By Carolina Mckenzie | September 10, 2026 | 6 min read
Most families build their wealth over decades and spend very little time deciding what will happen to it. When the owner dies, the assets are frozen in a probate proceeding that can take years and create conflict among heirs. Panama offers a wealth-planning structure designed to avoid that outcome: the private interest foundation.
It is a legal entity governed by Law 25 of June 12, 1995. Unlike a corporation, it has no shareholders and no owners: it is created by dedicating assets to the purposes set out in the foundation charter.
That is the core idea. When you transfer an asset to a foundation, it ceases to belong to you personally and becomes property of the foundation, which administers it for the benefit of the people you designate. The foundation acquires legal personality upon registration at the Public Registry, with no further authorization required.
A foundation does not pursue profit, but it may carry out commercial activities on a non-habitual basis and exercise the rights attached to shares held in its estate. In practice, it is an excellent holding vehicle for shares, bank accounts, real estate and corporate interests.
1. Separation of assets: Assets contributed to the foundation constitute, in principle, an estate separate from the personal estate of the founder and the beneficiaries. That protection nonetheless depends on the structure being properly established, for lawful purposes, and without fraud or prejudice to third parties.
2. Shielding against foreign forced heirship: Inheritance rules in force at the domicile of the founder or the beneficiaries are not enforceable against the foundation. This is particularly relevant for clients residing in jurisdictions with rigid forced heirship regimes.
3. Irrevocability and the window to challenge: Foundations are irrevocable unless the charter provides otherwise. Creditors may challenge contributions made in fraud of their rights, but that action lapses after three years from the transfer. Hence the single most important practical rule: a foundation is set up when there are no problems, not once they have arrived.
4. Continuity without probate: A foundation may be established to take effect after the founder's death without the formalities of a will. Because the assets already belong to the foundation, they do not form part of the estate: there is no probate proceeding and no frozen accounts. The council simply carries out the regulations.
To this is added the duty of secrecy and confidentiality that the law imposes on the council, backed by criminal sanction.
Corporation: an operating vehicle, not a succession tool. If you die holding the shares, those shares go through probate. The most efficient combination is a foundation holding the shares of the corporation: the corporation operates, the foundation owns.
Will: useful as a complement for assets left outside the structure, but it only takes effect at death and requires a court probate proceeding. A will may be enough where a person has few assets, clear beneficiaries and no need for ongoing administration. A private interest foundation tends to be more useful where there are multiple assets, companies, minor beneficiaries, blended families, or a need for detailed rules both before and after death.
Trust: a solid choice for professional administration of financial assets, but it does not create a legal entity and requires engaging an authorized trustee, which raises the recurring cost.
Panamanian law exempts from tax the creation, amendment and dissolution of the foundation, as well as income from its assets, provided those assets are located abroad or the income is not Panamanian-source. The exemption follows Panama's territorial tax principle, not the nature of the foundation: real estate located in Panama does not become exempt by being held inside a foundation, and transferring it may trigger real estate transfer tax and advance capital gains tax. That calculation should be made before deciding on the structure.
Conversely, transfers to relatives within the first degree of consanguinity and to the founder's spouse are exempt when made in fulfillment of the foundation's purposes or upon its dissolution. The tax cost is concentrated at the entry point, not on the way out to children or spouse.
A foundation is a living entity. It must keep its annual franchise tax and registry fee current, maintain a resident agent in good standing, keep its beneficial ownership record updated in the system administered by the SSNF, and deliver accounting records to its resident agent each year. Failure to comply may result in suspension of corporate rights.
The minimum endowment is declared in the charter; it is not deposited with any authority, but the founder or the third parties involved must formalize the transfer of the assets they undertook to contribute.
Yes, the law allows it, although concentrating roles weakens the argument for separation of assets.
Yes. The law does not require Panamanian nationality or residence of the founder, the council or the beneficiaries. All that is required is a resident agent in Panama, who must be an attorney, and completion of due diligence. Setting up a foundation does not by itself grant residency or immigration status.
No. They are designated in the regulations, which are private, without prejudice to the information that must be reported to the competent authorities.
The same structure can be an excellent solution or a pointless expense, depending on the composition of the assets, the family's tax residence and the time available.
At Mckenzie & Mckenzie I advise families and business owners on the design, formation and administration of private interest foundations, including the charter and regulations, the tax assessment of contributions, and resident agent services.
Write to me to schedule an initial consultation. I will tell you plainly whether this is the right structure for you or whether another one would serve you better.
Everything set out in this article is grounded in Law 25 of June 12, 1995, which governs private interest foundations in the Republic of Panama. The full text is available here: Law 25 of June 12, 1995 (full text, PDF, in Spanish)
This article is for informational purposes only and does not constitute legal advice for any specific matter.
mmckenziecpa@mmckenziecpa.com
