Private Interest Foundations

An Understanding

By

Barry M. Spencer-Higgins LL.B (Hons), MOI, Barrister-at-Law (Grays Inn) London
CEO of the SCF Group of Companies

 

Basic Concepts behind using a Private Interest Foundation

• Before Marriage – Any wealthy individual resident in the United Kingdom (Domiciled or not) should consider establishing a private interest foundation BEFORE getting married. The reasons are simple in that a foundation provides a legitimate way of divesting oneself of surplus assets and further into a self-owning and separate legal entity with supporting case law. The benefits of a foundation are compounded when it is taken into account that English & Welsh courts do not give prenuptial agreements the weight they have in the United States and further a long-term spouse can receive as much as 70% of all existing assets if a ‘Clean-Break’ is sought. However, as with all such structures it is vital that at the time of any disposition in favour of the Foundation only surplus assets are transferred and that there is no intention to defraud or mislead any third parties
• When seeking to avoid future Income, Inheritance and Capital Gains Taxes even for those Domiciled and Resident in the UK – The unfortunate fact is that for those domiciled and resident in the UK they are automatically taxed on their worldwide income. With a foundation it is possible that a UK domiciled and resident individual could take preventative measures to avoid future tax exposure, not only to oneself but also for the benefit of one’s potential heirs. In addition, once a foundation has been established its assets are no longer associated with either yourself or the UK, allowing assets to grow in a virtually tax free environment
• Where one is Non-Domiciled but Resident in the UK – There is no doubt that the fact that non-domiciled individual’s resident in the United Kingdom were once not taxed on their worldwide income but only that income generated or remitted back to the UK,  made the UK into Europe’s leading ‘Tax Haven’. However, now that Alistair Darling in his 2008 Budget has imposed a £30,000 Levy on non-domiciled individuals resident in the UK there is now little doubt that most traditional ‘loopholes’ have closed and that wealthy ‘foreigners’ wishing to maintain their wealth must now act or potentially expose their worldwide wealth to UK taxation 
• Asset Protection & Confidentiality – Apart from tax mitigation, a foundation can also be used to separate and protect assets from future litigation (such structures are very popular with certain professionals especially where there is high indemnity insurance or where a partnership exists) and also for those seeking a high degree of confidentiality over their affairs
• Protecting Future Generations – Private Interest Foundations can be set-up in a manner which will allow a Founder or Originating Party to keep control over the use and/or disposition of foundation assets even after his or her demise since, just like a traditional trust, it is possible for it to exist many years after the death of a Founder

 When should an individual consider using a Private Interest Foundation?

• A Foundation can be either a public or private interest undertaking
  Foundations are the creation of Civil Law countries which include virtually all Continental countries save Cyprus, Gibraltar and Malta
  The First Key Benefit of a Foundation is that if correctly established, it will own its own assets and not, as with a private limited company, be owned by its investors/shareholders - be they beneficial or nominee in status
• The Second Key Benefit of a Foundation is that if correctly established it will be treated as analogous to a private limited company at least by the English & Welsh Courts (see House of Lords case of Carl Zeiss Stiftung (‘Stiftung’ is German for a foundation) v. Rayner & Keeler (1967) App. Cas. 853 PC 1967) and most likely by other major Common Law countries
• The closest analogy to a Foundation is the Common Law Discretionary Trust but unlike a Trust, a Foundation is generally treated like a private limited company and hence outside the provisions of the almost ubiquitous anti-trust legislation applicable in most Common Law countries such as England, Ireland and the United States of America
• It is often possible for a Founder (or ‘Originating Party’ if funds are not directly lodged) to maintain greater control over lodged Foundation assets than in the case of a Common Law Trust
• Most correctly established Foundations will have not only a Charter Document (Generally recorded with a Companies Registry) but also a Regulatory Governing Document. This, whilst not on public record, is vital if a Clients’ bespoke provisions are to be achieved especially in respect to beneficiary and determination issues
• Well drafted Foundation Regulations will generally have what are called “Anti-Duress” or “Flee” Clauses.... Basically, these will become effective where 3rd parties, such as foreign courts etc., try and place pressure on either a Founder or Originating Party by threatening them with contempt of court if they do not use their influence to comply with a court’s instructions. In simply terms, if the governing body of a given foundation (known as the Foundation Council) have reasonable grounds to believe or, in fact know, that they have received instructions from their Founder/Originating Party under 3rd party duress they must then ignore such instructions. The result of this is that the Founder or Originating Party will have complied with the court’s instructions (and hence not be in contempt) but nothing will or can be done due to the “Anti-Duress” or “Flee” Clauses

