The Panama private foundation as an asset protection solution

Posted by Cynthia Smith on July 22nd, 2021

The Panama Foundation is a type of private foundation specifically designed as an asset protection tool. It was introduced in 1995 by the Panamanian government (through the Private Interest Foundation Act) and is based on the principles of the Swiss, Luxembourg and Liechtenstein family foundations.

The most obvious advantage of the Panamanian private foundation is that it is a stand-alone legal entity that is independently able to exercise its rights, enter into contracts, acquire property, etc.

On the other hand, the difference between an offshore limited liability company and a private foundation is that the latter is non-commercial and cannot be used for commercial purposes. It is also not to be confused with a corporation that has owners and members.

However, a Panamanian private foundation can participate in investment activities: real estate, stocks, bonds, patents, holdings, stocks, etc.

Typically, a Panamanian private foundation is set up for a specific purpose, after which an individual or group benefits from the foundation. The Panamanian non-profit public foundation is for charitable purposes, while a Panamanian private interest foundation will most likely be created to preserve and safeguard the inheritance of family members or other individuals.

Main advantages of the Panamanian private foundation
Establishing a private foundation in Panama gives its owners the following benefits.

Confidential: the names and addresses of the beneficiaries are not available to the public
Tax exempt: no taxation in Panama and no taxation on world income
Pronounced legal personality
Simple structure: founder and beneficiary can be the same person; no obligation to appoint officers or directors
Out of reach of creditors
No annual financial statements or audit obligations
A solution to protect property
If asset protection is your primary goal, consider a Panama Private Interest Foundation as an asset protection solution.

A Panama private foundation enables you to hold property and other assets in Panama that are registered anywhere in the world.

The effectiveness as a property protection solution depends on the right structuring, whereby each component of the foundation plays a decisive role. A foundation consists of:

Founder
The founder is responsible for establishing the foundation and can be a private person or a legal person. Very often the founder is a trust company, law firm, or fiduciary service provider. The name of the founder will be made public. The basic function of the founder is to set up the foundation and to submit the necessary documents; they have practically no power over the foundation itself.

Advice
The function of the council is similar to that of the board of directors in companies or groups. Note that the names and addresses of council members are publicly known and therefore professional candidates are typically appointed for these positions, especially when privacy is a major concern. The function of the councils is basically a nominal one - they are responsible for keeping and archiving records, but have no influence on the foundation's assets.

Protection
A Panama Foundation and its assets are ultimately controlled by its protectors. The council is responsible for appointing the protector during the registration process. For additional confidentiality, a notarized protectorate document (signed by the council) is often used to keep the name of the protector secret. Very often the customer himself is appointed protector. He or she has final control over the entire foundation's assets. You can also choose not to appoint a Protector at all or to have a nominated Protector.

Beneficiaries
The beneficiaries are appointed by the Protector either by letter of will or by the foundation's statutes. Both documents are valid indefinitely and do not need to be made available to the public.

Letter of wishes
The letter of will is drawn up according to the wishes of the protector and contains the principles according to which property and assets are to be distributed among the beneficiaries, as well as all other testamentary instructions that are to be applied after the death of the protector. You can register the wish letter publicly or keep it private for reasons of anonymity.

Statute
Although the letter of wishes is the most important document confirming the purpose of the foundation, you can also draft a constitution of the foundation. This is a legal document drawn up by a Panamanian lawyer and signed in front of the notary. It has the same basic function as the wish letter, but it is a more formal document. As a rule, customers prefer to only use a privately written wish letter in order to maintain the confidentiality of the protectors and beneficiaries.