Panamanian Foundations Preface
The following comprehensive review of Panamanian Foundations begins with a general introduction to the climate that resulted in its passage into law. It explains why Foundations are ideal legal structures for the kind of business that Panama is promoting. Following the introduction to the Foundation, we provide an explanation of how a Foundation is formed, what the principal roles are and what responsibilities attend these roles. Next there is general discussion of Foundation features and benefits. Finally, there is an article by article presentation of the Public Law that created Foundations. While this is not an official translation of the original Spanish version, it does serve as a useful reference for anyone trying to find the specific article from which a particular provision is derived.
Part 1: Introduction to the Panamanian Foundation
The Republic of Panama is regarded as the banking center of all Latin America, as well as a world leader among international trade and commerce centers. The Panama Canal and the Free Trade Zone have brought business and investment from every nation. More than half of Panama's gross national profit is derived from the financial services sector.
Among the many financial services it offers, Panama also serves as a tax haven for citizens of North and South America, Europe, and Asia. Panama has emerged as leader in the tax haven industry, in part, because more than 150 banking institutions are located in Panama City. Additionally, Panama adopted legislation to attract foreigners seeking refuge from high tax countries and litigation oriented societies. Panama has always welcomed foreign investors, who are attracted by the economic and political stability. Other features that lure investors include Panama's strict confidentiality in banking and corporate law, advanced systems of communication, geographic proximity to other financial centers, absence of money exchange control laws, its use of the U.S. dollar as its currency, and the fact that much of the labor force is bilingual. Panama's emergence as the tax haven of choice for discriminating investors is being hastened as the U.S. presence and influence diminishes on a daily basis.
In striving to maintain its position as a one of the world's leading offshore havens, Panama's National Assembly approved Law No. 25 of June 12, 1995, by which Foundations of Private Interest were established. For anyone familiar with entities of other jurisdictions, the Panamanian Foundation may be compared to the Family and Mixed Foundations (Stiftung) of the Principality of Liechtenstein. A Panamanian Foundation may also be compared to a Common Law Trust. It is a juridical person created to preserve the assets conveyed to it by its creator. As such it has beneficiaries rather than owners.
A Panamanian Foundation is a legal entity with its own existence and identity, which may be used for family, religious, public or charitable purposes to administer, invest or preserve assets for a class of beneficiaries. The goals, or objectives, of a Foundation usually concern providing for the education, training and living requirements of the beneficiaries. Often, Foundations are established to maintain confidentiality regarding the ownership of assets.
Foundations may not however undertake commercial activities as a regular course of business and cannot be profit oriented. At the same time, Foundations may execute commercial transactions and business necessary to fulfill their objectives. Also, a Foundation may exercise shareholders' rights when such shares form the asset base of the Foundation.
Part 2: Formation
A Foundation is established by a Founder, who may be one or more individuals or corporations. It may be created either directly or through a third party, such as a resident agent. The Foundation may be established during the Founder's lifetime or post-mortem. It is legally established when a Memorandum of Foundation (which may alternatively be referred to as a deed) has been drafted and filed at the Public Registry. This information, which must be officially registered in order to establish a Foundation, is largely a matter of procedure and does not jeopardize privacy in any way. The items that must be filed include:
Name and Purpose of the Foundation;
Names of the Foundation Council Members;
Address of the Foundation;
Appointment of a Registered Agent;
The name may be in any language and must include the word "Foundation " to distinguish it from other kinds of juridical persons. The objectives of the Foundation may include anything except the generation of profits.
The Foundation Council must be comprised of three natural persons, or a single juridical person, and its duties are set forth in the Memorandum of Foundation. These persons are not required to be Panamanian. The Council is similar to the board of directors of a corporation. It makes all the decisions, for the benefit of the Foundation and is charged with the responsibility of ensuring that the Foundation's purposes, as stated in the Memorandum of Foundation, are fulfilled. The council has the obligation to administer the Foundation's assets for the benefit of the Beneficiaries, who have the right to object to the actions of the council. The Council must deliver to the beneficiaries the assets or funds to which they are entitled, as set forth in the Memorandum of Foundation.
