Panama Foundations: 24 FAQ

With a Panama Private Interest Foundation, assets are protected and a tax-exempt inheritance system is created that guarantees the beneficiary’s will, even in derogation of legitimate shares. In a Foundation, legitimate shares of an inheritance can also be removed.

The personal data of beneficiaries and the way the Foundation is managed are kept private. So today it is a formidable tool for asset protection. Panama’s private interest foundations are currently widely used to manage ICOs, tokens, NFTs, and other digital or real estate assets.

The benefits of a private interest foundation in Panama are very different. For example, the cost is 2,500 euros and its annual maintenance to keep it in place is only 750 euros. In addition, Foundations are also exempt from paying income taxes, and the income they get from their assets as long as it is obtained outside Panama.

Another great advantage of Private Interest Foundations is their confidentiality. The internal regulations, with the names of the beneficiaries, the protector, as well as the distribution of assets, are kept private. These regulations are never recorded in the Public Register. In this way, the identity of all beneficiaries is preserved.

According to the Private Interest Foundation Law, those who share information about foundation operations will face criminal or civil penalties.

Panama also allows for a foundation structure that facilitates asset management. For example, for legal purposes, Foundations consider their assets separate from the assets of the founder or beneficiary.

Let’s go through the most frequently asked questions, and if after a careful reading you have more questions you can email them to us or request a paid consultation with attorney Giovanni Caporaso Gottlieb.

What are Panama’s Private Interest Foundations?

Panama Private Interest Foundations are legal entities created to provide effective tax planning and capital protection. They allow customized inheritance arrangements to be established, regardless of the inheritance laws of the founder’s country of residence.

What advantages do these foundations offer?

These foundations offer numerous advantages, including protection of assets from seizure and legal disputes, estate planning without the complications of traditional probate processes, and complete secrecy and anonymity regarding beneficiaries and financial transactions.

What is the difference between a trust and a Panama Foundation?

Trusts and Private Interest Foundations in Panama are both estate and succession planning tools, but they have significant differences in their structure, operation and purpose. Here are the main distinctions:

1) Legal Structure:

Trust: A trust is a fiduciary arrangement in which a trustee holds and manages assets on behalf of one or more beneficiaries, according to the instructions of the trustor (or settlor), who is the one who transfers the assets to the trust. The trust has no legal personality of its own; rather, it is the trustee who owns the assets in trust.

Panama Foundation: A private interest foundation, on the other hand, is a legal entity with its own legal personality, similar to a corporation but created specifically for noncommercial purposes. Assets are transferred to the foundation, which holds and manages them for the benefit of the beneficiaries as stipulated in the foundation deed.

2) Purposes:

Trusts: Trusts are often used for wealth management and protection, estate planning, and sometimes for charitable purposes. They can be flexible or rigid, depending on the instructions specified in the trust deed.

Panama Foundation: Private interest foundations are used primarily for asset protection, estate planning, and may also support family, educational, or charitable purposes. They are particularly popular among those seeking an alternative to trusts for asset management in a different legal context.

3) Control and Management:

Trust: In trusts, the trustee has legal control and responsibility for the management of the assets, operating under the directives of the trust deed. The trustor loses control over the assets once they are transferred to the trust.

Panama Foundation: In the foundation, a board of trustees manages the assets according to the deed of trust. The founder may, however, retain some level of control or influence, depending on how the foundation is structured, and may also reserve specific rights, such as the ability to change the beneficiaries or the terms of the foundation.

4) Anonymity and Confidentiality:

Both vehicles offer a high degree of privacy, but Panama foundations are particularly known for their strong secrecy regime, which protects the identity of founders and beneficiaries.

5) Legal Application:

Trusts are more common in common law countries, where the concept of trust is well established and legally recognized. Panama trusts, on the other hand, are governed by Panamanian civil law and are a popular choice for those living in civil law countries or for those seeking an alternative to trusts offered by a favorable jurisdiction such as Panama.

Is there a minimum capital requirement to establish a Panama Foundation?

Yes, a minimum initial capital of $10,000 is required to establish a foundation, although it is not necessary to pay this amount to establish the foundation.

