Panama Foundations

The Establishment of Private
Interest Foundations in the
Republic of Panama

(2012)

Historical Background
The Isthmus of Panama was discovered in 1501 by Rodrigo de
Bastidas and Vasco Nuñez de Balboa, who had a leading part in the
establishment of Santa Maria La Antigua del Darien in 1510, the first
permanent settlement on the mainland of the Americas. In 1513,
Balboa led an expedition, in Panama, which discovered the Pacific
Ocean.

Pedro Arias Davila founded Panama City on August 15, 1519, almost
a hundred years before the foundation of Jamestown, the first
permanent English settlement in North America. Panama was a
Spanish colony until 1821 when it became part of the Gran Colombia
of Simon Bolivar. In 1903, with U.S. backing, Panama broke its
alliance with Colombia and became an independent republic.
Afterwards, Panama promptly signed a treaty with the U.S. allowing for
the construction of a canal and granting the U.S. sovereignty over a
strip of land on either side of the structure (the Panama Canal Zone).

Historical Background
The Panama Canal was built by the U.S. Army Corps of Engineers between 1904 and
1914. On September 7, 1977, an agreement was signed for the complete transfer of the
Canal from the U.S. to Panama by the end of 1999. Certain portions of the Canal Zone
and increasing responsibility over the Canal were turned over in the intervening years.

With U.S. help, dictator Manuel Antonio Noriega was deposed in 1989. The entire
Panama Canal, the area supporting the Canal, and remaining U.S. military bases were
turned over to Panama on December 31, 1999.

As a solution to the Panama Canal’s growing traffic demand, the current Panamanian
Goverment has recommended it’s expansion, a project that was submitted to the
population’s approval, by means of a national referendum. The initiative recieved
overwhelming support and was approved in October of 2006.

An expanded canal will benefit the people of Panama and world trade. The expansion
will help maximize Panama’s strategic geographic location by enabling it to become an
international maritime hub at the center of global trade. Expansion will also improve the
flow of international commerce and facilitate the movement of goods through several
important markets. It will increase capacity at one of the world’s critical trade arteries;
allow the vital “All-Water Route” to continue to grow; create more efficient service at the
Canal, which would tighten the global supply chain and help goods get to markets
faster, thus saving time and money for both producers and consumers.

General Information about Panama
Surface and Limits:
With an area of approximately 78,200 sq km, Panama is located in Central
America, bordering both the Caribbean Sea and the North Pacific
Ocean, between Colombia and Costa Rica. It forms the narrowest and
lowest portion of the isthmus that links North and South America. It’s
position on the eastern end of the isthmus made Panama into a
strategic location for the construction of the Panama Canal, which links
the Caribbean Sea and the North Pacific Ocean.
Population and Language:
Approximately 3.4 million, about 52% of which are in the urban areas.
Spanish is the official and spoken language. English is also spoken
widely in urban areas and is used in commerce and international trade.
Currency and Government:
It’s official currency is the Balboa (PAB) and the US Dollar (USD).
Furthermore, the country has no exchange control provisions.
Panama’s government type is a constitutional democracy and the
country maintains a legal system based on the Spanish civil law system
with many common law influences.

Economic Overview
Panama’s dollar based economy rests primarily on a well-
developed services sector that counts for four-fifths of the GDP.
Services include operating the Panama Canal, banking, the
Colon Free Zone and other Free Trade special areas,
insurance, container ports, flagship registry, and tourism. A
slump in business in the Colon Free Zone (second largest Free
Trade Zone in the world after Hong Kong) and agricultural
exports, the global slowdown, and the withdrawal of U.S. military
forces held back economic growth between 2000-2003. Financial
growth picked up in 2004 and 2005 led by export-oriented
services and a construction boom stimulated by tax incentives.
The government has been backing tax reforms, reform of the
social security program, new regional trade agreements, and the
development of tourism.

