Private interest foundation in Panama: when it makes sense and when it does not, according to Legal Solutions Panamá

Who is speaking and what the webinar is about

The webinar “Fundaciones y estructuras internacionales” was organised by Legal Solutions Panamá, a boutique corporate, tax and immigration law firm based in Panama City, and published on its YouTube channel. The first half is led by Alina, a lawyer on the firm’s team, who explains the concept, a practical case, the scenarios in which they recommend the vehicle, its internal structure and its obligations. The second half belongs to Kathia Rivera Morales, founder and president of the firm, a lawyer trained at the University of Panama with a postgraduate degree from the University of Salamanca, who compares the foundation with the corporation and the trust and answers questions from the chat. Aisha Kalb moderates and reads out the attendees’ questions.

The quoted phrases are translated from the Spanish recording, with minimal adjustments to punctuation and without altering their meaning. The fee figures mentioned in the session are not reproduced here; the legal obligations are, and Radar Panamá checked them against Law 25 of 1995 and its amendments.

What a private interest foundation is

The lawyer describes the private interest foundation as “an autonomous legal entity” whose purpose is “the administration, protection and transfer” of an estate. Panama introduced it in 1995, drawing on European models, in particular the family foundations of Liechtenstein, and was, in her words, “one of the pioneering jurisdictions in Latin America” to offer this vehicle. The point she stresses most is the effect of contributing assets: “once the assets are transferred to the foundation, they become the property of the foundation as an independent entity”.

Laura’s case: an estate scattered across several countries

To bring the concept down to earth, the firm presents a profile it says it sees “commonly” among its clients: Laura, “a foreign investor who has properties, has companies, is a shareholder and has bank accounts in different countries”. Her concern is not operating, but “the risks at the time of the succession of her assets”, spread across different jurisdictions. The recommendation is to set up a private interest foundation in Panama, contribute the shareholdings, accounts and properties to it, and leave “clear rules of administration” and distribution.

When it makes sense and when it does not

The lawyer lists four reasons why the firm recommends the foundation and three scenarios in which it advises against it. On the second reason, asset protection, she is explicit: “when you transfer the assets to the foundation, those assets are separated from the founder’s personal estate. This helps mitigate asset risks and protects against future contingencies, seizure or attachment proceedings”. The third is its use as a wealth holding: the foundation “can be among the shareholders of other companies, can hold financial investments in banks and can also own real estate in different jurisdictions”.

How it is structured: founder, council, beneficiaries, protector and regulations

The foundation comes into being with a foundation charter registered at the Public Registry, which records the name, the initial endowment, the founder, the foundation council, the domicile, the purposes and the way beneficiaries are designated. Alina goes through each figure:

A practical point the firm repeats in response to audience questions: the founder can be part of the foundation council and be a beneficiary at the same time. The only requirement to respect is the minimum number of council members. And on the operating companies contributed, Kathia Rivera clarifies that “they can keep running, because they are companies with their own legal personality”; what changes is that “instead of you or your family appearing, the foundation appears as shareholder”. Anyone who does not yet have a company can see how one is incorporated in the interview with Kathia Rivera on incorporating a company in Panama as a foreigner.

Annual obligations and compliance

The lawyer warns of “a fairly common mistake”: believing the foundation carries no burdens. The obligations she lists are three.

1. Due diligence and beneficial owner. The founder must identify themselves, identify the beneficial owners and “submit documents that support their income”. Since Law 129 of 2020, the resident agent registers the beneficial owners with the Superintendency of Non-Financial Subjects.
2. Flat annual fee. It is “what will keep the foundation in good standing in Panama”. Failing to pay it means surcharges, reactivation deeds and fines. By law, the fee is 350 dollars the first year and 400 dollars thereafter.
3. Resident agent. The Panamanian lawyer or firm that registers the foundation, renews its appointment each year and, since Law 254 of 2021, keeps the accounting records the foundation must deliver to it.

