Overview of a Panama Private Interest Foundation
The Panama Private Interest Foundation (PPIF) is a type of offshore private foundation, carefully designed by the Panamanian Government as an offshore asset protection solution under the laws of Panama. It is based upon the Liechtenstein 'Stiftung' (a family foundation), as well as the private foundation structures of Switzerland and Luxembourg.
The main difference between an offshore private foundation and an offshore company is that a private foundation cannot engage directly in any business activity that is commercial in nature. It may, however, own investments such as real estate, other companies, stocks, bonds, etc.
A Panama Foundation is different from any other legal entity in Anglo-Saxon law as it is not the legal personification of a person or group of persons (as in a corporation) and is not owned by any individuals or entities.
The assets of the Private Interest Foundation in Panama take on a separate legal identity from the personal assets of the Founder, Protector, Council Members or Beneficiaries, protecting the assets of all individuals a party to the foundation. A Letter of Wishes may be drafted to convey the manner in which the assets of the foundation should be handled after the Founder's death.
There are subtle differences between the Panama Private Interest Foundation and a Panama Charitable Public Foundation – or Panama 'Public Interest' Foundation – in that the latter is used for charitable purposes, though both have their unique uses in offshore planning, much of the characteristics of a PPIF are the same for a Panama Charitable Foundation. For more specific information please click here.
Benefits of a Panama Foundation (PPIF)
- Affordable, anonymous, flexible and private international estate planning vehicle that can be used to hold assets such as corporations, trusts, bank accounts, investment accounts, real estate, or any other type of asset.
- Protects assets – because the PPIF has no owners, the assets of the PPIF cannot be claimed if the founder, council members, protector or beneficiaries have unpaid debt.
- Non-Freezable Assets – according to Panama law, the assets of a PPIF are non-freezable, if the money has been in the foundation for more than 3 years.
- Can be used to help family members financially according to the protectors instructions; forced heirship rules are specifically excluded.
- Use it to collect royalties.
- Tax-free for income derived outside of Panama. Local bank interest is also tax exempt.
- No approval from any public authority is required – a PPIF comes into existence upon its registration in the Public Registry.
Things to Consider About a Panama Foundation (PPIF)
- Foundations are mainly used for philanthropic or estate planning purposes.
- Functionally, a foundation cannot engage directly in commercial business activity, although it may own investments such as property, stocks, bonds and companies.
- There are no owners to a Panama Foundation. A 'Letter of Wishes' may be written by the founder to specify how the foundation’s assets should be handled following the founder’s death.
- Flexibility to customize a foundation into a 'purpose built' private religious, church, spiritual or humanitarian charitable organization.
Panama Foundation Tax Advantages
- No tax reporting requirements
- No income tax
- No capital gains tax
- No interest income tax
- No sales tax
- No tax to beneficiaries
- No beneficiary transfer tax
- No capital tax
- No property tax (for non-Panamanian property)
- No estate tax
- No gift tax
- No inheritance tax
- No stamp tax
- No succession tax
- No inventory tax
Top Uses of Panama Foundations
Panama Private Interest Foundations may be established for the benefit of a person or persons, a family, or a specific social purpose.
In general, you may want to consider a PPIF if you wish to maintain control and ownership of a foreign corporation, though due to strict Controlled Foreign Corporation (CFC) rules in many countries, declaration of such accounts becomes mandatory. While that is the case, there are ways to circumnavigate such restrictions using specific corporate structuring methods.
Many high tax countries (UK, Canada, Australia, New Zealand, France, Italy, etc.) have strict CFC rules. These rules require citizens to submit declarations (reports) to the appropriate tax authorities that disclose the various companies they are shareholders of.
Instead of holding the corporations' shares in their personal name or in bearer form, they establish a Private Interest Foundation in Panama that holds or owns the shares of their foreign corporation(s), thus avoiding the CFC reporting rules. Hence, the advantage of using the Foundation as a shareholder for their corporation is to remove ownership from one's personal name (or through a Bearer Share arrangement).
This ownership is transferred to the name of a foreign entity, which does not have owners, rather has privately appointed beneficiaries, which are anonymous. In this way, there is no question as to who owns the company, since the company's shares are issued to the Foundations' name.
Foundations can also be used to open corporate bank or investment accounts. As all financial institutions require the disclosure of the beneficial owners of the corporation, through the Foundation ownership strategy, one can state that the Foundation is the owner of the corporation. Again, the objective is to remove ownership that would otherwise be attached to your personal name to the Foundation whose ownership is anonymous.
