Panama Private Interest Foundation: Asset Protection

A Panama private interest foundation protects assets because it separates the founder's property: under Law 25/1995, art. 11, those assets form a separate estate and do not answer for the founder's personal obligations. The shield does not hold against fraud against creditors (art. 15, 3-year deadline).

A tax resident of Brazil also remains subject to Law No. 14,754/2023 (Lei 14.754/2023) and to the CBE (Brazilian Capital Abroad report).

What is a private interest foundation and how does it protect assets?

It is a legal entity with no shareholders and no profit purpose, created to manage assets devoted to the purposes the founder writes in the foundation charter (Law 25/1995, arts. 1 and 3). It acquires legal personality upon registration in Panama's Public Registry (art. 9).

The protection has three bases in Panamanian law:

• •Separate estate: the foundation's assets are not commingled with the founder's and do not answer for the personal debts of the founder or the beneficiaries (art. 11).
• •Inheritance rules: the inheritance laws of the founder's or the beneficiaries' domicile cannot be invoked against the foundation in Panama (art. 14).
• •Confidentiality: those who know the foundation's operations must keep them confidential, without prejudice to information owed to the authorities (art. 35).

Who takes part in the structure and what does each one do?

The foundation has a founder, a council, a resident agent and beneficiaries. The protector is optional. The foundation charter must state the initial assets, the council, the domicile, the resident agent, the purposes and how beneficiaries are designated (art. 5).

The initial assets may not be less than 10,000 balboas (B/. 10,000.00), expressed in any legal-tender currency (art. 5, item 2). The foundation pays the Public Registry the same registration fee and the same single annual fee as corporations (art. 8); check the current amounts with the Public Registry and the resident agent.

How far does protection against creditors go?

The protection covers the founder's personal debts incurred without fraud. It does not cover the foundation's own debts, damages tied to its purposes, the beneficiaries' legitimate rights (art. 11) or transfers made in fraud of creditors.

Art. 15 allows the founder's creditors to challenge contributions when the transfer is fraudulent, and the right of action expires 3 years after the contribution. That deadline is the one in Panamanian law; in Brazil, the fraud rules described in the next section apply.

Another point decides the outcome: revocability. Under art. 12, the foundation is irrevocable, unless the charter says otherwise, it is not registered, or there is a ground for revoking gifts. A charter that reserves to the founder the power to revoke leaves the assets under the founder's control, which reduces the practical effect of the separation and brings the foundation closer to the control scenario of art. 5, § 1º, of Law 14,754.

Does the foundation protect against forced heirship in Brazil?

Not reliably. Art. 14 of Law 25/1995 is valid in Panama's legal order. A Brazilian judge applies Brazilian law to the probate of someone who died domiciled here (LINDB, art. 10).

Under the Civil Code, half of the estate belongs to the forced heirs, the legítima (art. 1,846), and a gift is void to the extent it exceeds what the donor could dispose of by will (art. 549). A transfer made during life to a foundation can be challenged on the basis of these articles.

The same goes for creditors. The Civil Code allows unsecured creditors to annul a gratuitous transfer made by a debtor who is insolvent or reduced to insolvency (art. 158), with a deadline of 4 years counted from the transaction (art. 178, II). The Code of Civil Procedure (CPC) treats as fraud against enforcement a disposal made when a lawsuit capable of reducing the debtor to insolvency was already pending (art. 792, IV).

The succession side of the foundation is in the article on private foundation in Panama and succession planning. To structure succession, see the succession planning service.

How does Brazilian income tax treat the Panamanian foundation?

A tax resident of Brazil does not stop reporting by using a foundation. Law 14,754/2023 places the foundation on one of two possible paths, depending on the Brazilian's powers over it.

1. •As a controlled entity (art. 5, § 1º): the law expressly includes foundations among controlled entities. Control exists when the individual has, directly or indirectly, rights that ensure preponderance in decisions or the power to elect or remove the majority of the managers, or more than 50% of the rights to profits or to the estate in case of liquidation. Profits enter income tax on December 31 of each year, without waiting for distribution, when the controlled entity is in a favorable-tax country or a privileged tax regime, or when its own active income is less than 60% of total income (art. 5, § 5º). The annual adjustment rate is 15% (art. 2, § 1º).
2. •Under the trust rules (arts. 10 to 13): art. 13 extends the trust rules to contracts governed by foreign law with similar characteristics that are not controlled entities. In that case, the assets remain under the settlor's ownership until distribution to the beneficiary or the settlor's death, and the change of ownership is treated as a gift or a transfer causa mortis (art. 10, I, II and § 2º).

The law does not say, for each foundation, which path it falls into. That depends on what the foundation charter and regulations allow the founder. For that reason, drafting the charter is a tax decision, not only a legal one. The planning goes through tax planning done before incorporation.

What about ITCMD and the Brazilian Capital Abroad report (CBE)?

ITCMD, the state tax on gifts and inheritance, is provided for in art. 155, I, of the Constitution. When the deceased owned assets abroad, § 1º, III, "b", leaves the power to institute the tax to complementary law. If the structure generates a gift or a transfer causa mortis, check your state's law.

The CBE is mandatory for residents with assets abroad that total US$ 1,000,000.00 or more on December 31. The annual deadline runs from February 15 to April 5 of the following year, and the penalty for failing to file ranges from BRL 2,500.00 to BRL 250,000.00 (Central Bank of Brazil). Resolution BCB 279/2022, art. 7, § 2º, also treats as Brazilian capital abroad the assets whose ownership was transferred, through any arrangement, to a fiduciary agent abroad for the benefit of specified resident beneficiaries.

Without reporting, Panama's secrecy does not solve the problem. The guide on how to report offshore on income tax explains the step-by-step.

Does Panama's confidentiality hide the foundation from Brazil?

No. Art. 35 of Law 25/1995 imposes confidentiality on council members and on whoever knows the operations, but expressly excepts information that must be disclosed to official authorities and inspections provided for by law. Art. 34 requires anti-money-laundering rules to apply to the foundation.

Panama signed the OECD multilateral agreement on automatic exchange of financial information on January 15, 2018, with the first exchange scheduled for September 2018. Brazil signed on October 6, 2016, with the same scheduled date for the first exchange (OECD list, status as of March 13, 2025).

In practical terms, treat the foundation as a structure that will be known to banks and authorities in both countries. For a plan that withstands this transparency, see compliance and structuring.

How do you set up a private interest foundation step by step?

1. •Define the goal and the Brazilian risk. Protection, succession or both; which assets go in; whether the founder will keep powers (this changes the classification under Law 14,754).
2. •Choose the participants. A council of at least 3 people or a legal entity, a resident agent and, if desired, a protector (arts. 5, 17 and 19).
3. •Draft the foundation charter. It needs the items in art. 5, including the minimum initial assets, the beneficiaries and the destination of the assets on dissolution.
4. •Formalize. A private document with a notarized signature or an act directly before a notary (art. 4), filing with translation by a public interpreter if it is not in Spanish (art. 6), and registration in the Public Registry (art. 9).
5. •Transfer the assets. The transfer may be made by public or private document; real estate follows the rules for transferring real estate (arts. 10 and 16).
6. •Comply with obligations in Brazil. Report on the DAA (annual income tax return) and, where applicable, on the CBE. The international corporate structure should be designed together with the charter.

When should you consider another structure?

The Panamanian foundation suits those who want a separate estate with no shareholders. Those looking for an instrument governed by a common law tradition can compare it with the offshore trust for Brazilians. Those who prefer a European jurisdiction can look at the private foundation in Austria. For a broader overview, read the offshore asset protection guide and the Panama page.