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Agreement on Processing of Personal Data CZ / EN

HOLDING / Panama foundation

  • HOLDING

    Business Corporate structures

    Corporate structure of a organization should reflect the following:
    • It is necessary to take into account the resources of the whole group and its location. The group´s ability to trade should not prevent tax planning.
    • The structure should be such as to minimalize the tax burden of the group. There must be taken into account all taxes, including local taxes on corporate income, capital gains tax, withholding tax and VAT and other duties.
    • If the group has a valuable property, the corporate structure should protect such property.
    • The group should be set up as to assist in the funds collection.
    • Venture investors may prefer onshore holding companies. In other cases offshore shareholding significantly limits the ability of local companies to borrow the money

    Holding companies – offshore, onshore or midshore

    The location of holding company is an important element of international structures for minimization of the income and profit tax. In ideal way, the company should be located in a jurisdiction:
    • which allows the transfer of dividends from foreign sources on the basis of lower rates of foreign withholding taxes;
    • where is zero tax on income of foreign dividends;
    • which allows the allocation of the available profits of non-resident shareholders on the basis of low or zero rates of withholding tax;
    • which enables monetization of capital gains from the sale of shares in foreign companies on the basis of low or zero rates of both foreign and domestic taxes on corporate income.

    Foreign withholding tax

    Most countries imposes withholding tax on dividends paid by local company to shareholders – non residents. These withholding tax rate should be as high as 35 %. Through the conventions on the avoidance of double taxation, many companies reduce or even eliminate the withholding tax duty on international paid dividends. When selecting the jurisdiction of the holding company must be taken into consideration the benefits of the convention on avoidance of double taxation of the particular country when reducing the tax duty.

    High taxed jurisdiction usually do not conclude the convention on the avoidance of double taxation with foreign jurisdictions. Therefore if the offshore company is used to hold shares in jurisdictions with high taxes, the tax burden is higher, not lower.

     

    Tax on foreign dividends

    You should not only to plan the holding company to be headquartered in the jurisdiction (offshore, onshore), in which it is possible to receive foreign dividends with reduced taxes, but also to ensure that these dividends are not subject to high taxes in the country where the holding company has the registered office.

    Many countries have national legislation exempting from all national taxes on those dividends from foreign sources or from their significant part (Gibraltar, Malta, etc.).

     

    Local withholding tax

    It is necessary to ensure that jurisdictions (offshore, offshore) selected for the holding company is not the one that imposes excessive withholding tax on income distributed to shareholders of the company.
     

    Exemption from capital gains

    All major jurisdictions of holding companies allows tax exemption on profits of holding companies from the sale of shares in foreign companies. This tax exemption are commonly associated with certain conditions. It is therefore necessary to carefully study the legislation and ensure that it is appropriate for the specific situation. Rarely the one jurisdiction provides all of the above attributes only. Careful structuring therefore often requires that the holding structure is as simple as possible. Parker & Hill Inc. provides advisory services on the advantages and disadvantages of various jurisdictions and may propose solutions to specific problems. This includes providing independent management of companies in the UK, Malta and Seychelles.
     

    Asset protection

    Parker & Hill Inc. is not limited to advice on the tax aspects of a particular problem only.

    Our care is devoted to protecting the company’s assets and ensuring that the income from these assets is optimized.

    Protecting assets is not limited to insurance of those assets but also to ensure that the assets held by the right entity within the group.

    When considering the corporate structure we discuss with clients the actual state in order to identify key assets, such as real estate and intellectual property.

    Normally we try to keep these assets in companies that are at risk. This means that if, for example as a result of a business transaction occurs in a claim that could endanger the company, at least the main assets of the company held by a separate legal entity (usually in an offshore jurisdiction). Concerning intellectual property, it is also necessary to consider their protection, taking into account the following:

    • registration of patents
    • existence of development contracts to eliminate doubts
    • about ownership of intellectual property by other entities
    It is important to ensure that intellectual property has been kept in the right place. Country of incorporation of the holder of intellectual property may also affect the withholding tax payable on royalties received from foreign companies and the ease with which in intellectual property can claim their rights.
     