The registered agent must be either a Panamanian lawyer or law firm. A Private Interest Foundation also includes a body of Regulations, which are similar to by-laws. Unlike the Memorandum of Foundation, the Regulations remain private and confidential-they are not filed in any public registry. Therefore, it is within the Regulations that individuals typically articulate their wishes regarding beneficiaries and distribution of Foundation assets. Additionally, in this private document, a Protector may be named whose role is to oversee the activities of the Foundation Council. The Regulations may be amended at any time.
A Foundation ceases to exist when it has outlived its lifespan as specified in the Memorandum. It may be dissolved when its purpose has been fulfilled or when its purpose has been found to be too difficult to fulfill. When the Founder has reserved the right of revocation, the Founder may dissolve it. Other reasons for dissolution include bankruptcy or exhaustion of Foundation assets. Finally, a Foundation may be dissolved for any other reason that has been articulated in the Memorandum of Foundation.
Part 3: Discussion, Application and Points of Interest
From the above, it is clear that the formation of a Private Interest Foundation is simple to expedite. Once the deed has been registered, the Foundation comes into existence and may begin to execute its objectives. It may acquire and possess assets of any kind, assume obligations through contracts and participate in any administrative and judiciary process. Below are some of the features and benefits of structuring personal affairs through a Foundation.
Minimal Government Involvement
Government approval is not required for formation of a Foundation, modification of a Foundation deed or appointment of beneficiaries. No authority or governmental agency supervises the management and operation of a Foundation.
Avoidance of Formalities
A Foundation may be created to become effective upon the death of the Founder, in which case the Founder does not have to comply with the requirements and formalities for the creation of a will.
A nominee may fulfill the role of Founder. This makes it possible for the individual's name not to appear in the public record. The Founder's heirs do not have the right to revoke the creation of the Foundation, nor do they have the right to object the assignment of properties to the Foundation.
The law codes in a Founder or beneficiaries' country regarding intestacy have no bearing on the validity of the Foundation. That is, the objects of the Foundation will be honored without regard to the laws of other jurisdictions. The Founder may retain control of the Foundation by retaining the power of appointment of the Foundation Council. The assets of a Foundation comprise a separate and independent estate from that of the Founder. Once the assets have been transferred to the Foundation, such property does not belong to the Founder. Therefore said estate can not be attached, seized or be subject to any lawsuit or legal actions as a result of obligations or liabilities of the Founder or the beneficiaries of the Foundation.
The creditors of a Founder have the right to contest the creation of a Foundation, or the transfer of assets to a Foundation, when either activity represents a fraud against their legitimate claims. The creditor's right to contest the creation of a Foundation expires three years from the date that the Memorandum of Foundation is filed at the Public Registry. The Founder may serve as a member of the Foundation Council, as a Beneficiary or as Protector. The Founder has the power to remove council members, beneficiaries or a protector if he desires or he can assign these powers to another person in the Foundation.
Only the persons involved in the creation of the Foundation know the identities of the beneficiaries, as established in the by-laws. The by-laws are private and not available in the Public Registry. In order for a third party to identify the beneficiaries, he must have a court order to "pierce the veil" of the Foundation. This is extremely rare in Panama because this would contravene the Republic's campaign to become recognized as a safe haven of secrecy. All persons involved in any activities, transactions or operations related to the Foundation are required to maintain full secrecy and confidentiality at all times. The penalty for breach of this obligation is a jail term of six months and a US$50,000.00 fine, with the possibility of an additional civil penalty. The secrecy provision applies broadly to all persons involved in any transaction associated with the Foundation. In the event of political instability, a Panamanian Foundation may relocate to another jurisdiction.
The assets of a Foundation may be obtained as a result of any lawful act or transaction and may consist of properties of any nature, present or future, either real estate, monetary instruments, securities or chattels of any kind. The assets of a Foundation may be increased at any time. The Founder or any other party may transfer assets to the Foundation. Although the Council must inform the beneficiaries of the Foundation 's financial status annually, no reports need be filed with Panamanian authorities or agencies.
The creation, the modification and the extinction of a Foundation are not taxable events. Transfers and encumbrances of Foundation assets are not taxable events. Income generated by a Foundation is exempt from tax in the Republic of Panama. All of the foregoing are not only exempt from tax, but from all assessments, rates and liens of any kind or description. These exemptions apply when the patrimony consists of assets located outside of Panama, and shares or securities of a company whose source of income is outside of Panama or where such income is otherwise not taxable in Panama.
