Private Interest Foundations in
Private Foundations vs. Trusts
Although similar, Private Foundations and Trusts have very clear differences:
PIF’s are based on Civil Law and they are constituted by means of a public legal document and filed for registration, it is in fact, an existing legal entity, whereas a Trust is based on Common Law and are established by means of a private contract that does need to be filed with any government agency, it is not an existing legal entity, it is in fact a legal contract.
The difference between the Civil Law and Common Law is that Civil Law is based on written laws, codes and can only be changed, modified or amended by means of a legislative act, it is less flexible than Common Law. The latter is based on common knowledge, court interpretations and rulings, therefore is more flexible, but more volatile.
Another difference is that the Foundation Charter does not need to specify the rights and obligations of every party involved that can be done by means of a private and confidential document, while a Trust deed has to be very specific and clear regarding the rights and obligations of the Trustee.
In a PIF the assets are placed to the Foundation’s name at the time of the transfer, while in a Trust, it is the Trustee who receives the assets to his or her name.
As for administration fees, those of an estate in a Foundation are low, while in a Trust, the Trustee fees depend on the value of the estate: the heftier the estate, the bigger the fees.
According to article 27 of Law 25 of 1995, Private Interest Foundations are exempt from payment of any taxes, contributions, duties, liens or assessments of any kind arising from the acts of constitution, amendment or extinction of the same, as well as acts of transfer or encumbrance of the Foundations assets and the income arising thereof, when related to:
– Assets localized abroad;
– Money deposited by natural or juridical persons whose income does not derive from a Panamanian source is not taxable in Panama for any reason;
– Shares or securities of any kind issued by corporations which income is not derived from a Panama source, or which are not taxable for any reason, even when such shares or securities are deposited in the Republic of Panama.
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