    Financial structures selection

    Parker & Hill Inc. can assist in selecting of financing structures. If necessary, also to ensure examination of the assets of these financial structures or performing due diligence on companies involved in the relevant financial structures.

    We can ensure that local representatives or directors have been appointed to represent the proportion of client assets where the client is unable to do so. In the case that the asset is managed by the clients themselves, we can provide comprehensive expertise for the proper management of these assets.

    Only after this procedure will be chosen jurisdiction for the establishment of a holding company or companies holding the assets.

    If the company holds an asset that in the case of a loan intends to provide such a guarantee, it must be ensured that the company was established in a jurisdiction where there is a register of charges, which could significantly simplified the process of loan.

    If the company intends in the future to trade on the stock Exchange, should be taken to account the fact that the jurisdiction in which the company was incorporated, managed and controlled, will have an impact on the fees that are imposed on the company by the stock exchange.

    When providing advice on corporate structures the Parker & Hill Inc. not take one viewpoint on the issue only, nor is it limited only to tax matters but also assesses the wider problem such as that the financial structure is not efficient, and also serve the client’s needs known at the time of planning.

     

    PANAMA FOUNDATION

    The Panama Foundation provides the best asset protection and estate planning available… hands down, no questions asked. Here’s why the Panama Foundation is the ticket for those wanting to diversify abroad and protect their savings.

    While the offshore trust, especially the Cook Island Trust, has a longer history, the modern Panama Foundation costs less to set up and maintain, and you don’t need to pay a professional trustee or protector. This can save you thousands of dollars a year. The Panama Foundation is the most efficient advanced asset protection structure available… and it’s just as effective as its high cost cousin.

    With a Panama Foundation, you can appoint anyone you like to handle your estate should you become incapacitated. Also, unlike a Belize trust, you can be the manager of the Foundation, controlling its investments for the benefits of your heirs.

    But I’m getting ahead of myself. Let me start from the beginning…

     

    Panama Foundation Overview

    First, let me take a moment to summarize the Panama Foundation as an asset protection tool. The Foundation, as defined in the Panama law in 1995, and as updated and improved over the years, is a separate and distinct entity from its owners. As a result, the Panama Foundation is now recognized, not only by Panama, but by the United States and other countries, as one of the most efficient asset protection tools.

    For example, the Panama Foundation is one of the very few foreign structures approved in the Cayman Islands. The very conservative country of Cayman (regardless of what you see in the movies, Cayman is extremely conservative) has approved the Panama Foundation to open accounts in its banks without any extra due diligence required. Try to open an account under a Nevis corporation here and you will be shown the door or told to form a local company.

    • Being recognized around the world gives you access to more foreign banks, currencies and investments.  It also means you can move quickly out of Panama if sued there.

    Also, the Panama Foundation does not require members or shareholders. All that is needed is the Founder (you, the settlor), the Foundation council (we or you provide), and a beneficiary. You may act as both the Founder and the beneficiary and may appoint any three people or any one company as the counsel. It is usually this counsel that manages the assets should you become unable or unwilling to do so (such as if you are in litigation or otherwise incapacitated).

    That’s the basic structure. I usually recommend that larger Panama Foundations 1) don’t list the settlor as the beneficiary and 2) appoint an asset manager as the protector or foundation counsel. If the primary purpose of the Foundation is asset protection, taking these steps early can save you in the long run. Of course, you can add the protector or investment manager later if an attack on your assets becomes likely.

     

    Benefits of a Panama Foundation

    There are many benefits of a Panama Foundation for asset protection and I’ll take them in turn here.  The first is that the Foundation won’t be taxed in Panama… and no local accounting or audit will be required.  I never recommend a jurisdiction for asset protection that requires audited financials, the filing of tax forms, or any other compliance.  For example, Hong Kong requires audited financial statements be filed each year, and thus an expensive CPA is required, so I avoid that country.