Part 5: Short Summary of Articles
This section functions as a quick reference guide to the articles of Public Law No. 25. It allows the user to see at a glance how the law is organized.
1. Article : Constitution; endowment.
2. Article : Private Foundations distinguished from traditional Foundations.
3. Article : Private Foundation shall not be profit oriented.
4. Article : When Foundations may become effective (either during the life of the Founder or post-mortem). Requirements of making a will do not apply to Foundations.
5. Article : What must be contained in a Foundation charter.
6. Article : Notarization and filing at the Public Registry.
7. Article : Amendments to the Foundation charter.
8. Article : Annual taxes.
9. Article : Registration at Public Registry gives juridical personality.
10. Article : Endowment.
11. Article : Assets of Foundation constitute separate estate separate from that of the Founder.
12. Article : Irrevocability; exceptions.
13. Article : Founder's right to revoke; heirs may not revoke.
14. Article : Laws of other countries not effective with regard to Foundation.
15. Article : Creditors rights in instances of fraud; statute of limitations.
16. Article : Sources of Foundation patrimony.
17. Article : Articulation of Foundation Council powers; number of members.
18. Article : Foundation Council responsibilities.
19. Article : Foundation Council interfaces with other supervisory bodies.
20. Article : Foundation Council duty to beneficiaries.
21. Article : Right in the Founder to add or remove Foundation Council members.
22. Article : Removal of Foundation Council by judicial proceeding.
23. Article : Only Founders and Beneficiaries may petition for judicial removal of Foundation Council members.
24. Article : Scope of authority for supervisory bodies.
25. Article : Foundation dissolution.
26. Article : Beneficiary objection to Foundation activities.
27. Article : Tax exemptions.
28. Article : Foreign Foundations may become recognized in Panama.
29. Article : Requirements for foreign Foundations to become recognized in Panama.
30. Article : Additional requirements for foreign Foundations to become recognized in Panama.
31. Article : Relocated foreign Foundations do not escape prior obligations.
32. Article : Panamanian Foundations can migrate to other jurisdictions.
33. Article : Where to register Foundations.
34. Article : Panamanian Foundations are subject to all laws pertaining to money laundering and drug trafficking.
35. Article : Privacy imperative; penalties for breach.
36. Article : Resolution of controversies when remedy not prescribed in the law.
37. Article : Date of entering into effect of law (June 12th, 1995 - as per the Official Gazette No. 22,804 of June 14, 1995).
Part 6: The Articles
This section provides an article by article explanation of Public Law No. 25. It summarizes what is set forth in each of the articles. While this is not an official translation of the law, it is intended to be a convenient reference guide to understanding each of the articles. In some cases, following the summary of the article, there is an italicized commentary.
A private Foundation may be constituted by one or more natural or juridical persons, acting in their own name or through another. An endowment, or patrimony, must be made at the time of creation, which is provided for in the Foundation charter. The original endowment may be supplemented by the Founder, or by any other person. This article seeks to broadly define the private Foundation. It also clarifies that private Foundations can be constituted by fiduciary agents and by natural or juridical persons. The charter of a Panamanian Foundation must be recorded at the Public Registry, as in the case of a corporation. The drafters of Public Law No. 25 felt that the registration at the Public Registry would attach greater responsibility to the parties associated with the establishment of the Foundation. This would result from the fact that the names and addresses of the Foundation Council members are registered with all other documents.
A Foundation shall be governed by its charter and its regulations, as well as by the provisions of Public Law No. 25, and any other relevant legal and regulatory provisions. The provisions of Title II of Book I of the Civil Code shall not apply to private Foundations.
The impetus of this article is to distinguish Private Foundations from Foundations of Public Interest.
Private Foundations shall not be profit oriented. They may nevertheless engage in commercial activities from time to time or exercise rights deriving from the ownership of business capital, when such capital constitutes a part of the Foundation's assets. However, the economic consequence of the ownership of such business capital shall comply with the stated objectives of the Foundation. The third article states Foundations shall not be operated as corporations, nor shall they be used to conduct a particular business. Essentially, it places the Foundation in the role of a holding company. It may at times conduct business, when to do so is convenient, or confers a benefit to the Foundation. However, the proceeds of such business must conform to the non-commercial purposes or objectives of the Foundation.