In Today's World it is prudent to take precautions

Correctly used a Foundation or Trust can protect you against a future Divorce, unwarranted 3rd party claims and even against inheritance, capital gains and wealth taxes!!

Obviously no one wants to enter into a marriage on the basis that it might end in divorce but in today's world it would be a very unwise person of wealth who does not take the time to seek advice on what precautions are available should the undesired occur! The same logic also applies to professionals such as doctors and lawyers who might fear that their indemnity insurance may not cover them sufficiently against future 3rd party actions be they valid or invalid in nature. It would further not be wise for a person of wealth not to consider the future interests of his potential beneficiaries or even his own future interests in respect to inheritance, capital gains and wealth taxes. It is for these reasons, that a person of wealth should investigate the correct and well timed use of either a trust (generally advisable for those not based in a common law jurisdiction save if asset protection is the main objective) or private interest foundation (generally advisable for those not based in a civil law jurisdiction). Whichever is the case, the SCF Group is ideally positioned to ensure that our Clients have the best protection at economical rates available today!

The function of Trusts and Private Interest Foundations

The function of both trusts*1 and of private interest foundations*2 was and is to legally separate an individual or individuals from their assets for the current and/or future benefit of disclosed and/or discretionary beneficiaries. Legally both a trust and a private interest foundation are self-owning entities with no ultimate controller or owner which is exactly what makes them so attractive to tax planners and those seeking to protect assets from either 3rd parties, fiscal authorities and/or the injudicious actions of those who might otherwise be expected to become direct beneficiaries if assets were to be distributed directly. 

*1 Primarily used in common law jurisdictions such as the UK, the USA and most ‘known’ tax havens
*2 A creation of the ‘continental’ civil law system

Trusts Overview

Protecting Your Assets

Trusts can be established in such a way that they can be used to protect assets from potential 3rd party litigation. These types of trusts are known as “Asset Protection Trusts” or APTs and are primarily used in the United States by professionals such as medical doctors, dentists and lawyers where high indemnity insurance and an extremely litigious environment mean that few successful professionals can afford not to consider establishing an APT. However, it should be noted that such APTs don’t have fiscal benefits and further should always be declared to the Internal Revenue Service (IRS).

Reducing Tax Obligations

Many ‘Tax Haven’ jurisdictions such as Jersey, Guernsey, the Isle of Man and of course most of the former British colonies in the West Indies offer trust structures (normally discretionary in nature) that are subject to little or no annual tax or annual duty. However, it would be a mistake to assume that simply because the ‘tax havens’ offer such fiscal benefits that non-tax haven jurisdictions accept their fiscal veracity. In fact, as a general rule ‘trusts’ set up by those resident and domiciled in common law jurisdictions such as the United Kingdom, Australia, Ireland, Canada etc. generally do not benefit from many tax breaks due to the advanced anti-avoidance provisions in situe. However, for those not domiciled in such countries or for those resident in a civil law jurisdiction trusts can often offer significant benefits.

Foundations Overview

Protecting Your Assets

A correctly established private interest foundation (stiftung) can be drafted in such a way that it can offer virtually all the benefits of a traditional APT. In fact, in many ways a foundation is often both the better and safer method of protecting assets from 3rd party litigation especially if the private interest foundation is located in a highly monitored jurisdiction such as Switzerland or Liechtenstein. In fact, in both of these jurisdictions – unlike their competitors in Panama – all foundation council members/administrators must be licensed and insured.