    • So long as the Foundation’s income is from outside of Panama, it will be tax free.  Of course, if you open a business (such as a bar) in Panama, you will pay Panamanian tax on the profits.

    Next, the Panama Foundation is a hybrid entity in between a trust and a corporation.  Therefore, it may act as an offshore trust, but it is far more cost effective to form and operate than other international trust arrangements.

    For example, the Panama Foundation is about 1/2 the cost of a Cook Island Trust and you need not pay for a Protector or asset manager unless you elect to have one.  Most trusts require one of these two persons and charge a few points on the assets of the trust (assets under management) to provide them.

    • I helped a CI trust that was spending $6,000+ per year in maintenance and management move to Panama. We cut these costs down to about $950 p.a.

    Of course, if you desire advanced investment management services, they are available in Panama, Cayman Islands, or elsewhere. All of the major financial service providers are in Panama and we can arrange bank and brokerage accounts at all levels.

    Next, the Panama Foundation is a separate entity and, as such, may enter in to contracts and agreements on behalf of its Founder (you). The Foundation’s ability to contract and operate as a company separate and distinct from its owner is why we call the Panama Foundation a hybrid structure. While a trust is one with its settlor, a Panama Foundation is a legal entity like a corporation or LLC (which is why I refer to it as a company).

    The only limitation is that a Panama Foundation may not operate an active business. If you want to hold a business in a Panama structure, your Foundation may form a Panama corporation, but may not own the business directly.

    I note that real estate is usually not an active business… unless you own many units or buy land, divide it, and sell parcels. Your Panama Foundation may own a rental or two, or you may decide to purchase the condo in a corporation for maximum local asset protection… if something happens to the condo, liability in Panama won’t reach the assets of the Foundation.

    A Panama Foundation may be established for the benefit of any third party. Alternately, the Founder/settlor may be the beneficiary. As stated above, I don’t recommend the Founder be the beneficiary, but it is possible. You may also list anyone or any company as the beneficiary.

    • Beneficiaries may be any person(s) or company(ies).  Beneficiaries are not public record.

    In fact, your estate plan may be as simple or complex as you like. You might decide to work with the U.S. gift tax exclusion, or the Foreign Earned Income Exclusion for a business in Panama, create a charitable remainder structure, a generation skipping Foundation, or any variation thereof.

    The bottom line is that you may control the disposition of assets by lodging a simple or complex list of instructions with the Foundation council. This “letter of wishes” will tell the banks, brokerages, and property managers what to do with your assets upon your passing and may be changed or updated as often as you like… usually at no cost.

    Also, the Panama Foundation requires no annual meeting or formalities. With a U.S. structure, if you fail to keep up appearances, creditors may pierce the corporate veil and get to your assets. In Panama, no such laws apply and your assets are secure. As stated above, no audit, accounting, or tax filing will be required in Panama.

     

    Conventions of the Panama Foundation

    A Panama Foundation may use any name available. You’re not required to use your last name, as is the custom with a trust. Though, you do need to include the word “Foundation” in the name. So, The Reeves Private Interest Foundation, Reeves Foundation, or Great Panama Foundation would all be acceptable names.

    A Panama Foundation must have a local address and local agent for service of process. Just as when you form an out of state company or LLC in the US, you need to have a local representative to receive legal correspondence. We provide this for you at no cost.

    The Founder of a Panama Foundation may be any person or entity (a foreign or domestic corporation, trust, LLC, etc.).

     

    Uses for a Panama Foundation

    The most common uses of a Panama Foundation are:

    • To hold shares, patents, collect royalties, manage trademarks and other passive activities;
    • Offshore asset protection for those who want to diversify out of the U.S.;
    • Moving assets out of your US estate to minimize US estate tax;
    • Investment management and private asset management by firms or outside of the United States, especially where the provider is unwilling to do business with a U.S. person directly.

