APGI Panamanian Foundation

Panamanian Offshore Foundations

The concept of a "Foundation" has been well known in Latin Law countries for several centuries. It is a legal entity separate from its creators, constituted through one sole donation or several donations that form an independent and autonomous estate for a definite purpose. A Foundation is a legal entity that is different from any other entity known in Anglo-Saxon Law, as a Foundation is not the legal personification of any other person or persons but a body corporate that has no owners (shareholders, participants or partners), and which traditionally has charitable or philanthropic aims for the benefit of a generality of persons.

Historically Foundations were born during the Middle Ages, at the end of the Roman Empire under the influence of Christianity. The Church itself was considered a divine foundation and its various organizations needed to be endowed with assets and legal capacity to manage such assets. It is thus that Canon Law of the Middle Ages developed the juridical theory of Foundation, on which religious congregations and convents were built. After centuries, that legal entity called a "Foundation", created by the Church on an essentially "Roman-Germanic" basis, continues to exist. Indeed, most of the countries in the world acknowledge and promote the creation of "Public Foundations" which are strictly non-profit organizations created by individuals for the benefit of society, generally subject to rigorous procedures in their creation and control. The so-called "Traditional Foundation" or "Public Interest Foundation" may not engage in private interest activities and may not carry out business transactions even on a non-habitual basis.

The Principality of Liechtenstein took a major step with the enactment of its Law on persons and Companies of 20th January 1926 (Personen und Gesellschaft Recht - P.G.R.) which created "Family Foundations" (for the personal benefit of members of one or more families), "Mixed Foundations" (for the benefit not only of relatives but also of other persons or institutions). The "Family Foundation" also exists as a legal entity in Austria, but it is not used worldwide as this country is not a fiscal haven. There are Luxembourg Foundations, which have features differing from those of Liechtenstein and are also little used on an international level. Additionally, Curacao Foundations were developed in recent years.

Some clients come to us after reading about structures, such as the "Offshore Trust" or "Common Law Trust", as a mechanism for estate tax planning or asset protection. A trust vehicle is not at all a bad suggestion, nor is there anything wrong with the laws that recognize trusts. The problem lies with the judges that put in force such statues, and the fact that it is an entity only found in common law nations such as the Bahamas, Canada, and the US. Because many judges have gone the route of "re-interpreting" the law in such a manner that the Trust structure is not as safe as one would be lead to believe, our advice is to take a closer look at the Panamanian Foundation (Panama Foundation) instead.

A Panamanian Foundation does have some attributes that actually make it superior to a trust in many ways, and perhaps more importantly, it is a vehicle backed by a civil law country.

• The Panamanian Foundation
• How to Create a Panama Foundation
• Using Panamanian Foundations
• Key Elements of a Private Foundation
• The Charter
• Schedule of Fees

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The Panamanian Foundation

The Panamanian Foundation structure was codified into law in 1995. While this structure is a fairly new entity for Panama, the Foundation structure itself has existed in Liechtenstein for quite some time and the Panamanian structure was in fact modeled after the Liechtenstein legislation. Some advantages a Panamanian Foundation has over a Liechtenstein Foundation include; it is far less expensive to create (A Panamanian Foundation costs less than $3,000 to create with APGI while some firms have charged as much as $10,000 to create a Liechtenstein Foundation), it is far less expensive to maintain, it offers more flexibility for the client.

The Republic of Panama drew its inspiration from the Liechtenstein Law and adapted that European model to create a more flexible and modern "Private Foundation", that has evident advantages for international asset planning and is qualified to conduct non-habitual "commercial transactions". An interesting feature of the Panama Law on "Private Foundations" is that, despite its inspiration by Latin Law, it includes certain interesting aspects that are widely used in "Anglo-Saxon Law", as for example the adoption of a "protector" or "supervisory body".

A Private Foundation ("Foundation") is created when one or more natural persons or legal entities ("Founder (s)") formalize a document known as a "Foundation Charter", which is registered at the Public Registry of Panama, through which the parties undertake to make a donation ("Foundation Assets") of not less than the equivalent of US$10,000 (which may be subsequently increased through further donations) to be managed by a "Foundation Council" under the supervision of "protectors", if appointed, for the benefit of one or more "beneficiaries". The obligation to contribute further donations, whether in money or in kind is not subject to a limited period of time and there is no legal requirement of disclosure.

