LAW REGULATING PRIVATE FOUNDATIONS
LAW NO. 25
June 12, 1995
"Whereby Private Foundations are regulated"
THE LEGISLATIVE ASSEMBLY
One or more natural or juridical persons by themselves or through third
parties, may create a private foundation in accordance with the provisions
set forth in this law. For such purposes, the endowment of a patrimony
exclusively dedicated to the objectives or purposes expressly stipulated
in the foundation charter is required. The initial patrimony may be
increased by the creator of the foundation, hereinafter called the
founder, or by any other person.
Private foundations shall be governed by the foundation charter and its
regulations, as well as by the provisions of this law and other legal or
regulatory provisions that may be applicable. The provisions of Title II
of Book I of the Civil Code shall not apply to these foundations.
Private foundations shall not be for profit. However, they may carry out
mercantile activities in a non-habitual manner or exercise the rights
deriving from titles representing the capital of mercantile corporations
that make up the patrimony of the foundation, provided that the economic
results or proceeds of such activities be dedicated exclusively for the
purposes of the Foundation.
Private foundations may be constituted to become effective at the time of
constitution or after the death of its founder, by anyone of the following
a) Through a private document, executed by the founder, whose signature
must be authenticated by a notary public at the place of constitution.
b) Directly before a notary public at the place of constitution.
Whichever may be the method of constitution, it must comply with the
formalities established in the present Law, for the creation of
In case of a foundation being created either by public or private
document, to have effect after the death of the founder, the formalities
stipulated for the execution of testaments shall not apply.
The foundation charter shall contain:
1. The name of the foundation, expressed in any language with characters
of the Latin alphabet, which shall not be equal or similar to that of a
foundation previously existing in the Republic of Panama, 80 as to avoid
confusion. The name must include the word "foundation" to distinguish it
from other natural or juridical persons of a different nature.
2. The initial patrimony of the foundation, expressed in any currency of
legal tender that in no case shall be less to a sum equivalent ten
thousand Balboas (B/10,000.00) =U.S. Dollars .
3. A complete and clear designation, of the member or members of the
Foundation Council, to which the founder may belong, including their
4. The domicile of the foundation.
5. The name and address of the Resident Agent of the foundation in the
Republic of Panama, which shall be an attorney or a law firm, who must
countersign the foundation charter prior to its registration at the Public
6. The purposes of the foundation.
7. The manner in which the beneficiaries of the foundation shall be
designated, among which the founder may be included.
8. The reservation of the right to amend the foundation charter whenever
9. The duration of the foundation.
10. The destination to be given to the assets of the foundation and the
method of liquidation of its patrimony in case of dissolution;
11. Any other lawful clause that the founder may deem convenient.
The foundation charter, as well as any amendment thereto must be written
in any language with characters of the Latin alphabet, and must comply
with the regulations for the registration of acts and titles in the Public
Registry; for which purpose it must be previously protocolized by a notary
public of the Republic (of Panama). If the foundation charter or its
amendments are not written in the Spanish language, they must be
protocolized together with their (Spanish) translation by an authorized
public translator of the Republic of Panama.
Any amendment to the foundation charter, when permitted, shall be carried
out and executed in accordance with what is established therein. The
respective agreement, resolution or act of amendment shall contain the
date on which it was carried out and the name, clearly identifiable, of
the person or persons subscribing it and their signatures which shall be
authenticated by a notary public of the place where the document is
Every private foundation must pay a registration fee and an annual
maintenance tax equivalent to those established for corporations in
Articles 318 and 318A of the Fiscal Code. The procedure and method of
payment, the surcharge for late payment, the consequences for lack of
payment and all other complementary provisions of the aforementioned legal
principles, shall be applied to private foundations.
The registration at the Public Registry of the foundation charter shall
bestow upon the foundation juridical personality without the need for any
other legal or administrative authorization. Besides, the registration at
the Public Registry constitutes a means of publicity before third parties.
Consequently, the foundation may acquire and own assets of any kind, incur
obligations and be a party to any type of administrative and judicial
proceedings in accordance with applicable legal provisions.
Once the foundation has obtained its juridical personality, the founder or
third parties that have pledged to contribute assets to the foundation, on
their own or at the request of any person with interest in the foundation,
shall formalize the transfer to the foundation of the assets so pledged.
When the foundation is constituted to be effective upon the demise of the
founder, it shall be deemed to have existed prior to such death, in
respect to the donations that he (she) may have made to the foundation.
For all legal purposes, the assets of the foundation shall constitute a
separate patrimony from the personal assets of the founder. Therefore they
cannot be sequestered, embargoed or subject to any precautionary action or
measure, except for obligations incurred, or for damages caused by virtue
of fulfilling the purposes and objectives of the foundation, on behalf of
the legitimate rights of its beneficiaries. In no case shall the assets
respond for personal obligations of the founder or of the beneficiaries.
Foundations shall be irrevocable, except in the following cases:
a) When the foundation charter has not been registered at the Public
b) When the opposite is expressly established in the foundation charter.
c) For any of the causes of revocation of donations.
