Who Can Be Beneficiaries of a Private Interest Foundation?

First and foremost, it is essential to understand how and where beneficiaries are named in a Private Interest Foundation in Panama.

A private interest foundation is constituted through the Foundational Charter and registered in the Public Registry of Panama, meaning it is a public document. It establishes important data about the Foundation, such as its name, the foundational patrimony, the founder, and the foundational council, among others.

Appointment of Beneficiaries of a Private Interest Foundation

Once the private interest foundation is constituted, a private document called the foundational regulations is issued. This document, unlike the foundational charter (which is how the Foundation acquires legal life), is a private document. The formalities of the document will depend on what is established in the foundational charter, but usually, the client is free to agree with the guidelines and standards they wish in this document to enforce what they need in the safest way possible.

The foundational regulations in foundations are very similar to a will, with the difference that the Civil Code governs wills and usually has orders of precedence and rules regarding the rights of the beneficiary’s heirs; on the contrary, in Private Interest Foundations in Panama, the founder can grant the benefit of the Foundation, in addition to themselves, to any other natural or legal person.

Private Interest Foundations in Panama offer a versatile and robust legal structure that is widely used for various purposes and objectives. Below are some of the most common uses and how these contribute to their popularity and effectiveness in the legal and financial international arena.

Common Purposes and Uses

Estate Planning

One of the main attractions of Private Interest Foundations is their ability to facilitate estate planning. They allow individuals and families to organize and distribute their assets efficiently and securely, ensuring that their legacy is passed on according to their specific wishes. Unlike traditional wills, which can be subject to prolonged legal disputes and succession processes, foundations offer a more fluid and private transfer of assets to the designated beneficiaries.

Asset Protection

In a world where financial and legal risks are increasingly complex, Private Interest Foundations have become key tools for asset protection. By legally separating the assets from the founder and placing them under the control of the Foundation, these assets are safeguarded from creditors’ claims, litigation, and other vulnerabilities. This is especially valuable for entrepreneurs and investors looking to shield their wealth from legal and financial uncertainties.

Philanthropy

Private Interest Foundations also play a significant role in the realm of philanthropy. They allow founders to establish and manage charitable programs according to their personal or family interests, supporting causes such as education, health, art, and environmental conservation. Operating as independent legal entities, these foundations can endure beyond the founders’ lives, ensuring a long-term social and beneficial impact.

Investment Vehicle

Furthermore, these foundations are used as vehicles for investment, allowing investors to manage and control their investments efficiently. Through the Foundation, investors can consolidate various assets and business holdings under a single entity, facilitating administration and strategic decision-making. This not only optimizes asset management but can also offer tax advantages, depending on the Foundation’s structure and specific objectives.

Tax Aspects

Tax Treatment in Panama

Private Interest Foundations in Panama are subject to a tax regime that promotes efficiency and asset protection. Mainly, these entities enjoy exemptions from income taxes for revenues that are not generated within Panamanian territory. This means that any income derived from investments or assets outside of Panama can accumulate within the Foundation without incurring local tax obligations. This feature makes them particularly attractive for international tax planning and global wealth management.

Considerations for Founders

• Transparency and Compliance: Although Panama offers a favorable tax environment, it is crucial for founders to adhere to transparency and compliance norms both locally and internationally. This includes compliance with the reporting standards set by the OECD, as well as the reporting laws of the founder’s or beneficiaries’ country of residence.
• Taxes on Donations and Successions: Asset transfers to a Private Interest Foundation may be subject to donation taxes in the founder’s country of origin. Moreover, although foundations offer advantages in terms of asset succession, founders must consider how these transfers would be treated under the succession laws in their local jurisdictions.
• International Tax Planning and Structuring: Founders should work with specialized tax and legal advisors to properly structure their Foundation, maximizing tax benefits without infringing on the tax laws of other countries where they may have tax obligations. Proper structuring is key to avoiding adverse tax implications, such as double taxation.

Local Benefits and Obligations: Although foundations are exempt from many taxes in Panama, they may be subject to certain fees and reporting obligations. Being aware of these responsibilities is essential to ensure ongoing compliance and avoid potential penalties.

Impact of International Tax Planning

The use of Private Interest Foundations for international tax planning must be done with a clear understanding of the tax implications in the Foundation’s jurisdiction and in the jurisdictions where the founder and beneficiaries are tax residents. Collaboration with professionals in international law and taxation is crucial to navigate this complex environment and ensure that the Foundation complies with all relevant legal and tax requirements.

 

Beneficiaries

Beneficiaries can be classified into:

• Principal Beneficiary(ies): Usually, and as required by banks, the principal beneficiary must be the same client or the persons who will act as signatories of the bank accounts in the name of said Foundation. The principal beneficiaries will be those who benefit from the Foundation until stipulated by the foundational regulations, which is usually as long as those beneficiaries live. Percentages among the principal beneficiaries can be established if required. Principal beneficiaries can be natural persons as well as legal entities.
• Secondary Beneficiaries: These are the ones who will enjoy the foundational patrimony when the stipulations in the regulations are met, becoming the principal beneficiaries. The transfer of the usufruct of the Foundation’s assets must be carried out automatically when the stipulations in the regulations are met (for example, the death of the principal beneficiary). Unlike wills, where the processes of tested succession come into play, in foundations, it is not necessary to interpose any process for the transfer. Principal beneficiaries can be natural persons as well as legal entities.

Modification of Beneficiaries / Changes to the Regulations

Amendments or modifications to the regulations are made according to what is stipulated in the foundational charter. Usually, these modifications are carried out through meetings of the foundational council, which may or may not require the approval of the principal beneficiary or the protector.

In conclusion, Private Interest Foundations in Panama present a unique and advantageous solution for individuals looking to engage in estate planning, asset protection, philanthropy, and investment management in a tax-efficient manner. The versatility and legal robustness of these entities make them an excellent choice for safeguarding and managing assets across generations. If you’re considering establishing a Private Interest Foundation or need guidance on navigating the complexities of international tax planning, Delvalle & Delvalle offers expert legal and financial advice tailored to your needs. We invite you to contact Delvalle & Delvalle to explore how we can assist you in leveraging the benefits of a Private Interest Foundation and ensure your financial legacy is secure.