Do the founder, protector, and board members have to be Panamanians?

No, the Founder, Protector, and Foundation Board members of a Private Interest Foundation in Panama need not be Panamanian citizens or residents.

 Panamanian laws regarding private interest foundations are very flexible regarding the nationality and residency of the people involved in the foundation.

This openness is one of the reasons why Panama is an attractive jurisdiction for establishing asset protection and estate planning structures for individuals and families around the world.

Who can be a member of the Foundation Board?

The Foundation Board can consist of a minimum of three individuals or one legal entity. There are no nationality requirements.

Can the foundation be used for commercial purposes?

Although the foundation cannot have direct commercial purposes, it can own shares in companies and distribute dividends to beneficiaries according to the instructions it is given..

Who is the real owner of a Panama Foundation?

In the structure of a Private Interest Foundation in Panama, the question of who is the true owner of the assets can be confusing since the concept of ownership differs significantly from that applied to individuals or corporations.

Once a foundation is created and assets are transferred into it, the assets enter into the ownership of the foundation itself, which acts as an independent legal entity.

This means that the assets are formally owned by the foundation, not by the founder, beneficiaries, or foundation board members.

The founder loses direct legal control over the assets once they are transferred to the foundation, although he or she can determine the conditions under which the assets are managed and distributed through the foundation deed and can influence management by appointing foundation board members or reserving specific rights to intervene.

The beneficiaries, on the other hand, have a conditional right to the assets based on the provisions of the foundation deed, but they do not legally own the assets until they are distributed according to the rules of the foundation.

Therefore, strictly speaking, the foundation itself is the true owner of the assets, operating for the benefit of the designated beneficiaries according to the instructions provided by the founder.

This separation of control and benefit is a key feature that gives Private Interest Foundations in Panama their utility in estate and succession planning.

So is the founder the beneficiary?

The founder of a Private Interest Foundation in Panama can, but does not have to be, one of the beneficiaries of the foundation. Typically, to keep clients from traveling, a firm in the law firm is used as the founder.

This flexibility is one reason why Panamanian foundations are popular tools for estate planning and asset protection.

When the founder establishes the foundation, he or she has the freedom to designate who will be beneficiary(ies) through the deed of trust or subsequent documents. And this is done when using a named founder.

Beneficiaries can include the founder himself, family members, friends or even charitable entities. Designating oneself as a beneficiary allows the founder to continue to benefit from the foundation’s assets while having transferred legal ownership of those assets to the foundation for their protection and management.

Typically, however, a named founder is used to protect the identity of beneficiaries.

The key lies in the ability of the attorney to structure the foundation to meet specific personal, family, or charitable goals, while maintaining a degree of control and flexibility over how assets are managed and distributed.

However, the level of direct control and the identity of beneficiaries will depend on the specific provisions set forth in the foundation deed and any subsequent amendments or regulations.

What chance do the founder, protector and board of directors have to appropriate the foundation’s assets if they are not the beneficiaries?

In the structure of a Private Interest Foundation in Panama, the Founder, Protector (if appointed), and Foundation Board members have well-defined roles, and there are safeguards in place to prevent misappropriation of foundation assets, especially if they are not designated as beneficiaries.

Founder

The founder is the one who establishes the foundation and transfers assets to it. Once the foundation has been established and the assets transferred, the founder no longer has the legal right to appropriate these assets, unless he or she is also a beneficiary according to specified conditions.

Protector

The Protector is an optional figure in a Private Interest Foundation in Panama, whose role is to oversee and ensure that the Foundation Board acts in accordance with the founder’s wishes as expressed in the deed of foundation.

Although the Protector has the power to intervene in certain decisions or even replace members of the Board of Trustees, he or she does not have the right to appropriate foundation assets unless specifically designated as a beneficiary in the deed of trust.

Board of Trustees

The Board of Trustees is responsible for administering the foundation and ensuring that the assets are managed and distributed according to the instructions contained in the foundation deed. Board members act as trustees, which means they have a legal duty to act in the best interests of the beneficiaries.

