SETTING UP PRIVATE INTEREST FOUNDATIONS AND TRUST FUNDS IN PANAMA
Garrido & Garrido considers of paramount relevance to provide long term appropriate protection and organization of clients’ assets. It is with this goal in mind that our expertise in Private Interest Foundations and/or Trust Funds delivers true asset protection in advantageous jurisdictions, such as Panama, Liechtenstein, Belize, Malta, and others. The impetus for the creation of a Private Interest Foundation law in Panama had arisen from their popularity in Europe, more specifically in Switzerland, due to the Family or Mixed Foundation (stiftung) of the Principality of Liechtenstein. A Private Interest Foundation is defined to be the dowry or donation of a patrimony for objectives or aims determined in a document entitled an Original Act. This legal framework could be regarded as a fusion between a Trust and a joint-stock company. The achievement of the Foundation’s objectives are trusted upon natural persons who are regarded to be members of the Foundation Council and comprise what functions as a Board of Directors and whose names must be established in the Founding Act. The initial patrimony of the Foundation can be increased periodically by the creator(s) of the Foundation, who will be entitled founder, or by any other person or persons. Further, the persons or institutions that receive benefits from the Foundation are known as beneficiaries. The donated funds or patrimony will be treated separately from the personal assets of the founder, in this sense, the aforementioned donated funds or patrimony constitute an autonomous fund and acquire the character of an independent legal entity, becoming a Private Foundation. Unlike a joint-stock company, the Foundation does not have partners, participants or shareholders. Consistent with its constitution, the founder does not acquire the said privileges in connection with the assets of the autonomous fund. Notwithstanding the above, the law recognizes the beneficiaries, that is, the people for whom the Foundation objectives are organized and realized, among which the founder may be included, the right and privileges of the Foundation.
THE IV ROUND OF MEETINGS FOR THE BILATERAL PROTOCOL BETWEEN HONDURAS AND PANAMA BEGINS
We must point out that the main difference between a private interest Foundation and a Charity Foundation, or a Foundation with Scientific objectives; is that the latter must be duly authorized by the Ministry of Government and Justice of the Republic of Panama; while the Private Interest Foundation beings its existence or acquires juridical or legal personality, once it is inscribed in the Public Registry, for which we must only comply with the formalities established by law.It is important to mention that although this type of Foundation may not carry out charity activities, they hold great real and practical use for all the community. Being it a permanent institution, it offers the possibility to establish and emulate, even after the death of the founder, the certain ideas and objectives that this person had in mind for his capital or patrimony ; the destiny of the same one; as the planning of the familiar patrimony.Law No. 25 of June 12, 1995 by which Private Interest Foundations are regulated, clearly details its manner of constitution and operation. The law binding dispositions enclosed in the mentioned law have been implemented by means of executive Decree No. 417 of August 8, 1995 , by which the Division of Private Interest Foundation was created in the General Direction of the Public Registry and its manner of constitution, modification and extinction was established.MAIN ATTRACTIVE POINTS IN THE CREATION OF PRIVATE INTEREST FOUNDATION IN PANAMA:
They are exempted of all tribute, contribution or burden in the Republic of Panama (with the exception of the Annual Tax Fee of US$300.00). Therefore, they are also exempted of the payment of income tax patrimonial tax, property tax and transfer tax. To this listing of exemptions, we can add the non payment of titles, certificates of deposits, values, moneys or shares used in the achieving of the Foundations´ aims or objectives or because of the extinction of the Foundation, in favor of relatives within the first degree of consanguinity and of the spouse of the founder.
Complete Secrecy and Anonymity: The Private Interest Foundation Law establishes that the member of the Foundation Counsel, the supervisors, as well as any person or institution who, because of their functions, obtains information relates to the activities, transactions or operations of the Private Interest Foundation, is complied to complete secrecy. The infringement of this disposition entails severe penal and financial sanctions.
There is no legal disposition demanding the disclosure of the names of the real founders or beneficiaries of the Foundation.
There is no obligation to register any type of annual income tax return or financial statement.
A rapid constitution proceeding.
Reasonable price of incorporation and maintenance.
No maximum legal capital permitted.
