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The best confidentiality in Latin America: The Panamanian Foundation

calendar 5/18/2020 8:00:00 AM
author Admin System
I had a friend who used to say: better be safe than sorry. At Mundo, we completely share this philosophy, and that is why we recommend our readers to use asset protection structures.

Panama offers us great asset protection tools so we can be safe rather than sorry. In this country you can create great structures like the Sociedad Anonima or the freezone companies, all of this within a great framework of tax optimization thanks to the country´s territorial tax system. These are undoubtedly great structures that can help you develop your business beyond what you could ever imagine, but, what would happen if you find yourself going through an unpleasant situation, like a bad divorce, or chased by creditors under false accusations?

Nobody likes to think that these things are possible, but the truth is that they are, and you may one day wake up to find you have lost in one day everything you have worked so hard for your entire life. Fortunately, Panama offers a great asset protection tool: The Panama Foundation.

So, don´t be sorry, be safe, and the Panama Foundation is going to help you preserve your assets. 

The Panama foundation is based on the Liechtenstein foundation, but Panama is a more cost-effective option and does not levy any form of inheritance tax. This structure is the perfect asset protection tool and so far no court or government has been able to set it aside.

All the assets under the foundation can´t be seized, including real estate, bonds, shares, precious metals and others. 

The foundation can be controlled by a protector, which can be a physical or legal entity under the authority of the person who established the foundation, thus protecting the beneficiaries´ interests.

In a practical sense, there are not many differences between a trust and a foundation, and the Panama foundation is solid as a rock when it comes to protection and confidentiality.

 

Difference between a foundation and a trust

The trust and the foundation are practically the same structure as they are both based on the principle that the assets, previously owned by a person, are transferred to another person or entity for the benefit of a third party.

 Basically, we have three key players in these structures:

  • The original owner of the assets,   
  • The custodian of the assets,    
  • The beneficiaries 

This is basically how a trust and a foundation work in practical terms. But these structures have some differences.

The trust is an agreement between two people, a settlor (owner of the assets) and a trustee (custodian of the assets), while a foundation is a legal entity and as such must be registered in a jurisdiction and under the laws of this jurisdiction. 

This is how the three players would look in each case:

Trust

  • Original owner: the settlor  
  • Custodian of the assets: a person called the trustee
  • The beneficiaries (any person thus appointed in the trust deed).


Foundation:

  • Original owner: the founder
  • Custodian of the assets: a legal entity called a foundation and registered in a jurisdiction
  • The beneficiaries (any person thus appointed in the foundation charter).

In a foundation, it is the founder who does the first contribution, the amount of which depends on the jurisdiction. In Panama, for example, the first contribution must be 10,000 USD in cash or in the form of company shares.

Now, the assets belong to the foundation and will be managed for the benefit of a third party (called the beneficiaries).

Who are the beneficiaries? That is for the founder to decide and is established in the foundation charter. The beneficiaries can be the founder’s family members or friends, whoever he or she chooses.


What is a foundation useful for?

A foundation, like a trust, is an asset protection tool. The assets cannot be seized because they legally belong to the trust or the foundation, being 100% protected from possible threats like divorce disputes, false claims, creditors and others.

Foundations can also be used for inheritance purposes. Let´s suppose you have worked very hard your entire life to build your business, you have set up a whole structure to optimize your taxes and at the same time be in compliance with international regulations. But what will happen when the time comes for you to retire?

Imagine that your heirs enter into conflict over their heritage, over business management or other issues. Luckily, the foundation structure provides an easy solution, because, as the founder, you can establish how exactly the assets will be used and distributed.

By choosing the Panama foundation, you can rest assured that your assets are highly protected by the laws of Panama, and nobody will be able to seize them or use them under other terms than the ones you stipulated.

 

Panama foundation: confidentiality

The Panama foundation has the highest levels of confidentiality, considering different aspects: the information of beneficiaries, protectors and the asset distribution. The Foundation legislation protects confidentiality under penalties of civil law. Any member, supervisory bodies, public or private officers who have knowledge of the foundation’s activities are subject to strict confidentiality by law.

This is one of the main reasons wealthy Latin American (and not only) families choose Panama as an asset protection destination, using the Panama Foundation as a structure. With all the dangers in Latin America for wealthy families (kidnapping, extorsion, false claims), they are at ease knowing that their assets and personal information are protected by the Panamanian law and the Foundation structure.

 

Great tax optimization tool

If the Foundation holds assets abroad, then these assets are exempt of taxation in the republic of Panama, thanks to its territorial tax system. There are no restrictions as to the nationality of the founder, beneficiary, foundation council or protector. Although not strictly necessary, we recommend establishing tax residency in Panama for a more solid tax optimization strategy. It is important to notice that, although Panama will not levy taxes from the foreign assets owned by the foundation, other countries such as your original country of citizenship, may ask at some point for a tax compliance document. Especially if you want to buy properties or invest in other jurisdictions outside of Panama.