The Panama Foundation provides additional advantages other than just ownership. For example, the Panama Foundation can be useful in transferring funds to and from an offshore account. Some people donate their funds to their Panama Foundations and later use the Foundation to give educational or special grants to their children, grandchildren, or any one else they choose. The advantage, in this case, is to avoid fiscal regulations surrounding donations, where some governments impose ‘gift taxes’ and exhaustive reporting requirements.
In general, PPIFs can not engage in habitual profit-making commercial activities as a corporation can. Nevertheless, they may carry out commercial activities from time to time, as long as the profits of those activities are used for the objectives of the foundation.
For example, a Private Interest Foundation may engage in banking or investment activities, such as investing in bank time deposits (Certificates of Deposit - CD's), stocks, bonds, mutual funds, options, money markets, etc. so long as the proceeds from these investment activities are for the benefit of the beneficiaries of the Foundation.
Panama Foundation Facts
- Second Most Popular Jurisdiction in the World
Panama is the registered domicile for over 400,000 corporations & foundations, making it the second most popular jurisdiction to incorporate in the world, next to Hong Kong.
- No Reporting Requirements or Taxes
Panama does not impose any reporting requirements or taxes for Panamanian Foundations.
- No Piercing the Corporate Veil
Panama does not allow 'piercing the corporate veil', so your Foundations books are maintained 100% private and confidential by law.
- Anonymous Ownership and Control
The Protector and Beneficiaries need not be publicly registered. Panama Foundations Protectors can be appointed through a Private Protectorate Document, and the Beneficiaries can be appointed through a Private Letter of Wishes, written and signed by the Private Protector.
- No Capital Requirements
Panama Foundations do not require Paid-In Capital.
Every Panama Foundation must have a council (same as directors of a corporation), whose names and addresses are registered in the public registry. The council members can be either individuals or entities of any nationality and resident of any country.
- If the council is made up of individual persons, then it requires 3 council members (President, Secretary and Treasurer). If the council is an entity, then only one council member is required.
- Nominee Foundation Council
We offer our clients the optional service of using our 'Nominee Council' for their Foundation(s). For purposes of confidentiality, most of our clients prefer that we provide nominee council members for their Foundations.
- When we appoint nominee council members for the Foundations that we establish for our clients, we always provide our clients with pre-signed, undated letters of resignation from the council members so that our client can replace those council members at any time. There is no additional fee for the use of our nominee council.
- Directors or Beneficiaries Meetings
Annual general meetings of council members of the Foundation are not mandated or required. However, if meetings are held, they can take place anywhere in the world by proxy - via telephone, email or other electronic means. Any resolutions passed are valid regardless of whether they are signed on different dates or in different jurisdictions.
- Corporate Books
The Registered Agent is not required to keep any records for the Foundation, however, it is recommended that every Foundation should maintain a minute (council meeting) record book, which can be held anywhere in the world.
- Annual Corporate Franchise Tax:
Panama Foundations should pay an annual corporate franchise tax of US$250 to remain in good standing. The public registry allows a grace period of 90 days from the date of incorporation to pay the corporate franchise tax. After 90 days, if the tax is not paid, there is a US$50 late fee for every year that the tax is not paid on time.
It is not necessary for the interested parties to be present in Panama for the purpose of establishing a Foundation. We can handle everything for you without you having to come to Panama, although you are welcome to arrange a meeting with us in our offices here in Panama.
- No Business License Requirement
Panama Foundations DO NOT require a commercial business license to operate internationally.
Foundations from other jurisdictions may be 're-domiciled' to Panama, and vice-versa. Many people who have corporations in jurisdictions such as Liechtenstein, Switzerland, and other jurisdictions are currently re-domiciling their Foundations to more affordable, private and secure jurisdictions such as Panama.
- Corporate Seal
A Foundation seal is optional. We also offer Foundation seals if you want one.
- Legal Address
When registering a new Panama Foundation, it must have a legal physical address that is included in the articles of incorporation. Our law firm provides a legal physical address as Resident Agent and Registered Office.
Brief History of Panama Foundations
Foundations were established nearly one hundred years ago in Europe and have since become a popular vehicle for estate and asset planning across the globe, especially in the Bahamas and the Isle of Man. The concept of a ‘Private Interest Foundation’ began when the Principality of Liechtenstein created the Law of Persons & Companies in 1926, creating the ‘Family Foundation’ for the private benefit of the members of one or more families and the’ Mixed Foundation’ for the private benefit of not only families, but also for other persons and institutions.
