The Panama Private Foundation (“PPIF”) is a legal entity that can be created by a natural person (or a corporation) who then transfers part or all of his/her assets to the Foundation so they can be managed and protected in favour of the Beneficiaries.
- USES FOR A PIF include:
- Family support
- Tax deferral
- Protection and management of assets
- For educational purposes
- For 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
Whilst a PPIF can be used for any of the above purposes, 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 and also to ensure that assets are managed as per the Founders wishes post his/her death (ie for testamentary purposes). However, a PIF cannot engage in commercial or for profit ventures as a day-to-day activity.
The advantages of registering a PIF include:
- A PIF can provide a fiduciary structure for the orderly transfer and disposition of assets to beneficiaries upon the death of the Founder, who keeps control of and has use of the assets during his/her lifetime;
- A PIF may be established to have effect from the date of its constitution or after the death of the Founder;
- Inheritance laws that apply in the domicile of the Founder or the Beneficiaries (eg forced heirship provisions which may require a deceased to leave a certain proportion of his/her estate to certain persons), ate not effective against the Foundation’s assets; nor may these laws affect the validity or performance of the Foundation’s 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, carry out contractual obligations and take part in administrative or judicial proceedings.
- A PPIF should be established with a patrimony destined to fulfill its objectives, which shall be no less than US$10,000.00. The 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 registration;
- The assets of the Foundation become legally independent and do not form part of the private estate of the Founder. Such assets are not seizeable and may not be subject to any predatory action or measure, unless such action or measure pertains to obligations incurred or damages arising from the fulfillment of the Foundations objectives;
- Whilst the creditors of the Founder or of a third party may have rights to contest the transfer of assets to a PPIF (eg when such transfer constitutes an act in fraud of the creditors), the rights of such creditors lapse, by law, at the conclusion of three (3) years from the date of transfer of the assets in question.
- PPIFs are exempt from payment of any taxes, contributions, duties, liens or assessments of any kind arising from the acts of constitution (or 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.
INFORMATION OF PUBLIC AND PRIVATE KNOWLEDGE
The only information made public are the names of the Founder, the member (s) of the Foundation Council and the name of the Protector, (only if it is recorded in the Foundation Charter, as the Protector can be appointed by means of a private and confidential document).
The Foundation Regulations are for internal purposes of the Foundation and are not a matter of public record. Information regarding names of beneficiaries and of the protector and method for distribution of assets can be contained within the Regulations and thus will not be publicly disclosed.
The PPIF Law provides that all the members of the Foundation Council, the Protector, public servants and private servants that have knowledge of the activities, affairs, transactions and operations of the PIF must maintain confidentiality at all times. Violation of these Articles carries a sanction of 6 months of jail time and a fine of Fifty Thousand Dollars (US$50,000), + potential civil liability.
PRIVATE FOUNDATIONS vs. TRUSTS
Although similar, Private Foundations and Trusts have very several notable differences:
- PIF’s are based on Civil Law and they are constituted by means of a public legal document (a Charter) which is lodged with the Registrar. A PIF is a legal entity, whereas a Trust is an agreement based on Common Law and is established by means of a private contract that does need to be filed with any government agency.
- The difference between the Civil Law and Common Law is that Civil Law is based on written laws, codes and can only be changed, modified or amended by means of a legislative act, it is less flexible than Common Law. The latter is based on common knowledge, court interpretations and rulings, therefore is more flexible, but more volatile.
- Another difference is that the document which gives birth to a Foundation (ie the “Charter”) does not need to specify the rights and obligations of every party involved; that can be done by means of a private and confidential document (known as the “Regulations”), whilst the document which gives birth to a Trust (ie a Declaration of Trust or Trust Deed) has to be very specific and clear regarding the rights and obligations of the Trustee.
- In a PIF the assets are placed to the Foundation’s name at the time of the transfer, while in a Trust, it is the Trustee who receives the assets to his or her name.
- As for administration fees, those of an estate in a Foundation tend to be lower , while in a Trust, the Trustee’s fees often is expressed as a percentage of the value of the estate: the larger the estate, the greater the fees.
Other Key Features of the PPIF include:
- Corporate Books: The Registered Agent is not required to keep any records for the Panama Foundation.
- Annual Corporate Franchise Tax: PPIFs must pay an annual corporate franchise tax of US$300 to remain in good standing. The deadline for the tax payment depends on when the entity was formed. If the entity was formed from 1 January to 30 June, then the tax is due on the 30th of June. If the entity was formed from 1 July to 31 December, then the tax is due on the 31st of December. If the tax is not paid on or before the due date, the entity will be charged a late penalty of US$50.00. If the tax is not paid after the following “deadline” period, the entity will be charged a second late penalty of US$300.00.
- Convenience: It is not necessary for the interested parties to be present in Panama for the purpose of establishing a Panama Foundation. We can handle everything for you without you having to come to Panama.
- No Business License Requirement: Panama Foundations DO NOT require a commercial business license to operate internationally.
- Re-Domiciliation: 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 Panama Foundation seal is optional.
- Legal Address: When registering a new Panama Foundation, it must have a legal physical address that is included in the articles of incorporation.
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