What is a Private Interest Foundation ?
The Republic of Panama, following its tradition as an International
Financial Center, has incorporated into its legislation an innovative
legal vehicle that now is an example to follow in many other
jurisdictions: The Private Interest Foundation, an entity regulated by
means of Law 25 of 1995 and which has become a very useful
instrument in heritage planning and assets protection.
The Panamanian Foundation is basically a donation of goods with the
objective of the creation of an autonomous legal entity endowed
with a new estate totally separate and different from the Founder's
patrimony. The Foundation, just like any other corporate body, has
the capacity to acquire and possess any kind of assets, to enter
into obligations and take part in administrative and judicial
proceedings.
The intention of this legal figure is the handling of assets in favor of the
beneficiaries indicated by the founder(s), which is the person that
provides the assets and funds for this estate.
The Private Interest Foundation may be constituted to enter into effect
from the moment of its creation and/or after the death of the
Founder.

How is a Foundation Incorporated?
The process of incorporation of a Private Interest Foundation is as simple as
that for a Panamanian Corporation. A Private Interest Foundation may be
created by one or several individuals, including a corporate body, by
means of a private document subscribed by the founder(s) or directly
before notary public of the place of constitution, in any language. The
signature of the incorporator(s) must be attested by the notary public of
the place of constitution.
After constitution of the Foundation, it will have the capacity to acquire and
possess assets and goods of any kind, and to hold rights and contract
obligations.
The Foundation is incorporated through a document called Foundation
Charter, which is converted into a public deed and recorded at the Office
of Public Registry, obtaining its legal personality thereby.
Besides the Foundation Charter, Private Interest Foundations are governed by
specific Regulations. This private document is the main component of the
Foundation since it establishes the provisions regarding the management
and disposition of the founder’s patrimony during his life or after his
death. The possibility of including provisions with effect to the founder’s
death makes this vehicle the ideal for planning legacies and inheritances.

Included in the Foundation Charter
1. Name of the Foundation;
2. Initial Capital: The minimum initial foundation capital must be no less
than ten thousand dollars (US$10.000.00);
3. The appointment of the Members of Foundation Council: composed of a
minimum of three (3) members if they are natural persons, or of one (1)
member in case of juridical person. Its purpose is to carry out the
businesses of the Foundation;
4. The Domicile, which will be the place where the Foundation’s assets are
managed;
5. Name and domicile of the Resident Agent: Is the law firm through which
the Foundation is incorporated.
6. The Foundation’s purposes or objectives;
7. The method in which the beneficiaries of the foundation will be chosen;
8. The reservation of the right to amend the Foundation Charter when
deemed convenient;
9. The lifetime of the Foundation.
10. The destination of the assets of the Foundation and the procedure for
liquidating the estate in case of dissolution;
11. Any lawful clause that the founder(s) deems convenient.

Components of the Panamanian
Foundation
 The Founder
The Founder of the Private Foundation is the individual or corporate body
who creates the Foundation and arranges the manner in which the
Foundation will administer its assets. The Founder has the right to assign
powers to himself, at his discretion. The Founder may be a nominee in
some cases, for confidentiality purposes.
 The Foundation Council
It is the managerial body of the Foundation, in charge of its administration
and responsible for the fulfillment of its objectives and purposes. The
Foundation Council may be composed of a minimum of three (3)
individuals or one (1) corporation. In case of individuals, the founder has
to appoint three (3) individuals of any nationality, and in case of
corporations, the Foundation Council may be composed of one sole
member or several. In both cases, it is not required to be Panamanian, or
to be domiciled in Panama. Furthermore, the Founder may be part of the
Foundation Council. The founder may reserve, pursuant to the Foundation
Charter, the right to appoint and remove the members of the Foundation
Council. The members of the Foundation Council will be designated
completely and clearly, as well as their addresses.
The Foundation Council has to render account of its actions annually, to the
beneficiaries or to the supervisory body, if any.

Foundation (Cont.)
 Obligations and Duties of the Foundation Council

1. To manage and deliver the foundation assets
according to the Foundational Charter and / or the
Regulations.
2. To carry out acts, contracts or lawful businesses
which are necessary to accomplish the purposes of
Foundation.
3. To inform the beneficiaries of the Foundation of the
economic situation of the same, at least once year.
4. To carry out all such acts which are allowed to the
Foundation by Law 25 of 1995.

Foundation (Cont.)
 The Beneficiaries
The Beneficiaries are the individuals or corporate bodies designated to
receive the benefits of the Foundation, pursuant the provisions
established by the Founder in the Foundation Charter, or by the
Regulations. The beneficiaries hold a present and future right over
the economic benefits of the Foundation. Moreover, the beneficiaries
have the right to be informed about the management of the
Foundation, ask for the removal of the Members of the Foundation
Council and object acts of the Foundation.