In the past, many families in Europe established their Family Foundation in Liechtenstein, as it was always a neutral jurisdiction, for the purpose of estate planning and family planning, ensuring the safe transition of assets to the family's beneficiaries. Today, Liechtenstein capitalizes on its historic fame, charging upwards of US$25,000 to incorporate a Foundation and US$10,000 a year for maintenance.
Foundations can be used for any number of reasons for charitable, commercial or family purposes and have features similar to that of a Trust, but with the added benefit of being generally more recognisable.
Glossary of Panama Foundation Terms
The Foundation has a Founder, a Council, a Protector, and Beneficiaries. Below we have explained what role each of them plays in the Foundation.
The Founder is the person or entity that establishes the Foundation in the Public Registry of Panama. Our law firm is generally the Founder of each Foundation that we establish, since it is our law firm that goes to the public registry to incorporate the Foundation.
The Founder has no influence over the control of the Foundation, and is only recognized as the individual who presented the Foundation articles in the public registry when the entity was originally registered.
The Foundation's Council serves the same purpose as the board of directors on a corporation. The council members are each registered in the public registry with their names, addresses, and identifications as council members to the Foundation.
To provide additional privacy and confidentiality for you, our firm can either appoint a 'Nominee Foundation Council' to fill the council positions, OR you can nominate the members of the Council. If that is the case, it is best that the client choose non-family members and/or others who will have no beneficial interest in the Foundation itself.
When we appoint a nominee council, we provide our client with pre-signed, undated letters of resignation from each nominee council member so that our client can replace the council at any time. The nominee council has no control over the Foundation or any of its' assets, they are only there to fill in the blanks in the public registry.
The Protector is the person or entity who ultimately Controls the Foundation and all assets held within it. The Protector is appointed by the Foundation Council when the Foundation is created, however, once the Protector is empowered, the Protector can then remove the council members at any time without consent of any one else.
The Protector can be appointed privately, through a Private Protectorate Document, signed by the Foundation Council. Hence, the Protector can maintain this position free of public knowledge. We can appoint you or some other trusted family member as Protector of the Foundation, through a notarized Private Protectorate Document so that you maintain complete control over the Foundation, in a private and anonymous manner.
Once the Protector is appointed, it can always be changed per the Protectors wishes. However, a Protector is not required and if you prefer, you can choose to not use a Protector, or to use a nominee Protector.
Unlike a corporation that issues share certificates to certify who the owners are, the Panama Private Interest Foundation does not have owners, rather it has Beneficiaries.
The Foundation’s Beneficiaries are appointed by the Protector through either a simple, privately written Letter of Wishes, or through a more formal set of Foundation By-Laws (Foundation By-Laws should be written with the assistance of a Panamanian Attorney).
Either way, the privacy and confidentiality of beneficiaries can be protected through their appointment in the Letter of Wishes, or By-Laws of the Foundation, since the contents of the Letter of Wishes or By-Laws may remain private and need only be known to interested parties.
Also, a Panama Foundation may be set up so that the Protector is the sole beneficiary until his or her death, at which time the foundation continues for the benefit of other beneficiaries. Many like to choose one or more charities as beneficiaries.
Letter of Wishes
The Letter of Wishes is a simple letter, written by the Protector, which specifies exactly how the Foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the Protector.
The Letter of Wishes should also state whether the Foundation should continue existing, and have a new Protector appointed, or if the Foundation should be dissolved upon the death of the Protector. There is no specific format in which the Letter of Wishes must be written, and it can be written or changed at any time after the Foundation is incorporated, per the Protectors wishes.
The Letter of Wishes can be held privately, or can be registered publicly. Generally, most people prefer to maintain the Letter of Wishes privately, so that the Beneficiaries and Protector remain anonymous and private.
The Foundation does not need to have By-Laws, since a Letter of Wishes is legally sufficient for expressing the Protectors' requested testamentary instructions.
However, if one wishes to have a more formal Foundation testamentary document, written and signed by a Panamanian Attorney, and notarized by a Panamanian notary, then one can request the assistance of a Panamanian attorney to draft the Foundations By-Laws.
The Foundations By-Laws essentially handle the same function as a Letter of Wishes since the By-Laws should specify exactly how the Foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the Protector.
The By-Laws should also state whether the Foundation should continue existing, and have a new Protector appointed, or if the Foundation should be dissolved upon the specified triggering event(s).
There is a specific format in which the By-Laws must be written, yet the contents of the By-Laws can be changed at any time after the Foundation is incorporated, per the Protectors wishes.
The By-Laws can be held privately, or can be registered publicly. Generally, most people prefer to maintain the By-Laws privately, so that the Beneficiaries and Protector remain anonymous and private.