The transfers (of assets) made to foundations shall be irrevocable by
whoever has made the transfer, unless the opposite is expressly
established in the act of transfer
In addition to the provisions of the previous article, when the foundation
has been created to be effective after the demise of the founder, the
latter shall have the exclusive and unlimited right to revoke it.
The heirs of the founder shall not have the right to revoke the creation
or the transfers, even if the foundation has not been registered in the
Public Registry prior to the demise of the founder.
The existence of legal provisions in inheritance matters in the domicile
of the founder or of its beneficiaries, shall not be opposable to the
foundation, nor shall it affect its validity, or prevent the fulfilment of
its objectives as provided for in the foundation charter or its
The creditors of the founder or of a third party shall have the right to
dispute the contributions or transfer of assets in favour of a foundation,
when the transfer constitutes an act of fraud to the creditors. The rights
and actions of such creditors shall prescribe three (3) years from the
date of the contribution or transfer of the assets to the foundation.
The patrimony of the foundation may originate from any lawful business and
may consist of present or future assets of any nature. Periodic sums of
money or other assets may also be incorporated to the patrimony by the
founder or by third parties. The transfer of assets to the patrimony of
the foundation may be effected by public or private document.
Nevertheless, in the case of real estate, the transfer must conform with
the rules for the transfer of real estate.
The foundation should have a Foundation Council, whose duties or
responsibilities shall be established in the foundation charter or in its
regulations. Unless it be a juridical person, the number of members of the
Foundation Council hall not be less than three (3).
The Foundation Council shall be in charge of carrying out the purposes or
objectives of the Foundation. Unless otherwise stated in the foundation
charter or its regulations, the Foundation Council shall have the
following general obligations and duties:
1. To administer the assets of the foundation, in accordance with the
foundation charter or its regulations.
2. Enter into acts, contracts or lawful businesses that may be suitable or
necessary to fulfil the object of the foundation, and to include in such
contracts, agreements and other instruments or obligations, such clauses
and conditions as are necessary and convenient, which conform to the
purposes of the foundation and are not contrary to the law, to morals, to
bonus mores or to public order.
3. To inform the beneficiaries of the foundation of the patrimonial
situation of the latter, as established in the foundation charter or its
4. To deliver to the beneficiaries of the foundation the assets or
resources set up in their favour by the foundation charter or its
5. To carry out all such acts or contracts which are permitted to the
foundation by the present Law and other applicable legal or regulatory
The foundation charter or its regulations may provide that the members of
the Foundation Council may only exercise their powers by obtaining
previous authorization of a protector, a committee or any other
supervisory body, appointed by the founder or by the majority of the
founders. The members of the Foundation Council shall not held liable for
the 1088 or deterioration of the assets of the foundation, nor for any
damages or prejudice caused, when said authorization has been duly
Unless otherwise provided for in the foundation charter or its
regulations, the Foundation Council must render an accounting of its
activities to the beneficiaries and, when applicable, to the supervisory
body. If the foundation charter or its regulations stipulate nothing in
this regards, the rendering of accounts must be done annually. If the
accounts 90 rendered are not objected within the term established in the
foundation charter or its regulations, in lack of it, it shall be deemed
as having been approved within ninety (90) days from the day it was
received, for which purpose, record of this term shall be made in the
report rendering the accounts.
Such period having lapsed or the account approved, the members of the
Foundation Council shall be exempted from liability for their
administration, unless they had failed to act with the diligence of a
bonus paterfamilias. Such approval does not exonerate them before the
beneficiaries or third parties having an interest in the foundation, for
damages caused due to gross negligence or fraud in the administration of
In the foundation charter the founder may reserve for himself/herself or
for other persons, the right to remove the members of the foundation
Council, as well as to appoint or add new members.
When the foundation charter or its regulations do not establish anything
in respect to the right to and the causes for removal of the members of
the Foundation Council, these may be judicially removed, through summary
proceedings, for the following causes:
1. When their interests are incompatible with the interests of the
beneficiaries or the founder.
2. If the administration of the assets of the foundation lacked the
diligence of a bonus paterfamilias.
3. If they are convicted for a crime against private property or public
faith. In this case, while the criminal proceedings are in progress, the
temporary suspension of the member on trial may be decreed.
4. For incapacity or impossibility to carry out the objectives of the
foundation, from the time such causes may arise.
5. For insolvency or bankruptcy proceedings.
The founder and beneficiary or beneficiaries may request the judicial
removal of the members of the Foundation Council. Should the beneficiaries
be disabled or under age they may be represented by whoever exercise upon
them the "patria potestas" or guardianship, as the case may be.
The judgement of the court decreeing the removal, shall appoint new
members in replacement of the previous ones, who shall be persons with
sufficient capacity, competence and good moral standing to administer the
assets of the foundation, in accordance with the purposes established by
The foundation charter or its regulations may provide for the constitution
of supervisory bodies, that may be constituted by natural or juridical
persons, such as auditors, protectors of the foundation or others.
The duties of the supervisory bodies shall be established in the
foundation charter or its regulations and may include, among others, the
1. To ensure the fulfilment of the purposes of the foundation by the
Foundation Council and (to protect) the rights and interests of the
2. To demand from the Foundation Council, the rendering of accounts;
3. To modify the purposes and objectives of the foundation, if and when
they become too costly or impossible to fulfil.
