Panama Foundation & IBC (International Business Company) Combination Options

If your primary goal is not just asset protection and complete privacy but, depending on your country of residence, eliminating all reporting requirements on the corporation with the possibility of tax deferral opportunities, a corporation combined with a Panama Foundation is ideal. A Foundation is put in place that acts as a Shareholder of the Company. Ownership thereby is divested to another legal entity.

If both the corporation and the foundation that owns it are both based in Panama as well as all of its banking and investment accounts, there is the extra advantage of them being free from any threat of sequestration regardless of the allegations.  This means a foundation and all of its assets are totally inviolate from any type of lawsuit, civil or criminal.

The shareholder Foundation can also be set up, just to be on the safe side, with a charitable beneficiary so that even in the unlikely event that you are forced to prove in your home country, that you are not the main beneficiary, it confirms that the assets are held for the benefit of a charity. Nobody ever questions legitimate charities as a beneficiary of a Foundation. Setting up offshore Foundations and Trusts whose primary aim appears to be philanthropic is a savvy and indeed "politically correct" way to organise one's offshore assets even if only a little actually goes to the charity. In fact for some it may be appropriate to set up a proper Panamanian Charitable Foundation which in fact would become the publicly recognized charity to which such donations would flow. For more information on setting up a Panamanian Public Charity along with its many benefits click here.

In the past years we have set up many offshore trusts with charitable beneficiaries as the shareholder of the corporation, and indeed we will sometime do this still, if a client has a strong preference. However, for residents of most English speaking countries the suspicion which an offshore trust creates regardless of its true purpose, seems to mitigate its effectiveness in favor of the Private Interest Foundation. For clients of Europe and Central and South America who are already more familiar with Napoleonic (Civil) law, Foundations tend to be a default choice. For more detailed background information on the Panama Private Interest Foundation, click here.

In reality if a Foundation is only holding the shares of the company and nothing more, the corporation and its assets and bank accounts are really what determine the value of the shares. Thus, a distribution of the assets of the corporation can be easily done without any need to set up any testamentary wills in regards to the Foundation, so long as one of more trusted family members have access to the business and investment accounts of the corporation. However, it is also possible to set up a simple mechanism for the Foundation to be able to carry out your asset distribution wishes at the time of your death. A testamentary trust can be put in place and that is something our law offices can assist you with at any time before or after the entities have been set up. In fact we offer an unbeatable package whereby not only do we offer the corporation and Foundation but we also offer a testamentary trust. Click here to go to International Fiduciary Structure page.

Very High Privacy

The privacy benefits offered through an company / foundation combination are similar to the ones presented in the Panama corporation, Belize IBC or Nevis IBC pages.   In addition:

• There is not only strict confidentiality of beneficial ownership but the privacy of your affairs no longer only have to hinge on confidentiality, since you are not a beneficiary in any way of your assets.
  
• No annual reports of financial returns need to be filed since you have surrendered ownership of your assets to a foundation.
  
• The foundation is located in Panama which means all its assets, which include the corporation, cannot be seized or frozen for any reason whatsoever – even in the event of an action considered criminal in Panama. Even if that were not the case, long before that could have been determined the corporation could have been re-domiciled to another jurisdiction frustrating any would be suitor or creditor.
• As before, the principal office and records may be located anywhere in the world.
• Possibility of transferring corporate income to the foundation and then the foundation provide tax-free foreign source gifts to family and friends. In most countries foreign gifts are not taxable and mostly non-reportable (check with your local counsel).

Excellent Asset Protection

The asset protection benefits offered through this option would be the same as the benefit of owning an offshore corporation. However, the question of beneficial ownership is resolved in a very satisfactory way so that the Foundation replaces you as the legal owner. It would be very difficult for a court of law to prove that the Foundation is nothing but an alter-ego of yourself, since the Foundation exists completely separately and independently from you and has a “life” of its own which is determined by the appointed Council Members, which of course you can influence but do not legally control. Also the Foundation was born out of Panamanian Civil Law, and such laws cannot be simply overturned or set aside – unlike with Common Law trusts that do not owe their existence to civil (statute) law.

Excellent Tax Advantages

An corporation / foundation combination provides you with a way to safely avoid any taxation issues until you need to take income or capital gains (as appropriate). This is because most countries look to the ownership question to determine if their taxpayer is liable for any tax on an offshore corporation. If that taxpayer clearly does not have a legal ownership in the company most countries’ tax rules clearly state that no tax is payable on the unrealized (i.e. un-repatriated) earnings of that company. However, U.S. persons should understand that if any portion of income being earned by the corporation is derived from passive earned (investment) income, then the interpretation of the IRS, is that that income would be taxable when earned as opposed to when repatriated. Luckily most other countries’ tax agencies do not take such a hard line stance.

There are ways to also set it up whereby, under certain legitimate circumstances, you can take earnings in the form of a loan (to be paid back over time). This is a highly complex area and since each country has different tax rules it is important to get assistance from a tax professional to determine your own possible tax liability in light of your nation’s tax regime.

For more on offshore tax deferred investing, click here.

Other Company Benefits

Panama as well as Belize and Nevis corporations provide these additional advantages:

• Flexibility of ownership and management structure.
  
• There are no residency requirements for Directors, Shareholders or Officers.
  
