Panama Foundation with Corporation (IBC) Structure
What is a Panama Foundation with IBC Combination
A Panama Foundation combined with an International Business Company (aka IBC) is an offshore legal structure wherein a Panama Private Interest Foundation (PPIF) or a Panama Charitable Foundation (PCF) is formed and put in place to act as a shareholder of the IBC. Ownership of the IBC is thereby divested to another legal entity (the Panama foundation).
Why Choose a Panama Foundation with IBC Package
Depending on your country of residence, if your primary goal is to eliminate all reporting requirements on the IBC, with the possibility of tax deferral opportunities (in addition to asset protection and complete privacy), then a Panama Foundation-IBC Combination structure may be the ideal solution for you.
If both the offshore corporation and the foundation that owns it are 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. This is done to confirm—even in the unlikely event that you are forced to prove (in your home country) that you are not the main beneficiary—that the assets are held for the benefit of a charity. Nobody ever questions legitimate charities as beneficiaries 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 organize 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 Panamanian Charitable Foundation that would become the publicly recognized charity to which such donations would flow. See Panamanian Charitable Foundation for more information on setting one up as well as its many benefits.
Use of Offshore Trusts
In the past, we have set up many offshore trusts with charitable beneficiaries as the shareholder of the corporation. Indeed, we will still sometimes do this, if a client has a strong preference.
However, for residents of most English-speaking countries, the suspicion that an offshore trust creates, regardless of its true purpose, seems to diminish its effectiveness in favor of the Panama 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. Visit the Panama Private Interest Foundation for more detailed background information.
In reality, if a Panama Foundation is only holding the shares of the IBC and nothing more, then this IBC, its assets and bank accounts are really what determine the value of the shares. Thus, a distribution of the assets of the IBC can be easily done without any need to set up any testamentary wills in regards to the foundation; that is, so long as one of more trusted family members have access to the business and investment accounts of the corporation.
Use of a Testamentary Will
It is also possible, however, to set up an additional Testamentary Will. This simple mechanism enables the foundation to carry out your asset distribution wishes at the time of your death. This testamentary will can be put in place with the help of our law offices, at any time before or after the entities have been set up.
We offer an unbeatable package whereby this will is built into the foundation, along with an IBC and full management of both, in a comprehensive package known as the International Fiduciary Structure. See our International Fiduciary Structure article for more information.
Advantages of a Panama Foundation-IBC Package
Very High Privacy
- 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, including 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 have 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 a Panama Foundation/IBC combination structure exceed the benefits of owning an IBC, in that, the question of beneficial ownership is clearly resolved by having the Panama Foundation replace 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. This is because the foundation exists completely separately and independently from you. It has a "life" of its own, which is determined by the appointed Council Members and that you can influence, but can not legally control.
Additionally, 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
A Panama Foundation/IBC 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.
U.S. persons should understand, however, that if any portion of income being earned by the corporation is derived from passively-earned (investment) income, then the interpretation of the IRS, is that that income would be taxable when earned, as opposed to when repatriated, assuming there are U.S. beneficiaries of the foundation.
Luckily most other countries’ tax agencies do not take such a hard line stance.
Under certain legitimate circumstances, there are ways to also set it up whereby, 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.
View our article on offshore tax deferred investing.
Additional IBC Benefits
Panama, as well as Belize, Nevis, Seychelles and many other popular IBC havens 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
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 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." 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.
Controlled Foreign Corporation Example
Let's take the United States Internal Revenue Service as a good example.
IRS 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.
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 Panama 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 the U.S. definition of a CFC as an example, 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 its 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 than 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 something we term the International Fiduciary Structure, which is a competitively priced package that includes the two structures we are discussing here, along with a “living will” built into the foundation and a comprehensive professional management package for just $4,950.
For complete details of the various components of this package contact us.
The bearer or registered shares, in an offshore corporation can therefore be owned by the foundation 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 setting up a private interest charitable 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).
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 Can Be Key
When these structures are combined into the International Fiduciary Structure they will be managed by an independent third party, which is our law Panama law firm.
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 is built into the foundation bye-laws to be followed in the event of your death or life changing event so that your family and loved ones can be protected.
To set up a Panama Foundation-IBC Combination Structure, click “Let's Get Started” button below. Be sure to let us know what jurisdiction you would prefer for setting up the IBC component of this package.