  

Panama Foundation + Panama company: an unbreakable structure

We have established that the foundation is a legal entity, registered under a jurisdiction´s legislation.  But what is then the difference between a foundation and a company?

The answer is quite simple: A company has owners, but a foundation is not owned by anyone.

Let´s explain further. When you register a company the first thing that needs to be done is to issue shares, therefore the shareholders will be the owners of the company.

When you establish a foundation, on the other hand, you don´t need to issue shares, but you need to make an initial contribution depending on the country´s requirements.

A foundation is an autonomous entity, owned by no one.

The Panama foundation is an independent structure that legally owns your assets. According to this, nobody can seize your assets because you don’t legally own them, but you can still control who will benefit from them.

 

Panama Foundation: what can I do in a practical sense?

The Panamanian foundation can hold any legal assets (bonds, works of art, real estate, brokerage accounts) but is not allowed to carry out any commercial activities.

What does it mean? Can I use my foundation for other purposes other than asset protection?

Well, while your Panama Foundation is not allowed to carry out commercial activities, it can, however, receive profit from dividends. It can have brokerage and regular bank accounts, which means it can receive dividends from passive investment, bonds, equities, etc.

Your Panama Foundation can also own one or several apartments. If you give these properties for rent, you can benefit from the rent profits, in a completely legal and convenient way. Remember we are talking about a country with very fertile soil for tourism business. Panama is full of tourists that come all year long to visit the breathtaking Caribbean and Pacific beaches, the mountain landscape and delicious coffee in Volcan and David, the interesting and cosmopolitan lifestyle of the capital city. Moreover, many Europeans and Americans choose Panama as a touristic destination because the prices are low for their standards

Imagine this: Your foundation owns three apartments, one in Pedasi, another one in El Cangrejo and a third one in Boquete. You can rent these properties and the profit will be safe and sound under the foundation.

Creditors? They won’t be able to touch them.

An angry ex-spouse or lover? She won´t be able to put her hands on them.

Spoiled and troublesome heirs? They will have to use the profits only as established in the foundation charter.

 

The unbreakable structure

And now, the best part. We have established that the Panama foundation can receive profit, including profit from a company. We have also established that the foundation can own assets and this includes shares from a company.

This way, we close the perfect circle to form the perfect asset-protection-tax-optimization structure.

Let´s paint the whole picture of what your life can be like in Panama.

  • Firstly, you establish the center of operations in any of Panama´s freezones
  • Secondly, you establish branches in other countries where you will do the trading and earn the profits. If properly structured, you will tax at a 0% rate.
  • With the help of Mundo Offshore´s experts, carefully structure your audit reports and tax reports and transfer pricing between your cross-bordered companies.
  • Put the company under the foundation´s control and ownership, and sleep at ease knowing that your structure is protected by one of the strongest and most confidential legislations in the world.
  • Properly establish your residency and tax residency and enjoy a cold Balboa or a cold Panama (national beers) in Casco Antiguo or the Calzada de Amador.

Congratulations! Now that the circle is closed, you are the owner of a strong and confidential UNBREAKABLE structure.

 

Panama or Liechtenstein?

Liechtenstein is considered the perfect jurisdiction when it comes to establishing a foundation. In terms of confidentiality and asset protection there is one jurisdiction that comes close: Panama. Actually, Panama´s foundation was entirely based on Liechtenstein’s, with similar structures and characteristics.

 

However, with the same advantages, Panama offers a much more cost-efficient foundation, and opens a whole world of possibilities thanks to the country´s advantages. Panama is a powerful business center thanks to the Panama Canal, its strategic location as bridge of the Americas, tax incentives and territorial tax system and Freezones.

Mundo Offshore chooses Panama over Liechtenstein and in this section we will explain why. Firstly, let´s look at this comparison chart we have prepared for you.

 

Panama

Liechtenstein

What law applies?

Private Interest Foundation Law 1995.

Persons and Companies Act 1926 (as amended).

What is the regulatory board?

Panamanian Government Public Registry.

Liechtenstein Office of Land and Public Registration.

What is the initial asset required?

USD 10,000 (cash or assets).

 

However, a foundation can be set up without assets if there is a commitment that assets will be transferred after the foundation is set up.

CHF 30,000 (cash or assets).

How much is the registration fee?

USD 350.

Up to CHF 700, depending on the type of foundation.

 

Private interest foundations merely deposit the foundation charter with the Public Registrar (for declaration purposes).

 

Charitable foundations (as well as combined) only come into effect when they are entered on the Public Registry.

