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The Republic of Panama drew its inspiration from
the Liechtenstein Law and adapted that European model to create
a more flexible and modern “Private Foundation”, that
has evident advantages for international asset planning and is qualified
to conduct non-habitual “commercial transactions”.
An interesting feature of the Panama Law on “Private
Foundations” is that, despite its inspiration by Latin Law,
it includes certain interesting aspects that are widely used in
“Anglo-Saxon Law”, as for example the adoption of a
“protector” or “supervisory body”.
A Private Foundation (“Foundation”)
is created when one or more natural persons or legal entities (“Founder
(s)”) formalise a document known as a “Foundation Charter”,
which is registered at the Public Registry of Panama, through which
the parties undertake to make a donation (“Foundation Assets”)
of not less than the equivalent of US$10,000 (which may be subsequently
increased through further donations) to be managed by a “Foundation
Council” under the supervision of “protectors”,
if appointed, for the benefit of one or more “beneficiaries”.
The obligation to contribute further donations,
whether in money or in kind is not subject to a limited period of
time and there is no legal requirement of disclosure.
Once registered at the Public Registry in the Republic
of Panama, the Foundation Charter creates a legal entity.
A Private Foundation is the combination and a trust.
In general, a Foundation
has similarities with a corporation in as far as it is registered
at the Public Registry, the assets of this new legal entity are
separate from those of its creators, it is constituted to maintain
confidentiality on the ownership of assets and in order to obtain
fiscal benefits, and it has similar administrative bodies. It differs
from a corporation in that the Foundation has no owners, as it does
not issue share certificates nor any other participation title,
and a Foundation may be created as a testamentary instrument and
may not have profit aims.
Likewise, a Foundation has similarities with a
trust: It is a juridical institution that requires specific formalities;
some of the Founder’s assets are transferred, contributed
or “donated” to the Foundation; a Foundation may be
revocable; it may be created inter-vivos or mortis-causa by means
of testamentary provisions; it is usually created with the purpose
of managing, preserving, administering or investing assets for the
benefit of the donor’s close relatives, as well as to obtain
confidentiality and fiscal benefits. It differs from a trust in
as far as the Foundation is the owner of its assets since it possesses
its own legal personality and there is no “trustee”
but rather the figure of a “Foundation Council” which
combines the functions of the “Board of Directors” (of
a corporation) and the functions of a “trustee” (of
a trust); a Foundation is registered at the Public Registry and
is subject to an annual fee that is identical to that of corporations
in Panama (US$300) . It is important that these differences
be clarified in order to better understand the features of a Panamanian
Private Foundation, for which we shall describe this in more detail
in Section F.
The Panamanian Law No. 25 of 12th June 1995, which
governs Private Foundations, defines how Foundations are established
and how they operate. The provisions in this law are regulated through
Executive Decree No. 417 of 8th August 1995, which created the Private
Foundation Section of the Public Registry and regulated the registration
of the constitution, modifications and revocation of such Foundations.
A Private Foundation may, at the client’s
option, issue Regulations that need not be registered at the Public
Registry, and therefore absolute confidentiality is always maintained.
These Regulations contain, among other features, the features, the
designations of beneficiaries and the manner in which the Foundation
Assets are to be distributed.
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