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Panamanian Foundation

The southernmost of the Central American nations, Panama is south of Costa Rica and north of Colombia. The Panama Canal bisects the isthmus at its narrowest and lowest point, allowing passage from the Caribbean Sea to the Pacific Ocean. It is marked by a chain of mountains in the west, moderate hills in the interior, and a low range on the east coast. There are extensive forests in the fertile Caribbean area. The land area is 29,340 sq mi (75,991 sq km) and the latest Population estimate in 2010 indicates the population to be 3,322,576. Whilst the official language is Spanish 14% of the population speak English as a first language and many Panamanians are bilingual. Panama's economy is based primarily on a well-developed services sector that accounts for three-fourths of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism.

Panamanian Corporations and Foundations

In Panama ORCA form both corporations and foundations. For banking purposes, there is very little difference. All entities come with everything you need to open both bank and brokerage accounts. Generally, corporations are used for profit ventures involving business activities such as security trading, banking, international business, ownership of assets etc. We find that over 75% of our clients establish corporations although foundations have distinct benefits in some situations. As a rough guide foundations are generally used for non-profit activities such as charities, receiving or giving donations, grants, etc, but can also be used for holding purposes such as holding ownership of corporations or any other type of asset such as a house, boat or car. Some of our clients use a combination of a corporation and a foundation. In this situation the foundation holds the shares in the corporation for additional confidentiality. Although Panama does not form trusts it is worth briefly looking at their uses because clients considering forming a foundation might be ideal candidates for a trust. Trusts are generally used for holding purposes such as owning corporations, or holding assets such as real estate. However, these are simply general guidelines for what each type of entity was initially created for and these guidelines do not have to strictly adhered to as there is no authority in Panama that enforces the uses of each type of entity. One crucial difference between a foundation and a trust is that a foundation is formed in the same way as a corporation although the structuring is different. A Trust can be 100% anonymous and only the lawyer forming the trust, you and ourselves will know the true details of who the parties are. A trust like a foundation is designed for maximum flexibility and can basically do anything from owning assets to controlling companies or signing contracts. In brief, if a person can sign something, own something or carry out a business transaction, so can the Trust. The complication with a Trust arises because an offshore trust is not a judicial person; it is merely a written agreement as to how assets are managed. In simple terms, a trust is a relationship in which a person, called a trustor or settlor, transfers something of value, called an asset, to another person, called a trustee. The trustee then manages and controls this asset for the benefit of a third person, called a beneficiary. A Panama Private Interest Foundation is different from any other legal entity in Anglo-Saxon law because it is not the legal personification of a person or group of persons (as with a corporation), rather it’s a legal entity that does not have owners (share-holders, participants, or partners), it traditionally has a specific purpose for the benefit of a general group of individuals. Complex I know! But the characteristics of these three entities when built into the right structure are the key to maintaining privacy, securing your anonymity and the successful avoidance of tax.

Panama Foundations

A Panamanian Company or a company in another jurisdiction such as a Delaware LLC can be owned by a Panamanian foundation, which in turn controls a bank account, this is considered the ultimate asset protection strategy. It is even stronger than the old Swiss numbered bank accounts and when assembled with care can be totally impregnable. History tends to be very much in favour of this structure because in the last thirty years no Panamanian foundation and accompanying faclities set up by ourselves has ever been penetrated during court proceedings or attacks by investigators and process servers.

Many people ask why they need a corporation and not just a foundation. Whilst it’s true that a foundation can operate a bank account the fact remains that a foundation should not generally enter into business activities or trading. For this reason it is quite limited in what the foundation can do on a day to day basis. Add a corporation to the structure though and it becomes the foundations trading vehicle giving you the best of both worlds. The foundation also adds layers to make piercing the corporate structure a virtually insurmountable task.

