Private Foundation Services
REPUBLIC OF PANAMA
- LAW No. 25, of 12th June, 1995 ON PRIVATE FOUNDATIONS
AND
- EXECUTIVE DECREE No. 417 (of 8 August, 1995)
"Whereby the Private Foundations Section is created within the
General Directorate of the Public Registry, and regulations are
established for the registration of the constitution,
modification and extinction of said foundations."
MOSSACK FONSECA & CO.
LAW No. 25 OF 12th JUNE, 1995
ON PRIVATE FOUNDATIONS.
ARTICLE 1.
A Private Foundation may be created in accordance with
the formalities prescribed in this law by one or more natural or
juridical persons, either personally or through third parties.
For this purpose an endowment shall be established, to be used
exclusively towards the objectives or purposes expressly provided
for in the Foundation Charter. The initial endowment may be
increased by the creator of the foundation, who shall hereinafter
be known as the founder, or by any other person.
ARTICLE 2.
Private Foundations shall be governed by their
Foundation Charter and its Regulations as well as by the
provisions of this law and any other applicable legal or
regulatory provisions. The provisions of Title II, Book I of the
Civil Code shall not apply to these foundations.
ARTICLE 3.
Private Foundations shall not be profit oriented. They
may nevertheless engage in commercial activities on a non-habitual
basis or exercise rights deriving from titles representing the
capital of business companies held as part of a foundation's
assets, provided that the economic result or proceeds from such
activities are used exclusively towards the foundation's
objectives.
ARTICLE 4.
Private Foundations may be constituted to become
effective from the time of their creation or upon the death of
their founder, following either of the following methods:
By means of a private document signed by the founder, whose
signature shall be authenticated by a Notary Public at the
place of constitution.
Directly before a Notary Public at the place of constitution.
Whichever may be the constitution method, the formalities
prescribed in this law for the creation of foundations shall be
complied with.
In the event a foundation is created, be this by public or private
document, in order to take effect after the death of the founder,
the formalities prescribed for making a will shall not be required
therefore.
ARTICLE 5.
A Foundation Charter shall contain:
ARTICLE 6.
The Foundation Charter, as well as any amendment
thereto, shall be written in any language that uses the Latin
alphabet and shall comply with the regulations relating to the
registration of acts and titles at the Public Registry, for which
purpose it must first be protocolised at a Notary Public's office
in the Republic of Panama. If a Foundation Charter or its
amendments are not written in Spanish, same shall be protocolised
together with its Spanish translation made by a certified public
translator of the Republic of Panama.
ARTICLE 7.
Any amendments to the Foundation Charter, where they
are permitted, shall be made and signed in accordance with its
provisions. The respective amendment agreement, resolution or
modification document shall include the date on which it was made
and the clearly identifiable name(s) of the person(s) signing it
and his/her (their) signature(s) which shall be authenticated by
a Notary Public of the place of signature.
ARTICLE 8.
Every Private Foundation shall pay a registration fee
and a single annual registration tax equivalent to those
established for corporations in Articles 318 and 318A of the
Fiscal Code.
The procedure and form of payment, surcharge for late payment,
consequences of non-payment and all other provisions complementary
to the aforementioned legal provisions shall apply to Private
Foundations.
ARTICLE 9.
The registration of the Foundation Charter of a
Private Foundation at the Public Registry shall confer upon it
juridical personality without the need for any other legal or
administrative authorization. Registration at the Public Registry
shall in addition constitute a means of publicity with regard to
third parties.
Consequently, a foundation may acquire and own assets of all
kinds, incur obligations and be a party to administrative and
judicial processes of all kinds, in accordance with any applicable
provisions.
ARTICLE 10.
Once a foundation has acquired juridical personality,
the founder or third parties who have undertaken to contribute
assets to the foundation, of their own accord or at the request
of any person having an interest in the foundation, shall
formalize the transfer of the assets they pledged. When the
foundation has been constituted to take effect upon the death of
the founder, it shall be deemed to have existed prior to the
founder's death with respect to the donations which he may have
made to the foundation.