Private Foundations may become effective at the time that they are constituted or upon the Founder's death if either one of the two below alternatives are satisfied:
1. The Founder constitutes the Foundation by private document, with his signature authenticated by a notary public at the place of constitution, or
2. The Founder constitutes in a place other the place of constitution, in the presence of a notary public.
If a Foundation is created to become effective after the Founder's death, none of the formalities that accompany the execution of wills shall apply. Thus, a Panamanian Foundation can be constituted in any jurisdiction, so long as the Founder's signature is authenticated by a notary public. When a Foundation is constituted with testamentary objectives, the laws pertaining to Foundations must be satisfied. However, the formalities of the Civil Code of Panama for the making of a valid will do not apply. The legislative intent of this was to ensure that Foundations would remain convenient testamentary vehicles without the complications of the Civil Code.
The Foundation charter shall contain:
The name of the Foundation in any language with characters of the Latin alphabet. The name shall not be identical or similar to any other existing Foundation in the Republic of Panama. The name shall include the word "Foundation " to distinguish it from natural persons and other varieties of juridical persons.
The Foundation's initial capital may be in any currency, in an amount equivalent to US$10,000.00.
The names and addresses of Foundation Council.
The domicile of the Foundation.
The registered agent's name and address. This person must be a Panamanian attorney or law firm. The resident agent must countersign the Foundation charter prior to its registration at the Public Registry.
The purposes or objects of the Foundation.
The manner in which Foundation beneficiaries are named.
The reservation of the right to modify the Foundation charter when deemed convenient.
The length of time during which the Foundation shall endure.
How the Foundation assets shall be disposed of at liquidation.
Any other lawful clauses which the Founder may consider necessary.
This article requires minimal information and formality, while preserving in the Founder the right to include "any other lawful clauses that the Founder may consider necessary."Filing the Foundation charter at the Public Registry satisfies all public filing requirements.
The Foundation charter and amendments may be drafted in any language using the Latin alphabet. Prior to filing at the Public Registry, the regulations regarding registration of acts and titles requires that such documents be notarized in the Republic of Panama. If a Foundation charter or amendments are not in Spanish, they must be notarized and placed in deed form, with a certified Spanish translation. Foundation charters must be notarized and placed in deed form before they are filed at the Public Registry. If a Foundation is constituted in a foreign country, it will have to be notarized and placed in deed form by a Panamanian notary before it is filed at Public Registry. The Foundation charter must be in Spanish, even if it is an official translation of a document in another language.
Amendments to the Foundation charter shall be executed and signed in accordance with the provisions of the Foundation charter. An amendment shall indicate the date of its execution, the names of the person or persons executing the amendment and the authenticated signature of such person or persons, authenticated at the place of execution. The purpose of Article 7 is to ensure that amendments are made by those persons to whom authority to do so has been granted in the Foundation charter.
Private Foundations are required to pay registration fees and annual taxes at a rate equivalent to those for corporations, as set forth in articles 318 and 318A of the Fiscal Code. Additionally, the procedure and form of payment, the surcharge for late payment and the consequences of non-payment apply to Foundations. This article clarifies that the registration charges and annual franchise taxes that apply to corporations also apply to Foundations.
The filing of the Foundation charter with the Public Registry is sufficient to give it juridical personality. The filing at the Public Registry also constitutes notice of its existence to third parties. A Foundation may own assets, incur obligations and be a party to administrative and judicial proceedings of any nature. This article stipulates that a Foundation acquires juridical personality at the time of its registration at the Public Registry. Unlike the case of public Foundations, the private Foundation requires no additional legal or governmental authorization.
At such time as the Foundation has acquired legal status, the Founder or any third party who has agreed to contribute assets to the Foundation, shall formalize the contribution of the promised assets. When the Foundation's constitution is triggered by the Founder's death, it shall be deemed to have existed prior to death, for the purpose of any donations that the Founder may have made to the Foundation before death.
The assets of the Foundation shall constitute an estate separate from the Founder's personal assets for all legal purposes. As a separate estate, Foundation assets cannot be seized, attached or made subject to any precautionary action or measure with respect to actions undertaken by the Founder, council or beneficiaries. Creditors and plaintiffs may only reach Foundation assets when the Foundation has itself incurred obligation, or caused damage in attempting to fulfill the Foundation objectives. In no case shall such assets be affected or used to respond for the personal obligations of the Founder, council or beneficiaries.
