The Panama Private Foundation
A PIF can be regarded as a legal body created by a corporation or natural person who transfers all or part of his/her assets to a Private Foundation to be managed on behalf of the Beneficiaries.
Uses of Foundation
The following are ways by which a PIF can be utilized:
To use as guarantee or collateral
To be able to manage insurance
To manage and protect
For the purpose of education
For Tax purpose
For the purpose of life annuity
For the purpose of charity
To be able to obtain and manage titles and capital
It is worthy of note that a lot of the above listed uses of PIF can be handled by any PIF, because there are no limitations as to what a PIF can handle.
An example is the fact that you can use one PIF created to protect assets for testamentary purposes or in any of the above mentioned ways. The only exception to the ways in which you can use a PIF, is daily commercial purposes or any profit making activity.
The following benefits can be accrued from the successful use of PIF:
1. They act in a fiduciary capacity for the systematic transfer and disposition of assets to beneficiaries upon the founder’s demise, controlling the assets in his/her lifetime
2. It can be created in such a way that the date of effect can either be the date of creation or at the demise of the founder.
3. Law 25 of 1995, provides that the laws of inheritance that apply in the residence of either the founder or beneficiaries, shall not be operative against the assets of the foundation neither shall they affect either the legitimacy or performance of the objectives of the foundations;
4. Foundations are created to implement all the goals set out in its charter and may also partake in some commercial activities that are connected to their holdings, or property, including contractual obligations and also take part in any administrative or judicial proceeding that results from it.
5. A Private Interest Foundation with a patrimony to achieve its objectives should be established.
The patrimony shall not be smaller than US$10,000.00, and can be enlarged through extra contributions from the Founder or any interested third party. It is not compulsory for payment to be made before the incorporation.
6. By this, the Foundation’s assets become legally independent of the Founder and become separate from the Founder’s estate. Which means that the assets cannot be sized and may not be put under any form of precautionary measure that is not related to obligations or damages resulting from the attainment of the objectives of the Foundation;
However, any third party or creditor of the Foundation shall have the right to challenge the contribution or transfer of assets to the foundation if they discover that the transfer is meant to defraud its creditors. The creditor’s rights and actions have a three year limitation period, beginning from the date the contribution or transfer of assets occurred.
7. Article 27 of Law 25 of 1995, exempts Private Interest Foundations from payment of any form of contributions,taxies, duties, liens or any form of assessment that results from acts of constitution, amendment or extinction of same, including any form of transfer or encumbrance of the assets of the foundation and the arising income when connected to any of the following:
A. Assets located overseas;
B. Under no circumstance can any money deposited by either a natural or juridical person whose income is not from any Panama related source be taxed in Panama.
C. Regardless of whether or not they’re deposited in the Republic of Panama, under no circumstances can shares or securities whatsoever, issued by corporations whose income is not gotten from any source related to Panama be taxed in Panama.
Also exempt from taxes is the transfer of unmovable property, assets, titles, deposit certificates, shares or securities, funds undertaken to further the achievement of the Foundation’s objectives or it’s termination in favor of the founder’s spouse or relatives who are within the first level of consanguinity.
Public and Private Information
The names of the Foundation, the member(s) of the Foundation’s Council, and the Protector’s name, are the only names that can be made public. As for the Protector, this can only be so if the Charter of the Foundation states so, because the Protector can be appointed through a private and confidential document.
The Regulations of the Foundation are not part of the record of the public as they are private information. Information like names of the beneficiaries and protector as well as means of asset distribution cannot be disclosed to the public as soon as they become part of the Regulation.
Trust or Private Foundation
Regardless of their similarities, there are certain indisputable differences between Private Foundations and Trusts: PIF’s are regulated by Civil Law.
They are established through a public legal document and registered, they exist as legal entities, while Trusts are regulated by Common Law, and are created through private contract that doesn’t have to be filled with any agency of government, they cannot be referred to as legal entities rather they are legal contracts.
Civil Law is distinct from Common Law in the sense that it operates by means of written laws, and codes and can only be amended through an act of legislation, it is not as flexible as Common Law. Common Law, on the other hand, is based on common practices, rulings and interpretations of courts, which make it less rigid, but a lot more unpredictable. The fact that Foundation’s Charter need not specify the rights and obligations of all the parties involved, which can be done through a private and confidential document, while, a Trust deed has to be unambiguous about the rights and obligations of the Trustee, is another difference between the two.
While in a PIF the assets are put in the name of the Foundation at the point of transfer, in a Trust however, the assets are put in the name of the Trustee.
Another difference between a Trust and a private foundation is that the administration fees charged on estates in Foundations are not high, while the Trustee fee for Trust is determined by the estate’s value. This means that large estates will attract high fees.
There is an innovation in Article 35 of Law 25 of 1995 which provides that members of the Foundation’s Council, Protector, private or public servants that are aware of the foundation’s activities, must maintain confidentiality at all times. Any violation of the provision of this article can be punished with a jail time of six months, or a fine of Fifty Thousand Dollars (US$50,000) without regards to the civil liabilities involved.
The PIF’s will pay an annual renewal fee of US$400.00 to Panama’s government.
Article 27 of Law 25 of 1995, exempts Private Interest Foundations from payment of any form of contributions, taxies, duties, liens or any form of assessment that results from acts of constitution, amendment or extinction of same, including any form of transfer or encumbrance of the assets of the foundation and the arising income when connected to any of the following:
A. Assets located overseas; B. Under no circumstance can any money deposited by either a natural or juridical person whose income is not from any Panama related source be taxed in Panama. C. Regardless of whether or not they’re deposited in the Republic of Panama, under no circumstances can shares or securities whatsoever, issued by corporations whose income is not gotten from any source related to Panama be taxed in Panama