ARTICLE 11.
For all legal purposes, the assets of a foundation
shall constitute an estate separate from the founder's personal
assets. Therefore, they may not be seized, attached, or be
subject to any lawsuits or precautionary seizures, save for
obligations incurred or damages caused by virtue of the
fulfillment of the purposes and objectives of the foundation or on
the basis of legitimate rights of the foundation's beneficiaries.
In no case shall such assets be used to respond for the personal
obligations of the founder or of the beneficiaries.
ARTICLE 12.
Foundations shall be irrevocable save in the
following cases:
where the Foundation Charter has not been registered at the
Public Registry;
where the Foundation Charter expressly provides otherwise;
For any of the causes of revocation of donations.
Transfers made to foundations shall be irrevocable on the part of
the transferor, except if expressly otherwise provided in the
transfer deed.
ARTICLE 13.
In addition to the provisions of the foregoing
article, whenever a foundation has been created so as to take
effect upon the founder's death, he shall have the exclusive and
unlimited right to revoke it.
The founder's heirs shall have no right to revoke the creation of
or transfers to a foundation, even in the event that such
foundation has not been registered at the Public Registry prior to
the founder's death.
ARTICLE 14.
The existence of any legal provisions concerning
inheritance matters at the founder's or the beneficiaries'
domicile shall not be opposable to the foundation, nor shall such
provisions affect the validity of the foundation or prevent the
attainment of its purposes in the manner provided in the
Foundation Charter or its regulations.
ARTICLE 15.
The creditors of the founder or of a third party
shall have the right to contest the contribution or transfer of
assets to a foundation where such transfer constitutes an act to
defraud creditors. The rights and right to sue of said creditors
shall lapse three (3) years from the date of the contribution or
transfer of assets to the foundation.
ARTICLE 16.
The assets of a foundation may originate from any
lawful business and may consist of property of any nature, present
or future. Other sums of money or property may also be
periodically incorporated into the assets by the founder or by
third parties. The transfer of property to the foundation's
assets may be effected by public or private document.
Nevertheless, in the case of immovable property, the transfer
shall comply with the rules relating thereto.
ARTICLE 17.
The foundation shall have a Foundation Council whose
powers or responsibilities shall be established in the Foundation
Charter or its regulations. Unless the Council is a juridical
person, the number of members in the Foundation Council shall be
not less than three (3).
ARTICLE 18.
The Foundation Council shall be entrusted with the
fulfillment the Foundation's aims or purposes. Unless otherwise
provided in the Foundation Charter or its regulations, the
Foundation Council shall have the following general obligations
and duties:
To manage the assets of the Foundation in accordance with the
Foundation Charter or its regulations.
2. To carry out those acts, contracts or business as may be
expedient or necessary to fulfill the purpose of the
foundation and to include in such contracts, agreements and
other instruments or obligations, such clauses and conditions
as are necessary and expedient, being consistent with the
foundation's purposes and not contrary to law, morality, good
manners or public order.
- To inform the beneficiaries of the foundation about its
economic situation as provided by the Foundation Charter or
its regulations.
- To hand over to the beneficiaries of the foundation the
assets or resources settled in their favour in the Foundation
Charter or its regulations.
- To carry out those acts or contracts which the foundation,
according to this law and other applicable legal or
regulatory provisions, may be permitted to carry out.
ARTICLE 19.
The Foundation Charter or its regulations may provide
that the members of the Foundation Council may only exercise their
powers after obtaining prior authorization from a Protector, a
committee or any other supervisory body appointed by the founder
or by the majority of the founders. The members of the Foundation
Council shall not be held liable for any loss or deterioration of
the foundation's assets, nor for any damages caused where the
aforesaid authorization had been duly obtained.
