Who can be beneficiaries of a Private Interest Foundation?

First of all, it must be made clear how and where the beneficiaries are appointed in a Private Interest Foundation in Panama. The Private Interest Foundation is constituted through a document called the Foundation Charter, which is registered in the Public Registry of Panama; that is to say, it is a public document. There, important information about the Foundation is established, such as its name, the foundation assets, the founder, and the foundation council, among others.

Appointment of the Beneficiaries of a Private Interest Foundation

Once the Private Interest Foundation is constituted, a private document called the foundation regulations is issued. This document, unlike the foundation charter (through which the foundation acquires legal life), is a private document.

The formalities of the document will depend on what is established in the foundation charter, but usually the client is free to agree in said document on the guidelines and rules that he or she wishes, in order to make what is needed be fulfilled in the safest possible way.

The foundation regulations in the foundations are very similar to a will, with the difference that wills are governed by the Civil Code and usually there are orders of precedence and rules regarding the rights of the heirs of the beneficiary. On the contrary, in the Private Interest Foundations in Panama, the founder may grant the benefit of the foundation, besides himself, to any other natural or legal person.

Beneficiaries

The beneficiaries can be classified into the following groups:

• Main Beneficiary(ies): Usually, and by requirement of the banks, the main 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 main beneficiaries will be those who have the benefit of the foundation until what is stipulated in the foundation regulations, which is usually as long as said beneficiaries live. Percentages can be established among the main beneficiaries if required. The main beneficiaries can be natural persons or legal persons.

• Secondary Beneficiaries: They are those who will enjoy the foundation assets when what is stipulated in the regulations is fulfilled, becoming the main ones. The transfer of the usufruct of the foundation’s assets must be carried out automatically when what is stipulated in the regulations is fulfilled (for example, the death of the main beneficiary). Unlike wills, where probate processes come into effect, in the foundations it is not necessary to initiate any process for the transfer. The secondary beneficiaries can be natural persons or legal persons.
  
  

Modification of the Beneficiaries / Changes to the Regulations

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

For more information, do not hesitate to contact us.

How and Where the Beneficiaries Are Appointed in a Private Interest Foundation in Panama

The Private Interest Foundation is constituted through a document called the Foundation Charter, which is registered in the Public Registry of Panama; that is, it is a public document. There, important data of the Foundation are established, such as its name, the foundation assets, the founder, and the foundation council, among others.

Once the foundation is constituted, a private document called the foundation regulations is issued. This document, unlike the foundation charter, is private. The formalities of the document depend on what is established in the foundation charter, but generally, the client is free to determine the rules and structure to ensure that the objectives of the foundation are fulfilled safely and efficiently.

The foundation regulations are similar to a will, but without the restrictions of inheritance law under the Civil Code. The founder may designate any person or entity—natural or legal—as a beneficiary, ensuring flexibility and privacy in succession planning.

Purposes and Common Uses

The Private Interest Foundations in Panama offer a versatile and robust legal structure, widely used for diverse purposes and objectives. Below are some of the most common uses and how they contribute to their popularity and effectiveness in the international legal and financial field:

Estate Planning

One of the main attractions of the Private Interest Foundations is their ability to facilitate estate planning. They allow individuals and families to organize and distribute their assets efficiently and safely, ensuring that their legacy is transmitted according to their specific wishes.

Unlike traditional wills, which can be subject to prolonged legal disputes and probate processes, foundations offer a smoother and more private transfer of assets to the designated beneficiaries.

Asset Protection

In a world where financial and legal risks are increasingly complex, the Private Interest Foundations have become key tools for asset protection. By legally separating the assets of the founder and placing them under the control of the foundation, these assets are safeguarded from creditors’ claims, lawsuits, and other vulnerabilities.

This is especially valuable for entrepreneurs and investors seeking to shield their assets from legal and financial uncertainties.

Investment Vehicle

In addition, these foundations are used as investment vehicles, 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 structure and specific objectives of the foundation.

Tax Aspects

Tax Treatment in Panama

The Private Interest Foundations in Panama are subject to a tax regime that promotes efficiency and asset protection. Primarily, these entities enjoy income tax exemptions for income that is not generated within Panamanian territory.

This means that any income derived from investments or assets outside Panama can accumulate within the foundation without incurring local tax obligations.

This characteristic makes them especially 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 that founders adhere to local and international transparency and compliance regulations. This includes OECD standards and the reporting laws of the founder’s or beneficiaries’ country of residence.

• Gift and Inheritance Taxes: The transfer of assets to a Private Interest Foundation may be subject to gift taxes in the founder’s country of origin. Founders should also consider how these transfers are treated under inheritance laws in their jurisdictions.

• International Structuring and Tax Planning: Founders should work with specialized tax and legal advisors to properly structure their foundation in order to maximize tax benefits and avoid double taxation.

• Local Benefits and Obligations: Although foundations are exempt from many taxes in Panama, they may be subject to fees and reporting obligations. Staying compliant ensures the long-term validity of the foundation.
  
  

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 both the jurisdiction of the foundation and the jurisdictions of the founder and beneficiaries.

Collaboration with professionals in international law and taxation is crucial to ensure full legal compliance and optimal structuring.

Beneficiaries (Summary)

• Main Beneficiary(ies): Must often be the client or the bank account signatories. They enjoy the foundation’s benefits during their lifetime.

• Secondary Beneficiaries: Receive ownership and benefits automatically upon events defined in the regulations (e.g., death of the main beneficiary), without probate.
  
  

Modification of Beneficiaries / Changes to the Regulations

Amendments to the foundation regulations are made as per the foundation charter. They are usually carried out through foundation council meetings, sometimes requiring the approval of the main beneficiary or the protector.

Conclusion

The Private Interest Foundations in Panama offer a flexible and secure solution for estate planning, asset protection, and investment structuring, adapting to the needs and objectives of each individual or family.

If you are considering establishing a Private Interest Foundation or wish to explore how this structure can benefit you, we invite you to contact us for personalized advice. Visit our contact page for more information and to schedule a consultation.

Our team of experts is ready to guide you through each step of the process, ensuring that your foundation is established and operates according to your expectations and current regulations.

Do not miss the opportunity to protect and maximize your legacy — let us be part of your planning today.