Lawyers in Panama

Frequently Asked Questions about Private Interest Foundation in Panama

What is a Private Interest Foundation?

A Private Interest Foundation is a legal entity, a hybrid between a trust and a corporation, which is constituted when a person called the founder, transfers by donation goods or assets to be administered by a foundation board, for the benefit of beneficiaries, who have been duly designated by the founder.

How is the Private Interest Foundation formed?

The Private Interest Foundation consists of a public document (the foundation charter) and a private document (the foundation regulations or bylaws). The latter establishes all the terms and conditions governing the foundation’s operation, especially types of assets, beneficiaries, protectors, and distribution rules.

How do I know if I need a Private Interest Foundation?

A Private Interest Foundation is a handy vehicle for people who need to organize their assets, clearly establishing the rules they want to be applied on the day they are permanently incapacitated or pass away. The Private Interest Foundation is a holding vehicle par excellence, so it complements very well the commercial entities, either corporations or limited liability corporations.

How long does it take to set up a Private Interest Foundation?

A Private Interest Foundation can be incorporated in approximately three (3) to four (4) business days.

Who is the Founder of the Private Interest Foundation?

The Founder is the natural or juridical person, national or foreign citizen, to whom the creation of a Foundation is attributed. If the interested party is required to maintain anonymity within the foundational act of the Foundation, our law firm may appear through a corporation constituted for such purposes, as the founder of the Private Interest Foundation.

Who are the owners of the Private Interest Foundations?

Private Interest Foundations do not have owners or shareholders, but beneficiaries, who generally hold passive rights. The role of beneficiary/s is established in the foundational regulations. There are no property titles of any kind that are issued and representative of this condition.

There is no limit to the number of beneficiaries a foundation may have. They are generally classified into principal, substitute, and final beneficiaries.

How many people must form the Foundation Council?

The foundation council must be composed of at least three (3) natural persons, or one legal entity, of any nationality.

Do Panamanian Private Interest Foundations have to pay taxes when they generate income of any kind?

In principle, any national or foreign person, natural or juridical, that produces from any source, taxable income within the territory of the Republic of Panama, will have to pay income tax.

However, it is important to mention that according to what is established in the Private Interest Foundation Law, the acts of formation, amendment, or extinction of the foundation, as well as the acts of transfer, transmission, or encumbrance of the assets of the foundation and the income from such assets or any other act on them, will be exempt from any tax, contribution, rate, levy or tribute of any kind or denomination, provided that such assets constitute:

1) Assets located abroad.

2) Money deposited by natural or juridical persons whose income is not of Panamanian source or is not taxable in Panama for any cause.

3) Shares or securities of any kind, issued by companies whose income is not of Panamanian source, or when their income is not taxable for any reason, even when such shares or securities are deposited in the Republic of Panama.

4) The acts of transfer of real estate, titles, certificates of deposit, securities, money, or shares carried out due to the fulfillment of the purposes or objectives or due to the extinction of the foundation shall also be exempt from any tax.

Can a Private Interest Foundation engage in commercial activities?

The Private Interest Foundation Law is sufficiently clear stating that it may not engage in commercial activities for profit. However, in practice the following is allowed:

1) It may exercise non-habitual commercial activities and that the economic product of these acts be used to fulfill the objectives established within the Foundation.

2) It may indirectly engage in normal commercial activities as a holding entity for shares of corporations.