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Formation requirements for Panama Foundations

A Private Interest Foundation is established when a Charter of the Foundation has been drafted and filed at the Public Registry. This information, which must be officially registered in order to establish a Foundation, is largely a matter of procedure and does not jeopardize privacy in any way.
 
The name may be in any language and must include the word “Foundation.” The objectives of the Foundation may include anything except the generation of profits. The Foundation Council is charged with task of administering the Foundation assets in a manner consistent with purpose of the Foundation as articulated in the Charter of the Foundation. The Foundation Council is composed of at least three natural persons, which may include the founder. These persons are not required to be Panamanian. The registered agent must be either a Panamanian lawyer or law firm.
 
A Private Interest Foundation also includes a body of Regulations, which are like by-laws. Unlike the Memorandum of Foundation, the Regulations remain private and confidential, they are not filed in any public registry. Therefore, it is within the Regulations that individuals typically articulate their wishes regarding beneficiaries and distribution of Foundation assets. Additionally, in this private document, a Protector may be named whose role is to oversee the activities of the Foundation Council. The Regulations may be amended at any time.
 
The range of benefits offered by a Foundation spans from tax advantages to asset protection. Foundations do not pay taxes on any income that is derived from investment activity outside of Panama. Assets used to fund the Foundation are considered under the law to be separate from the assets of the founder. Therefore these cannot be reached in the event of a lawsuit against the founder or beneficiaries. Similarly, these assets cannot be reached to satisfy debts owed by the founder or beneficiaries. Foundations only incur liability to the extent that they have dealt with a party directly. Therefore, if a Foundation conducts no activity beyond owning assets, it will never suffer liability of any kind.
 
A Foundation is established by a Founder, who may be one or more individuals or corporations. It may be created either directly or through a third party, such as a resident agent. The Foundation may be established during the Founder’s lifetime or post-mortem. It is legally established when a Charter of the Foundation (which may alternatively be referred to as a Memorandum or Deed) has been drafted and filed at the Public Registry. The items that must be filed include:
 
• Name and Purpose of the Foundation;
• Name of the Foundation Council Members;
• Address of the Foundation;
• Appointment of a Registered Agent; and
• Patrimony
 
The name may be in any language and must include the word “Foundation” to distinguish it from other kinds of juridical persons. The objectives of the Foundation may include anything except the generation of profits.
 
The Foundation Council must be comprised of three natural persons, or a single juridical person, and its duties are set forth in the Memorandum of Foundation. These persons are not required to be Panamanian. The Council is similar to the board of directors of a corporation. It makes all the decisions, for the benefit of the Foundation and is charged with the responsibility of ensuring that the Foundation’s purposes, as stated in the Memorandum of Foundation, are fulfilled. The council has the obligation to administer the Foundation’s assets for the benefit of the Beneficiaries, who have the rigth to object to the actions of the council. The Council must deliver to the beneficiaries the assets of funds to which they are entitled, as set forth in the Memorandum of Foundation.
 
Protections
 
A nominee may fulfill the role of Founder. This makes it possible for the individual’s name not to appear in public record.
 
The Founder´s heirs do not have the right to revoke the creation of the Foundation, nor do they have the rigth to object the transfer of assets to the Foundation.
 
The Founder may retain control of the Foundation by retaining the power of appointment of the Foundation Council.
 
The assets of a Foundation comprise a separate and independent estate from that of the Founder. Once the assets have been transferred to the Foundation, such property does not belong to the Founder. Therefore said estate cannot be attached, seized or be subject to any lawsuit or legal actions as a result of obligations and liabilities of the Founder or the beneficiaries of the Foundation.
 
The creditors of a Founder have the right to contest the creation of a Foundation, or the transfer of assets to a Foundation, when either activity represents a fraud against their legitimate claims. The creditor’s right to contest the creation of a Foundation expires three years from the date that the Memorandum of Foundation is filed at the Public Registry.
 
The Founder may serve as a member of the Foundation Council, as a Beneficiary or as Protector.
 
The Founder has the power to remove council members, beneficiaries or a protector if he desires or he can assign these powers to another person in 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 not available to the Public Registry. In order for a third party to identify the beneficiaries, he must have a court order to “pierce the veil” of the Foundation. This is extremely rare in Panama because this would contravene the Republic’s campaign to become recognized as a safe haven of secrecy.
 
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 penalty for breach of this obligation is a jail term of six months and a US$50,000.00 fine, with the possibility of an additional civil penalty. The secrecy provision applies broadly to all persons involved in any transaction associated with the Foundation.
 
In the event of political instability, a Panamanian Foundation may relocate to another jurisdiction.
The assets of a Foundation may be obtained as a result of any lawful act or transaction and may consist of properties of any nature, present or future, either real estate, monetary instruments, securities or chattels of any kind. The assets of a Foundation may be increased at any time.
 
The Founder or any other party may transfer assets to the Foundation.
 
Although the Council must inform the beneficiaries of the Foundation’s financial status annually, no reports need be filed with panamanian authorities or agencies.
 
The creation, the modification and the extinction of a Foundation are not taxable events. Transfers and encumbraces of Foundation assets are not taxable events. Income generated by a Foundation is exempt from tax in the Republic of Panama. All of the foregoing are not only exempt from tax, but from all assessments, ,rates and liens of any kind or description. These exemptions apply when the patrimony consists of assets located outside of Panama, and shares or securities of a company whose source of income is outside of Panama or where such income is otherwise not taxable in Panama.
 
 
 
 

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