• Corporate or Trust entities may act as Director, Secretary or Shareholder.
  
• Re-domiciliation of other foreign companies into and out of these countries.
  
• There are no limitations on corporate ownership.
  
• No corporate tax, income tax, withholding tax, stamp tax, asset tax, exchange controls or other fees or taxes are levied in these countries on assets or income originating from outside the countries.

Tax Evasion vs. Tax Optimization – an endless debate

As mentioned before a big issue for citizens of North America, Australasia and the E.U. as well as other nations is the proper use of an offshore corporation - so that any tax advantages are not deemed to be "tax evasion". The primary issue here is whether such a corporation is deemed "controlled" or "not controlled". And depending upon the verdict - the tax consequences will vary. But note here that in the final analysis, all we are discussing here is the ability to defer taxes until such a time as funds are repatriated and taken as income.

Let's take the United States Internal Revenue Service as a good example. Their code defines a Controlled Foreign Corporation (CFC) as: "any foreign corporation of which more than fifty percent of its value or voting stock is owned by United States shareholders on any one day during the taxable year of such Foreign Corporation." A US shareholder is also specifically defined as a US citizen or entity holding or controlling more than 10% of the shares.

Here's an example of a Controlled Foreign Corporation:

Imagine that US shareholder "Bob" owns 50% of the voting stock of the foreign corporation "X". US shareholder "Sue" owns 11% of the voting stock. The remaining 39% is owned by an offshore shareholder "Chris". Under the existing IRS rules, this is a CFC because more than 50% of the voting stock is held by US shareholders.

As you can see, the simplest way to avoid ending up with a CFC is to ensure that less than 50% of the voting stock is held by US shareholders - and that no individual shareholder holds more than 10% of voting stock. This can be done by using a Foundation to own the majority of the stock, or any variant where the end result is the required "less than 50%" holding.

However, although we have used as an example the U.S. definition of a CFC, it is in fact a little more complicated for U.S. based persons because a distinction is also made elsewhere in the IRS code between income earned from a foreign business as opposed to income solely derived from passive investments. The former can stay untaxed with the foreign company until repatriated, while the latter automatically gets caught up in the passive investment holding company rules that result in a much more complicated and unfavorable treatment. The U.S. government clearly does not want it’s residents’ dollars being invested outside of the country. The U.S. is also the only major Western country that does not depend on a national sales tax to help fill its coffers, hence the much more rigorous definitions and narrower loopholes then what is found in other countries.

The Foundation Owned Corporation Advantage

Consequently, but with the above caveat in mind for U.S. based persons, for business and investing purposes carried on outside of the jurisdiction of residency, the simplest solution is to subscribe the shares of an corporation to a Foundation. This puts ownership into the hands of another legal entity, away from the actual beneficial owner. So long as it is possible to prove, (or impossible to disprove) that the Foundation is acting as the agent of the client in forming the corporation, it is truly non-controlled. This is why the importance of “arms length” management is so important and why we provide such a competitively priced package which includes the two structures are discussing here, along with a comprehensive professional management package for just $3950. For complete details of the various components of this package go to our fee schedule page which provides a summary of the contents of each package as well as the fees for each package.

The bearer or registered shares, in an offshore corporation can therefore be owned by this other entity which we recommend as having a charitable beneficiary. (We think registered shares are a much better option because of pressure on certain offshore jurisdictions to place restrictions on their disposition, plus registered shares make the ownership of the corporation completely unambiguous, which in offshore matter is usually a plus). For some an international charitable based Public Foundation may be now the most advantageous direction to go in if you want to divest ownership of any asset (in this case the assets of what would otherwise be termed as Your Company). For more information on setting up a Panama based public charitable foundation, click here.

Whatever your final decision is, you should consult a local tax expert in the jurisdiction that you reside in, because laws vary from country to country and also are open to considerable interpretation that inevitably becomes narrower as tax agencies around the world increasingly have the task set before them of squeezing more and more out of their “clients”.

Proper Management is the Key

The structures should ideally be managed by an independent third party. This party can be someone you know and trust or a professional company such as Sovereign Management & Legal that specializes in such management services. (See Management Services) The most important fact here is that this party must be residing in a country other than your own and preferably in a country such as Panama which still has strict privacy laws for such matters.

Even if the assets are not in your control, you can still make recommendations to your hired managers which they are bound to follow so long as there is nothing illegal in what you are requesting. A testamentary will, along with a testamentary trust can be put in place for your wishes to be followed in the event of your death and this can be lodged with our in house lawyers. Click here to go to International Fiduciary Structure.

Points to Bear in Mind in Regards to the Foundation

The Foundation can exist purely as a passive entity. One of it’s purposes is to remove ownership of the company from your hands so that you are not subject to your country's reporting and tax requirements. This is possible as long as you are not a beneficiary of the Foundation in any way. For maximum safety, you must conduct the business of the corporation at "arms length".

Since this Shareholder entity can act in a passive role there is no necessity for day-to-day involvement with it, since all day-to-day business can be carried out by the corporation through its bank and brokerage accounts. You can be the signatory on the bank account if you wish or even better you can appoint a professional management firm such as our company to be the signatory, while you act as an advisor or consultant to the company. See Account Signatory Services.

To view pricing, the components of our special offshore packages and to order, click here.