I get a lot of emails asking me about foundations and their benefits. As more folks are considering Panama as a place to live they need to consider legal ways to protect their hard earned capital. This came in from Asset Protection Newsletter and provides a clear explanation of this structure and its benefits. Many folks ask me what legal firm they should use in Panama and my answer is to always use a large firm and not an individual attorney. Firms are more expensive, but they have a reputation to protect and will usually deal with legal matters in a timely and professional manner. I have heard so many nightmare stories of individual attorneys not doing the job they have been paid to do and the client have no recourse. Although there is a bar association in Panama, I have never heard of any attorney being reprimanded or losing his license over malfeasance.
Panama's Private Interest Foundations
“Foundations are the favored asset protection tools of the super rich such as the Rockefellers and Rothschild’s”
In 1995, Panama enacted a unique law creating Private Interest Foundations (PIF) which put this country in the forefront of global asset protection. The PIF law used parts of similar laws from Switzerland, Liechtenstein, and Luxembourg. A Panama PIF combines three legal concepts: a corporation, a trust, and an estate planning tool.
Protect your assets by using a PIF as a holding entity for several corporations owning different assets. One corporation owns your home, another owns your car, and a third owns stocks & bonds, while another owns investment property, for example. The PIF is the sole shareholder of these corporations.
Why would you want to do this? Estate planning along with privacy and asset protection are three good reasons for a PIF. When you pass away, your heirs take instant control of the PIF in a manner prescribed by you. No transfer of corporate shares, no probate, no estate taxes, totally private and immediate.
Why not have the PIF own the real estate, vehicles and other assets directly? One entity owning a variety of different assets is not advisable. If you seriously injure someone with your car, in your home, or your office; a lawsuit could wipe out all of the assets owned by that entity. Keeping each asset’s ownership separate from the others insulates legal exposure. Maintaining several corporations under one holding entity like a PIF makes good business sense, allowing for a fast & smooth transition when selling those assets or when you pass away.
Non-Profit: The law specifically states, "Private foundations shall not be profit oriented." Exception: Foundations may engage in commercial activities on a non-habitual basis or own shares of business companies and receive passive income – such as from rental properties, stocks or dividends.
Foundation Structure: The PIF has five main components:
1. Founder: The founder creates the foundation registered at the Panama Public Registry.
2. Foundation Council: The council serves the same function as corporate directors registered at the Panama Public Registry. In order to protect the privacy of clients, law firms generally provide a nominee (straw man) council, and provide pre-signed, undated letters of resignation from the nominee council. Thus, the council has no real control.
3. Protector: The client is privately appointed as the protector, fully controlling the foundation, while remaining 100% anonymous and private.
4. Beneficiaries: The beneficiaries are appointed through a Private Letter of Wishes written by the Protector. The Letter of Wishes is a private document keeping the beneficiaries 100% anonymous. Only the protector can change or modify the Private Letter of Wishes.
5. Registered Agent: The law requires every PIF to have a registered agent who must be Panamanian lawyer. The resident agent generally charges a small annual maintenance fee for provision of resident agent, registered office, and nominees.
TAXES: The government charges a flat annual franchise tax (called the “tasa unica”) of $300 to keep the PIF in good standing. There are no other taxes to be paid on PIF’s. Bank interest, offshore stock dividends & capital gains are tax free.
FOUNDATION PURPOSES: There are five main purposes for a foundation.
1. Holding Entity for Assets: A foundation itself has no corporate shares. The foundation can be the sole shareholder of your corporations & hold other assets. You control the foundation anonymously through a Private Protectorate role. Since the protector and the beneficiaries are both appointed through non-public (private) documents, they remain 100% anonymous.
2. Beneficial Owner for Corporations: The PIF serves as the beneficial owner for corporations, for purposes of confidentiality and asset protection.
3. Asset Protection: Under Panamanian laws, no one may freeze a foundation’s assets under any circumstances - providing the ultimate asset protection vehicle. The only exception is if the foundation is a defendant in a lawsuit or a co-conspirator in a crime.
4. Testamentary Purposes: The PIF protects and distributes your assets to your beneficiaries upon whatever triggering event you establish in your Letter of Wishes, for example, your death or incapacity. Your heirs will receive the PIF assets free of inheritance taxes, probate, deductions, red tape or legal delays.
5. Facilitates the Transfer of Funds Offshore and the Return of those Funds back Onshore: Since the foundation is a non-profit entity, it may receive donations, and it may give donations/grants, etc. to anyone you choose. Hence, you can donate your funds to the foundation. In turn, the foundation may provide educational grants, charitable donations, etc. to anyone you choose.
In Conclusion: A PIF offers limited liability, greater privacy, eliminates probate, and ultimate asset protection. While not being able to actively engage in business or commerce, a PIF can serve as a holding entity to own shares of corporations that do engage in active businesses whose earnings you want to protect for the benefit of the beneficiaries you appoint.