Reducing Tax Obligations

Private interest foundations, whilst not necessarily desirable for those located in civil law jurisdictions such as France or Germany, have very positive benefits for those located in common law countries, particularly the United Kingdom where there is case law which established the veracity of private interest foundations.

Private Interest Foundations – Locations & Observations

Whilst public foundations can be established in virtually any civil law country, the three most popular jurisdictions for private interest foundations (PIFs), for both legal and tax reasons are Liechtenstein, Panama and Switzerland. The SCF Group can establish foundations in all three countries but there is little doubt that Liechtenstein and Switzerland have the better general systems. However, Panama for cost reasons will no doubt prove to be the big sellor for most UK non-domiciled but resident individuals seeking to avoid the consequences of Mr. Darling's 2008 Budget. Nevertheless, whilst Panama can be an excellent choice it is vital that proper Regulations have been set-up to specifically meet the criteria of a client supported by an independent foundation council and appropriate determination and anti-duress clauses. It of course goes without saying that SCF is uniquely positioned to set-up effective Panamanian foundations as we have inhouse management facilities and are licensed EU company and trust managers

SYNOPSIS: Independent sovereign state. Excellent corporate efficiency. Spanish speaking. Good air and sea communications with the United States. Has suffered from political instability in recent years but corporate 'friendly' environment was and is maintained.

Corporate document presentation very similar to Spanish civil law, however, company law is based upon Delaware and New York legislation as it existed in the 1920s (see Law 32/1927). Has recently introduced 'private interest foundations' which are similar in form to the much more expensive undertakings offered by Liechtenstein (See Law 25/1995) allowing a 'founder' to on the one hand separate legal ownership whilst on the other potentially maintain full control over all endowments. Unlike most civil law jurisdictions trusts are recognized and exist in Panamanian law. The world's foremost yacht and ship registration territory. Growing banking and insurance sector. Low indigenous individual and corporate taxes. Tax system is based on the 'territoriality' concept; therefore, revenue earned outside of Panama is totally free of Panamanian taxes. Currency trades on a par value with the US Dollar

STAR RATINGS
Corporate registration efficiency:
Cost:
Confidentiality:
Local banking facilities:
Legal system:
Political stability:
Reputation:

LOCATION
Located in the Isthmus of Panama, south of Costa Rica and north of Columbia

 

PANAMANIAN PRIVATE INTEREST FOUNDATIONS

The key benefits of a Panamanian Private Interest Foundation are that they are (at least in their basic format) relatively cheap, allow for a Founder to control the Foundation directly using an overhead Panamanian IBC Company, are officially registered at the Registry and are deemed to have a separate self-owning legal identity under Law No. 25 introduced on the 12 June 1995. As with Liechtenstein and Swiss Foundations, there is an incorporation Charter Document which has a clear and established format which, in the case of Panama, has its terms and provisions specifically set-out in Law No. 25. However, where Panama differs considerably from Liechtenstein and Switzerland is that Foundation Council Members need not be licensed and insured whilst there is also no history of drafting sophisticated internal regulatory documents or by-laws – In fact, in most cases Panamanian have no meaningful Regulations at all! Notwithstanding this, it should be noted that qualified firms such as SCF Legal & Corporate Management Services Limited can draft bespoke Regulations*1 that can include such vital ‘Flea’ or ‘Anti-Duress’ Clauses*2 often required to ensure a robust structure should a Foundation come under 3rd Party attack

Notes: *1 = in our experience it is vital that any Foundation is set up with professional and independent Foundation Council Members. This is to ensure that should a Founder come under attack by a third party, the Founder will not be in a position so that he may be pressured by a court (by being held in contempt) to release Foundation assets *2 = The ‘Flea’ or ‘Anti-Duress’ Clauses in properly drafted Regulations mean that where the independent Council Members feel that a Founder has been subject to 3rd Party pressure they can ignore his requests and maintain the Foundations integrity *3 = For a detailed analysis see the Article drafted by BM Spencer-Higgins for the International Tax Report Magazine at the end of this Document

