Private Interest Foundation in Panama: what it is and how it is regulated by Law 25 of 1995

The private interest foundation is not just a legal figure: it is a true asset protection strategy. Regulated by Panamanian legislation, it allows for the organization, protection, and planning of the assets of individuals and families with legal certainty and international recognition.

In this guide, we explain what it is, what Law 25 of 1995 says, how it is constituted, what current legal obligations it must comply with, and the most frequent questions from those considering creating one.

What is a private interest foundation?

A private interest foundation is a legal entity created to administer a trust fund designated for specific purposes, such as family protection or estate planning. Unlike a corporation, it does not have shareholders or seek profit for third parties; the assets are dedicated to the objectives defined by the founder.

In Panama, this figure is regulated by the Law 25 of June 12, 1995, which gave it a solid, flexible, and internationally recognized framework for estate planning.

Law 25 of 1995: Key Articles You Need to Know

Law 25 of 1995 is a special law that regulates all aspects of private interest foundations. These are the most consulted articles and are worth keeping in mind:

• Article 1 — Who can create it. One or more natural or legal persons, by themselves or through third parties, may establish a foundation by dedicating assets for the purposes set forth in the foundational deed.
• Article 5 — The founding articles. It is the foundation's foundational document. It must include, among other things: the name (which must contain the word “foundation” and not be the same as another existing one), the initial endowment—minimum equivalent to B/. 10,000—, the method for appointing the Foundation Council, the domicile, the resident agent, the objectives, and the duration.
• Article 8 — Registration fee and single fee. The foundation pays its registration fee and a single annual fee to maintain its validity, in accordance with the Tax Code.
• Article 17 — Foundation Council. The administrative body must be composed of at least three natural persons or, alternatively, a legal entity.
• Article 27 — Tax Benefits. Certain transfers of assets to the foundation—and to relatives within the first degree of consanguinity and the founder's spouse—are exempt from taxes in Panama.

A core attribute of the law deserves separate mention: the mandatory inheritance provisions (forced heirship) in effect in the country of domicile or nationality of the founder or beneficiaries are not enforceable against the foundation, nor do they affect the validity of the asset transfer. This makes the Panamanian foundation a powerful estate planning tool.

Who are they ideal for?

Private interest foundations are suitable for different profiles:

• Families wishing to organize their succession and avoid inheritance disputes.
• Investors looking to protect and separate their assets from personal or business risks.
• Individuals with international wealth who want to centralize ownership of assets, companies, or accounts under a single structure.
• Entrepreneurs who wish to provide long-term continuity and control over their family businesses.

Organs and figures of the foundation

Understanding who is who prevents mistakes in the constitution.

• Founder who creates the foundation and provides the initial endowment.
• Foundation Advice: manages the foundation and executes its purposes (minimum of three natural persons or one legal entity).
• Beneficiaries who receives the benefits of the estate, as defined by the founder.
• Protector or oversight body (optional): The person or entity that oversees the Council; their powers are defined in the regulations.
• Resident agent A lawyer or law firm in Panama, mandatory by law, that serves as a liaison with the authorities and oversees compliance obligations.

Beneficiaries are usually designated in a private regulation (not in the deed registered with the Public Registry), which allows for confidentiality regarding who they are and what they receive.

The importance of structuring it correctly

It's not enough to create a foundation; it needs to be well-structured from the start. Proper drafting of the foundational deed, correct appointment of governing bodies, and a clear definition of beneficiaries and regulations are decisive aspects for the foundation to truly fulfill its protective purpose. Errors in these areas can make it vulnerable or inoperable precisely when it is needed most.

Current Legal Obligations of Foundations in Panama

Beyond Law 25 of 1995, Panama has strengthened its transparency framework in recent years. Every active foundation must, primarily, comply with the following:

1. Beneficial Owner Registry (Law 129 of 2020)

Law 129 of March 17, 2020, regulated by Executive Decree 13 of 2022, created the Private and Unique Registry of Ultimate Beneficial Owners, administered by the Superintendence of Non-Financial Subjects (SSNF).

