The Panamanian Foundation has had a history as an estate planning and protection tool in Europe. Foundations were adopted in Panama on June 12, 1995, through the passage of Public Law Number 25. The Panamanian Foundation is modeled on the one adopted in Liechtenstein in February 1926. There are no significant departures from the Liechtenstein Foundation in the Panamanian version, except that the Panamanian Foundation is less expensive.

Foundations share both features of a trusts and corporations. A council governs the Foundation, much like a corporation’s board of directors. At the same time, Foundations are used to achieve testamentary goals that are usually accomplished by a trust, or even a will.

A Panamanian Foundation of Private Interest is established when a Memorandum of Foundation 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 therefore preserves privacy for those seeking discretion in their estate planning affairs. The items which 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; and
• Patrimony.

The name may be in any language and must include the word “Foundation.” The objectives of the Foundation may include anything except the generation of profits. The Foundation Council is charged with task of administering the Foundation assets in a manner consistent with purpose of the Foundation as articulated in the Memorandum of Foundation. The council is composed of at least three natural persons, which may include the Founder. These persons are not required to be Panamanian. The registered agent must be either a Panamanian lawyer or law firm.

A Private Interest Foundation also includes a body of Regulations, which are like 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.

The range of benefits offered by a Foundation spans from local tax advantages to asset protection. Foundations do not pay taxes on any income that is derived from investment activity outside of Panama. Also of note in assessing the benefits of the Panamanian Foundation, is the American exemption of foreign entities from capital gains earned in the United States markets. Assets used to fund the Foundation are considered under the law to be separate from the assets of the Founder, and therefore cannot be reached in the event of a lawsuit against the Founder or beneficiaries. Similarly, these assets cannot be reached to satisfy debts owed by the Founder or beneficiaries. Foundations only incur liability to the extent that they have dealt with a party directly. Therefore, if a Foundation conducts no activity beyond owning assets, it will not suffer liability of any kind.

The life of a Panamanian Private Interest Foundation is perpetual. Foundations are irrevocable except when the Memorandum of Foundation expressly provides for revocation or, when the Memorandum has not been filed at the Public Registry. Foundations enjoy the trait of being able to relocate. This means that, subject to the laws of the host jurisdiction, a Panamanian Foundation of Private Interest may cease to domicile in Panama, but continue its existence elsewhere.

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