     

    Panama Foundation Council

    As I’ve said, a Panama Foundation may be as simple or complex as necessary.  One of the reasons for this flexibility is the Foundation Council, which is unique to Panama.  It is this council that allows you to maximize asset protection and, should you come under duress, allows you to separate yourself from the structure and the assets.

    • You may manage the Panama Foundation directly until or unless you have an issue (come under attack by a creditor).

    You may elect to retain a professional trust company or lawyer to act as your trustee/protector. This person would be appointed by your foundation council and act at your direction.

    We provide your foundation council at no additional charge. You may then add an investment manager or lawyer as you see fit. Alternatively, you can manage your Panama Foundation and then seek professional assistance only if you come under duress or litigation becomes likely. Of course, you can provide the Foundation council.

    Your Panama Foundation Council may consist of three or more persons or one legal entity (a corporation or LLC). These people or company may be from any country… they need not be Panamanians. Though, I don’t recommend U.S. persons or companies as council members. This would reduce the asset protection benefits of the Panama Foundation. U.S. persons are subject to the control and whims of a U.S. court.

    So, if you want to create an advanced structure, we can provide a Panama attorney, or an offshore LLC to act as the Foundation Council… maybe a limited liability company from Belize to maximize privacy and diversify or plant flags in multiple jurisdictions, taking the best from each and combining it into a worldwide asset protection plan.

     

    U.S. Taxation of a Panama Foundation

    As I said above, foreign source and passive income are not taxable in Panama. So long as the foundation is not operating a business in Panama, you’ll pay no local tax.

    Of course, if you do operate a business or sell local real estate you will pay tax to Panama.

    If you are living in the United States, you (the Founder) are the beneficial owner of the assets of the Foundation for U.S. tax purposes. In other words, the Founder is the owner of the assets for US tax purposes (but not litigation purposes) held by the Foundation. Any income generated therefrom will be taxable in the U.S.

    As you know, the U.S. taxes its citizens on our worldwide income. The fact that you are using a Panama Foundation for asset protection does not change the tax code. The U.S. will want its cut of passive income so long as you hold a blue passport and its share of business income so long as you are living in the U.S.

    There are a number of U.S. tax planning options with a Panama Foundation that are outside of the scope of this article. For example, you might hold an active business in a Panama corporation owned by the Foundation, qualify for the Foreign Earned Income Exclusion, and draw a salary from that corporation of up to $100,800 for 2015 free of U.S. income tax (husband and wife might each take $100,000 for a total of $200,000). Then, you may retain earnings over this amount and defer U.S. tax for as long as you like. See my articles on the Foreign Earned Income Exclusion for more information.

    You might also decide to create sub-Foundations and transfer portions of the assets in your primary Panama Foundation to your heirs over time using the gift tax exclusion. This may reduce your U.S. tax and have other estate planning benefits.

    You might decide to purchase precious metal or physical gold within your Panama Foundation. This can be done in Panama by leasing a local vault and we can introduce you to reputable sources for bouillon if you like.

    Or you might invest in an offshore life insurance policy through your Panama Foundation. These investments usually require $2 million or more and, assuming they are U.S. compliant, may allow you to reduce or eliminate U.S. tax on passive income.

    • These are complex topics and I have just touched on them here.

     

    Conclusion

    To recap, the major benefits of a Panama Foundation over other asset protection vehicles are:

    • Exemption from all Panamanian taxes on profits generated outside of Panama
    • Relatively Inexpensive to maintain
    • Separate legal entity with capacity to execute agreements and acquire obligations and property.
    • No shareholders, members, directors, or officers required
    • Any person or company may create a foundation for the benefit of any third party
    • Assets transferred to the Foundation in a timely manner are out of reach of civil creditors
    • Accounting and audited financials are not required
    • No foreign exchange controls
Contact
Tetragrammaton a.s.

Žitná 562/10
120 00 Praha 2 – Nové Město

+420 777 025 554
+420 777 775 524

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Agreement on Processing of Personal Data CZ / EN