Once registered at the Public Registry in the Republic of Panama, the Foundation Charter creates a legal entity. A Private Foundation is the combination and a trust. In general, a Foundation has similarities with a corporation in as far as it is registered at the Public Registry, the assets of this new legal entity are separate from those of its creators, it is constituted to maintain confidentiality on the ownership of assets and in order to obtain fiscal benefits, and it has similar administrative bodies. It differs from a corporation in that the Foundation has no owners, as it does not issue share certificates nor any other participation title, and a Foundation may be created as a testamentary instrument and may not have profit aims.

Likewise, a Foundation has similarities with a trust: It is a juridical institution that requires specific formalities; some of the Founder's assets are transferred, contributed or "donated" to the Foundation; a Foundation may be revocable; it may be created inter-vivos or mortis-causa by means of testamentary provisions; it is usually created with the purpose of managing, preserving, administering or investing assets for the benefit of the donor's close relatives, as well as to obtain confidentiality and fiscal benefits. It differs from a trust in as far as the Foundation is the owner of its assets since it possesses its own legal personality and there is no "trustee" but rather the figure of a "Foundation Council" which combines the functions of the "Board of Directors" (of a corporation) and the functions of a "trustee" (of a trust); a Foundation is registered at the Public Registry and is subject to an annual fee that is identical to that of corporations in Panama (US$300) . It is important that these differences be clarified in order to better understand the features of a Panamanian Private Foundation, for which we shall describe this in more detail in Section F.

The Panamanian Law No. 25 of 12th June 1995, which governs Private Foundations, defines how Foundations are established and how they operate. The provisions in this law are regulated through Executive Decree No. 417 of 8th August 1995, which created the Private Foundation Section of the Public Registry and regulated the registration of the constitution, modifications and revocation of such Foundations. A Private Foundation may, at the client's option, issue Regulations that need not be registered at the Public Registry, and therefore absolute confidentiality is always maintained. These Regulations contain, among other features, the features, the designations of beneficiaries and the manner in which the Foundation Assets are to be distributed.

In order to understand the idea and benefits of the foundation structure, clients should first understand the difference between a trust and a corporation. It is also important to note the difference between English speaking countries that use Common law and many non-English speaking countries that use Civil Law. In fact, the Panamanian Foundation structure offers some of the best benefits of both the trust structure and offshore corporation in one. It has also been proven that a structure domiciled in a Civil Law jurisdiction is the better choice for a client that is resident or domiciled in a Common Law country.

It is true that most clients are seeking some way to create a vehicle to reduce tax liabilities and protect their assets from lawsuits or claims against their estate. This is easily understood. The difficulty for many clients is of course deciding upon the best plan of action or structure to use. As a brief comparison, a corporation structure is used worldwide to basically carry out a business enterprise and keep the owner's business assets (and liabilities) separate from his own. As a separate entity, The corporation usually has it's own tax identification number and is what can be termed a juridical person. Certainly it is not a human being, but it has all of the rights and responsibilities of a natural person under the law. The key point is that the assets and liabilities of the corporation are separate and distinct from those of the shareholders.

The trust structure, however, is a medium usually only found in common law countries and is most generally used as an estate planning mechanism. The history of the trust is fascinating and dates back to the age in England when prosperous noblemen and knights were called to fight in the crusades. In order to safe-keep inheritance rights and family assets, lands and holdings were placed "in trust" and were managed by a well regarded friend or family member. This was done to insure that possessions was not mismanaged and to also insure that a trusted friend or family member was in attendance to make sure the owner's wishes were carried out in case of the owner's death or incapacitation. The trust structure was meant to be a safe haven, with the trustee as the guardian of that safe haven. It was not meant to be a structure that would engage in business activities (as a corporation). Again, under current interpretation in modern law, the trust structure is in theory meant to be a separate juridical person. In this way it also is meant to detach the owner from his assets and offer protection under the law. Like any other entity, the purpose is to keep the owner's previously held possessions safe and secure from violation or attachment.

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How to Create a Panamanian Foundation

The Panamanian Foundation can be created by one or more natural persons or by a juridical entity, such as a corporation. A foundation charter is drawn up, which is similar to the incorporation documents drawn up for a Panamanian company. Like the incorporation documents, the foundation charter document is public record. The foundation structure is directed by a council of three or more members. This is similar to a corporation, which is directed by three directors or board members. These directors of the foundation are called Council Members. In addition, like a trust, a private protector may be named to have special supervision authority. APGI usually suggests that the client take this position, especially if nominee council members are being used. The position of a protector is not obligatory, but it is strongly advisable. While the position of protector can be a private agreement between the foundation and the person acting as protector, extra protection is given to the client when this position is spelled out in the foundation charter.