How a Panamanian foundation is taxed

The example she gives is an apartment in Panama held by the foundation and rented out: “on that rent there is an obligation to declare income tax on those earnings”. The second warning concerns international taxation: even if the foundation is in Panama, “it is important to consider the tax residence of the foundation’s main members” and where the other assets are, because that determines “whether I am obliged to declare or not in my country of residence”. The firm’s recommendation is to validate the structure with the lawyers and the tax system of each jurisdiction involved, the same point Radar Panamá makes in its guide to setting up an offshore company in Panama.

Foundation, corporation or trust: Kathia Rivera’s comparison

Rivera starts with a rule of exclusion: the foundation “must not carry out commercial or economic activities on an ordinary basis”. If the plan is to open a real estate agency and rent out beach apartments, “the foundation would not be the vehicle”, because that “is commerce through leasing” and belongs to a company. From there she compares the three vehicles by owner, purpose, control, flexibility, cost and typical use.

Rivera’s conclusion is that the vehicles combine: “if you are going to engage in commerce, you will do it through a company”, and that company can have a foundation as shareholder to add the layer of protection and succession. What she rules out flatly is the foundation as a tax shortcut: “it is not a magic tax-saving tool. The foundation works very well for asset protection and for clarity at the time of succession”.

What the audience asked

The last fifteen minutes of the webinar are taken up by questions from attendees. These are the most useful answers, summarised and with the relevant quotes.

• A broker in Chile wants an account in Panama to receive earnings from international clients. Rivera answers that “it depends”: you have to look at the type of business, where the clients are and the tax residence, and that “perhaps the simplest thing” is a holding company, alone or combined with the foundation. She adds that “many do it so as not to have all their eggs in the same basket”. Radar Panamá explains the banking requirements in its guide to opening a company in Panama.
• Can companies in Costa Rica and Colombia contributed to the foundation keep operating? Yes: “they operate in their own name, they have their own legal personality”. Only the shareholder changes.
• What happens to the assets if the founder dies? “When the founder passes the assets to the foundation, the assets cease to belong to the founder. The foundation is not going to die.” There is no inheritance proceeding over those assets; the foundation council transfers them to the beneficiaries according to the regulations, which can set conditions for selling.
• Can a property located in France be contributed? Yes, but “you have to be very careful”: each tax authority will watch for evasion of the law. The foundation avoids an inheritance proceeding in that country, but how it is declared there depends on personal tax residence and local lawyers.
• Can the founder be a council member and a beneficiary? Yes to both, respecting the minimum of three natural persons or one legal entity on the council.
• How is Panamanian tax residence obtained? First a residency permit, which the firm processes in about five days of stay; then proving 183 days in the country and that “your centre of life is in Panama”: rental contracts, utility bills, school enrolment. The residency routes are compared in the guide to residency in Panama by investment.
• Can the Panamanian State expropriate a foundation’s assets? The law allows it for public utility with compensation, “but in practice it is not seen much”; and “the Panamanian State cannot go to Colombia to expropriate an asset held in the foundation’s name”.
• What are first- and second-tier beneficiaries? First-tier beneficiaries are those designated at the outset by the founder; second-tier beneficiaries receive if the first are absent, as provided in the regulations.

The full webinar

Frequently asked questions

Sources

• Webinar: Fundaciones y estructuras internacionales, Legal Solutions Panamá YouTube channel. Transcribed and translated by Radar Panamá.
• Estrategias legales para proteger tu patrimonio internacional desde Panamá, Legal Solutions Panamá.
• Law 25 of 1995 regulating private interest foundations, Justia Panamá.
• Law 129 of 2020, beneficial ownership registry.
• Law 254 of 2021, accounting records, Icaza, González-Ruiz & Alemán.
• Tax Code of Panama, article 694, territoriality principle.
• Kathia Rivera Morales, professional profile on LinkedIn.