Possibility of realizing any civil or commercial transaction (non-customary) in any part of the world with any legal currency.
The Foundation Act can be signed by the client or by his legal or fiduciary representative.
The Foundation can relocate or continue to exist as a Private Interest Foundation in the Republic of Panama , following a very simple continuance proceeding.
The good that constitute the patrimony of the Foundation cannot be seized or injucted.
The legal binding disposition in inheritance matter, valid in the domicile of the founder or of the beneficiaries, cannot be opposed to the Foundation and will not affect its duration or the realization of its objectives.
CHARACTERISTICS OF A PRIVATE INTEREST FOUNDATION IN PANAMA:
The main characteristics of the Private Interest Foundation are:
Any person (natural or juridical) can constitute it by himself or by empowerment to a third person.
They do not pursue profitable aims, but can realize non-customary commercial transaction. For example, the Foundation can constitute itself in a financial group holding of a financial group.
They can be constituted in a way that its objectives begin to develop before or after the death of the founder.
The Foundation Act and its modification can be prepared in any language of the Latin alphabet. In the event that the Founding Act or its modifications is in language different from that of Spanish, it will have to be notarized along with its translation done by an Authorized Translator of the Republic of Panama.
The Foundation Act most contain the following information according to the Article 5 of the Private Interest Foundation Law:
Name of the Foundation, which most not resemble any other name already registered.
Initial capital or patrimony, expressed in legal currency, no less than the equivalent of ten thousand US dollar (US$10,000.00).
Designation, including complete name and address, of the members of the Foundation Counsel, which will not be inferior to three(3).
Domicile of the Foundation.
Name and address of the Resident Agent, which must be an attorney.
Objectives of the Foundation.
Benefits of the Foundation or manner of determining them.
Reserve of right to modify the Foundation Act.
Destiny and form of liquidation of patrimony, in case of dissolution.
All Foundations and its modifications, pay rights of registry and the annual tax fee, similar to corporations.In the same manner, they are subject to the limitations regarding money laundry product of drug dealing and similar dispositions established in Decree No. 468 of 1994.
The Inscription of the Foundation Act in the Public Registry grants the Foundation juridical personality. As well, this inscription can be regarded as a form of publicity.Notwithstanding the above, is valid for the Foundation to be constituted by means of a private document if it the signatures have been notarized before a Notary Public and objectives are implemented after the death of the founder, even when the Foundation has not been registered in the Public Registry before the death of the founder.
For all legal effects, the goods of the Foundation constituted an autonomous fund and the said goods may not be seized or subjected to any action or preventive measures, with the exception of the obligations incurred. The Foundation does not respond for the personal obligations of the founder or the beneficiary.
Foundations cannot be revoked, except:• When the Foundation Act has not been inscribed in the Public Registry.• When the Foundation Act expressly states that this can be done.• When the donations are revoked.• When the Foundation has been created so that its objectives are met after the death of the founder.
The legal binding dispositions in inheritance matters, valid in the domicile of the founder or of the beneficiaries, cannot be opposed to the foundation.
Any type of goods, present or future, whose origins are found in any legal business transaction, can be contributed to the Foundation. In addition, the founder may contribute with the initial patrimony desired and, consequently, once the Foundation has been constituted, he can transfer other goods so that there is no record of the actual patrimony of the Foundation in the Republic of Panama.
The Foundation Counsel will be in charge of the administration and observance of the purposes and objectives of the Foundation.
The Foundation Counsel must render an account of its handling of the beneficiaries to the supervising authority within the Foundation, at least once a year.
In the foundation Act, the founder of the Foundation can reserve himself the right to remove any member of the Foundation Counsel, as well as the right to designate or add new members. If the Foundation Act remains silent or regards to the removal of the members of the Foundation Counsel, these persons can be removed judicially on the basis of what stipulated on Article 22 of Law of June 12, 1995.
The Foundations constituted abroad, can be registered under Panamanian Law, issuing a Certificate of Continuance, which must contain:• The name of the Foundation and its date of constitution.• Registration information in the country of origin.• Expressed declaration of their wish to continue their legal existence as a Panamanian Foundation.• Requisites established in Articles 5 of the Law for the constitution of Private Interest Foundation.In addition, the following documents must be enclosed: Copy of the original Foundation Minute expressing the Foundations desire to continue its legal existence in Panama, along with any further modification, a Power of Attorney granted to a Panamanian lawyer.