STANDARD PANAMANIAN PRIVATE INTEREST FOUNDATION

This includes the registration of a private interest foundation in Panama using a Charter drafted pursuant to Law Number 25 of 1995 where-by Panamanian lawyers act as personal foundation representatives for the foundation in Panama, provision is made for the foundation to be controlled by an overhead Panamanian IBC Company (charged for separately) controlled by either the Founder directly (not normally recommended) or by SCF Nominees (extra cost option). Under this structure the bank can be controlled by either the Founder or SCF Nominees with, in the latter case, a ‘Protector’ Clause being inserted to ensure peace of mind for the Founder

BESPOKE PANAMANIAN PRIVATE INTEREST FOUNDATION

This is a Foundation specifically drafted to address the known flaws connected with Panamanian Private Interest Foundations. In particular, it includes the drafting by our experts of bespoke Regulations/By-Laws aimed at giving a proper administrative structure for the lifetime of the Foundation including necessary ‘anti-duress’/’‘flea’ clauses, discussion of both the identity of potential beneficiaries and/where and how the foundation may determine in the future. It should be noted that this service will always include administration of the Foundation by SCF Nominees so as to ensure maximum protection against any unwelcome 3rd party interventions. The potential day to day influence of the Founder or Originating Party is deliberately tempered in this structure to ensure its veracity very much in the way that valid trusts must show that the trustees are genuinely acting in their trustee capacity and not on the instructions of the settler – For clarification on this matter please speak to your consultant

LIECHTENSTEIN

 

The Principality of Liechtenstein can trace its origins back to 1719 when the regions autonomy was conceded by Emperor Charles VI. Historically closely connected to Austria although this century it has established substantial links with Switzerland including the adoption of the Swiss currency.

Since the Second World War the jurisdiction has become a major financial service provider in central Europe with numerous trust companies located in its capital Vaduz. Numerous legal undertakings have been established to allow tax planning flexibility the most well know being private interest foundations (stiftungs) and private law establishments (anstalts) both of which offering unique advantages. The main benefit of private interest foundations and establishments is that they are self owning entities like trusts but can be controlled, if required, by the founder during his or her lifetime.

Banking & Confidentiality: For those seeking confidentiality over their business and financial affairs Liechtenstein probably offers the best 'haven' in Europe. It is not a member, or associated member, of the European Union and only has one double taxation treaty with Austria. Under their most recent banking legislation, passed on the 21st of October 1992, both present and former bank staff together with government officials cannot disclose any banking information to third parties.
If one of the numerous local legal entities, including anstalts, aktiengesellschafts and foundations, are needed it is highly recommended that local lawyers are employed since any non-authorized disclosures would result in penal consequences. For the same reasons, their employment is also recommended even when personal or foreign company accounts are being opened.

Obviously, Liechtenstein like all other respectable jurisdictions do not wish, notwithstanding the aforementioned, to be seen as a center for illicit/criminal activities and, provided sufficient evidence is adduced, will release information. Further, any cash deposits over 500,000.00 Swiss Francs will be subject to strict source verification. Nevertheless, it should be noted that the Liechtenstein authorities will not assist third party inquiries relating to foreign tax obligations.

If a foreign company is opening an account full banking confidentiality will still apply, however, it is then necessary to consider that jurisdictions disclosure rules.