At the very least this gives you a considerable amount of time if something adverse were to arise in which to restructure. In Panama, only serious criminal activity, according to Panama law, will give a court the reason to lift the bank secrecy protection or to order disclosure of any company information that is not on public record so to all intents and purposes this structure is as good as it gets and is very unlikely to be penetrated.

What exactly is a Panama Foundation?

A foundation in Panama is a hybrid asset protection vehicle which encompasses some of the characteristics of a trust, some components of a corporation and also some of the ingredients normally present in a will. The key is that when all these components are wrapped up into one package it becomes superior to all of them.

Who actually owns a Panamanian Foundation?

Under Panamanian law a foundation does not have an owner, the fact ownership is impossible is what makes the foundation such an incredible structuring vehicle because you can posses it but not own it. This enables one to arrange for the Panama Foundation to own the shares of a Panama Bearer Share Corporation which creates a situation where the company is owned by whoever possesses the shares. It is this anonymity aspect that makes it so hard to penetrate the structure.

What is a Foundation allowed to Do?

It can bank, stock deal in investments, buy real estate, own boats, motorcycles, planes, and precious metal it can even own corporations. In essence it is similar to a holding company but much more dynamic and flexible. As a lawyer said to me a few years back "if you can drive it, sail it, fly it, invest in it, or bequeath it to your family a foundation can hold it”

What Can’t a Foundation Do?

In short not much but a Panama Foundation should not directly engage in commercial activities. This poses little problem in reality because the foundation can own a corporation from Panama or anywhere else and business can be transacted through the corporation with earnings routed into the foundation.

Does a Panama Foundation have to pay Panamanian Tax?

If the income is derived from sources outside of Panama there is no income tax liability and no need to file a tax return in Panama. In addition Panama has no capital gains tax on bank interest or stock market gains and best of all no inheritance taxes.

Foundation Beneficiaries

The foundation can have a letter of wishes which is basically instructions as to how the foundation should function. These instructions are not filed in any public registry or with the government it is therefore impossible to determine what the founder’s letter contains unless you can find the actual letter.
Beneficiaries can also be changed at anytime. The beneficiary is in addition not an owner and their debts are therefore unable to become debts of the foundation.

Foundation Founder

ORCA can provide a founder for the foundation or you can be the founder. The foundation’s founder is not an owner or controller of the foundation and purely brings the foundation into existence.

Foundation Council Members (Nominees)

Nominee Council members are very similar to the nominee board of directors of a Panama Corporation. They have no real power because they provide signed but undated resignation letters. They will also furnish you with a general power of attorney so you can act with full powers on behalf of the foundation.

Foundation Protector

This role is often occupied by the person requesting that the foundation be formed. This role provides control but not ownership.
We can arrange for it to be documented with a written employment contract stating duties including signing on the bank account, keeping the books and records and seeing that the overall foundation objectives are being fulfilled.
We recommend these agreements are created customer to suit their exact needs and they are then signed by the nominee council members, notarized and Apostilled.

Asset Protection

Panama has legislation to protect the foundation’s assets from a pre-trial freezing order except if the foundation does something improper for example breaking a contract for no good cause. We prefer the foundation to just act as a holding entity to avoid this possibility.

Elements of a Panama Interest Foundation

The foundation has a founder, a council, a protector, and beneficiaries. Below we have explained what role each of them plays in the foundation:

Founder: The founder is the person or entity that establishes the foundation and arranges for it to be entered in the Public Registry of Panama. Our agent is generally the founder of each foundation that we establish the reason for this is that he goes to the public registry to incorporate the foundation. The founder has no influence or control over the foundation; he is only recognised as the individual who presented the foundation articles in the public registry when the entity was originally registered.

Council: The foundations council serves the same purpose as the board of directors on a corporation or the trustees on a trust. The council members are each registered in the public registry with their names, addresses, and identifications as council members to the foundation. We usually appoint a ‘Nominee Foundation Council’ to fill the council positions, so to provide additional privacy and confidentiality for our client. When we appoint a nominee council, we provide our client with pre-signed, undated letters of resignation from each nominee council member so that our client can replace the entire council at any time should he so wish. The nominee council has no control over the foundation or any of its assets; they are only there to appear on the foundations documents.

