Offshore Foundations
Since private foundations for the purposes of this discussion are a product of legislation in countries with civil law legal systems, it is necessary to choose a specific country and law when discussing private foundations. Panama is the most popular of the current countries offering private foundations so we will refer to the Panama Private Interest Foundation in order to provide a brief overview.
Panama Private Interest Foundation
The Panama Private Interest Foundation (sometimes referred to as the Panama Foundation or Panama Private Foundation) is a unique entity with characteristics of both a company and a trust. Many people have heard of the Gates Foundation, Rockefeller Foundation or one of the thousands of these organizations in existence around the world. The Panama Private Foundation is a similar structure in that it can be used for charitable purposes and succession planning. Additionally, it is is extremely versatile in its potential uses.
Law 25, passed in 1995, established the Panama Private Interest Foundation as a legal entity. It was molded largely after the Liechtenstein Persons and Companies Act, which was one of the first references to the private, non-profit foundation. Similar to a company, Panamanian law mandates that a Panama Foundation is registered with the names of the Founder and Foundation Council members both available as public records. Nominees may be used for both of these roles. If a supervisory body such as a trusted friend, auditor, etc. is appointed, it may remain private. Additionally, similar to a common law Trust, the Foundation Regulations, By-Laws, Letter or Wishes, Testamentary Trust and any other document in support of the entity remains private.
The Panama Foundation may be used for a host of purposes, but it is not intended to engage in commercial, for profit activities on a day to day basis. There are no restrictions on the legal activities of a company wholly or partly owned by the Foundation however. This is why many clients choose to incorporate an IBC in conjunction with the Panama Foundation. Activities of the Foundation may include (but are not necessarily limited to) any of the following:
- Family support
- Tax purposes
- Protection and management of assets
- For educational purposes
- Testamentary purposes
- Life Annuity purposes
- Charitable purposes
- Receive and manage capital and titles
- For the purpose of serving as guarantee or collateral
- For the management of insurance
The objects of the Panama Foundation can include more than one purpose and could include any or all of the aforementioned purposes.
Panama Private Interest Foundation Advantages
- The Foundation may provide for an orderly transfer of assets in case of a triggering event such as the death of the Founder, thus avoiding potential costly fees associated with probate.
- From Law 25 pertaining to inheritance laws and estate matters: “The existence of legal provisions regarding inheritance at the place of domicile of the founder or of the beneficiaries shall not affect the foundation or its validity, and shall not prevent the attainment of its purpose in the manner provided in the foundation charter or its regulations.
- Creditors have 3 years to contest a transfer of money to the Foundation by the Founder or other third party associated with the Foundation and only if the transfer was intended to defraud the creditors.
- Assets and income of the Foundation are not taxable in Panama.
- Initial establishment and ongoing administrative fees are much more reasonable than for a Trust; especially for those donating large amounts to the Foundation. Trusts usually charge based upon a percentage of the Trust assets rather than a flat fee. Generally, it is also much less expensive than forming a Liechtenstein Foundation.
- From Law 25 pertaining to assets and income derived from carrying out the objectives of the Foundation: “The assets of the Foundation shall constitute an estate independent from the founder’s personal assets for all legal purposes, and may not be seized or attached or be subject to any precautionary action or measure, except in the case of obligations incurred, or damages caused by virtue of actions taken fulfilling the purposes or objectives of the foundation, or of legitimate rights of the beneficiaries of the foundation. In no case shall such assets be affected or used to respond for the personal obligations of the founder or of the beneficiaries.”
- The Founder may benefit directly from the Foundation.
- Assets may be held or distributed anywhere in the world.
Confidentiality
Article 35 of Law 25 clearly stipulates that all members of the Foundation Council, Protector, and any public or private servants privy to information about the affairs, activities, transactions and operations of the Panama Foundation must maintain reserve and confidentiality at all times. Violation of these Articles will result in 6 months in jail and a fine of USD 50,000, without prejudice to the civil liabilities.