CONCEPT OF THE PRIVATE FOUNDATION – MAIN USES

For those readers who are not familiar with the concept of a foundation we will say that it consists in the endowments of a patrimony for a specific purpose (object) determined in a document where the foundation is created and internally organized known as the Act of Constitution or Charter. The pursuance of the object of the foundation is entrusted to an appointed body known as the Foundation Council. The person (s) who creates the endowment is known as the founder and the persons who benefit from the endowment (traditionally the founder and/or members of his family) are known as the beneficiaries.

Once the Foundation Charter is registered in the Public Registry, the property endowed or to be endowed becomes an estate separate and apart from that of the founder by acquiring a Juridical Personality of its own, thus becoming a private foundation.

The information about the names and rights of the beneficiaries of the foundation property is normally given to the Foundation Council by means of a private and confidential document (that is to say a document which does not need to be registered in the Public Registry) known as “the Regulations”.

The private foundation, contrary to the traditional corporation does not have shares, it does not recognize shareholder nor does the founder acquires such rights in relation to the foundation’s property.

The law does recognize however the beneficiaries or the persons in whose benefit the foundation is created and which can include the founder.

The possible uses of a private foundation are so broad that we can safely ascertain that practically all of the objectives which can be achieved by the widely used “trusts” can also be achieved by properly structuring a private foundation.

Private foundation are mostly utilized as the ultimate holder of a given patrimony where it can be administered by professionals for the benefit of the founder and/or other appointed beneficiaries and where simultaneously, the founder can plan in advance (in the Regulations) for the transfer of the benefit or the orderly succession of such patrimony in case of his sudden demise.

TAX ADVANTAGES

Panama, like many other international tax havens, only taxes income produced or generated by economic activities carried out within the country, and even inside the country there are certain incomes which are tax free (e.g., the interests generated by monies deposited in banks in Panama). Consequently, someone who utilizes a Panamanian private foundation outside of Panama will not have to worry about taxes within the country of Panama with the exception of the annual franchise tax mentioned in the preceding article.

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