STANDARD LIECHTENSTEIN PRIVATE INTEREST FOUNDATION

Without doubt the most popular of private interest foundations primarily due to the fact that all such foundations are administrated by licensed foundation council members, virtually always local lawyers, who are covered by an indemnity bond. Further, unlike Panama there is a choice whether a foundation should be ‘deposited’ (i.e. recorded) or not – A factor, that may have specific benefits depending on the particular needs of a Client. All SCF Foundations come with both a Charter and Standard Regulations and can also include (at extra cost) the use of a local firm of Liechtenstein lawyers to act as ‘Trustees’ for the original deposit so as to prevent any connection between the Foundation and the Founder – In such cases, the Founder will be known as the ‘Originating Party’ as at law the Founder of the Foundation will be the Trust Company set up by the Foundation Council Lawyers. Other general advantages of Liechtenstein foundations include the highest degree of banking confidentiality available in a developed and secure part of the World together with established English & Welsh case law (see House of Lords case of Carl Zeiss Stiftung (‘Stiftung’ is German for a foundation) v. Rayner & Keeler (1967) App. Cas. 853 PC 1967) confirming that such correctly established Liechtenstein structures will be treated as separate legal entities something likely to apply, but not guaranteed, for Panamanian foundations.

BESPOKE LIECHTENSTEIN PRIVATE INTEREST FOUNDATION

The Bespoke Liechtenstein Foundation includes everything that the Standard Liechtenstein Foundation includes but also with the standard use of a Liechtenstein Trust to make the original Foundation donation (see above) and thus ensuring the highest degree of anonymity and confidentiality possible. This service also includes the insertion of a ‘Flea’ or ‘Anti-Duress’ Clause, bespoke determination and beneficiary clauses plus specific underlying company administration instructions. Without doubt this is the Gold Standard for private interest foundations and probably essential for those with substantial assets

LIECHTENSTEIN UNDERTAKINGS & TAXATION

To maintain its position as Continental Europe's principal tax planning/mitigation jurisdiction the local authorities (See the Personen und Gellschftsrecht Code) have developed a varied and sophisticated array of undertakings, the following being the most important:

i. LIMITED LIABILITY COMPANIES: The jurisdiction offers both public (Aktiengelsellschaft - AG) and private (Gesellschaft mit beschraenkter Haftung - GmbH) companies limited by shares. The former and most popular demand a share capital of at least SF 50,000.00 the latter SF 30,000.00. Full details must be provided on the company name, objects, capital and directors however no information is kept at the Public Registry on shareholders. Provided capital is less than SF 1,000,000.00 there need only be one director. Shares can be in "bearer" or registered format. All companies must keep books of account and pertinent registers. Account records must be audited by the Audit Authority on an annual basis and filed with the Liechtenstein Tax Administration. Companies domiciled -i.e. having a registered office with or without administration - but not conducting business within the jurisdiction are exempt from virtually all taxes save a capital tax levied at 0.1% minimum annual payment is SF 1,000.00 (See Steuergesetz 1961)

ii. FOUNDATIONS: A "Foundation" or Stiftung differs from an Anstalt primarily because there is no equivalent of "Founders Rights" and hence no method of transferring control or de facto ownership to a third party. A Stiftung is viewed as a "stand alone" undertaking only responsible for its own debts and liabilities and not those of its Founder. There are two types of Foundation; "Registered11 and "Deposited". Regarding the latter the Commercial Register does not provide any information, not even the identity of the members of the Foundation Council, whilst as regards to registered Foundation’s one may receive an abstract from the Registry upon request (indicating the objects clause, the date of incorporation of the Foundation and the identity of the Foundation Council). In practice, most Foundations are deposited only. Beneficiaries are generally appointed in the Foundation By-Laws. In most cases they can be changed during the lifetime of the Founder but not upon his or her demise. A very important benefit of a properly drafted Foundation is that 'attacks' by "beneficiaries", or former beneficiaries, are almost impossible because the burden to prove that this status existed is firmly with them. This being because By-Laws are not officially registered. Technically a Stiftung can operate as a commercial entity but such a use is very rare given that the ability to transfer assets or the control of assets is often an essential prerequisite for a commercially trading entity. However, Foundations may pursue commercial activities in order to achieve non-commercial objectives normally through the ownership of a subsidiary commercial undertaking. Where direct commercial activities are deemed desirable a Foundation will be subject to the normal accounts maintenance criteria applicable to other trading vehicles. Therefore, accounts will have to be audited by the audit authority and lodged with the Liechtenstein Tax Administration. However, as implied, in the majority of cases a Stiftung will be established for charitable and/or family purposes in which instance its account disclosure requirements are limited to the annual submission of a statement of assets and liabilities. The minimum capitalisation is SF 30,000.00. The governing organ is known as the "Foundation Council". A non-commercial Stiftung can be founded by any entity with a separate legal personality and may further have assets invested in other undertakings which do have a commercial modis operandi. Accounting: As mentioned in the introductory remarks Foundations do not have to have audited accounts. However, the Liechtenstein directors have to know what the assets of the Foundation are. They should be itemised. They do not have to be appraised.

