A Panama Private Foundation is different from a typical foundation in many ways. Most foundations are formed for charitable or non-profit purposes. On the other hand, family foundations for the wealthy were set up as far back as the medieval times in Europe. Switzerland, Luxembourg, and Liechtenstein established laws allowing the formation of private family foundations as an inheritance tool. Panama’s government researched all three of these countries’ laws to come up with a unique family private foundation law in 1995.
Panama Law No. 25 of 1995 established private patrimony foundations for families. The word “patrimony” means “an inheritance from a father or male ancestor”. This law was meant to be an inheritance tool to protect a family’s wealth for many generations. As a result of this intent, a Panama Private Foundation is neither a partnership or a corporation or a company. Yet, it is a separate legal entity unique to Panama which does not engage in active businesses (passive income is allowed). There are no corporate shares, nor corporate directors, and no company officers. There are no entity owners such as shareholders, partners, members, or participants. Its sole purpose is to benefit a specific group of individuals. This offshore foundations side-by-side comparison table lays out the benefits of Panama compared to other countries.
Background
Panama is located in Central America bordering Costa Rica and Colombia. It is one of the few countries bordering the Pacific Ocean and the Atlantic Ocean. Its official name is the “Republic of Panama”. The capital and largest city is Panama City where almost half of the country’s population of 4.2 million people lives in its metropolitan area. Its political system is a unitary presidential constitutional republic that democratically elects a president every five years along with its legislature called the National Assembly.
Benefits
A Panama Private Foundation has the following benefits:
• Tax Free: There are no corporate taxes or income taxes or any other tax. However, U.S. taxpayers and those from other countries taxing global income are required to disclose all income to their tax authority.
• Asset Protection: A Panama Foundation provides total global asset protection. The foundation acts as a holding company by owning all assets protecting them from outside creditors and foreign lawsuit judgments. Foundations can own real estate, bank accounts, brokerage accounts, bonds, commodities, corporate shares, dividends, securities, and more. Panama laws do not recognize foreign government seizures or court orders pertaining to foundation owned assets.
• Estate Planning: Panama Foundations avoid expensive and time consuming Probate proceedings because there is no need for Wills, Inheritance, and Probate. Ownership of all assets is in the name of the Foundation and not in the Founder, Protector, Council, or Beneficiaries. Assets can immediately pass through to the Beneficiaries according to the wishes of the Protector.
• Privacy: Neither the Founder, Protector, or Beneficiaries are named in any public documents or registered with the government. As the only names included in public documents are the Council members, nominees can be appointed for their privacy.
• Total Control: The Founder can appoint him/herself as the Protector who controls the entire private foundation.
• No Minimum Capital: There are no minimum capital requirements for foundations.
• Low Registration and Renewal Fees: Currently, the initial government registration fee is $350 USD with annual renewal fee of $400 USD.
• Fast Formation: The foundation can be formed and registered in one day.
• Passive Income: While a foundation cannot engage in active business enterprises; passive income can be earned from rents, securities, interest, royalties, fees, and investments.
Foundation Name
As long as the name of the foundation is not similar to any other legal entity’s name, any name in any language using the Latin alphabet can be used.
Foundation Formation
The Founder can appoint a Protector by issuing a simple document called a “Private Protectorate”. The names of the Beneficiaries and the conditions and terms of the foundation are described in the Protector’s “Private Letter of Wishes”. The Founder can also be the Protector.
Registration
A simple form is filed with Panama’s Public Registry along with the current payment of $350 USD to quickly form a Private Foundation.
Council
Instead of appointing directors, the private foundation appoints a “Council” who perform the same functions as a board of directors. The members of the Council can either be natural persons or legal entities from any country. There are three Council members called a President, Secretary, and Treasurer. However, if the Council is a legal entity, only one Council member is required. Nominee Council members are permitted.
Registered Office and Agent
Every Panama Private Foundation must maintain a registered office address and appoint a registered agent.
Annual General Meeting
Annual general meetings by the Council are not required. If meetings are called they can be held anywhere in the world in person, or by fax, or by phone or video conference.
Accounting
There are no requirements to maintain corporate books or accounting records. However, it is suggested that an accounting system be used to keep track of all meetings, expenses and income for the Beneficiaries and the Founder and Protector to inspect.
There are no filings of accounting records or financial statements with the government.
Taxes
Panama Private Foundations pay no corporate taxes as long as they do not earn income inside Panama and its Beneficiaries do not pay income taxes when receiving assets or funds. However, U.S. taxpayers are required to disclose all income along with taxpayers residing in countries taxing worldwide income to their tax authorities.
There are annual tax filings; however, if no income is earned within Panama’s borders, a simple declaration of this fact is all that is required.
Renewal
Currently, Panama Foundations pay a small annual franchise tax of $400 USD to renew their status as legal entities.
Public Records
While Panama’s Public Registry records are public, no names of the Founder, Protector, or Beneficiaries are filed. The only names filed are of the Council members who can be nominees for further privacy.
Shelf Foundations
Shelf foundations are available for purchase to increase the registration process.
Conclusion
A Panama Private Foundation has the following benefits: tax free, asset protection, estate planning, total control, privacy, no minimum capital, low registration and renewal fees, fast formation, and passive income.
