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WHERE CAN YOU AFFORD TO RETIRE TAX FREE?           WHY ARE SO MANY OF THE MIDDLE CLASS LEAVING THE US & EUROPE?

ABOUT PANAMA FOUNDATIONS - INCORPORATIONS

Why is Panama possibly one of the best jurisdictions to consider for offshore company formation or setting up one of the best alternatives to a common law trust ~ The Panama Foundation of Private Interest?

John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles

Whereas as the Bahamas, Cayman Islands and other jurisdictions have ceded to such demands, Panama has been sensible enough to differentiate the true issues at hand.  In this regard, Panama has stated they are more than happy to cooperate with the rest of the world when it comes to fighting criminal activity, drug trafficking and related matters.  However, the fact that some citizens may have a taxation dispute with their home country is another matter.  That is to say, Panama has indicated they should not be held responsible for tax collection matters with regards to other countries.  In short, the idea that any foreign country should in effect become a tax collection agent for another nation crosses the line of both responsibility and respect.  To this end, Panama has stated quite clearly, their independence as a nation and ability to chart their own course without foreign pressures or interference stands important above all.  Once again, this is not about a country promoting or supporting illegal activities.  On the contrary, it is a case of one nation understanding that there is major difference between what is illegal, dangerous and of mutual benefit to all peaceful countries, and what is only a selfish political agenda of another.  Combating drug activity & crime is a very different matter from a situation whereby a country wants to impose it’s own internal tax agenda on another.

Panama has been called the next Hong Kong.  Regardless of what label you use, the fact that over 125 banks have operations in Panama certainly is an indication of confidence by the world'’ banking community.  The use of the US Dollar as it’s legal currency, confidentiality of business transactions guaranteed by law and a sensible civil law court system make Panama a favored choice for both International Businesses and individual investors alike.  With regards to company formation, providing that business income of the company is derived from sources outside of Panama, there is no local company income tax liability.  Bank account interest, regardless of who own the account (individuals or company structures), is 100% free from local taxation in Panama.

The corporation law of the Republic of Panama provides that any two natural persons acting as the organizers and the subscribers may appear before a Notary Public to organize and constitute a corporation (In Panama Public Notaries govern most entities under the direction of a government institution).  It is the usual practice for natural or juridical persons outside of Panama to accomplish the formation of a Panama corporation through a local Panamanian law office, a trust company, or a professional management services firm. For the purpose of drafting necessary documents, the following simple information and particulars are supplied by the client to the incorporation agent: 

Company Name - A preferred name, with two or three alternatives in the event that the desired name may conflict with a name already in use, expressed in any language, The name must also include a corporate ending such as (Anonymous Society), Corporation, or Corp, Incorporated, or Inc., Limited, or Ltd. to clearly denote that it is an incorporated company. 

Articles of Incorporation – One must specify the purpose of the company and certainly that can be as broad or specific, as you would wish.  It is certainly possible to indicate a number of activities, if that is desired. 

The capital of a Panama corporation is expressed as Authorized Capital, and there is no minimum capital that must be paid in.  I suggest that the indicated capital be no more than US $ 10,000.00 as the initial registration tax or fee is a function of the authorized capital. 

Shares may be issued in Bearer form or in Nominative form. Preferred, Class A, Class B, voting, non-voting, and other shares structures are also permitted. Keep in mind that the Articles of Incorporation are public record. 

Directors - A minimum (with no maximum) of three directors is required. These may be of any nationality, residence or occupation. Nominee directors are permitted and many offshore formation firms will try and convince you to use their nominees for this purpose.  The decision to use nominee director is yours to make and really comes down to trust.  Do you trust the person whose name appears on your documents as having control over your company? In reality, you can certainly choose anyone that you wish, but we advise you that there are some other strategies you can employ if you wish to remain anonymous. Juridical persons (other corporations or entities) can also act as a director. 

Officers  - A President, a Treasurer, and a Secretary are required.  These may be natural or juridical persons, and there are no requirements as to nationality, residence or occupation.  While one person may hold more than one office, it is customary that the President should not also be the Secretary. One of the officers is usually named Vice-president. There may be as many Vice-presidents as required. Managers or other positions may also be named if desired. Normally the directors and the officers are one and the same, but they certainly do not have to be. 