ARTICLE 20
Unless otherwise provided in the Foundation Charter
or its regulations, the Foundation Council shall render accounts
of its administration to the beneficiaries and, where applicable,
to the supervisory body. If the Foundation Charter or its
regulations contain no provision in this regard, the rendering of
accounts must be done annually. If no objections to the account
rendered are raised within the term established in the Foundation
Charter or its regulations, or if such term were not specified,
the accounts rendered shall be deemed to have been approved ninety
(90) days from the date these were received, for which purpose a
record of this term shall be entered in the accounts. Upon either
the end of said term or approval of the accounts, the members of
the Foundation Council shall be exempt from liability for their
administration, unless they had failed to act with the diligence
of a bonus paterfamilias. Such approval shall not exempt them
vis-à-vis the beneficiaries or third parties having an interest in
the foundation with regard to any damages caused by gross
negligence or fraud in the administration of the foundation.
ARTICLE 21.
The founder may reserve in the Foundation Charter,
for himself or for other persons, the right to remove the members
of the Foundation Council as well as to appoint or add new
members.
ARTICLE 22.
Where the Foundation Charter and the regulations do
not contain provisions regarding the right to remove and the
causes for removal of the members of the Foundation Council, said
members may be judicially removed, by means of summary
proceedings, for the following causes:
- Whenever their interests are incompatible with the interests
of the beneficiaries or of the founder.
If they managed the foundation's assets without the due
diligence of a bonus pater familias.
If they were convicted of any offense against private
property or public faith. In such a case, whilst criminal
proceedings are taking place, the prosecuted member may be
temporarily suspended from office.
Due to the inability or impossibility of fulfilling the
objectives of the foundation, from the time such causes
arise.
- Due to insolvency, bankruptcy or creditors meeting
proceedings.
ARTICLE 23.
The judicial removal of the members of the Foundation
Council may be requested by the founder and the beneficiary or
beneficiaries. If the beneficiaries were disabled or minors, they
may be represented by whoever exercises patriae potestas or legal
guardianship over them, as the case may be.
The judgment decreeing the removal shall appoint new members in
replacement of the former members who shall be persons with
sufficient capability, qualifications and sound moral standing to
manage the foundation's assets in accordance with the purposes
established by the founder.
ARTICLE 24.
The Foundation Charter or its regulations may provide
for the creation of supervisory bodies that may be constituted by
natural or juridical persons, such as auditors, Foundation
Protectors or the like.
The roles of such supervisory bodies shall be established in the
Foundation Charter or its Regulations and may include, inter alia,
the following:
- To ensure fulfillment of the foundation's purposes by the
Foundation Council and to protect the rights and interest of
the beneficiaries.
- To demand the rendering of account by the Foundation Council.
- To modify the purposes and objectives of the foundation where
their fulfillment becomes impossible or burdensome.
To appoint new members to the Foundation Council because of
a temporary or permanent absence or the expiration of the
period for which they were appointed.
To appoint new members to the Foundation Council in the event
of the temporary or accidental absence of any of them.
To increase the number of members of the Foundation Council.
- To endorse actions taken by the Foundation Council pursuant
to the Foundation Charter or its regulations.
- To safeguard the foundation's assets and to ensure that said
assets are used for the objectives or purposes stated in the
Foundation Charter.
To exclude beneficiaries from the foundation and to add other
beneficiaries in accordance with the provisions of the
Foundation Charter or its Regulations.
ARTICLE 25.
A foundation shall be dissolved upon:
1. The advent of the date on which such foundation should
terminate in accordance with its Foundation Charter.
2. The achievement of the purposes for which it was created or
because their fulfillment becomes impossible.
3. Its insolvency, cessation of payments or upon adjudication of
bankruptcy.
4. The loss or total extinction of the foundation's assets.
5. Its revocation.
6. Any other cause established in the Foundation Charter or in
this law.
ARTICLE 26.
Any beneficiary of a foundation may object to those
acts of the foundation that violate the rights conferred upon him
or her by the foundation, denouncing said circumstance to the
Protector or to other supervisory bodies, if any, or, lacking
same, by directly instituting the corresponding judicial action
before the appropriate court in the foundation's domicile.
ARTICLE 27.
