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.
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A Panama foundation takes the best elements of a trust and an offshore company, or IBC, to create a legal entity to passively hold the assets of those who formed it. A foundation has no owners, so assets of the foundation, such as corporations, shares of stock, real estate and bank accounts, are held for the foundation’s beneficiaries (e.g. your heirs). Traditionally they were used to protect the wealth of the family and to make sure that its assets were passed on to succeeding generations.
Because there are no owners of a Panama foundation, reporting requirements are not necessary in many countries. For example, foundations are not specifically recognized by US tax law, which allows you to decide the way in which your foundation is declared, and it may be structured in a way that allows it to legally avoid the reporting requirements of the IRS.
One way of doing this is to structure it as a charitable foundation rather than just as a family foundation. Using a private interest Panama foundation for private international church, humanitarian, philanthropic or other charitable activity is quite a well-established concept and we have a healthy number of clients that have pursued this path.
What makes Panama foundations unique are the following:
The 3 key positions in the foundation need to be considered:
Panama is a true 'tax haven'. Panama Foundations offer the following tax advantages:
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.
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.
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.
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.
If you have more questions and would like your free consultation.