Domicile  - The company can be domiciled anywhere in the world, but we advise that you stay with Panama or another tax haven as the domicile of the Panamanian Company.  The Panamanian Company must have a Registered Agent domiciled in Panama.  It is required that the agent is a practicing lawyer or law firm.  Domicile of registry is not necessary domicile of Business.  A very important point to understand when planning tax strategies. 

Duration  - The Corporation may have a limited or unlimited life, however, it is customary for the duration to be perpetual. 

Time To Establish The Company  A competent attorney in Panama can get the incorporation process done in about ten days.  If the paperwork is being accomplished by mail, and your check needs to clear, then of course the process can take a month.  But anyone in a rush can incorporate in person in about 7 to 10 days. 

As a word of advice, stay away from shelf corporations that some of these offshore firms will try and sell you. You do not know if the offshore formation company or attorney has actually made any material changes when you buy a shelf company and you also do not know if the company was engaged in something that will come back to bite you later on.  The incorporation process is convenient and quick, so why not get a new corporation from the start? 

Corporate Minutes, Seals, Etc. - Corporate Seals or Minutes Books are not required, especially if the corporation does not operate in Panama. With your certified copy of the “Articles of Incorporation”, you should not have an problem opening a bank account or conducting other business. 

Expenses  Our experience is that some firms have charged up to $ 5,000 for one single corporation.  We usually work with our clients on an all-inclusive flat fee basis. The entire cost should not exceed $ 2800.00 (with nominee services, registered office fee, federal express fees, legal service fees, etc. included in this amount).

Many clients are interested in setting up a type of entity that offers true asset protection and are not necessarily interested in operating a formal business entity with that structure.  To state this another way, some clients may be investigating the idea of an Offshore Corporation or Trust structure, but in reality there may be a better vehicle to choose if asset protection and tax savings are the two primary goals.  One such vehicle is the Panamanian Foundation.
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The Panamanian Foundation structure was codified into law in 1995.  While this structure is a fairly new entity for Panama, the Foundation structure itself has existed in Liechtenstein for quite some time and the Panamanian structure was in fact modeled after the Liechtenstein legislation.  Some advantages a Panamanian foundation has over a Liechtenstein foundation include; it is far less expensive to create and maintain, and it offers more flexibility.
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To understand the idea and benefits of the foundation structure, clients should first understand the difference between a trust and a corporation.  It is also important to note the difference between English speaking countries that use Common law and many non-English speaking countries that use Civil Law.  I mention both these points because, in fact, the Panamanian Foundation structure offers some of the best benefits of both the trust structure and offshore corporation in one.  Also, in my opinion, a structure domiciled in a Civil Law jurisdiction is the better choice for a client that is resident or domiciled in a Common Law country.
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It is true that most clients are seeking some way to create a vehicle to reduce tax liabilities and protect their assets from lawsuits or claims against their estate.  This is easily understood.  The difficulty for many clients is of course deciding upon the best plan of action or structure to use.  As a brief comparison, I think most people understand the idea behind a corporation and how it works.  The corporation structure is used worldwide to basically carry out a business enterprise and keep the owners business assets (and liabilities) separate from his own.  As a separate entity, The corporation usually has it’s own tax identification number and is what can be termed a juridical person. Certainly it is not a human being, but it has all of the rights and responsibilities of a natural person under the law.  The key point is that the assets and liabilities of the corporation are separate and distinct from those of the shareholders.
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The trust structure, however, is a vehicle usually only found in common law countries and is most commonly used as an estate planning mechanism. The history of the trust is an interesting one and dates back to the period in England when wealthy noblemen and knights were called to fight in the crusades.  In order to protect inheritance rights and of course family assets, lands and holdings were placed “in trust” and were managed by a well regarded friend or family member. This was done to insure that the property was not mismanaged and to also insure that a trusted friend or family member was present to make sure the owner’s wishes were carried out in case of the owner’s death or incapacitation.  The trust structure was meant to be a safe haven, with the trustee as the guardian of that safe haven.  It was not meant to be a structure that would engage in business activities (as a corporation).  Again, under current interpretation in modern law, the trust structure is in theory meant to be a separate juridical person.  In this regard it also is meant to separate the owner from his assets and offer protection under the law.   Like any other entity, the purpose is to keep the owner’s previously held assets safe and secure from violation or attachment.
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It is unfortunate, but recent court cases in the US have proved that US judges either do not understand the essence of what a trust is meant to be or simply have made decisions that in essence disregard trust legislation altogether.  For this reason, any trust structure that is a domiciled in the US and some other common law countries are not worth the paper they are written on.  This is not to say that the laws in these countries are always poor regarding these structures.  The real current problem is that those upholding the law (judges and court systems) have chosen to disregard the law or interpret the law in such a way that no real protection is offered with these type of structures.  This is why we strongly prefer Civil Law jurisdictions over those based upon common law.  Part of the reason is how the legal systems in these countries operate. 