Foundations shall be irrevocable except in the following cases:
The Foundation charter has not been filed with the Public Registry;
The Foundation charter stipulates that it is revocable; and
For any of the reasons articulated in the Civil Code pertaining to revocations.
The transfers of assets made to Foundations shall be irrevocable by the person who made the transfer, unless it is expressly stated otherwise in the act of transfer of such assets.
When a Foundation has been constituted to be effective at the time of the Founder's death, the Founder shall have the exclusive and unlimited right to revoke it. Following the death of the Founder, the Founder's heirs shall not have the right to revoke the Foundation's creation or transfer of assets to the Foundation. This shall hold true without regard to whether the Foundation has been registered at the Public Registry before the death of the Founder.
The legal provisions regarding inheritance in the Founder's or beneficiaries' domicile shall have no effect or impact on a Foundation. The law of an outside jurisdiction shall not prevent the attainment of a Foundation's purposes as they are articulated in the Foundation charter or regulations. This article has been imported into Panamanian law from jurisdictions in the Caribbean. It requires that Panamanian courts respect the Founder's wishes irrespective of intestacy rules in other jurisdictions.
The Founder's creditors can contest a transfer of assets to a Foundation when the transfer has been made to defraud creditors. However, this right expires three (3) years after the date of the transfer in question.
The patrimony of the Foundation may derive from any lawful trade or business and may consist of assets of any kind. The transfer of assets to the estate of the Foundation may be made by public or private document. However, in the case of fixed property, the transfer must satisfy with the requirements for the transfer of such property.
The Foundation Council's powers and responsibilities shall be established either in the Foundation charter or in its regulations. Unless the Council is a juridical person, there shall be a minimum of three members of the Foundation Council. There need be but a single Council member if such member is a juridical person.
The Foundation Council is responsible for ensuring that the purposes or objectives of the Foundation are accomplished. Except where the Foundation charter or regulations requires greater or lesser responsibility, the Foundation Council shall have the following general obligations and duties:
To administer Foundation assets in a manner consistent with the Foundation charter or its regulations;
To perform acts, enter contracts and/or conduct lawful business which advances the interests and accomplishes the purposes of the Foundation within the law;
To keep Foundation beneficiaries apprised of the Foundation's economic health;
To make delivery of Foundation assets to the beneficiaries in the manner articulated in the Foundation charter or regulations; and
To carry out all such acts or contracts which are permitted to the Foundation by the present law and by other applicable legal or regulatory provisions.
Articles 17 and 18 reveal an implicit expectation that the Founder delineate the powers and responsibilities assigned to the Foundation Council. Should the Founder fail to do so, the law assigns the Foundation Council the above default powers.
The Foundation charter or regulations may require that members of the Foundation Council must obtain previous authorization of a protector, committee or other supervisory entity appointed by the Founder, in order to exercise their powers. The members of the Foundation Council shall not bear any liability for damage or loss caused by their decisions, when such decisions have been made with prior authorization.
Except when the Foundation charter or regulations indicate otherwise, the Foundation Council must keep beneficiaries informed of the council's administration. If the Foundation charter or regulations contain no mention of the frequency with which this shall be done, the rendering of accounts shall be made annually. When no objection is raised to the accounts within the time specified in the Foundation charter or its regulations, or, if the charter does not regulate the matter, such accounts will be deemed to have been approved ninety days from the date the accounts were received. When the accounts have either been approved, or the ninety-day period has elapsed, the Foundation Council shall bear no liability for their administration, unless they had failed to act with the diligence. The above approval does not exonerate the Foundation Council in instances of negligence or fraud in the administration of the Foundation.
The Foundation charter may reserve for the Founder, or other persons, the right to remove or add members of the Foundation Council.
If nothing is articulated in the Foundation charter or regulations regarding the circumstances under which members of the Foundation Council may be removed, the law states that they be removed through a judicial proceedings for the following causes:
If council members' interests conflict with the interests of the beneficiaries or of the Founder;
If council members do not administer the assets of the Foundation the requisite diligence; or
If the council member is charged with a crime against private property or public faith, in which case the member shall be suspended for the duration of the trial;
If the council member lacks capacity or impossibility to carry out the objectives of the Foundation, from the time such causes arise.