They cannot appropriate foundation assets for personal interest unless they are explicitly designated as beneficiaries.

Legal and Moral Safeguards

Panamanian laws governing Private Interest Foundations include several safeguards to prevent misappropriation of assets by the founder, Protector, or members of the Foundation Board:

Fiduciary Duty: Everyone must act in the best interest of the beneficiaries, following the provisions set forth in the foundation charter.

Accountability and Transparency: Although foundations enjoy a high degree of privacy, there are still expectations for internal reporting to ensure that assets are managed appropriately.

Possibility of Legal Action: Beneficiaries have the right to take legal action against the Board of Trustees if they believe assets have not been administered in accordance with the foundation charter.

Who administers bank, trading or investment accounts?

In the practice of Private Interest Foundations in Panama, banks require the identification of the Ultimate Beneficial Owner (UBO), or beneficial owner, as part of their compliance and know-your-customer (KYC) obligations.

This is essential to prevent money laundering and ensure financial transparency. The UBO is the person who ultimately owns or exercises significant control over the foundation, often through the economic benefits derived from the foundation’s assets.

In most cases, the UBO wishes to maintain direct control over the foundation’s bank accounts to ensure that he or she personally manages its assets. This desire for control stems from the need to ensure that resources are managed in a manner consistent with their own wishes and interests.

However, although it rarely happens, it is possible for the UBO to decide to delegate the day-to-day management of bank accounts to the Foundation Board or Protector, mainly for practical reasons or operational efficiency, while retaining the right of supervision and intervention.

This delegation is usually formalized through specific provisions in the foundation deed or in separate agreements to ensure that account management remains in line with the wishes of the UBO.

Banks, aware of the need for security and oversight by the UBO, work closely with foundations to establish procedures that meet both compliance and beneficial owner requirements. This includes establishing mechanisms through which the UBO can exercise the desired control while ensuring that all transactions are conducted in a transparent manner and in compliance with applicable regulations

Are Panama foundations foreclosable?

Private Interest Foundations in Panama are designed to provide robust asset protection. As a result, assets contributed to the foundation cannot easily be subject to attachment or judicial seizure for personal debts or obligations of the founder or beneficiaries. This protection is one of the main advantages offered by Panamanian foundations.

However, there are some exceptions. If creditors can prove that the transfer of assets to the foundation was done with the intent to defraud creditors or evade legal obligations, they may be able to take legal action to attack the foundation’s assets.

This is especially true if it can be shown that the foundation has been misused for illicit purposes. In any case, in Panama the rights of creditors to a foundation are extinguished after three (3) years.

In addition, the foundation’s assets may be subject to attachment as a result of obligations incurred by the foundation in the normal course of its activities, or for damages and injuries caused by the foundation in the pursuit of its objectives.

In such cases, liability is limited to obligations specifically related to the foundation’s activities, and does not extend to the personal assets of the founder or beneficiaries, unless they are directly involved in such wrongful activities.

Can I purchase assets in my country with a Panama Foundation and open bank accounts abroad?

Yes, you can use a Private Interest Foundation in Panama to purchase assets in most countries, and to open bank accounts abroad. These transactions are among the common practices for foundations, which are often used for wealth management, estate planning, and asset protection.

In these cases, to maintain the ‘anonymity of the beneficiaries, we use to have the foundation operate by means of specific powers of attorney to buy (not sell) issued to local lawyers or accountants.

In the event of the death of the beneficiary, who inherits? And is this inheritance subject to inheritance laws?

In the event of the death of a beneficiary (UBO) of a Private Interest Foundation in Panama, who inherits the assets depends on the provisions specified in the deed of foundation.

This foundational document establishes the rules for the distribution of the foundation’s assets, including those applicable in the event of a beneficiary’s death. Even in derogation of the legitimate shares established by law in each country.

Private Interest Foundations in Panama are often used to organize the succession of assets in a way that avoids the complexities and lengths of traditional probate procedures.

One of the main features of these foundations is their ability to establish an estate plan that is not automatically subject to the succession laws of the beneficiary’s or founder’s country of residence.