All controversy which does not indicate a specific problem solving proceeding in the Law will be resolved through a summary proceeding. Notwithstanding the above, an arbitrary clause can be established in the Founding Act or in the Foundations regulations.MOST COMMON USE FOR PRIVATE INTEREST FOUNDATIONS:
Protection of defenseless people, for example minors and persons incapable of administrating their own goods or exposed to the danger of losing their patrimony.
For the continuity and conservation of family businesses.
To be the administrator of plans of distribution of utilities and pension programs to workers.
As a holder of shares and other goods from private companies. In these cases, the Private Interest Foundation works as holding entity.
As a mean for the collection of royalties and other type of credits.
As means for the investment of Trust Funds, shares, bonuses or other type values.
As the owner of movable and unmovable goods, such as art pieces.
For the managing of bank accounts, due to the fact that they constitute a safe and discrete means for the ownership of numbered accounts.
For the protection of assets, due to the fact that Private Interest Foundations are not allowed to be seized.
As a vehicle for the planning of the distribution of the family patrimony.
REQUIREMENTS FOR THE CONSTITUTION OF A TRUST FUND IN PANAMAI. LIVING TRUST FUNDS:
The living Trust Funds can be constituted by means of a private document or a public instrument.:The Trust Fund Constitution instrument must contain:
A complete and clear designation of founder of the Trust Trustee and Beneficiary. When future beneficiaries or type of beneficiaries are to be named, the circumstances under which they are to be identified must be established.NOTE: The founder of the Trust may be as well the Beneficiary of the Trust.
One designation of substitute Trustee and /or Beneficiary will be sufficient for the effects of identification.
A description of the assets or patrimony or part of it is in regards to the Trust.
An expressed declaration of the intention to create the Trust.
The imperium and obligations of the Trustee.
The prohibition and limitations imposed on the figure of the Trustee related to the execution of the Trust Fund.
The rules of augmentation, distribution or disposition, assets, incoming and utilities of the assets of the assets of the Trust Fund.
Place and date of creation of the Trust Fund.
The designation of a resident agent for the Trust Fund in the Republic of Panama, which must be an attorney or law firm who will countersign the public deed of the Trust Fund.
The domicile of the Trust Fund in the Republic of Panama.
The expressed declaration that the Trust Fund is created according to the law of the Republic of Panama.
II. TESTAMENTARY TRUST FUND:
The Fund that has the intention to begin functioning after the dead of the founder must be created by means of a testament. It can be created as well by means of a private document, without the formalities of a testament, if the Trustee is an authorized person to carry out such business activities in the Republic of Panama.The Testamentary Trust Funds must contain the same disposition than the Living Trust Funds.
III. ESTATE TRUST FUNDS IN THE REPUBLIC OF PANAMA:
They must be constituted by means of a public deed subject to registration in the Public Registry.
1. Exemptions regarding foreign Trust Funds: the acts of constitution, modification or termination of the Trust Fund, as well as the acts of transference, transmission, imposition and distribution of the assets of the Trust Fund and the incoming or utilities that arise from whichever of these or other acts, will be exempted of all tax, contribution, imposition or burden payable in the Republic of Panama, as long as the Trust Fund is created for:
Assets located abroad.
Monies deposited by individual legal entities whose incomes are not derived from Panamanian sources or is not taxable in Panama.
Shares or values of any type issued by corporations whose incomes are not derived from a Panamanian source, even if the aforementioned monies or shares are deposited in the Republic of Panama.
The aforementioned exemptions will not be applied to assets, moneys, shares or values mentioned in paragraph number I, II and II, if they are used in non exempted tax, contribution, imposition or burden operations in the Republic of Panama, with only exception of housing or urban development investments or industrial park investments in the Republic of Panama, in which case the products of such investments will be tax exempted.
Saturday, March 03, 2007
SETTING UP PRIVATE INTEREST FOUNDATIONS AND TRUST FUNDS IN PANAMA