 The Protector
The Founder may appoint a supervisory body, which will be in charge of
ensuring the compliance by the other bodies of the Foundation of
their duties. This supervisory body may be also called Auditor or
Professional Advisor. The Protector may be the Founder of the
Foundation, thus keeping control over the Foundation.

Foundation (Cont.)
 Attributions of the Protector
1. To ensure the fulfillment of the foundation’s purposes by the Foundation
Council and protect the rights and interests of the beneficiaries.
2. To require the Foundation Council to render accounts.
3. To modify the objects and purposes of the Foundation when their fulfillment
becomes impossible or too burdensome.
4. To appoint new members of the Foundation Council by reason of temporary or
permanent absence, or for the expiration of the period which they were
appointed.
5. To appoint new members of the Foundation Council in replacement of existing
members in the event of temporary or accidental absence of any of them.
6. To increase or reduce the number of members of the Foundation Council.
7. To approve the acts done by the Foundation Council pursuant to Foundation
Charter or the Regulations.
8. To act as custodians of the assets of the foundation and to oversee the
application thereof to the objects or purposes contained in the Foundation
Charter.
9. To remove beneficiaries of the Foundation and to add new beneficiaries and to
add others in accordance with the provisions of the Foundation Charter or the
Regulations.

Documents
 Foundation Charter
It is the Public Deed that, once registered at the
Office of Public Registry, gives rise to the
Foundation. It may be drafted in any
language with characters of the Latin
alphabet, and must be protocolized by a
notary public of the Republic of Panama for
its registration. In case the Foundation
Charter has been drafted in any language
other than Spanish, the document shall be
translated by a Certified Public Translator.

Documents (Cont.)
 Regulations of the Foundation

It is the document that indicates the assets and the beneficiaries of the
Foundation. It does not require registration at the Office of Public
Registry, nor its insert in a Notary Public protocol, which guarantees
its privacy.
This document may serve as testament, if necessary. Accordingly, the
Founder may stipulate that he will be the only one having benefits of
the patrimony of the Foundation while alive, and designate who shall
be the beneficiaries of the foundation after his death. When the
Founder of the Private Interest Foundations dies, the distribution of
the Foundation’s assets is carried out pursuant to the Regulations,
serving the latter as a testament and transferring said assets
exempted of any transfer tax provided that the assets are located
outside the Republic of Panama, or otherwise exempted by law.

The Foundation’s Estate
The Foundation’s estate is composed of the assets that the Founder agreed to
transfer to the Private Interest Foundation once the transfer has been
formalized. The estate may be expressed in any legal tender; although it
must be valued at no less than ten thousand dollars (US$10,000.00). It is not
necessary for the assets to be transferred at the moment of constitution and
the contribution of assets may be done by the Founder or third parties.
The Foundation’s assets shall constitute an estate separate from the Founder’s
personal assets for all legal purposes, and may not be seized, attached, or
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 for legitimate rights of the
beneficiaries of the Foundation. In no case shall such assets be affected or
used to respond for personal obligations of the Founder or of the
beneficiaries.
The estate may be composed of assets of any nature, present or future. Sums
of money or other properties may be incorporated on a regular basis, by the
Founder or third parties. The transfer of property to the Foundation’s
patrimony may be carried out through public or private documents. The
transfer will be executed pursuant to the laws regarding transfer of real
assets.

Tax Advantages
The Private Interest Foundation enjoys the same taxation privileges as the
Corporation, regarding the application of the Panamanian Tax Law
under the territorial principle. The Foundation will be exempt of any
kind of tax, contribution, duty, or fee resulting from the acts of
constitution, amendment or dissolution of the Foundation, as well as
from the acts for the transfer of assets of the Foundation and from the
income or revenue from said assets, provided that the assets
constitute the following:

1. Assets abroad
2. Money deposited by individuals or legal entities whose income does
not come from Panamanian source, or is not taxable in Panama
under any circumstance (e.g., interest from bank accounts in Panama
do not pay taxes), or
3. Shares or securities of any kind, issued by corporations whose
income does not come from Panamanian sources, or when the
income is not taxable under any circumstance, even when said
shares or securities have been deposited in the Republic of Panama.