How much is the annual fee?

USD 400. This must be paid to the government as Annual Corporate Franchise Tax.

0.1% of the nominal capital and net asset value or a minimum of CHF 1,000.

 

0.075% on net asset value above CHF 2,000,000.

 

0,05% on net asset value of CHF 10,000,000 and above.

Who can be the regulated person?

An attorney or law firm needs to be the Resident Agent, who must countersign the foundation charter before its registration in the Public Registry.

The representative has to be at least one member of the council with a qualified professional background and residence in the territory. He or she will be authorized to manage and represent the foundation.

Who can be a council member?

Any person (individual or corporate body) domiciled o resident anywhere in the world can be a council member.

 

The minimum number for corporate bodies is 1, and 3 for natural persons.

Same as above.

Is there a guardian or protector?

It is an optional role in charge of advising over the foundation’s activities. In case there is appointed, it should be stipulated in the foundation charter. The founder or council can decide the specific powers.

The protector is the representative of the beneficiaries and ensures that the board is acting according to the purpose of the foundation.

 

It is not mandatory and should be defined in the statutes.

Can it be migrated?

A Panamanian foundation may migrate to another jurisdiction.

A Liechtenstein Anstalt or Stiftung may continue in a foreign jurisdiction.

However, there is a charge of CHF 600 to complete this process.

Can it be merged?

There is no ability for a Panamanian foundation to merge with any other entity.

There is no ability for an Anstalt or Stiftung to merge with any other entity.

What are the beneficiaries’ rights to information?

The rights of the beneficiaries are set down in the foundation by laws or by resolutions passed by the foundation’s council.

 

If a beneficiary suffers a violation of his or her rights by a supervisory body, he or she may directly bring a judicial action before the proper court in the foundation’s domicile.

The information rights of beneficiaries can be legally restricted by transferring those rights to other bodies (such as an internal controlling body) to carry out supervisory duties. In such cases, the rights of the beneficiaries can be limited to a minimum (their own rights, the foundation’s purpose, the organization of the foundation).

 

In the case of charitable foundations, the beneficiaries have no information rights as these are generally under authorities’ control.

Is there any information publicly available?

The charter is the only document that is publicly available, which details:

 

        Name of the foundation.

        Initial patrimony.

        Purpose, duration, and domicile of the foundation.

        Assets’ distribution on liquidation or dissolution of the foundation.

        Name and address of council members and details of the Resident Agent.

 

The charter (known as the statute) is the only document that is publicly available, which details:

 

        Name of the foundation.

        Initial dedication.

        Foundation’s purpose.

        Date of establishment and duration.

        Appointment and functioning of the foundation council.

        Identity of founder or agent.

Are charitable purposes allowed?

Yes, it is possible to have a charity foundation.

Yes, it is possible to have a charity foundation.

What role can be played by a corporate body?

A corporate body can act as founder or a council member.

A corporate body can act as the founder, council member, or the protector.

It is easy to see the big difference regarding costs, Panama offering a much more cost-effective solution.

It is important to consider that in order to register the foundation in the first place, the European country asks for three times the money (30,000 CHF against 10,000 USD).

And this is only for the registration costs, the maintenance fees are also considerably higher. Take the registration fee, for example. In Panama we find a 350USD fee, while Liechtenstein has a fee up to CHF 700, which, according to today´s exchange rate is equivalent to 717.89 USD.

You can also see a 400 USD annual fee against Liechtenstein´s 1,025 USD as a minimum (according to the exchange rate at the time of writing).

Otherwise, from the chart you can easily infer that both structures are very similar.

We recommend Panama because of the great opportunities the country offers to combine different tools and create a super powerful structure, like the one described before.

 

Who we are

Mundo Offshore has a distinguished partner called NTL Trust, a consultancy company that was established in the Caribbean in 1994 and has grown into one of the leading providers of citizenship by investment and wealth management services.

Our experts have wide experience in asset protection tools like the Panama Foundation or the Nevis trust, and also corporate and family office services worldwide, having offices all around the world including Latin America, Europe, the Middle East and Asia.

Our goal is to provide a plan which will help our clients to create the safe structure they are looking for, in order to protect themselves and their families in times of distress and uncertainty.

Asset protection and tax optimization are important goals to keep in mind during troubled times, but the most valuable asset a person can have is freedom. Freedom of speech, freedom to travel, freedom to live in safe surroundings. NTL and Mundo Offshore work together with this philosophy in mind, and this is the basis of our practice.

Our experts have wide experience in asset protection and wealth management, and this is why we can help you achieve your financial and personal goals.

If you want to establish a Panamanian foundation and protect your assets from the evils of today´s world, please contact us and ask for a consultation with our experts.

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