A Panamanian Foundation Charter must contain by law: Name of the Foundation - The name of the foundation can be expressed in any language, but must contain the term foundation as part of the title to indicate that the entity is in fact a foundation structure.

The Initial Patrimony - The initial patrimony is the amount used to fund the foundation. The foundation can be funded in any currency, but the initial patrimony cannot be less than the equivalent of US$10,000. An important point to note is that this initial funding or contribution does have to be done at the time the foundation is created. Rather it can be done after the fact. In reality, there is no public record of the foundation's assets other than the fact it was originally funded with US$10,000.

Council Members - The foundation structure must have a minimum of three council members who are natural persons or a juridical person, such as a corporation that has three natural persons as directors. The names and addresses of the council members is public record. The Purpose of the Foundation - The foundation may be created for any lawful purpose. Examples of such purposes could include; the maintenance and welfare of minor children, a college scholarship fund for any person, the maintenance and welfare of the founder upon his or her retirement, the maintenance of a building or property, the benefit of any charitable foundation or organization, or any other purpose that the founder can think of that is within the confines of Panamanian Foundation law.

Beneficiaries - The foundation structure must name beneficiaries and also what percentage each beneficiary is entitled to. The foundation charter must also indicate how assets are to be distributed upon its dissolution. The founder of the foundation, or the client, can be named as a beneficiary.

Domicile - The domicile of the foundation can be located or indicated as any desired jurisdiction, but it is suggested that Panama or another civil law jurisdiction be used. APGI provides this service to all of our clients.

Resident Agent - The foundation must have a local resident agent which is a duly authorized lawyer or law firm, with a physical presence in Panama. APGI provides this service to all of our clients.

Duration of the foundation - The foundation may have a limited life span if the client wishes to indicate as such.

The Advantages of a Panamanian Foundation

The Assets placed inside a Panamanian foundation are sole and separate property and cannot be seized to satisfy any personal judgments or obligations of the founder or the foundation's beneficiaries. Assets inside a Panamanian foundation cannot be attached in order to satisfy any claims against the founder, including judgments for divorce, lawsuit and other liabilities.

The Panamanian foundation offers the best of a trust and the best of an offshore corporation.

While the foundation cannot technically engage in business activities, it can own the shares of a company engaged in business activities. It is also permissible for the foundation to engage in any activity, which will increase the value of assets. This means that a foundation can be the owner of bank accounts, securities brokerage accounts and real estate holdings, etc.

Since there are no shares of ownership in a Panamanian foundation, the founder does not own the foundation and as such gains important tax reporting and protection benefits with this. In reality, there are quite a number of practical uses and strategies for the Panamanian Foundation. As an asset protection vehicle, there is probably no better entity in any jurisdiction at the present time for this purpose. For more information on how to use a Panamanian foundation as part of an overall asset protection strategy, please contact us

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The Panamanian Private Foundation offers the following benefits:

• They are not subject to any form of taxation in the Republic of Panama except for a US$300 Annual Franchise Tax. Consequently, they are exempted from income tax, estate tax, real estate tax, inheritance tax and sales tax.
• The Private Foundation law mandate that members of the Foundation council (who are also known as "Council Member"), Protectors, supervisory bodies or any persons or institutions who on account of their duties become aware of information relating to the activities, transactions or operations of a Private Foundation are required to maintain strict confidentiality, even after its termination. Failure to do so may result in imprisonment of up to six months and a fine of up to US$50, 000 not precluding the corresponding civil liability.
• The Law does not require the names of the ultimate Founders, Beneficiaries or Protectors to be revealed.
• There is no requirement to file annual meeting of the Foundation Council, Founders or supervisory bodies.
• The contributions to the Foundation Assets do not need to be deposited as a requirement for the constitution of the Foundation, and there is no maximum period of time for the endowment to be made.
• There is no limitation whatsoever as to perpetuity.
• The Foundation may carry out any kind of civil or commercial transactions, anywhere in the world and in any currency.
• Founders, members of the Foundation Council, Beneficiaries and Protectors may be natural persons or corporations of any nationality domiciled anywhere in the world.
• Founders need not be a Member of the Foundation Council
• Founders and members of the Foundation Council may be
• Beneficiaries of the Foundation
• There are no limitations as to the maximum number of Founders, Council Members or Beneficiaries.
• Founders and Foundation council Members may hold their meetings anywhere in the world and may be represented by proxy.
• Foundation books and accounting books (if any) may be kept anywhere in the world.
• The Foundation Charter may be subscribed by the client or by declaration.
• Foundations from other jurisdictions may change their domicile to Panama and continue as a Panamanian Private Foundation.
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• Panama is currently considered a strong and stable democracy.