Tax Advantages
Panamanian Private Interest Foundations have to pay a
sole registration fee at the moment of constitution at
the Office of Public Registry, in accordance with the
amount of the estate, and an annual fee of four
hundred dollars ($400.00) for each subsequent year
while the foundation exists.

After the death of the Founder, the beneficiaries or heirs
shall obtain their heirship immediately. This eliminates
the need for an expensive and risky inheritance or
probate proceeding; the inheritance is transmitted
privately since it is not necessary to probate a will
before a judge.

Irrevocability
Private Interest Foundations are irrevocable, except:

1. When the Foundation Charter has not been registered
at the Office of Public Registry.
2. When the Foundation Charter affirms otherwise.
3. When any cause of revocation applicable to
donations, in accordance with Panamanian law, has
resulted.
4. When Foundations constituted to be effective after the
death of the Founder, are dissolved by the Founder
before dying.

Change of Domicile
Foreign Foundations may domicile in Panama, for which a Certificate of
Continuation of the Foundation must be registered at the Office of Public
Registry. This Certificate of Continuation must be issued by the
corresponding body or organ of the Foundation according to its own
internal organization. Said Certificate must indicate the name of the
Foundation and date of its constitution, data about the registration at the
country of origin, along with a brief statement indicating its intention to
continue its legal existence as a Panamanian foundation. The Certificate
of Continuation should have an attached copy of the original Foundation
Charter and a Power of Attorney extended to a Panamanian lawyer to
carry out the respective procedures to effect the continuation of the
foundation in Panama.
In the same way, Panamanian Private Interest Foundations, as well as the
assets which constitute their patrimony, may be transferred or become
subject to the laws and jurisdiction of another country, as may be
provided by their Foundation Charter or their Regulations.

Confidentiality
The management and operation of the Private Interest Foundation
are not subject to governmental supervision and the Foundation
Council is not required to present reports to the authorities
regarding the Founder, the beneficiaries or the patrimony of the
Foundation.
In the case of criminal investigations, related particularly to drug
trafficking or money laundering, said members and employees
are compelled to provide the information and documentation
required by the Panamanian authorities.
Prior to the creation of the Foundation the Resident Agent must
request and keep in records the basic information about the
identity of the Founder and the Beneficiaries, including personal
and commercial references which shall be provided to the
authorities in case of a criminal investigation, pursuant to the
formalities established by our legislation.

Confidentiality
Article 35: All members of the Foundation Council and
of the supervisory bodies, if any, as well as the public
or private employees, who have any knowledge of
the activities, transactions or operations of the
foundations, must at all times hold the same in secret
and confidentiality. Breaches of this duty shall be
sanctioned with imprisonment of six (6) months and a
fine of fifty thousand Dollars (B/. 50,000.00), without
prejudice to the corresponding civil liability.
The provisions of this article shall apply without
prejudice to the information that must be disclosed to
official authorities and the inspections the latter must
carry out in the manner established by the law.

Features of Panamanian Private
Interest Foundations
 Fast constitution.
 It is an asset protection vehicle. This protection is guaranteed by the
constitution of an estate separate from the Founder’s personal assets.
Nonetheless, the Founder does not need lose control over it.
 The Foundation’s estate may derive from any lawful business and may
consist of assets of any kind, present or future.
 The Foundation may be used for inheritance planning since the Regulations
may be regarded as a private will in which the founder disposes of the
foundation’s assets.
 Great tax advantages, since Panama only taxes income produced or
generated by economic activities carried out within the country. In other
words, someone who utilizes a Panamanian Private Foundation outside of
Panama will not have to worry about taxes within the country of Panama.
 The Private Interest Foundation possesses all the characteristics inherent to
legal entities, such as capacity to contract, to take part in administrative and
judicial proceedings, among others.
 The Foundation’s patrimony may not be subject to seizures or attachments,
to respond for personal obligations of the Founder or of third parties;
unless proved at a court of law that the transfer of assets was made in fraud
of creditors. This right to object or contest the transfer has a statute of
limitations of three (3) years from the date of the transfer of assets.

Uses of Private Interest Foundations
The Private Interest Foundation may be used for the basic purpose of
protecting the family estate. The Foundation is allowed to
perform any legal activities save for acts of commerce. It is
permitted to carry out incidental commercial activities for the sole
purpose of protecting and managing the estate of the foundation.

