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THE PANAMA PRIVATE FOUNDATION 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”, that 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. I. USES THAT CAN BE GIVEN TO A PIF. With regards to uses that can be given to a PIF we can find the following: 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. II. ADVANTAGES. PIF’s may be successfully used to achieve the goals you or your clients have set out for, with the following advantages: 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. III. 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, this last if it is so established on 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 records. Information regarding names of beneficiaries and of the protector and method for distribution of assets can be contained within the Regulations, thus will not be publicly disclosed. IV. CONFIDENTIALITY. The Law 25 of 1995 innovates in this field when it stipulates on Article 35 that all the members of the Foundation Council, Protector, public or private servants that have knowledge of the activities, affairs, transactions and operations of the PIF must maintain reserve and confidentiality at all moments. Violation of these Articles carries a sanction of 6 months of jail time and a fine of Fifty Thousand Dollars (US$50,000), without prejudice to the civil liabilities. V. PRIVATE FOUNDATIONS vs. TRUSTS Although similar, Private Foundations and Trusts have very clear differences: PIF’s are based on Civil Law and they are constituted by means of a public legal document and filed for registration, it is in fact, an existing legal entity, whereas a Trust is based on Common Law and are established by means of a private contract that does NOT need to be filed with any government agency, it is not an existing legal entity, it is in fact a legal contract. 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 Foundation 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, while a 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 are low, while in a Trust, the Trustee fees depend on the value of the estate: the heftier the estate, the bigger the fees. We strongly recommend that before you initiate the incorporation process you seek the advise of an attorney or professional in estate planning and/or asset protection in your area so you can accurately ascertain that what you are about to do is not only legal but viable. Laws differ from country to country and we wouldn’t like it if you get in trouble with the authorities of your country of residence or nationality. However, we feel that with the proper advise and a well structured Asset Protection and/or Estate Planning structure you can achieve all your goals. DISCLAIMER: OffshoreSimple Inc. is not a bank, nor does it provide banking services. Overseas Incorporation Services, Inc. offers international company formation, corporate administration services, and bank/broker introductory services, account opening assistance and other legal services through our legal department. This website is only used for promotional marketing purposes and is not intended to portray that this is the site of a bank.

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Panamanian Law No. 25 of June 12, 1995

The Republic of Panama is recognized worldwide as a financial service provider. Seventy percent of Panama’s economy is derived from the financial services that it offers. Panama has all of the necessary features to operate as an effective tax haven: receptive attitude toward foreign investors, economic and political stability, secrecy and confidentiality in banking and corporate law, excellent communication system, geographic location, no money exchange control laws, uses the American dollar as its currency, and much of the labor force is bilingual. Among the special opportunities which Panama offers are: stock companies, open ship registration, Colon Free Zone, the Panama Canal, trust services, factoring, banking secrecy laws, and the Private Interest Foundation.

The Private Interest Foundation as an entity is the latest attribute established by the Panamanian Legislative Branch to help secure Panama’s position as a tax haven. The 1995 legislation was drafted to complement the interests of foreign investors, especially those seeking asset protection.

A Foundation is established by the "Founder", who funds the Foundation with assets, referred to as "the patrimony". These assets are administered by the Foundation Council, consistent with the objectives of the Foundation, which are designated in the Memorandum of Constitution by the Founder. The Foundation may be established during the Founder’s lifetime (inter-vivos) or after his death (post-mortem). The Private Interest Foundation, once registered in the Public Registry, is considered an independent, legal person, apart and separate from the Founder.

The Founder, or third persons, may transfer assets to the Foundation. The Foundation can be used to hold any type of asset, present and/or future, and may derive its income from any type of legal business, which should be held in an underlying corporation. The assets of the Foundation will constitute a separate estate from those of the Founder and Beneficiaries. They may not be seized or liened, or subjected to any lawsuits in connection with activity of the Founder or Beneficiary. Under no circumstances shall the assets of the Foundation be used to satisfy personal obligations of the Founder or of the Beneficiaries.

Often the Founder retains control over the Foundation through maintaining the power of appointment of the Foundation Council. The Founder my additionally serve as a member of the Foundation Council, as a Beneficiary or as Protector. The Founder also has the power to remove all of the foregoing if he desires or he can assign these powers to another person in the Foundation. The Founder can be a natural or legal person. Furthermore, a nominee could be used as the Founder, wherefore the individual’s name does not need to appear in the Memorandum of Constitution.

The Foundation Council is similar to the Board of Directors of a corporation. It makes all the decisions, for the benefit of the Foundation. The council has the obligation to administer the Foundation assets for the benefit of the Beneficiaries. In case of mismanagement of the assets of the Foundation, by the Foundation Council, the Beneficiaries can object to the actions of the council.

The Beneficiaries are the persons for whose benefit with the Foundation is established. They can be natural and/or legal persons. The objectives of the Foundation often address the education, health, food and other day by day living requirements of the beneficiaries, such as the family members of the Founder.

The Beneficiaries of the Foundation need not appear in the Memorandum of
Constitution of the Foundation. Only the persons involved in the creation of the Foundation know the identities of the beneficiaries, as established in the By-laws. The By-laws are private and are not registered in the Public Registry. In order for a third party to identify the Beneficiaries of a Foundation, he or she must have a court order to "pierce the corporate veil."

In Panama, piercing of the corporate veil is rare. Panama is a service center, which boasts corporate and banking secrecy. If Panamanian courts began piercing corporate veils, investors would be driven from Panama and cease using Panama as a tax haven. The financial sector is an essential part of the Panamanian economy, not one that Legislators are likely to jeopardize.

An additional protection provided by the 1995 legislation is that all persons involved in any activities, transactions or operations related to the Foundation are required to maintain full secrecy and confidentiality at all times. The punishment for breach of this duty is six months of imprisonment and a Fifty Thousand Dollar fine, with the potential for further civil liability. This applies to persons involved in any transaction (constitution, amendments, by-laws, etc.) of the Foundation, irrespective of whether they work in the private or public sector.

In the event of political instability in Panama, the Foundation could relocate to another jurisdiction, subject to such jurisdiction’s recognition of the Foundation. In this way the Foundation can protect itself from government instability and the assets can not be expropriated.

With the proper planning this entity can be used as an integral part of estate planning. It is useful to keep in mind that Foundations have been established with the intent to attract capital from foreign investors, and in exchange the investor will receive secrecy on the operations made, asset protection and tax exemptions.

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Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any errors or omissions.

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