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Using Panamanian Foundations

Panamanian Private Foundations are mainly used for the following:

• To own family businesses and thus avoid inheritance taxes.
• To guarantee payment of money or individual asset distribution to members of one or more families for their subsistence, education, clothing and other living expenses, or as a mechanism by which their children/grandchildren may partake in their parents/grandparents' earnings. In Europe, private foundations for the aforementioned purposes are known as "Family Foundations"..
• To make scientific, humanitarian, philanthropic, religious or charitable donations or to manage funds reserved for these purposes..
• To protect disadvantaged persons, at a risk..
• For the benefit of family members, other persons or institutions. Multiple purpose private foundations are known in Europe as a "Mixed Foundation"..
• To act as the administrator of employee benefit schemes and employee pension plans..
• As a substitute for a will, thus avoiding complicated inheritance procedures, subsequently explained more fully in detail..
• As a substitute for marriage or pre-nuptial agreements..
• To own shares, interests and stocks of private companies..
• As a vehicle for owning patents and intellectual property and for receiving royalties and other forms of associated income..
• As a vehicle for investing in time deposit accounts, stocks, bonds or other securities..
• As a vehicle for owning real estate or valuable art work..
• To avoid forced heirship rules.
• To avoid political or economic instability..
• For any asset protection purpose..

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Key Elements of a Private Foundation

A Private Foundation consists of one or more "founders" who undertake to contribute or donate an amount not less than US$10,000, managed by a " Foundation Council" and a "Protector" if appointed, (known in law as "supervisory bodies") and beneficiaries.

1. THE Founder

One or more persons, whether natural persons or bodies corporate, may be the Founders. The Law prescribes that the assets may be donated by declaration so to keep the founders name confidential. Founders have rights and obligations where the Foundation Charter grants the Founder full power, the Founder shall have the right and power to adopt the Foundation Regulations, amend them, freely appoint and remove the Foundation Council, the Protector and the Beneficiaries, act as adviser, protector or beneficiary, revoke the creation of the Foundation or any transfer made to it, receive and demand Statements of Account and redomicile the foundation and/or dissolve it. After the registration of the Foundation, the Founder shall acquire the obligation of the contributions he has undertaken. The Foundation's assets constitute an estate separate from the Founder's personal/corporate assets.

2. The Foundation Council

A Foundation is managed by a Foundation Council, which is charged with the popularity of maintaining the Foundation's aims and objectives. If the Foundation council should be a body corporate, the number of members comprising it shall not by less than three. The Foundation Council has rights and obligations in respect of the Foundation. In general, the Foundation Council is granted full administrative powers (together with the required authorization from the "Protector", if appointed, and has the right and power to adopt the Foundation Regulations, to amend same, to appoint and remove its members, to freely appoint and remove the Beneficiaries, to contribute assets of any nature to the Foundation, to dispose of assets, to enter into any acts or contracts in the name and on behalf of the Foundation, to grant special or general powers of attorney, to redomicile the Foundation and to dissolve it. The Foundation Council has the obligation to act with the diligence and to obtain authorization from the Protector (if one is appointed) and to render account of its administration to the Founder and to the beneficiaries.

3. The Protector

The Law on Foundations refers to "supervisory bodies" that are made up of natural persons or bodies corporate. Such bodies generally consist of one person referred to as the "Protector". In practice, the Protector is usually the client or someone that he/she trusts. The responsibilities of the Protector are specified in the Foundation Charter. Which include, but are not limited to, the supervision of the Foundation Council.

4. The Beneficiaries

The Foundation's aims and objectives are generally for the benefit of the foundation's "Beneficiary" or "Beneficiaries". Such Beneficiaries have the right to receive the earnings or other interest in the Foundation Assets, and to receive the Foundation Assets as set down in the Foundation Charter.

