violation of this statute calls for a fine of up to $50,000 and six months in jail.

The management and operation of the Foundation is not subject to government supervision of any kind.

The Foundation is generally irrevocable, though it can be revoked if the Foundation charter expressly provides for revocation.

ASSET PROTECTION

As noted above, the Foundation patrimony (property) is a completely separate and distinct estate from that of the Founder or the Beneficiaries. The foundation can hold virtually any kind of asset - stocks, bonds, real estate, precious metals, jewelry, boats, planes, artwork, copyrights, trademarks, etc.

By law, it may not be seized or liened or subjected to any lawsuits in connection with activity of the Founder or Beneficiary. The Foundation assets cannot be used to satisfy any personal debts of the Founder or the Beneficiary. Only if the transfer of assets to the Foundation constituted an act of defrauding a creditor would there be redress to the assets. And in such cases, the rights and actions of creditors expire three years from the date of contribution of assets to the Foundation.

ESTATE PLANNING

The Foundation can serve as an excellent testamentary (will) vehicle for the distribution of your assets.

The Foundation can carry on scientific, philanthropic, religious, humanitarian or educational purposes.

The Foundation is specifically designed to protect and distribute your assets to your beneficiaries on any specifically-named event (such as your death or incapacity). The initial founding document of the foundation (a Letter of Wishes - see below) can also serve as a living will detailing how the assets are to be distributed upon your death.

According to legal authorities in Panama, the foundation assets would pass to your heirs or other beneficiaries fee of probate or estate taxes. These opinions should be discussed with your own legal and tax professionals.

"According to Law No. 25, inheritance laws that apply in the domicile of the Founder or the Beneficiaries, shall not be effective against the Foundation's assets nor may these laws affect the validity or performance of the Foundation's objectives."
- www.legalinfo-panama.com

The inheritance is coming from outside of the beneficiary's domestic country, and as such should not be subject to any of the standard taxes and legal procedures. Through the foundation, heirs should receive their inheritance free of probate, gift taxes, estate taxes, inheritance taxes, or legal delays.

Again, consult with your tax professional and ensure you are in conformance with the tax laws of your country.

THE STRUCTURE

There are four major components to a Private Interest Foundation.

1) The Founder

Technically, the Founder is the person who establishes the Foundation in the Public Registry of Panama. The Founder may or may not be the person who funds the Foundation, as people other than the Founder may transfer assets to the Foundation. As the name of the Founder is recorded in the Public Registry, many people choose to have a law firm provide a nominee founder. In such cases, the nominee founder can provide the person endowing the Foundation with a pre-signed, undated letter of resignation.

The Foundation becomes a legal entity when the Founder files a Memorandum of Foundation (or Foundation Charter) with the Panamanian Public Registry. Among other things, this document contains the name of the Foundation, its purposes and objectives, the initial assets, the name and address of the registered agent and the name of the members of the Foundation Council.

2) Foundation Council

The Foundation Council is similar to a Board of Directors. It makes the decisions and manages the Foundation's assets for the benefit of the beneficiaries according to the Memorandum of Foundation or further regulations which can be additionally set forth.

There must be three natural Council Members or one juridical member (such as a corporation.) The Council Members need not be Panamanian: however, the names and passport numbers of the original Council Members are filed with the Public Registry when the Foundation is formed.

Again, many people appoint nominee Council Members (from law firms) who provide pre-signed, undated letters of resignation. Additionally, the Council Members may be removed at the discretion of the Founder or the Protector, the person who is ultimately in control of the Foundation.

3) The Protector

The Protector is a natural or legal person appointed by the Council by way of a notarized Private Protectorate Document. This is a private, non-registered document ensuring the Protector anonymity. The Protector oversees the activities of the Council and ensures it is conducting its affairs in compliance with the Charter.

The Protector may modify the goals and/ or responsibilities of the foundation, assign new members to the Foundation Council and/ or remove members. In short, the Protector is ultimately responsible for ensuring that the Foundation is being administered properly.

4) The Beneficiaries

The Protector appoints the Beneficiaries of the Foundation set forth in a Private Letter of Wishes. These are the people and or organizations that are to benefit from the operation of the Foundation. The Protector can change the Private Letter of Wishes as he or she chooses and may add or remove Beneficiaries.

The Private Letter of Wishes is not a public document. Accordingly, the beneficiaries of the Foundation are not public knowledge. The beneficiaries can be individuals, corporations, and organizations. The objectives of the Foundation are often the health, education and daily matters of living of the Founder or Protector (as the case may be) and or his family. The Founders, Protectors and Members of the Council may (or may not) be beneficiaries.

The following drawing provides a graphic rendering of the structure of a private interest foundation and an IBC. The drawing shows the IBC have the bank account and debit and or credit cards. However, if there is no need for an offshore corporation, the foundation would have the bank account including credit and or debit cards as needed or wanted.

Many offshore financial and asset protection strategies include an IBC for commercial activities and a Private Interest Foundation to hold the shares of the IBC, to hold other assets, and for the protection of the assets. However, if no business or commercial activity is envisioned, the Foundation, with bank and brokerage accounts should be sufficient.

Some parties may not wish to have their foundations or corporations have offshore accounts as the IRS requires US citizens to file disclosure forms if they sign on or control offshore accounts. Offshore Financial Services has created a perfectly legal strategy for the foundation to acquire the assets intended for it without the need for an offshore bank account and thus obviating the need to file any such forms with the IRS.

After traveling to Panama and spending several days there meeting with law firms, banks and wealth management companies, Offshore Financial Solutions has established relationships with some of the top law firms in Panama to assist their clients in moving some of their assets offshore and diversifying their holdings in the private, investor friendly jurisdiction of Panama.

You cannot tell a law firm by its website, nor, we found, by international phone calls. Only by meeting with these firms in person, looking the lawyers in the eye, were we able to select the ethical and responsible attorneys to whom we refer our clients.