For insolvency or bankruptcy proceedings.
The Foundation charter should also specify causes for removal of the members of the Foundation Council and the persons authorized to remove them. Nevertheless, in case that the above mentioned clauses are not included in the Foundation charter, this article of the law allows the removal of such member(s) by judicial proceedings if they incur in any of the causes for removal stipulated in the same article.
The Founder or beneficiaries may remove members of the Foundation Council by judicial proceeding. In an instance in which the beneficiaries are minors, they may act through a legal guardian. The court that effects such removal shall also name replacement council members. The new members must be persons with capacity and qualifications for the position. Further, they must have demonstrable moral character to be entrusted with the Foundation assets.
The Foundation charter or regulations may provide for supervisory bodies. The supervisory bodies may be composed of natural or juridical persons, such as auditors or protectors. The Foundation charter or regulations shall establish the powers of the supervisory entities, which may be empowered to:
Ensure that the Foundation Council fulfills Foundation 's purposes, and that it protects the rights and interests of the beneficiaries;
Require the Foundation Council to render accounts;
Modify the objects and purposes of the Foundation when their fulfillment becomes impossible or too burdensome;
Appoint new members of the Foundation Council in circumstances of temporary absence or expiration of period of service;
Add or remove members of the Foundation Council;
Approve Foundation Council acts and decisions pursuant to the Foundation charter or its regulations;
Act as custodians of Foundation assets and ensure that they are used in a manner consistent with the objects or purposes contained in the Foundation charter; and
Add and remove beneficiaries of the Foundation in accordance with the provisions of the Foundation charter or its regulations.
The Foundation shall become dissolved:
On the date specified in the Foundation charter;
When the purposes or objectives of the Foundation have been fulfilled;
Upon insolvency or upon a judicial declaration of bankruptcy;
Upon the loss or exhaustion of Foundation assets;
Upon revocation; and
For any reason specified in the Foundation charter or in Foundation law.
A beneficiary may object to Foundation activities that jeopardize his rights or interests by complaint to the protector or supervisory body. Where there is no protector or supervisory body, beneficiaries may initiate judicial action before in a court of appropriate jurisdiction.
The acts of constitution, amendment or extinction of the Foundation are exempt from all taxes, duties and assessments. Additionally, the following assets are exempt with regard to transfers, transmittal, encumbrance and the income arising therefrom:
Assets located abroad;
Money deposited by a person, whether natural or juridical, whose income is foreign source and not taxable in Panama;
Securities issued by corporations which do not derive income from a Panamanian source, or which are not taxable in the Republic of Panama; and
The transfer of fixed property, titles, certificates of deposit, assets, funds, securities or shares, which is consistent with the objectives of the Foundation, in favor of relatives within the first degree of sanguinity or the spouse of the Founder shall also be exempted from all taxes.
This article clarifies the tax advantages offered by Panama through the private Foundation. As in many other international jurisdictions, Panama only taxes income generated by economic activities conducted within the country. Therefore, a person who uses private Foundation outside of Panama will not be liable for taxes within Panama, beyond an annual franchise tax. Because there is no estate tax in Panama, the legislators felt that it would be unfair to impose a tax on the transfer of assets to a Foundation.
Foundations organized under the laws of other jurisdictions are permitted to relocate to Panama and become subject to the provisions of this law. Panama recognizes Foundations organized in other jurisdictions. The requirements for relocation are set forth in Article 29.
Foundations to become subject to Panamanian law shall present a certificate of continuation, which shall contain:
The name of the Foundation and its date of constitution;
Information pertaining to the registration of the Foundation in its original place of constitution;
Declaration of desire to exist in Panama, under its laws; and
All of the items specified in Article 5 of the law of Panamanian private Foundations.
Item number 4 above clarifies that the Article 5 requirements be satisfied. However, when they have not, they may be satisfied in the certificate of continuation. The legislators' intent in Article 29 was to facilitate foreign Foundations becoming Panamanian Foundations with a minimum of inconvenience.
The certificate with the resolution of continuation must be accompanied by the following documents:
A copy of the Foundation's original constitution any amendment thereto; and
A power of attorney for the Panamanian lawyer who shall effect the continuation of the Foundation under Panamanian law.
In addition to the two above requirements, the certificate of continuation and attached documents must be duly notarized and filed at the Public Registry.