iii. PRIVATE LAW ESTABLISHMENTS: "Establishments" or Anstalts are unique Liechtenstein undertakings which can purport, like a "Foundation" or Stiftung to disenfranchise a Founder (the donor of the Anstalts initial capital) from "his" Establishment. However, unlike a Stiftung an Anstalt can conduct direct commercial business without limitation. Further, unlike either an AG or GmbH such an entity does not have a direct method of cross-reference back to its Founder by way of "Shares" or other such apportionment representations. Under Liechtenstein law this is a distinct advantage since if there is no apportionment, i.e. shareholders, the 4% tax on dividends paid to shareholders cannot apply. Standard Establishment: This is one where a Founder maintains his "Founder's Rights" which can be inherited or transferred. Where the person entitled to these rights is identical with the beneficiary, the Anstalt does constitute a proprietary interest and can be subject to freezing orders and forced sales. The 'Foundation' Establishment: Importantly, at the time of creation, all rights and obligations are transferred to directors and hence cannot be inherited, transferred or subject third party actions as described above. In reality, such structures are rare since most Foundations can carry out any desired commercial activities by using an underlying company. The minimum required capital is SF 30,000.00. In respect to the maintenance of accounts a distinction is made between commercially and non-commercially trading Anstalts. The former being subject to the same criteria as a company limited by shares, i.e. that not only must accurate accounts be kept but that such must be audited by the audit authority, whilst the latter need only submit an annual statement on assets and liabilities.

CONFIDENTIALITY

Perhaps the principal reason for the establishment of a Liechtenstein undertaking is the statutory protection afforded to indigenous bank accounts and beneficiaries. Under the Banking Act of 1993, it is an offence for both present and past employees of a bank to release information to any third parties unless so instructed under a Liechtenstein court order. It is important to note that such an order will only be granted if there are serious criminal ramifications but specifically not for fiscal or currency matters unless such transactions could affect the local economy.

GENERAL LIECHTENSTEIN ADVANTAGES:

• Highly developed infrastructure and pro-business government
• Sophisticated and varied legal undertakings which allow for tax planning flexibility
• Very stable economy
• Banks have AAA status
• Currency is the Swiss Franc
• Generally very little corruption
• Beneficial or even share ownership need rarely be publicly recorded
• There are no nationality requirements in respect to most officerial positions, de jure and de facto equity representations are virtually always confidential
• Non-commercial undertakings do not normally require audited accounts
• Local professionals are efficient if a bit bureaucratic
• Excellent communications and Central European position
• English is widely used in business
• Independent sovereign state not subject to EU "disclosure" Directives/Regulations
• Courts will only disclose beneficial ownership details in criminal cases and then only when such activities are deemed criminal under indigenous law

TAXATION

Domiciled undertakings, including holding companies, not conducting, directly or indirectly, business in Liechtenstein are exempt from virtually all local taxes save a tax on capitalisation. For most non-Foundations the tax will be levied at a rate of 0.1% subject to a minimum annual payment of SF 1,000.00. For Foundations or Stiftungs there is a variable capital tax of between 0.075% to 0.05% depending on capitalisation. Again there is a minimum tax of SF 1,000.00.

