Why Panama?

With high rise building cranes blanketing the skyline, Panama City looks like it is experiencing an alien invasion by an army of gigantic praying mantises.

In the face of what is arguably the worst international financial crisis in history, the Panamanian economy is thriving. There are reasons for this. The country is based on a service economy. Meaning, among other things, that Panama has the second largest free trade zone (no import or export duties) in the world, and that Panamanian professionals provide legal and other services to multitudes of international clients.

Panama's corporation law has been on the books for more than 70 years and severed as the model for tax haven jurisdictions around the world, including Bermuda, Belize, Isle of Man, Bahamas, St. Vincent, etc.

The result? There are more than 400,000 International Business Corporations (IBCs) and foundations situated in Panama.

Wealthy individuals and others often move their assets to safe, offshore locations during times of economic and or political destabilization. They do this for privacy concerns, asset protection, estate planning and tax benefits.

It is no surprise then, that during the Asian financial crisis of 1998, Panama became one of the healthiest economies in Central and South America. Nor is it a surprise that several law firms we spoke with on a recent trip to Panama reported dramatically increased business from Venezuelans fleeing the despotism currently in vogue in that country.

Which begs the question, WHY PANAMA?

The answer is simple: Panama has the strongest personal privacy, investor friendly, and asset protection laws in the world.

While Panamanian corporations or foundations are different entities with different purposes some of the benefits they have in common include:

• Tax-free: In Panama, Private Interest Foundations and Corporations are exempt from taxes.

   

  There is no:

  Income tax
  Capital gains tax
  Interest income tax
  Sales tax
  Beneficiary transfer tax
  Property tax (on non Panamanian property)
  Estate tax
  Gift tax
  Inheritance tax
  Stamp tax
  Inventory tax

  In short, aside from a flat $300 annual tax, Panama does not tax foundations or corporations.

  Please note: these are Panama's tax regulations. These structures are not vehicles to evade taxes in your home country. And they should not be used as such.

  In the United States and many other political jurisdictions, tax evasion is a crime. Don't do it.

  That said, tax avoidance is not.

  If you are a US citizen, you are completely within your legal rights to arrange your affairs in such a way as to pay the least possible tax that is in compliance with the law. These matters should be discussed with your tax professional.

  "Over and over again the courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everyone does so, rich or poor, and all do right, for nobody owes any public duty to pay more tax than the law demands; taxes are enforced extractions not voluntary contributions."
  - Federal Appellate Judge Learned Hand

  "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or to altogether avoid them by means which the law permits, cannot be doubted."
  - United States Supreme Court, Gregory v. Helvering, 293 US 465 (1934)

• No Meetings: There is no requirement for the officers or directors of the corporation or the officials of the foundation to hold annual meetings of any kind.
• No Reporting: There is no legal requirement to file any annual tax return or financial statement or reports of any kind.
• Meetings Anywhere: If meeting do occur and you want them recorded, meetings may be held in any country and may be represented by proxy.
• Records Anywhere: Any corporate or foundation books and accounting you keep may be maintained in Panama or another country.
• IBC Owner: If you have an International Business Corporation (IBC), the Foundation can confidentially serve as the holding entity for the shares of the corporation. Private Interest Foundations are designed primarily for non-profit activities. They can engage in some commercial activity if it forwards the purposes of the foundation, but it should be incidental. If you are going to conduct commercial activity, it should be carried out through an IBC.
• Bank and Business Confidentiality: Today, banks require statements of beneficial ownership when opening accounts. The Foundation can serve as the beneficial owner when opening bank or brokerage accounts for its own use and or that of a corporation keeping the individual names private.

  Panamanian Law No. 25, mandates that all persons involved in any transactions or operations related to a corporation or foundation must maintain full secrecy and confidentiality. Violation of this statute calls for a fine of up to $50,000 and six months in jail.

  The management and operation of the corporations or foundations are not subject to government supervision of any kind.

• Asset Protection: A Foundation's patrimony (property) is a completely separate and distinct estate from that of the Founder or the Beneficiaries. The foundation can hold virtually any kind of asset - stocks, bonds, real estate, precious metals, jewelry, boats, planes, artwork, copyrights, trademarks, etc.

  By law, it may not be seized or liened or subjected to any lawsuits in connection with activity of the Founder or Beneficiary. The Foundation assets cannot be used to satisfy any personal debts of the Founder or the Beneficiary. Only if the transfer of assets to the Foundation constituted an act of defrauding a creditor would there be redress to the assets. And in such cases, the rights and actions of creditors expire three years from the date of contribution of assets to the Foundation.

• Estate Planning: The Foundation can serve as an excellent testamentary (will) vehicle for the distribution of your assets.

  The Foundation can carry on scientific, philanthropic, religious, humanitarian or educational purposes.

  The Foundation is specifically designed to protect and distribute your assets to your beneficiaries on any specifically-named event (such as your death or incapacity). The initial founding document of the foundation (a Letter of Wishes - see below) can also serve as a living will detailing how the assets are to be distributed upon your death.

  There is a flat annual tax of $300 per year for non-resident. That is all.

• No Tax Treaties: Panama has no tax treaties with other countries. Nor does it have any mutual agreements for the sharing of banking information.
• No Information Exchange Treaties: Panama has no information exchange agreements with other countries. (There are exceptions if terrorism, drug dealing or money laundering are fully substantiated by a foreign government).
• No Exchange Controls: There are no exchange controls in Panama, which means there is a complete free flow of money in and out of the country.
• No Reports: No reports of Any Kind are required to be filed with the government. There are no requirements for annual meetings of the shareholders or the directors and no requirement for any books or records.
• No Piercing Corporate Veil Panama does not permit "piercing the corporate veil", nor does it recognize court orders from other countries, unless they deal with clear cases of drug smuggling, money laundering or terrorism.
• No License Required.

As to the building boom, Europeans, Canadians, Russians and Americans are pouring into this Central American metropolis attracted by the tropical climate, favorable tax policies and a low cost of living. Real estate prices are about half that of US prices. Even The Donald is putting up a luxury high rise condo development, not far from the new Johns Hopkins affiliated hospital.

With three million citizens, Panama is a constitutional democracy with an elected, single-chamber, legislature (National Assembly) and a President and two Vice Presidents elected for 5 year terms.

The justice system is based on civil. There is a Supreme Court with 9 justices, five superior courts and 3 appellate courts.

There is no standing army.

There is no Central Bank.

High end malls carry the same world class brands that you find on Rodeo Drive and the major thoroughfare that runs along the Pacific Ocean and separates it from the financial district is undergoing a major expansion.

For more information about Panama's economy, please visit the CIA World Factbook's Panama page. You'll be interested to note that Panama's income exceeds its expenditures.