Panama

Panama’s legal system offers a distinct legal vehicle known as the Private Interest Foundation (PIF). These entities are primarily governed by Law No. 25 of June 12, 1995, and serve as flexible tools for asset protection, estate planning, and the safeguarding of private wealth.

Private interest foundations occupy a unique position within legal frameworks, as they are neither corporations nor trusts, but incorporate elements of both. They are structured to allow legal autonomy, while offering functionality comparable to that of a trust in terms of holding and managing assets for defined purposes or beneficiaries.

A Panama Private Interest Foundation is a standalone legal entity. It possesses legal personality, enabling it to own property, enter into contracts, and initiate legal actions independently of any individual. Crucially, PIFs do not have shareholders or owners—a core distinction from corporate entities. This “ownerless” structure aligns them more closely with civil law foundations and distinguishes them from common law trusts, which operate through trustees and beneficiaries under fiduciary principles.

While a trust is a relationship between parties and lacks separate legal existence, a foundation is an incorporated entity that acts in its own name. It may be established either to benefit specific individuals (beneficiaries) or to carry out a non-commercial purpose defined in its founding documents.

The assets contributed to the foundation are considered independent from those of the founder, beneficiaries, or council members, thereby shielding them from personal claims or liabilities.

• Key attributes of a Panamanian foundation include:
• No shareholders or owners
• Legal personality under Panamanian law
• May exist for a private benefit or public purpose
• Potentially perpetual in duration
• Limited disclosure obligations

There are four primary actors involved in the establishment and operation of a Panamanian private interest foundation:

1. The Founder

The founder is the individual or legal entity that initiates the creation of the foundation by executing the Foundation Charter before a Panamanian notary. The founder’s role can be purely administrative, although certain rights—such as the ability to amend bylaws or appoint key personnel—can be reserved in the founding documents.

Importantly, the founder does not own the foundation nor its assets. Once assets are transferred, they become the property of the foundation itself. Founders can be anonymous by using nominee services or third-party intermediaries.

2. The Foundation Council

The council is responsible for managing the day-to-day affairs of the foundation and ensuring that its purposes are fulfilled. This body functions similarly to a corporate board of directors.

• Composition: By law, the council must consist of at least three individuals (President, Secretary, and Treasurer), unless a single corporate entity is appointed, in which case only one member is required. Nominees are permitted.
• Disclosure: The names of individual council members are filed in the Public Registry. To maintain discretion, many founders opt for nominee council members or corporate council structures.
• Powers: The council’s responsibilities are governed by the Foundation Charter and any internal regulations. It may include administrative, investment, or asset-distribution duties.

3. The Protector

The protector serves as a supervisory authority over the foundation. Although not legally mandatory, many foundations appoint a protector to enhance oversight.

• Appointment: The protector is typically appointed through a private document, such as the Regulations, which is not filed with public authorities.
• Control: A protector may be empowered to dismiss and replace council members, amend bylaws, or veto council decisions.
• Privacy: Since the protector’s identity is not publicly disclosed, their role can be entirely confidential. Nominee protectors are also commonly used.

The foundation may choose not to appoint a protector, particularly in simple structures or where independence of council management is desired.

4. Beneficiaries

Beneficiaries are the individuals or entities intended to receive benefits from the foundation. Their rights are not equivalent to those of shareholders or owners; they have no control over the foundation’s management unless specifically granted.

• Appointment: Beneficiaries can be named in the Regulations or in a separate Letter of Wishes, typically drafted by the protector or founder.
• Confidentiality: Neither the bylaws nor the Letter of Wishes is publicly registered, allowing the identity and entitlements of beneficiaries to remain private.
• Succession Planning: Foundations may be structured to provide for beneficiaries after the death of the founder or protector, offering a continuity mechanism for intergenerational wealth transfer.

Panamanian foundations benefit from the country’s territorial tax regime, under which only income arising from within Panama is subject to tax. As a result:

• Foundations are exempt from income tax on foreign-sourced income.
• Assets located outside Panama and activities carried out abroad do not generate tax liabilities in Panama.
• No tax is imposed on distributions made to non-resident beneficiaries.

This exemption is contingent upon the foundation not owning Panamanian-situated assets (other than local bank accounts) and not generating income from Panamanian sources.

Foundations that meet these criteria are not required to file tax returns or pay corporate income tax, although they remain subject to an annual government franchise fee.

As of amendments introduced in 2017, foundations are required to maintain basic accounting records and supporting documentation:

• Retention Period: Records must be kept for at least five years.
• Location: These records may be stored at the office of the registered agent in Panama or another location designated by the foundation council.
• Financial Statements: Foundations must prepare annual financial statements, which must be signed by a chartered accountant—from Panama or another jurisdiction. These are not filed with authorities unless specifically requested but must be kept in the registered office.

Foundations must also maintain a registered office and agent within Panama, who serves as the official point of contact for legal and regulatory correspondence.

Panama’s private interest foundations offer a distinct legal framework for those seeking to protect assets, plan estates, or manage philanthropic activities with a high level of confidentiality and legal certainty. Their hybrid nature, combining elements of both common and civil law systems, makes them especially suitable for international use.