PANAMA FOUNDATIONS: USES
When the name "Panama Foundations" is mentioned one almost immediately thinks of the
traditional non-profit organization, whose purpose is wholly charitable and
which is used primarily in the interests of social welfare. The Panama Foundation of
Private Interest, however, does not have any connection with the traditional
foundation. The structure of a Stiftung or Foundation is more closely related to
and inspired by that of the Trust, but also takes advantage of elements taken
from the structure of the company.
Simply and straightforwardly, the Foundation constitutes a Hybrid between a
Trust and a Company and mixes the most favourable aspects of each. In North
America, Americans can elect to declare it as a non-profit company, and Canadian
law categorizes the Foundation as a Company - not a Trust. It may be
used as a more efficient and versatile instrument for the:
- to own International Business Company shares;
- management of bank accounts;
- as a means of effecting transactions on the stock market;
- to control and exercise the rights of shareholders;
- to own real property;
- and for family inheritance and estate planning.
If we had to choose three words to describe the benefits that a Foundation offers, those would be:
PRIVACY, PROTECTION, and
CONTROL.
Privacy
The Foundation allows the investor to perform transactions and investments and to distribute the proceeds generated
from the same, with a grade of impenetrability superior to any other type of investment instrument.
Protection
Most laws, but more so Panamanian legislation (Law No. 25 of June 1995), regulating Foundations, confer upon the Foundation excellent
mechanisms for the protection of the same against third party claims.
Control
Flexibility allows it to be organized in a way in which the Founder can take
charge of its administration and operation at his or her discretion. In the
case of Panamanian Foundations, all of the above may be accomplished in a
tax-exempt environment.
As compared to the Anglo-Saxon Trust, the Foundation boasts, as its most
outstanding advantages, the following:
- The law allows the Founder to exercise a greater amount of control over the
administration and organization of the foundation and the assets belonging to
the same, than that which the Settlor is permitted to exercise over the assets
pertaining to a Trust.
- The Foundation is a legal entity with full capacity to represent itself
before third parties. As such, all assets, which are transferred to it, will be
registered in its name, in a way that is similar to the transfer of assets to a
company. The Trust, on the other hand, lacks legal personality. As such, the
Settlor owns the Trust assets. In the case where the Settlor wishes to appoint
a new administrator, he is required to begin the complex and cumbersome process
of the transfer of assets from one Trust to another, which besides its
complexity, can create tax consequences. In the case of the Foundation, the
same is achieved by the removal of the members of the Foundation Council, which
is effected with the same simplicity as a change of the Board of Directors of a
company.
- The requirements of the law regulating Panamanian Private Interest
Foundations allows for the maintenance of a completely confidential record of
the identity of the beneficiaries of the Foundation, and the way in that the
assets are to be distributed. In the case of a Trust, the identity of the
beneficiaries must be recorded in the Trust document. The one exception would
be a Discretionary Trust, that creates then for the Settlor a concern about the
transmission of the Trust assets to his intended beneficiaries.
- Panama Private Interest Foundations expressly allows the Founder to appoint a
Protector as the body or individual in charge of supervising the activities of the
Foundation and its Council, and thus, of the administration of the Foundation
assets. A great many of the legislative provisions regulating the Trust do not
include the Protector or similar figure.
- The Private Interest Foundation offers more security and reliability than the
Trust. The Anglo-Saxon Trust has been and is frequently declared void by the
courts of Anglo-Saxon jurisdictions. Most of the these decisions have been
motivated as a result of the situation where the Settlor has retained too much
control over the management of the Trust Assets, whether in a direct and
discernible way or through advisors and intermediaries. In such cases the
courts have viewed the Trust as a façade, in that the assets were never
effectively transferred to the Trustee. On other occasions, decisions of
Anglo-Saxon courts have led to the Trust being found void where the beneficiary
and not the Settlor was actually controlling the administration of the Trust
assets.
- In the case of the Panamanian Private Interest Foundation these problems are
avoided. The Private Interest Foundation acquires legal personality from the
moment of its registration in the Public Registry. Its validity as of that
moment cannot be contested because the governing legislation guarantees clearly
and unequivocally that the Founder or Protector, and not only the Foundation
Council, may exercise control over the Council and thus over the activities of
the Foundation. Furthermore, the Panamanian Courts that have jurisdiction to
resolve controversies that arise in relation to the operation or structure of
the Foundation, lack the ability to legislate on the same, as the law is based
on the traditional Roman Law system. Such is not the case in the Anglo-Saxon
court system, which frequently surprise Trustees and frustrate the intentions of
Settlors by voiding Trusts based on ever changing considerations.
- Another advantage of the Foundation is reflected in the special protection
guaranteed to the Foundation Assets. Like a Trust, the Foundation assets
constitute capital that is separate from the assets of the Founder and as such
cannot be attached by creditors or third parties. Panamanian Foundation law,
however, has adopted even more stringent asset protection features. It provides
that transfer of assets to a Foundation may not be affected, after a period of
three years from the date of transfer. This has the effect of preventing any
creditor or third party from even so much as bringing a claim against the
Foundation in an attempt to impede the transfer of assets to the same after the
expiration of such period.
- One important advantage gained by using a Panamanian Foundation is its tax
treatment. For tax purposes, Foundations receive the same treatment as an
offshore "IBC" company, and as such, is governed and benefits from the
Panamanian tax principle of territoriality. Under this system only income or
profits generated within the geographic territory of Panama are subject to tax.
Any profit obtained from activities outside of Panama, such as transfers or
acquisition of securities, management of bank accounts and investments, the
transfer or sale of real property or chattels, and the dividends received from
companies operating abroad, will be exonerated from Panamanian taxes.
- Finally, Panamanian Foundations not only benefit from the
territoriality principle already referred to. The law governing Panamanian
Foundations, in a way to confirm the principles of Panamanian tax laws, also
establishes a specific exemption with respect to the transfer of property to the
Foundation and payments made to beneficiaries of the same, as long as such
payments are made in connection with:
Property located outside of Panama
Money deposited the income of which does not pertain to a Panamanian source,
or when its income is not taxable in Panama for whatever reason, regardless of
where such money is deposited.
Shares or securities of whatever class, issued by companies, whose income is
not derived from a Panamanian source or when its income is not taxable for any
reason, even where such assets or securities are deposited in the Republic of
Panama. Foundations may be useful vehicles then, in lieu of offshore holding
companies.
The law regulating Panamanian Private Interest Foundations goes further
still. It exonerates from any form of tax those transfers of property located
in Panama, where there is a first degree kinship between the party transferring
the property to the Foundation and the beneficiary.
There is no doubt that these fiscal advantages extend and complement the
numerous benefits that are offered by the Foundation.
