Assignment of right of the founder in panamanian private interest foundations

It is well known that if you would like to purchase property, then, you purchase property, and you can also purchase a company that owns one or several properties by purchasing the shares of the company.

As we have explained in different blog articles, the aforementioned ways to acquire property require that taxes be paid before recording the transfer of the property or the shares.

Nevertheless, it is known, but in less use, the assignment of rights of the founder or founders of a Panamanian Private Interest Foundation.

Private Interest Foundations are entities, independent from its founder or founders, members of the council or its beneficiaries.  They were conceived as means for Estate Planning as they can transfer assets to beneficiaries in case of the death of the founder without entering into a Probate Trial.

Foundations are very personal, and every client, with his/her attorney drafts the Articles of the Foundations as they find convenient for the founder or his/her family.  Therefore, not all Foundations or not all founders have enough rights to be assigned to a different person.

Nevertheless, when a foundation is the owner of a property that the founders want to sell, one of the options for the buyers is to have the founder assign his/her rights to the buyer.  Once that happens the buyer has all the rights of the founder.

This is properly regulated in our Private Interest Foundation Law (Law 25 of 1995) in its Article 5, as it was added by Law 131 of 2013.

The assignment can be made by modifying the Articles of the Foundation assigning the rights.

Our recommendation is that you hire an attorney to perform a proper due diligence to the Articles of Incorporation in order to confirm that the Assignor Founder has all the rights necessary to control the foundation, and such rights must be clear in the Articles of the Foundation, otherwise, this is not the option to use in order to acquire the property you want.

There is a lot of debate regarding the tax implications of the Assignment of Rights of the Founders.  As explained above, other options to purchase property require the payment of taxes before the transfer, nevertheless, our law does not require that, if the assignment of rights of the founder is not an assignment but a purchase, taxes be paid before the transfer of rights.  Nevertheless, our tax law does require that the seller reports the income and pays the tax accordingly.

The report is our tax return that we submit every year and, taxes should be paid in case there is a profit.  It is our opinion that the assignment of rights of the founder of a private interest foundation requires the payment of taxes, as long as, the seller reports a profit at the end of the fiscal year.

Article written by: Lic. Oliver Candanedo