The acts of creation, modification and extinction of
a foundation shall, as well as acts of transfer, transmittal or
encumbrance of a foundation's assets and the income arising
therefrom or any other act in connection therewith, shall be
exempt from all taxes, contributions, rates, liens or imposts of
any kind or description, provided that said assets consist of:
1. Assets located abroad;
2. Money deposited by natural or juridical persons whose income
does not arise from a source in Panama or is not taxable in
Panama for any reason;
3. Shares or securities of any kind, issued by companies whose
income does not arise from a source in Panama, or where their
income is not taxable for any reason even though such shares
or securities be deposited in the Republic of Panama.
The transfer of immovable property, titles, certificates of
deposit, securities, monies or shares made in pursuit of the
objectives or purposes of a foundation or due to the extinction of
a foundation, in favor of the founder's relatives within the first
degree of consanguinity or to the founder's spouse, shall also be
free from any taxes.
ARTICLE 28.
Foundations constituted in accordance with a foreign
law may submit to the provisions of this law.
ARTICLE 29.
The foundations referred to in the preceding article
that elect to become subject to the provisions of this law shall
submit a Certificate of Continuation issued by the pertinent body
according to their internal organization which shall contain:
1. The name of the foundation and the date of its constitution.
2. The data relating to its recording or deposit at the registry
of its country of origin.
3. The express declaration of its wish to continue its legal
existence as a Panamanian foundation.
4. The requirements set forth in Article 5 of this law for the
constitution of Private Foundations.
ARTICLE 30.
The certification containing the Resolution of
Continuation and the other requirements mentioned in the preceding
article shall have the following documents attached to it:
1. A copy of the original Act of Constitution of the foundation
desiring to continue in Panama, together with any subsequent
amendments;
2. Power of attorney in favor of a Panamanian lawyer to carry
out the formalities required to carry out the continuation of
the foundation in Panama.
The Certificate of Continuation, together with the attached
documents referred to in this law, shall be duly protocolised and
registered at the Public Registry in order for the foundation to
continue its legal existence as a Private Foundation of the
Republic of Panama.
ARTICLE 31
.
In the cases envisaged in Article 28, the
responsibilities, duties and rights of the foundation acquired
prior to the change of domicile or governing law shall continue in
effect, as will any lawsuits that may have been brought against or
by the foundation, without prejudice to such rights and
obligations due to the change authorized by the aforementioned
legal provisions.
ARTICLE 32.
Foundations constituted in accordance with this law
as well as the assets that constitute their patrimony, may be
transferred or become subject to the laws and jurisdiction of
another country as may be provided in the Foundation Charter or
its Regulations.
ARTICLE 33.
Registrations relating to Private Foundations shall
be made at the Public Registry in a special section to be known as
the "Private Foundations Section." The Executive Branch, acting
through the Ministry of Government and Justice, shall issue the
regulations applicable to said section.
ARTICLE 34.
To avoid the undue use of Private Foundations, all
the provisions of Executive Decree No. 468 of 1994 and any other
legal provisions in force aimed at combating money laundering
arising from drug trafficking shall be applied to their operation.
ARTICLE 35.
Members of the Foundation Council and of the
supervisory bodies, if any, as well as public servants or private
sector employees who have knowledge of the activities,
transactions or operations of foundations shall maintain secrecy
and confidentiality regarding these at all times. Breach of this
obligation shall be punishable by six (6) months imprisonment and
a B/.50,000.00 fine, without prejudice to the corresponding civil
liability.
The provisions of this Article are applicable without prejudice to
the information that must be disclosed to official authorities and
the inspections the latter must carry out in the manner
established by the law.
ARTICLE 36
Any dispute for which no special process is specified
in this law shall be resolved by means of a summary process.
The Foundation Charter or its regulations may establish that any
dispute arising with regard to the foundation shall be resolved by
arbiters or arbitrators, as well as the procedure to be followed.
If no such procedure has been established, the rules of the
Judicial Code on this matter shall apply.
ARTICLE 37.
This Act shall enter into effect upon its
publication.
Whilst every precaution has been taken to check
the accuracy of the information contained in this page, no
responsibility can be taken for any inaccuracies contained
herein. Please also note that we are not tax advisors.
Professional tax advice should always be taken if in doubt.
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