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Private interest foundations in Panama: Practical guide

Concept and Key Features

  • Autonomous Legal Entity: A Private Interest Foundation (PIF) is a separate legal entity under Law 25 of 1995, capable of holding assets, entering contracts, and operating for non-commercial purposes (family, charitable, religious).
  • Asset Protection: Transferred assets are shielded from personal creditors of the founder or beneficiaries.
  • Flexibility: May engage in commercial activities necessary to achieve its objectives, such as owning shares, real estate, or bank accounts.

Key Differences:

  • vs. Trust: A PIF is a juridical entity, not a contract. The founder retains indirect control.
  • vs. Corporation: No shareholders, reducing legal risks tied to ownership disputes.

Formation Process

  1. Foundation Charter:
    • Founding document outlining:
      • Name: Must include “Foundation” and be unique in Panama.
      • Minimum Capital: USD 10,000 (no public disclosure of assets).
      • Foundation Council: Minimum 3 natural persons or 1 legal entity.
      • Objectives: Broad and non-commercial (e.g., “family wealth management”).
      • Beneficiaries: Designated in a confidential Internal Regulations document.
    • Notarized and registered in the Public Registry.
  2. Internal Regulations:
    • Specifies beneficiaries, asset distribution, and operational rules. Remains private.
  3. Asset Transfer:
    • Assets are transferred per local laws (e.g., Panamanian real estate requires a public deed).

Tax Benefits

  • Exemptions in Panama:
    • Formation, amendments, and transfers of foreign-located assets are tax-free.
    • Income from foreign assets is not taxed in Panama.
  • Estate Planning: Avoids probate processes, distributing assets per Internal Regulations, bypassing foreign inheritance laws.

Management and Confidentiality

  • Foundation Council:
    • Manages assets and executes objectives. May include the founder.
    • Decisions by majority vote; no public financial reporting required.
  • Legal Protections:
    • Foundation assets are immune from personal creditor claims.
    • Strict Confidentiality: Council members and agents face fines up to USD 50,000 and imprisonment for unauthorized disclosures.

Exceptions: Money laundering or drug trafficking must be reported.