Panamanian Foundation structure was codified into law in 1995. While
this structure is a fairly new entity for Panama, the Foundation structure
itself has existed in Liechtenstein for quite some time and the Panamanian
structure was in fact modeled after the Liechtenstein legislation.
Some advantages a Panamanian foundation has over a Liechtenstein foundation
include; it is far less expensive to create (A Panamanian Foundations costs
less than $3,000 while some firms have charged as much as $10,000 to create
a Liechtenstein foundation), it is far less expensive to maintain, it offers
To understand the
idea and benefits of the foundation structure, clients should first understand
the difference between a trust and a corporation. It is also important
to note the difference between English speaking countries that use Common
law and many non-English speaking countries that use Civil Law. I
mention both these points because, in fact, the Panamanian Foundation structure
offers some of the best benefits of both the trust structure and offshore
corporation in one. Also, in our opinion, a structure domiciled in
a Civil Law jurisdiction is the better choice for a client that is resident
or domiciled in a Common Law country (such as the US).
It is true that most
clients are seeking some way to create a vehicle to reduce tax liabilities
and protect their assets from lawsuits or claims against their estate.
This is easily understood. The difficulty for many clients is of course
deciding upon the best plan of action or structure to use. As a brief
comparison, I think most people understand the idea behind a corporation
and how it works. The corporation structure is used worldwide to
basically carry out a business enterprise and keep the owners business assets
(and liabilities) separate from his own. As a separate entity, The
corporation usually has it’s own tax identification number and is what can
be termed a juridical person. Certainly it is not a human being, but it
has all of the rights and responsibilities of a natural person under the
law. The key point is that the assets and liabilities of the corporation
are separate and distinct from those of the shareholders.
How to Create a Panamanian Foundation
The trust structure, however, is a vehicle usually only found in common
law countries and is most commonly used as an estate planning mechanism.
The history of the trust is an interesting one and dates back to the period
in England when wealthy noblemen and knights were called to fight in the
crusades. In order to protect inheritance rights and of course family
assets, lands and holdings were placed “in trust” and were managed by a
well regarded friend or family member. This was done to insure that the property
was not mismanaged and to also insure that a trusted friend or family member
was present to make sure the owner’s wishes were carried out in case of
the owner’s death or incapacitation. The trust structure was meant
to be a safe haven, with the trustee as the guardian of that safe haven.
It was not meant to be a structure that would engage in business activities
(as a corporation). Again, under current interpretation in modern
law, the trust structure is in theory meant to be a separate juridical person.
In this was it also is meant to separate the owner from his assets and offer
protection under the law. Like any other entity, the purpose
is to keep the owner’s previously held assets safe and secure from violation
It is unfortunate, but recent court cases in the US have proved that US
judges either do not understand the essence of what a trust is meant to
be or simply have made decisions that in essence disregard trust legislation
altogether. For this reason, any trust structure that is a domiciled
in the US and some other common law countries are not worth the paper they
are written on. This is not to say that the laws in these countries
are always poor regarding these structures. The real current problem
is that those upholding the law (judges and court systems) have chosen to
disregard the law or interpret the law in such a way that no real protection
is offered with these type of structures. This is why we strongly
prefer Civil Law jurisdictions over those based upon common law. Part
of the reason is how the legal systems in these countries operate.
The Panamanian Foundation can be created by one or more natural persons
or by a juridical entity, such as a corporation. A foundation charter
is created, which is essence, is similar to the incorporation documents
created for a Panamanian company. Like the incorporation documents,
The foundation charter document is public record. The foundation structure
is directed by a council of three or more members. This is similar
to a corporation, which is directed by three directors or board members.
These directors of the foundation are called Council Members. In addition,
like a trust, a private protector may be named to have special oversight
authority. I usually suggest that the client take this position, especially
if nominee council members are being used. The position of a protector
is not required, but it is advisable. While the position of protector
can be a private agreement between the foundation and the person acting as
protector, extra protection is given to the client when this position is
spelled out in the foundation charter.
Foundation Charter must contain:
Name of the Foundation – The name of the
foundation can be expressed in any language, but must contain the term foundation
as part of the title to indicate that the entity is in fact a foundation
The Initial Patrimony - The initial patrimony
is the amount used to fund the foundation. The foundation can be funded
in any currency, but the initial patrimony cannot be less than the equivalent
of US $10,000. An important point to note is that this
initial funding or contribution does have to be done at the time the foundation
is created. Rather it can be done after the fact. In reality,
there is no public record of the foundation assets other than the fact
it was originally funded with ten thousand dollars.
Council Members – The foundation structure must
have a minimum of three council members who are natural persons or a juridical
person, such as a corporation that has three natural persons as directors.
The names and addresses of the council members is public record.
The Purpose of the Foundation - The foundation
may be created for any lawful purpose. Examples of such purposes
could include; the maintenance and welfare of minor children, a college
scholarship fund for any person, the maintenance and welfare of the founder
upon his or her retirement, the maintenance of a building or property,
the benefit of any charitable foundation or organization, or any other
purpose that the founder can think of that is within the confines of the
Beneficiaries – The foundation structure, like
a trust document, must name beneficiaries and also what percentage each
beneficiary is entitled. The foundation charter must also indicate
how assets are to be distributed upon its dissolution. The founder of the
foundation, or the client, Can be named as a beneficiary.
Domicile – The domicile of the foundation can
be located or indicated as any desired jurisdiction, but it is suggested
that Panama or another civil law jurisdiction be used.
Resident Agent – The foundation must have a local
resident agent which is a duly authorized lawyer or law firm, with a physical
presence in Panama.
Key Benefits of the Panamanian
Duration of the foundation – The foundation can
have a limited life span if the client wishes to indicate as such.
Advantages of the Panamanian Foundation
The Assets placed inside a Panamanian foundation are sole and separate
property and cannot be seized to satisfy any personal judgements or obligations
of the founder or the foundation’s beneficiaries. Assets inside a
Panamanian foundation cannot be attached in order to satisfy any claims
against the founder, including judgements for divorce, lawsuit and other
The Panamanian foundation
offers the best of a trust and the best of an offshore corporation at the
While the foundation cannot technically engage in business
activities, it can own the shares of a company engaged in business activities.
It is also permissible for the foundation to engage in any activity, which
will increase the value of assets. This means that a foundation can
be the owner of bank accounts, securities brokerage accounts and real estate
Since there are no
shares of ownership in a Panamanian foundation, the founder does not own
the foundation and as such gains important tax reporting and protection
benefits with this.
In reality, there
are quite a number of practical uses and strategies for the Panamanian Foundation.
As an asset protection vehicle, there is probably no better entity in any
jurisdiction at the present time for this purpose. For more information
on how to use a Panamanian foundation as part of an overall asset protection
strategy, please contact our office.
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