• The beneficiaries may be natural persons, bodies corporate institutions or charities.,
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• The beneficiaries are not the Foundation's owners or creditors.

5. A Foundation's assets constitute an independent estate

The contributions made to the Foundation and it's earning may not be attached or be the object of any precautionary action or measure, save for obligations incurred or for damages caused upon achievement of the Foundation's aims and objectives, or fort the beneficiaries legitimate rights. The Foundation's assets may not be used to answer for the Founders obligations nor for those of the Beneficiaries, nor for those of any person, whether or not involved with the Foundation. Foundation heirs shall have no right to revoke the creation of or the transfers made to the Foundation.

6. A Foundation is protected against the Founder's creditors

If a Founder's judgment creditor attacks the assets of the Foundation the law prescribes a 3 year law of limitation.

7. A Private Foundation is created as a Body Corporate

Panama grants corporate existence to a Foundation. Consequently, a Foundation may acquire and own property of all kinds, incur obligations and be a party in judicial proceedings.

8. A Private Foundation may not have profit making objectives

A Foundation may not by law engage directly in business but may carry out business activities in a non habitual manner. Thus, a Foundation may derive earnings from the sale of real property, it may have cash deposits, it may lend money and it may invest in shares of private companies, public companies, bonds etc., but it may not trade.

9. Foundations may be revocable

The Founder may revoke the creation of a Foundation or the transfer made to a Foundation in any of the following circumstances:

1. Where the Foundation has been created to enter into effect after the Founder's death;
2. Where the Foundation Charter has not been registered at the Public Registry;
3. Where the Foundation Charter is revocable; and
4. Where there is just cause for the revocation of donations in accordance with relevant provisions of the Civil Code of the Republic of Panama.

10. A Foundation is exempt from all taxes

Provided that the contributions received by a Foundation and the income from such contributions originate outside that fiscal territory of the Republic of Panama, a Foundation shall pay no taxes, save for a US$300 Annual Franchise Tax.

11. Foundations may be redomiciled to and from Panama

If the Foundation Charter does not forbid it, the Foundation's governing body may continue the existence of such foundation, created under the laws of another jurisdiction of Panama. For this, it is only required that a "Certificate of Continuation" containing the following information be registered:

1. The name of the Foundation and the date of constitution
2. The registration or filing of data from the country of origin
3. An express declaration of the Foundation Council's wish to continue such Foundation in Panama
4. The new Foundation Charter or a transcription of the original Charter
5. A minute of the Foundation Council granting power to transfer/redomicile to Panama

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The Charter

The Foundation Charter shall contain: the name of the Foundation's Initial Assets; the appointment and addresses of the Foundation Council members; the Foundation's domicile; how Beneficiaries are to be designated; the rules for amending the Foundation Charter; the Foundation's duration; the assignment of the assets and how the Foundation is to be dissolved and liquidated; and any other lawful clause as the client may deem appropriate.

The Foundation Regulations contain: the make up of the Foundation Assets, the powers of the Foundation Council; the form of administration; the Beneficiaries of the Foundation; the benefits corresponding to each Beneficiary; the rules on the distribution of benefits; the rules on the rendering of accounts; the class of the Beneficiaries and how they may be varied, substituted, removed or added; the rules of remunerations; the appointment of the Protector and his powers; how the Foundation Assets may be liquidated; and other areas requiring regulations.

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SCHEDULE OF FEES

Basic Fees: PANAMA FOUNDATION	EURO	US DOLLAR
Annual License Fee: :	€200	US$250
Annual Registered Office fee:	included	included
Annual Registered Agent fee:	included	included
Incorporation Fees::	€316:	US$395:
TOTAL FIRST YEAR FEES:	€765	US$1150
Additional Services:	€ EURO	$ US DOLLAR
Corporate Seal	€45	US$65
Open Bank Account	From - €265	From - US$400
Power of Attorney	€240	US$300
Certificate of Good Standing	€100	US$150
Notarization per document or set	€100	US$150
Apostille per document or set	€100	US$150
Nominee Director	€265	US$400
Nominee Shareholder	---	---
Annual Fees:	€ EURO:	$ US DOLLAR:
Maintenance Fee (due in January)	€500	US$750
Nominee Director	€265	US$400