Private Interest Foundations
The private foundations were born some years ago in Panama , in order to give the offshore users a new approach, a more civil and familiar approach. They have the same Tax and Registry principles, but with a civil oriented system.
The foundations can sign and negotiate commercial contracts eventually and they are not subject to income tax when the income was produced outside Panamanian territory.
The Panama Private Foundation (hereinafter known as PIF) has its origins in the Law 25 of 1995, which in turn was inspired in the PGR or better known as the “Liechtenstein Persons and Company Act”, which contains one of the first references to the private non profit foundations. In Panama, this and the most recent innovations in the Anglo-Saxon Trust enabled the creation of the Private Foundation utilizing the best features and characteristics of both worlds.
A PIF is a legal entity that can be created by either a natural person or a corporation that later transfers part or all of his/her assets to the Private Foundation so they can be managed and protected in favour of the Beneficiaries.
Among the features of the Panamanian Private Foundations we find:
- Quick registration 24-72 hours;
- They provide a fiduciary structure for the orderly transfer and disposition of assets to beneficiaries upon the death of the Founder, keeping control of the assets during lifetime;
- They may be established to have effects from the date of their constitution or after the death of the Founder;
- According to Law 25 of 1995, inheritance laws that apply in the domicile of the Founder or the Beneficiaries, shall not be effective against the Foundations assets nor may these laws affect the validity or performance of the Foundations objectives;
- Foundations are established to carry the specifics goals set out in the Foundation Charter and may additionally undertake sporadic commercial activities, exercise rights pertaining to their holdings, own property, contract obligations and take part in administrative or judicial proceedings.
- A Private Interest Foundation should be established with a patrimony destined to fulfill its objectives, which shall be no less than US$10,000.00. Said patrimony may be increased by additional contributions of the Founder or third parties and does not have to paid in part or in full before the incorporation;
- The assets of the Foundation become legally independent and do not form a part of the private estate of the Founder. Such assets are not sizeable and may not be subject to any precautory action or measure, unless such action or measure pertains to obligations incurred or damages arising from the fulfillment of the Foundations objectives.
Notwithstanding the creditors of the Founder or of a third party shall have the right to contest the contribution or transfer of assets to a foundation when such transfer constitutes an act in fraud of the creditors. The rights and actions of such creditors shall lapse at the expiration of three (3) years, counted from the date of the contribution or transfer of the assets to the foundation was done.
According to article 27 of Law 25 of 1995, Private Interest Foundations are exempt from payment of any taxes, contributions, duties, liens or assessments of any kind arising from the acts of constitution, amendment or extinction of the same, as well as acts of transfer or encumbrance of the Foundations assets and the income arising thereof, when related to:
- Assets localized abroad;
- Money deposited by natural or juridical persons whose income does not derive from a Panamanian source is not taxable in Panama for any reason;
- Shares or securities of any kind issued by corporations which income is not derived from a Panama source, or which are not taxable for any reason, even when such shares or securities are deposited in the Republic of Panama.
The transfer of unmovable property, titles, certificates of deposits, assets, funds, securities or shares carried out by reason of the fulfillment of the objectives of the foundation or the termination of the same, in favor of relatives within the first degree of consanguinity or the spouse of the Founder shall also be exempted from all taxes.
Among the most important uses of the Panamanian Private Foundations we find:
- Family support
- For Tax purposes
- For the protection and management of assets
- For educational purposes
- Testamentary purposes
- For life annuity purposes
- For charitable purposes
- To receive and manage capital and titles
- For the purpose of serving as guarantee or collateral
- For the management of insurance.
We must comment that several or all uses mentioned above can be given to a particular PIF, there are no restrictions as to the objects or uses one PIF can be given. For example, one PIF can be created to protect assets, but also with a testamentary use or in any case, with all the above-mentioned uses. However, a PIF cannot engage in commercial or for profit activities as a day-to-day activity.