These are some common uses for Private Interest Foundations:
1. As a holding entity for corporations’ shares.
2. As a private will with respect to the Founder’s assets.
3. For managing Private Retirement Funds, the education of the
children, and other types of family savings.
4. As a vehicle for controlling the transfer of a corporations’ shares.

Comparison with Panamanian
Corporations
Panamanian Corporation Private Interest Foundation
Articles of Incorporation may be amended by the The Founder may reserve the right to be the only
Subscribers or by the majority of Stockholders. person empowered to modify the Foundation Charter.
It is a legal entity independent from its Stockholders Unlike a common Trust, which operates as an
and Directors. independent patrimony, in the case of the Foundation,
a new entity with an independent legal personality is
created.
The main objective of a Corporation is to conduct It is established so as to create a separate estate.
commercial businesses.
Stockholder’s Creditors may legally oppose the acts Founder’s Creditors have a three (3) year period for
performed in fraud of creditors. impugning the acts performed in fraud of creditors.
A Corporation is managed by a Board of Directors The Foundation is managed by the Foundation
composed of a minimum of three (3) members, may Council, which may be composed of three (3) natural
be natural or juridical persons. persons or one (1) Corporation (or any other legal
entity).
There are no specific provisions regarding the There are imprisonment penalties, fines, and even
violation of corporation’s secrecy. This is regulated civil liability for members of the Council and public
by the rules of common commercial law, and by those and private employees who violate the confidentiality
regarding protection of commercial/industrial and secrecy involving Foundation's activities.
secrecy.
There is no specific legal provision regarding the Foundation’s assets may only be seized or attached
attachment or seize of corporation’s assets. as a result of judicial claims arising directly from the
Foundation’s activities.

Dissolution
The Foundation shall be dissolved:

1. Upon the date on which the foundation must come to an
end in accordance with the Foundation Charter.
2. Upon the accomplishment of the ends or purposes for
which it was created or if their fulfillment becomes
impossible.
3. Upon its revocation by the Founder.
4. If it becomes insolvent, or it has been judicially declared to
be subject to bankruptcy proceedings.
5. Upon the loss or total extinction of the assets of the
Foundation.
6. Due to any other reason established in the Foundation
Charter.

MORENO & ARJONA - BUREAU
Legal Fees
Our rate includes all legal expenses and professional fees including the
drafting of basic Regulations . The most common expenses are as follows:

ESTABLISHMENT OF THE FOUNDATION: US$ 1,595.00
Includes our fees, and the legal and registration expenses in relation to:
 Draft of the Foundation Charter, basic set of Regulations and further
discussions regarding its content, registration with the official notary,
recording at the Office of Public Registry.
 Translation of the Charter into the English Language.
 Single Annual Tax for the first year.
 Resident Agent Fee for the first year.
 Services of Nominee Founder and/or Nominee Members for the
Foundation Council, if applicable.
 Courier to the place of destiny of the documents.

Preparation, study and drafting of extensive and complex Regulations,
including multiple sessions for additional amendments, are negotiated as
a separate rate.

Legal Fees
The Panamanian Private Annual US$ 400.00
Interest Foundations pay Single Tax
an annual single tax of
US$ 400.00 provided Resident US$ 250.00
that they do not carry out
activities taxable in Agent + 7% VAT
Panama. Hence, these
foundations must pay the Banking and US$ 60.00 +
following rates from the Other 7% VAT
second and subsequent expenses
years in concept of TOTAL US$ 731.70
renewal:

Legal Fees
Annual US$ 400.00
Single Tax
Resident US$ 200.00
In case of using our Nominee
Agent
Members service for the Other US$ 60.00
Foundation Council, the
expenses
renewal rate will be:
Nominee US$ 300.00
Members
TOTAL US$ 999.20

For further information, please contact:
Mr. Jan Christian Brewer (Tax Partner)
Attorneys at Law

Samuel Lewis Ave. and Gerardo Ortega St.
Central Building, 5th Floor
Panama City, Republic of Panama
P.O. Box 0819-05618 (Panama)

Tel. (507) 297-5566 - Skype: jbrewer.mab
Email: jbrewer@mab.com.pa

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