The responsibilities, duties and rights of the Foundation, which includes involvement in legal actions, shall continue in effect. These rights and obligations are not effected by the change of jurisdiction. A Foundation's change of jurisdiction does not extinguish its obligations to third parties incurred in the original jurisdiction.
Foundations and their assets may transfer to a foreign jurisdiction, when the laws of such other jurisdiction provide for Foundations.
This article stipulates that Panamanian Foundations can migrate to other jurisdictions, when the host jurisdiction has supporting legislation permitting relocation.
Registrations of Private Foundations must be made at the Public Registry in the "Section of Private Foundations." The Executive Branch of Government, acting through the Ministry of Government and Justice, issues the regulations applicable to such section.
Private Foundations are subject to the provisions of Executive Decree No.468 of September 19, 1994, as well as all other legal measures that target money laundering and proceeds of drug trafficking. Decree No.468 of September 19, 1994 imposes upon attorneys the responsibility to know the identities of their clients. This information shall be disclosed, upon request, to anyone acting with the authority of the Public Ministry (Justice Department) in the course of a drug trafficking or money laundering investigation. Decree No.468 was enacted because of reports that Panamanian corporations, which use bearer shares, were being abused as laundering vehicles by crime syndicates. The decree requires resident agents to record client names so that they may be identified by the appropriate authorities in drug trafficking and money laundering cases.
All members of the Foundation Council, supervisory bodies and public or private employees, with knowledge of Foundation activities, transactions or operations must keep all aspects of the Foundation and its activities strictly confidential. Breaches of this duty shall be punishable by imprisonment of up to six months and a fine of US$50,000.00, without prejudice to the corresponding civil liability.
This article applies without prejudice to information that must be disclosed to authorities in official investigations pursuant to relevant law.
This article warns of the requirement that secrecy be maintained, not only by those who create a Foundation, but also by anyone who comes to possess information concerning a Foundation. While there are severe sanctions for breaches of this duty, the information recorded at the Public Registry does not fall within the scope of this confidentiality. Secrecy requirements shall not however serve as protection against legitimate investigations by appropriate Panamanian authorities.
In the event that a controversy arises which is not specifically addressed under this law, such controversy shall be resolved by summary proceedings. The Foundation charter or regulations may stipulate that controversies be resolved by arbitration, and what the rules for such arbitration shall be. If the rules have not been established, the statutes prescribed rules for arbitration contained in the Judicial Code shall apply.
This law shall enter into force after its promulgation. (June 12th, 1995 - as per the Official Gazette No. 22,804 of June 14, 1995).
Source, Barrington Group, Panama.
OFFSHORE CHARITABLE FOUNDATION STRUCTURE
The Charitable Foundation is a non-profit corporate legal entity originating in Liechtenstein 70
years ago, similar to a Trust in the ways the Foundation Council administrates (providing discretionary control), which has withstood the previous scrutiny of Tax authorities and survived.
The main components are:
The properly documented Gift, that is used to send property to the Foundation.
A Canadian/US lawyer to provide independent legal advice and shield with solicitor/client privilege.
The Foundation Council corporate bodies that administrate to achieve the stated purpose.
The Foundation Charter, the mandate and by-laws followed by the Council, to legally hold property.
The Protector, a firm that assures Council is doing their work, in the best interest of the by-laws.
The Holding Company, where the Foundation sends funds to be invested.
The Consultant Agreement, that places the client in a paid advisory role to the Holding Company.
By-laws, which are private statements that Council follows to serve undeclared beneficiaries.
The private numbered corporate bank account and numbered VISA account access card.
Guaranteed investments that yield high monthly compounded interest, and are fully insured.
The Offshore Structure is a non-resident corporation because it is a non-profit Private Charitable Foundation, with absolute discretionary powers given to the Foundation Council who reside in the Caribbean. Therefore, the Investor would be exempt under the new reporting requirements because he gifted the property to the bona-fide purpose Foundation, does not exert control, is not a beneficiary, and does not own the IBC shares where the capital is working. Distributions may be made by way of scholarships, bursaries, gifts, loans, or other methods, all of which are non-taxable. Taxable consultant income can be received and offset or balanced with legitimate expenses from the Holding Company.
Cambridge International Bank & Trust Company Limited
St.George's, Grenada, West Indies.