Private Interest Foundations

Since June 1995, the Government of the Republic of Panama has permitted the creation of a much more informal, practical and useful legal entity as compared to the existing Panamanian Corporation, which is known around the world as a convenient legal instrument for tax and personal purposes. This new legal entity is the Foundation of Private Interest. We have prepared this article to describe and highlight the main characteristics of this new legal structure.

  1. What a Foundation of Private Interest is (hereinafter Foundation)?

    The Foundation of Private Interest is a legal entity, formed in accordance with the Panamanian Law, without lucrative purposes, however it may carry out, periodically, commercial activities including the exercise of rights arising from corporate stocks which represent the capital of companies, whenever these stocks are owned by the Foundation. The Foundation’s assets are exclusively dedicated to the purposes expressed in its Articles of Foundation, and once it is formed, the Foundation may buy, sell or enter into agreements, as any other corporation.

  2. Who may form a Foundation?

    One or more individuals or companies may, directly or through another person, form a Foundation. This is an important difference contrary to the existing Panamanian Corporation which requires the participation of at least two individuals for its formation.

  3. What is required to form a Foundation?

    The following is needed to form a Foundation:

    • Name, expressed in any language with Latin characters. The name must include the.word "Foundation".
    • Initial capital of the Foundation must be a minimum of US$10,000.00.
    • Name and address of the company that will act as Council for the Foundation, or the three individuals that will form said Council.
    • Address of the Foundation.
    • Purposes of the Foundation.
    • How beneficiaries will be designated.
  4. Post mortem effects.

    The Panamanian Law allows the formation of foundations to produce prae mortem effects, i.e. from its date of formation, or post mortem effects. In those Foundations formed to produce post mortem effects, it will be deemed that the Foundation existed before the founder’s death only in relation to donations the founder made to the Foundation. The heirs of the founder cannot revoke the Foundation, nor the donations made in its favor. It is important to know that inheritance laws of the founder’s country cannot be used to impede the Foundation, nor will they affect its validity or the fulfillment of its purposes.

  5. Who may be the beneficiary of a Foundation?

    Contrary to a corporation where the beneficiary is the shareholder, in a Foundation the beneficiary is the individual or company designated by the founder, and may also be the same founder her/himself.

  6. What is the status of assets transferred to a Foundation?

    Any asset transferred to a Foundation becomes capital that cannot be attached or seized in claims unrelated to the operation of the Foundation. The founder’s creditors will have a time limit of three years, from the formation of the Foundation, to claim that the transfer of assets to the Foundation is fraudulent. Any transfer of assets from the Foundation to the spouse, children, father or mother of the founder is tax-free.

  7. Is it possible to revoke a Foundation as well as the transfer of assets made to the Foundation?

    The Foundation itself and the transfer of assets made to it can be revoked only if it is so provided in its Articles of Foundation.

  8. Who manages the Foundation?

    As opposed to the Panamanian Corporation, where there is a board of directors, the Foundation has a Council, which may be a corporation, or a minimum of three individuals. Naturally, this Council may grant a power of attorney to any individual or corporation to manage the Foundation.

  9. What about taxes?

    Since a Foundation does not carry out commercial activities regularly, no taxes have to be paid on its operation. There is only an annual tax in the sum of US$400.00