The Panamanian Foundation can be created by one or more natural persons or by a juridical entity, such as a corporation.  A foundation charter is created, which is essence, is similar to the incorporation documents created for a Panamanian company.  Like the incorporation documents, The foundation charter document is public record.  The foundation structure is directed by a “Council” of three or more members.  This is similar to a corporation, which is directed by three directors or board members.  These directors of the foundation are called Council Members.  In addition, like a trust, a private protector may be named to have special oversight authority.  I usually suggest that the client take this position, especially if nominee council members are being used.  The position of a protector is not required, but it is advisable.  While the position of protector can be a private agreement between the foundation and the person acting as protector, extra protection is given to the client when this position is spelled out in the foundation charter. 

Name of the Foundation – The name of the foundation can be expressed in any language, but must contain the term foundation as part of the title to indicate that the entity is in fact a foundation structure. 

The Initial Patrimony - The initial patrimony is the amount used to fund the foundation.  The foundation can be funded in any currency, but the initial patrimony cannot be less than the equivalent of US $10,000.    An important point to note is that this initial funding or contribution does have to be done at the time the foundation is created.  Rather it can be done after the fact.  In reality, there is no public record of the foundation assets other than the fact it was originally funded with ten thousand dollars.

Council Members – The foundation structure must have a minimum of three council members who are natural persons or a juridical person, such as a corporation that has three natural persons as directors. The names and addresses of the council members is public record. 

The Purpose of the Foundation - The foundation may be created for any lawful purpose.  Examples of such purposes could include; the maintenance and welfare of minor children, a college scholarship fund for any person, the maintenance and welfare of the founder upon his or her retirement, the maintenance of a building or property, the benefit of any charitable foundation or organization, or any other purpose that the founder can think of that is within the confines of the law.

Beneficiaries – The foundation structure, like a trust document, must name beneficiaries and also what percentage each beneficiary is entitled.  The foundation charter must also indicate how assets are to be distributed upon its dissolution. The founder of the foundation, or the client, Can be named as a beneficiary.

Domicile – The domicile of the foundation can be located or indicated as any desired jurisdiction, but it is suggested that Panama or another civil law jurisdiction be used. 

Resident Agent – The foundation must have a local resident agent which is a duly authorized lawyer or law firm, with a physical presence in Panama. 

The Assets placed inside a Panamanian foundation are sole and separate property and cannot be seized to satisfy any personal judgements or obligations of the founder or the foundation’s beneficiaries.  Stated another way, assets inside a Panamanian foundation cannot be attached in order to satisfy any claims against the founder, including judgements for divorce, lawsuit and other liabilities. 

The Panamanian foundation offers the best of a trust and the best of an offshore corporation.  While the foundation cannot technically engage in business activities, it can own the shares of a company engaged in business activities.  It is also permissible for the foundation to engage in any activity, which will increase the value of assets.  This means that a foundation can be the owner of bank accounts, securities brokerage accounts and real estate holdings.  Since there are no shares of ownership in a Panamanian foundation, the client can be satisfied that (for reporting purposes in some jurisdictions), they do not have to report stock ownership as would be the case if the client were to establish a stand alone corporate entity with themselves as the majority shareholder. 

Based upon the Liechtenstein Foundation Structure, which can cost a client up to US$ 15,000 to create, the Panamanian Foundation offers greater flexibility and costs under US $3,000.