4. To appoint new members of the Foundation Council due to temporary or
permanent absence or for expiration of the period of anyone of them.
5. To appoint new members of the Foundation Council in cases of temporary
or accidental absence of anyone of them.
6. To increase the number of members of the Foundation Council.
7. To approve the acts adopted by the Foundation Council, as indicated in
the foundation charter or its regulations.
8. To guard the assets of the foundation and observe their application to
the uses or purposes stated in the foundation charter.
9. To exclude beneficiaries of the foundation and to add others in
accordance with the provisions of the foundation charter or its
The foundation shall be dissolved due to:
1. Reaching the day in which the foundation must terminate, in accordance
with the foundation charter.
2. The fulfilment of the purposes for which it was constituted or if their
fulfilment becomes impossible.
3. Being in a state of insolvency, cessation of payments or due to
bankruptcy proceedings having been declared judicially.
4. The loss or total extinction of the assets of the foundation.
5. Its revocation.
6. Any other cause established in the foundation charter or in the present
Every beneficiary of the foundation may contest any acts of the foundation
that may damage the rights conferred upon him/her, denouncing such
circumstance to the protector or to other supervisory bodies, if any; or
lacking them, directly promoting the respective judicial claim, before a
competent court of the domicile of the foundation.
The acts of constitution, amendment or extinction of the foundation, as
well as the acts of transfer, transmittal or encumbrance of the assets of
the foundation and the income derived from such assets or any other act in
connection therewith, shall be exempt from all taxes, contributions,
duties, liens or assessments of any kind or denomination, provided that
such assets are:
1. Assets located abroad.
2. Money deposited by natural or juridical persons whose income is not
derived from Panamanian sources nor taxable in Panama for any reason
3. Shares or securities of any kind, issued by corporations which income
is not derived from Panamanian sources or when such income is not taxable
for any reason whatsoever, even when such shares or securities be
deposited in the Republic of Panama.
The acts of transfer of real estate, titles, certificates of deposit,
securities, money or shares, carried out in fulfilment of the purposes or
objectives, or for the extinction of the foundation, in favour of
relatives within the first grade of consanguinity and of the spouse of the
founder, shall also be exempted from all taxes.
Foundations constituted in accordance with a foreign law may become
subject to the provisions of this law.
Foundations referred to in the previous article that opt to become subject
to the provisions of this Law, shall present a Certificate of
Continuation, issued by such bodies as their internal regime may call for,
and which shall contain:
1. The name of the foundation and the date of its constitution.
2. Data about its registration or deposit (of the charter) at its country
3. An express declaration of its desire to continue its legal existence as
a Panamanian foundation.
4. Requirements stipulated under Article 5 of this Law, for the
constitution of private foundations.
The certification containing the resolution of continuation and other
requirements mentioned in the preceding paragraph must have the following
documents attached there to:
1. Copy of the original act of constitution of the foundation expressing
its desire to continue in Panama, along with any subsequent amendment;
2. A power of attorney granted to a Panamanian attorney to carry out the
necessary proceedings to make effective the continuation of the foundation
The certificate of continuation, as well as the documents attached thereto
referred to in this Law, shall be duly protocolized and registered at the
Public Registry so that the foundation may continue its legal existence as
a private foundation in the Republic of Panama.
In the cases foreseen in Article 26, the responsibilities, duties and
rights of the foundation acquired prior to the change or domicile or
legislation, shall continue in force, as well as the proceedings already
initiated against it or those that the foundation may have promoted,
without being affected such rights and obligations due to the change
authorized by the aforesaid legal provisions.
The foundations constituted in accordance with this Law, as well as the
assets comprising its patrimony, may be transferred or become subject to
the laws and jurisdiction of another country, as may be provided by the
foundation charter or its regulations.
Registrations related to private foundations shall be effected at the
Public Registry in a special section that shall be named "Section of
Private Foundations" The Executive Branch through the Ministry of
Government and Justice shall issue the regulations applicable to such
To avoid the unlawful use of private foundation, all legal provisions
contained in Executive Decree No. 468 of 1994 and any other rule in force
aiming at fighting money laundering derived from drug-trafficking, shall
apply for their operation.
The members of the Foundation Council, of the supervisory bodies, if any,
as well as the public or private employees who might have any knowledge of
the activities, transactions or operations of the foundations shall at all
times maintain secrecy and confidentiality in this respect. Infringement
of this shall be penalized with six (6) months imprisonment and a
$50,000.00 fine without prejudice of the corresponding civil liability.
The provisions of this article shall apply without prejudice of the
information which must be disclosed to the official authorities and of the
inspections that they must carry out in the manner established by the law.
Any controversy for which there is no special procedure in this Law, shall
be resolved through summary proceedings.
The foundation charter or the regulations of the foundation may establish
that any controversy arising in respect to the foundation shall be
resolved by arbiters or arbitrators, as well as establish the procedure
they should abide by. In the event that such procedure is not established,
the rules in respect to such matters, as contained in the Judicial Code,
This law shall be effective from the date of its publication.