• The resident agent enters the ultimate beneficial owner's data for the foundation into the system.
• The information is confidential: it is not publicly accessible and is only disclosed to competent authorities in specific investigations or through international cooperation.
• The legal representative must promptly supply and update that information to the resident agent.

Non-compliance may result in fines and the suspension of a legal entity's rights.

2. Accounting records (Law 52 of 2016 and Law 254 of 2021)

Since Law 52 of 2016, foundations (like companies) must keep accounting records and retain supporting documentation for a minimum of five years. Law 254 of November 11, 2021, tightened these rules:

• Accounting records must be submitted to the resident agent no later than April 30 of each year, with respect to the previous fiscal period.
• The resident agent must report to the authority, by no later than July 15th, the entities that have not complied.
• Foundations that only have passive assets (accounts, real estate, stocks) submit a report reflecting the value of their assets, income, and liabilities.

Non-compliance can lead to suspension of corporate rights, fines, and even dissolution.

3. Practical summary of annual obligations

Panama and international transparency

It is a frequent point of doubt and worth clarifying: Panama has made decisive progress in international compliance. In October 2023, it was removed from the FATF's “grey list” and subsequently delisted by the European Union from its list of high-risk countries for money laundering prevention. This strengthens the jurisdiction's reputation and the legal certainty of structures established under its laws, without prejudice to the fact that the country continues to adapt its regulations to global tax transparency standards.

Tax Aspects (Overview)

Panama applies a territorial tax system: as a general rule, foreign-source income is not subject to income tax in Panama. Many foundations function as passive asset holders and do not generate taxable income from a Panamanian source. Additionally, Article 27 of Law 25 exempts certain transfers of assets to the foundation and to first-degree relatives and the spouse of the founder.

Important: The foundation does not exempt the founder or the beneficiaries from their tax obligations in their country of residence. Tax planning must be analyzed on a case-by-case basis with a specialist advisor.

Private interest foundation vs. other structures

The choice between one and the other depends on the objectives: a foundation is usually ideal for protecting and transferring assets, while a company serves to operate a business. In many cases, they are combined (the foundation owns the shares of the company).

Frequently asked questions

What is the minimum net worth to create a private foundation?

The equivalent of B/. 10,000. It does not have to be cash: it can be contributed in goods, stocks, real estate or other valuable assets.

How much does it cost to maintain a foundation annually?

It includes the annual flat tax (established in the Tax Code), resident agent fees, and accounting compliance. The total cost varies depending on complexity; it is advisable to request a quote for your specific case.

Are the beneficiaries public?

Not necessarily. The foundational deed is registered in the Public Registry, but the beneficiaries are usually designated in private bylaws. Ultimate beneficial owner information is maintained in a confidential registry accessible only to competent authorities.

Can a foundation have bank accounts or own a company?

Yes. It can hold accounts, real estate, stocks, and other assets, and is widely used to consolidate ownership of family wealth.

Does the foundation pay taxes in Panama?

Under the principle of territoriality, foreign-source income is generally not taxed in Panama, and many foundations only passively hold assets. Each situation must be reviewed with tax advice.

Can a foreign foundation move to Panama?

Yes. Law 25 allows foundations established under foreign law to continue their legal existence as Panamanian foundations by meeting the continuation requirements.

What happens if the accounting or ultimate beneficial owner obligations are not met?

Fines can be imposed, the corporate rights of the foundation suspended, and in persistent cases, its dissolution. That's why having a registered agent to keep everything up-to-date is key.

Our accompaniment

At Lima y Asociados, we analyze your profile and design a tailored foundation for you, in accordance with Panamanian law and aligned with your patrimonial objectives. We accompany you throughout the entire incorporation and administration process—including compliance with beneficial owner obligations and accounting records—to ensure a solid, current, and secure structure.

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This content is for informational and general purposes only; it does not constitute legal or tax advice. Fees, deadlines, and obligations may vary according to current legal reforms. Consult a professional about your specific case.