SCF PRIVATE INTEREST FOUNDATION FEE SCHEDULES

Please note these fees include any overhead or underlying complimentary undertakings, ongoing taxation or bespoke structures (where applicable) – For clarification, please discuss with your consultant. Please note that Foundations require the payment of both the 1st and 2nd Year Payments in the First Year followed only by the Standard Annual Fee

STANDARD PANAMANIAN PRIVATE INTEREST FOUNDATION

Incorporation of a Panamanian Private Interest Foundation under Law 25 of 1995
Drafting of a Standard Charter & Regulation Documents
Annual Representation Fee of Qualified Local Lawyers
Registration of a Panamanian Overhead ‘Bearer’ Share Company
Registered Office Address
Notarial & Translation Expenses
Payment of Annual Registration Tax
Bank Introduction

1st Year Fee = €6,000.00

2nd Year Fee = €4,500.00

BESPOKE PANAMANIAN PRIVATE INTEREST FOUNDATION

Incorporation of a Panamanian Private Interest Foundation under Law 25 of 1995
Drafting of a Standard Charter Document
Drafting of Bespoke Internal Regulations/By-Laws by SCF
Insertion in of ‘anti-duress’/ ‘flea’ clause
Bespoke Determination Clause
Bespoke Protector Clause
Bespoke Beneficiary Clause
Appointment of SCF Overhead Licensed Trust & Management Company (or a representative/affiliate company thereof) to act as the Foundation Council Member
Annual Representation Fee of Qualified Local Lawyers
Registered Office Address
Notarial & Translation Expenses
Payment of Annual Registration Tax
Bank Introduction

1st Year Fee = €7,500.00

2nd Year Fee = €6,000.00

STANDARD LIECHTENSTEIN PRIVATE INTEREST FOUNDATION

Incorporation of a Liechtenstein Private Interest Foundation
Drafting of a Standard Charter Document
Drafting of Standard Regulations/By-Laws
Direct Appointment of Funds by Founder to Foundation
Appointment of Licensed and Indemnified Lawyers to act as the Foundation Council Members
Provision of a local Registered Office Address
‘Deposited’ or ‘Registered’ Format
Notarial & Translation Expenses
Payment of Annual Registration Tax (variable but generally no more than SF 1000)
Pre-payment of Dissolution Fee allowing legal determination if required
Lichtenstein Bank Introduction

1st Year Fee = €11,000.00

2nd Year Fee = €8,000.00

BESPOKE LIECHTENSTEIN PRIVATE INTEREST FOUNDATION

Incorporation of a Liechtenstein Private Interest Foundation
Drafting of a Bespoke Charter Document
Drafting of Bespoke Regulations/By-Laws
Insertion of ‘Anti-Duress’/’Flea’ Clause
Insertion of ‘Protector’ Clause
Insertion of Determination and Beneficiary Clauses
Appointment of Funds by Trust Company rather than Founder for extra anonymity
Appointment of Licensed and Indemnified Lawyers to act as the Foundation Council Members
Provision of a local Registered Office Address
‘Deposited’ or ‘Registered’ Format
Notarial & Translation Expenses
Payment of Annual Registration Tax (variable but generally no more than SF 1000)
Pre-payment of Dissolution Fee allowing legal determination if required
Lichtenstein Bank Introduction

1st Year Fee = €13,500.00

2nd Year Fee = €8,000.00

 

Article written by BM Spencer-Higgins for the International Tax Report

“Flaws found in Panamanian Foundations”

The introduction of measures enabling the establishment of private foundations was intended to put Panama on a par with other offshore centres such as Switzerland and Liechtenstein offering similar entities. However, Barry Spencer- Higgins, co-founder of SCF International Trust & Management Group in London, has found certain flaws in the legislation which call for increased diligence on the part of those who want to set up in Panama and definitely require the appointment of a licensed and professional firm before proceeding.

