Private Interest Foundations

What is a Private Interest Foundation?

Panama City

A foundation is a legal entity that lies somewhere between a trust and a corporation. It was first put into practice in Liechtenstein in 1926 and the model used by the Panamanian Foundations is based on a mix of laws from the countries of Liechtenstein, Luxembourg and Switzerland - the difference is that Panamanian Foundations are much more affordable than their European competitors. For example, in Liechtenstein, it normally cost $25,000 to open a foundation and $10,000 a year to maintain it. In Panama, you pay $3,600 to open a foundation and $1,100.00 every year, which includes the annual government tax and Resident Agent fees.

To simplify it the foundation is like a trust because it can manage bank and securities accounts, allot present and future income and make transactions in the stock market. On the corporate side, the foundation cannot be used to conduct business like the corporation, but can act as the shareholder of a corporation and keep secured the net profits from this one in the foundation's account. You can also protect your Real Estate investment through a Private Interest Foundation, since a foundation cannot be sequestered. The assets transferred to a Private Interest Foundation cannot be taken in a lawsuit against the founder of the foundation (cases such as divorce or civil suit).

Tax benefits

The Panama Private Interest Foundation offers you the following tax benefits:

  • No Estate Tax
  • No Capital Gain Tax
  • No Property Tax
  • No Gift Tax
  • No Stamp Tax
  • No Inventory Tax
  • No Tax Reporting Requirements
  • No Sales Tax
  • No Tax On Shareholders

Structure of Panamanian Private Interest Foundation

Founder - Is the individual that creates the Foundation and is the person who gives the foundation its corpus or patrimony through charter documents.

The Corpus - Are the assets the foundation administers, collects, and manages through the Foundation Council. Usually this is in cash, hard assets such as real estate and securities or any other item of value. These assets can be transferred to the foundation ones the foundation is created.

The Beneficiary - The Beneficiary(s) does not need to be identified when the foundation is created. The Beneficiary(s) will hold title to all assets in the Foundation; the individual(s) will manage assets as well as conserve and enjoy the assets within the Foundation.

Articles of Incorporation

The Articles of the Foundation must be registered in the Panamanian Public Notary or at a Panamanian Counsel abroad. The Articles must contain a minimum of three members of the Foundation Council; establishment of corpus or patrimony; the address for the Foundation; name of resident agent who countersigns all acts; the purpose of the Foundation; list of beneficiaries; right to modify the Articles of Incorporation; duration of Foundation and causes for the Foundation's termination as well as the rules of the return of assets.

The Bylaws

The bylaws describe what the Founder intends to do with the Foundation and will enumerate the objectives of the Foundation. The Bylaws are private documents, not public like the Articles of Incorporation. They act as a general outline as to what the Foundation Council must do. The document also explains the relationship between the Council and the Beneficiaries as well as describing and listing the ways in which assets will be handled and distributed, and list investment and management policies in regard to assets held by the Foundation. Ones again, this is not a public document so it is kept secret and confidential in a safe place like a safe deposit box. This is how the identity of the beneficial owners of the foundation is kept confidential.

The Foundation Council

This is the main body of the Foundation and is responsible for acting in accordance to the Articles of Incorporation as well as the Bylaws. The Council has the responsibility to manage and administrate the Foundation's assets. There are the ones who prepare annual accounting reports for the Beneficiaries and the ones to represent and defend the Foundation's interests against outside parties.

The Council is integrated by three members that can be either persons or entities and operate in a trustee capacity to the Founder. There are responsible for the care of the Foundation's assets.

Supervisory Committee

Is in charge of supervising the Council and making sure they follow the specifications given by the Beneficiaries of the Foundation. In other words, the Supervisory Committee acts as a guardian that oversees the activities of the Council, such as to how the Council is managing the assets of the Foundation; it can also act as a kind of mediator if a conflict between the Council and the Beneficiaries arises. It is up to the Committee, which consists of a protector to remove members of the Council.

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