Protector: The protector is the person or entity who actually controls the foundation and the assets held by it. The protector is appointed by the foundation council at the time the foundation is created, once the protector is empowered he can then remove the council members at any time without the consent of anyone else. The protector can be appointed privately through a private protectorate document, signed by the foundation council. Hence, the protector can maintain this position entirely free of public knowledge meaning he has the power to act as he sees fit but is to all intents and purposes invisible.

We generally appoint our client as the protector of the foundation, this is done through a notarised private protectorate document enabling our client to maintain complete control over the foundation in a totally anonymous manner. Once a protector is appointed they can always be changed according to the protector’s wishes. A protector is not obligatory and if you prefer, you can choose not to use a protector, or even to use a nominee protector.

Beneficiaries: Where a corporation has share certificates to confirm who the owners are a Panama private interest foundation does not have owners instead it has beneficiaries. The foundations beneficiaries are appointed by the protector through either a simple, privately written letter of wishes, or through a more formal set of foundation by-laws (foundation by-laws should be written with the assistance of a Panamanian Attorney). Either way, the privacy and confidentiality of the beneficiaries can be protected through the appointment in the letter of wishes, or by-laws of the foundation, since the contents of the letter of wishes or by-laws may remain private and need only be known to interested parties. Also, a Panama Foundation may be set up so that the protector is the sole beneficiary until his or her death, at which time the foundation continues for the benefit of other beneficiaries.

Letter of Wishes: The letter of wishes is exactly what it says a simple letter, written by the protector, which specifies exactly how the foundation assets should be handled or distributed in the event of a specific event such as the death or incapacity of the protector. The letter of wishes should state whether the foundation should continue to exist, and have a new protector appointed, or if the foundation should be dissolved upon the death of the protector. There is no specific format that the letter of wishes must be written, and it can be written or changed at any time after the foundation is incorporated, as per the protector’s wishes. The letter of wishes can be held privately, or can be registered publicly. Generally, most people prefer to maintain the letter of wishes privately, so that the beneficiaries and protector remain completely anonymous and private.

Foundation By-Laws: The foundation does actually not need to have by-laws, this is because a letter of wishes is legally sufficient for expressing the protector’s instructions in the event of their death. However, if one wishes to have a more formal foundation testamentary document, written and signed by a Panamanian Attorney, and notarised by a Panamanian notary, then one can request the assistance of a Panamanian Attorney to draft the foundations by-laws. The foundation by-laws essentially fulfil the same function as a letter of wishes for this reason the by-laws should specify exactly how the foundations assets should be handled or distributed upon a triggering event such as the death or incapacity of the protector. The by-laws should also state whether the foundation should continue existing, and have a new protector appointed, or if the foundation should be dissolved upon the specified event(s) arising.

There is a specific format as to how the by-laws must be written, yet the contents of the by-laws can be changed at any time after the foundation is incorporated, as per the protector’s wishes. The by-laws can be held privately, or can be registered publicly. Generally, most people prefer to maintain the by-laws privately, so that the beneficiaries and protector remain anonymous and private.

Benefits of a Panamanian Foundation:

Other common advantages of Panama foundations are:

Upon registration of your Panama Foundation you will receive the following Certified Documents.

FEES - Formation Fee Including Nominee Council US$1700 

Annual Fees: US$1495 due on the anniversary of the formation

If you will require e-commerce facilities or domain registrations to accompany the foundation click here

UK / Ireland020 7175 0041
(International +44 20 7175 0041)
US / Canada1 954 866 5986
(INTERNATIONAL +1 954 866 5986)
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(INTERNATIONAL +61 2 9191 7472)
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