This means that the distribution of assets can be carried out according to the wishes expressed in the deed of foundation, bypassing mandatory succession rules that may be in effect in the beneficiary’s country of domicile.

The deed of trust can clearly specify who the successor beneficiaries are or how they are to be selected or named in the event of the original beneficiary’s death.

It can also outline a specific process or criteria for distributing assets to new beneficiaries, ensuring that the wishes of the founder or original beneficiary are respected.

Thus, if structured well, a Private Interest Foundation in Panama can offer an effective mechanism for transferring assets outside of traditional probate procedures, allowing for greater flexibility and control over the destination of assets after a beneficiary’s death.

With a trust, can I disinherit my children and spouse?

Yes, you can disinherit your children and spouse. Using a Private Interest Foundation in Panama, you can structure your estate affairs to exclude specific family members, such as spouse and children, from inheritance.

This tool offers significant discretion in determining how assets are managed and distributed after the founder’s death, allowing the designation of beneficiaries that may not coincide with the direct legal heirs.

The ability to specify in detail the beneficiaries and the conditions under which they receive assets is one of the distinguishing features of Panamanian foundations, making them attractive to those who want personalized estate and succession planning.

Can the Deed of Foundation be amended or revoked?

Yes, the founder has the option to amend, revoke the Deed of Foundation, or dissolve the foundation at any time. The founder can be replaced as needed.

Can foreign foundations or trusts adopt Panamanian legislation?

Yes, private foundations established under the laws of other countries may choose to be governed by Panamanian legislation

What are the requirements for establishing a Private Interest Foundation in Panama?

To establish a foundation, the lawyer drafts a “Deed of Foundation” that includes key information such as the name of the foundation, initial capital, members of the Board of Trustees, the purposes of the foundation, and how to name beneficiaries, among others. This will be notarized and then registered.

Do I have to travel to establish a foundation in Panama?

Absolutely not. The whole process is online and you will receive the original documents via DHL. Of course, you can also pick them up at our office..

How long does this process take?

Typically 15 working days from receipt of funds.

What is the cost of establishing a Private Interest Foundation in Panama?

It costs about 2,500 euros to establish a foundation, which covers the drafting of the articles of incorporation and the administrative costs for registration in the Panama Public Registry and the Apostille so that the document is valid internationally.

What is the Apostille?

The Apostille is a form of certification provided for in the Hague Convention of October 5, 1961, officially known as the Convention on the Abolition of the Requirement of Legalization for Foreign Public Documents.

This international treaty simplifies the process of legalizing public acts (such as legal documents, notarial acts, certificates of civil status, diplomas, official documents issued by an authority or official attached to a state court or tribunal, administrative documents, notarial attestations on private signatures, etc.) used in one member state of the Convention so that they are recognized in another member state.

The Apostille certifies the authenticity of the signature, the capacity in which the signer acted and, where appropriate, the identity of the seal or stamp that the document bears. It does not certify the content of the document itself, but facilitates its use internationally by validating its source.

The process of obtaining an Apostille varies from country to country, but generally requires that the original document be submitted to a competent authority designated by the state (often a government office or court) that can issue the Apostille.

Once affixed, the Apostille makes the document officially recognized in the other signatory countries of the Convention, eliminating the need for a longer and more complex chain of legalizations. With this, you can use the foundation to acquire assets in other countries or open foreign bank accounts.

Are Panama foundations subject to government controls or taxes?

Foundations enjoy complete exemption from foreign source income taxes and are not subject to controls or financial reports to Panamanian authorities, making them attractive tools for international tax and estate planning.

What are my obligations to keep the foundation active?

Pay a government tax, compliance check and Resident Agent totaling 750 euros each year. In addition, if you are using an appointed board, that is, provided by the Agent to maintain your anonymity, you must pay 100 euros per member provided or 300 for the entire board.

By March of each year you must provide in electronic format, to Caporaso & Partners simple accounting, i.e., an Excel ledger and financial statements. This is even if the foundation has had no activity. These records are not public and only can be requested by the Government of Panama in case of specific investigations.