On 12 June 1995, Law No 25 introduced private interest foundations into Panamanian law. As with non-commercial Liechtenstein foundations (stiftungs), Panamanian foundations were endowed with a separate juridical personality [Article 97, non-profit objectives [Article 3] and a clear statement that the assets of the Foundation shall constitute assets separate from the personal assets of the founder, for all legal purposes * [Article 11].

The governing body was and is the Foundation Council, which is subject to Law No 25, the publicly recorded Charter and its internal regulations. In addition, it was made clear that transfers made to a foundation were irrevocable [Article 13] save where fraud could be established by a creditor/third party within three years [Article 15]; while The members of the Foundations Council and of the supervisory bodies, if any, and also the public or private employees who have knowledge of the activities, transactions or operations of the Foundations, must maintain secrecy and confidentiality at all times concerning same'. Any violations of such obligations resulting in imprisonment of six months and a fine of US$50,000, without prejudice to any corresponding civil liabilities [Article 35].

All the necessary ingredients - Therefore, prima facie Panamanian foundations appeared to contain all the ingredients necessary to allow the Republic of Panama to successfully compete against the more established European providers such as Switzerland and Liechtenstein. In reality, it is now apparent that Panama, in its attempt to provide greater administrative autonomy than either Switzerland or Liechtenstein, has inadvertently permitted wide variations in the quality and efficacy of its private interest foundations.

The major flaws

1. Law No 25, while providing a standard format for a foundation's charter, fails to provide specimen regulations. This has resulted in unnecessary variation and over-dependence on finding adequately qualified legal advisers. Unfortunately, many Panamanian law firms are not well versed in international tax planning and in particular the anti-avoidance provisions of those ‘originating’ parties or founders and how they may be subject to in their country of domicile or residence anti-avoidance provisions

2. Unlike jurisdictions such as Liechtenstein there is no requirement to have indigenous licensed and professionally qualified individuals on the board or foundation council. Such individuals being expensive but affording veracity to the structure

3. In Panama it is possible for a founder to have direct control over the foundation by using a juridical body (e.g., a Panama bearer share company) to act as the foundation council. The problem with this is that if a founder has direct control over a foundation and has the ability to determine its existence, it is quite possible that direct pressure could be applied on the founder to meet third party and beneficiary claims. This danger is particularly likely if there are significant fixed assets located in the founder's jurisdiction of residence. Further, it seems that most Panamanian foundation regulations do not have the equivalent of a 'flee' clause found in many international trusts. A flee clause being one which automatically invalidates any decision(s) taken by a foundation council member/juridical body where such a decision(s) was taken as a result of third party pressure

4. Most current foundation regulations appear to have a determining provision for the foundation on the death of the founder/originating party with assets then normally being divided among specified beneficiaries or family members. It is contended that such a provision is disadvantageous and that it would be better that the foundation council is given discretionary powers over both the duration of the foundation and its assets to ensure the most fiscally advantageous dispositions

5. Local Panamanian courts do not have the experience to settle disputes deriving from the structure and contents of a Panamanian foundation's charter and/or regulations. Potential flexibility and autonomy

Get proper professional advice - Law No 25

Introduced a very flexible, interesting and competitively priced private interest foundation structure. In the right professional hands it is quite possible to draft a very useful and effective foundation charter and regulations with significantly greater autonomy than available in competing jurisdictions such as Liechtenstein and Switzerland.

Nevertheless, it is contended that currently too many foundations are being registered without the benefit of proper tax planning and certainly without properly drafted regulations.

Until Panamanian law develops a more standardized format, it is recommended that such entities are only purchased through international tax planning lawyers or accountants fully cognizant in both prevailing Panamanian legislation and also in the laws, regulations and anti-avoidance provisions applicable in the jurisdiction of the founder's residence and/or those applicable in the jurisdiction(s) where the assets, creditors and beneficiaries are located.