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Setting Up a Trust in Panama
A Trust is a contract…. a private legal agreement… an expression of an understanding.
An offshore trust is the same.
The major difference is that it’s constituted abroad, beyond the laws of the country where you live… offshore.
The Common Law Trust has served for centuries as a favourite vehicle in financial planning and asset protection. The Trust is finding even greater life in today’s increasingly complex society as we see our privacy diminished by the very cyber-world you’re travelling right now!
The Republic of Panama is considered one of the oldest and safest tax havens in the world, located in Central America, between Colombia and Costa Rica. Since its independence from Colombia in 1903, Panama has had convenient and attractive legislation for offshore operations, based exclusively on the territorial principle of not taxing foreign source income.
Due to its structure, geographical position, political stability and characteristics of its economy, Panama has become one of the most important tax havens of the Western Hemisphere. It has excellent international transportation and communication systems; the United States Dollar has been a currency of legal tender for more than ninety years in Panama; there are neither exchange controls nor government regulations and there is a complete freedom in the movement of funds. Also, confidentiality and banking secrecy are recognized by law.
Panama’s success as a tax haven is primarily based on its tax structure. According to article 694 of the Fiscal Code, the income earned by any person, either an individual or a corporation, from sources outside of Panama, is exempt from taxes. Panamanian legislation expressly provides that the following transactions are not subject to income tax in Panama:
- a) Invoicing to a company abroad, from an office located in Panama, the sale of goods for an amount greater than that at which said goods were invoiced to the office located in Panama, provided those goods are handled exclusively abroad.
- b) Directing or managing, from an office located in Panama, operations and transactions that are executed, completed or take effect abroad.
- c) Distributing dividends from income earned by a company when that income is produced or earned abroad.
Also, the Fiscal Code exempts from income tax: a) The interest paid by banks located in Panama to their customers for savings accounts and time deposits kept in Panama and b) The salary or fees earned by Directors, Officers and Executives of Panamanian corporations located abroad.
These benefits have made of Panama the tax haven that it is today and the reason why others from the region have tried to imitate us.
Trust Registration in Panama
The first trust law in Panama was adopted in the 1940’s, based on the common law trust. However, in 1984 new provisions on trusts were enacted by means of Law No. 1 of January 5th, to complement other legal instruments and benefits provided by Panama as a tax haven to the international financial community.
This legislation introduced new and modern concepts to update the former law on trusts in order to make them more flexible and convenient to foreigners who were searching for a place to execute a trust overseas.
The most important features of the Panamanian trust are:
- a) Liberty of Bargaining
The trust can contain any lawful clause as the needs of the settlor may require. According to articles 5 and 9 of Law No. 1, the trust may be created for any purpose provided it is not contrary to the law or public policy.
- b) Simplicity in its execution
The trust shall be created in a private document, with the only formality that the signature of settlor and trustee must be authenticated by a Panamanian Notary, so confidentiality is guaranteed. It is not necessary that the trust be executed in a public deed or be registered in any public register unless real property located in Panama is given in trust.
- c) Duration
The trust is not perpetual unless so is stated by the settlor in the trust. The trust should have its duration expressly stated. Also, it may be revocable or terminated before its expiration if it is so provided by the settlor in the trust agreement.
- d) Confidentiality
Article 37 of Law No.1 expressly guarantees the confidentiality for the execution of the trust. It provides that the trustee and his representative or employees or any other person involved in the execution of the trust must uphold the secrecy of the operation. The violation of this provision is penalized with imprisonment of up to six (6) months and a fine of up to US$50,000.
- e) Corporations may be used
Both the settlor and the trustee and/or beneficiary may be a corporation. They do not need to be individuals.
- f) Special Tax Benefits
To be consistent with the tax principles already mentioned, Law No.1 expressly states that the acts of executing, modifying and terminating a trust as well as the transfer, conveyance or encumbrance of trust funds and the income or interest produced by the assets and properties given in trust are exempt from all taxes, contributions, assessments or encumbrances, provided the trust involves the following assets:
Properties or assets located abroad;
Funds that are not from Panamanian source or subject to taxes in Panama;
Shares of stocks or securities of any kind, issued by corporations whose income is not produced in Panama, even though those shares or securities may be deposited in Panama;
Time deposits or savings accounts kept in banks located in Panama.
The previous tax limitation will not be applicable when the trust funds are invested in housing projects or the development of industrial parks in Panama, in which cases the income earned in those commercial operations will be tax free.
- g) Separate Estate
The assets of the trust shall constitute an estate separate from the assets of the trustee. Therefore, they can not be attached, seized or subject to any lien as a result of obligations of the trustee. The assets of the trust only answer for liabilities of the trust itself.
- h) Assets subject to Trust
The trust fund may consist of properties or assets of any kind, present or future. The settlor may increase or add other assets to the trust fund after the execution of the trust.
- Applicability of Foreign Law and Jurisdiction
Although the trust shall be regulated by Panamanian law, the settlor and the trustee may agree that foreign law will be applicable. Also, the trust and the trust fund may be transferred to another jurisdiction or country.
- j) Trust of other jurisdictions
Trusts created pursuant to foreign law may be governed by Panamanian law provided they are subject to the formalities of the law on trusts.
- k) Trustees
The trustee can be any person, either an individual or a corporation duly authorized by law.
Also, the settlor may replace the trustee if so provided in the trust agreement.
These are the most relevant features that have made the Panamanian trust one of the most secured and useful trusts of any tax haven in the Western Hemisphere.
Making a trust work for you
Some Information about A Trust
Types of Trusts
For Asset Protection
Speed Where Speed Is Important
The Advantages of an Offshore Trust
Panama Trust Offer
Making a Trust Working for you
The use of a Trust for asset protection and estate planning dates back several centuries. Trusts were common in England early in the 11th century. In some form the trust was an instrument for holding property in Roman times.
Developed over time, Trusts have become a seriously effective means of minimising taxes, protecting assets and passing wealth along to heirs in privacy and without devastating tax consequences.
The very wealthy have used the trust approach for many years. Recent development in the offshore world where more and more jurisdictions adopt effective laws, the trust has become an instrument available to people of lesser means. For nominal costs, minimal formalities and on short notice, a trust can come into being.
We invite you to consider the trust a part of your personal and corporate financial planning, either alone or in conjunction with an IBC (International Business Company).
Speed where Speed is important
A trust can be established in minutes, literally. While it might take longer to have property transferred into a trust, time can be a factor as to the dating of the Deed. Generally, a Trust Deed is not registered with any tax jurisdiction. A trust is a private arrangement. Normally, there is no requirement for accounting reports to any agency. On the contrary, there is no access provided to the activities of the trustee except as arranged by the parties or through the courts, and that is not easy.
The Advantages of an Offshore Trust
Tax savings, avoidance and deferral: You can save, avoid and defer many taxes in many ways. You don’t owe tax until you “repatriate” your assets, whether they are cash or the very house you’re sitting in now. Any asset can be designated Trust Property. And if the Trust is in another jurisdiction, chances are those assets can earn interest, or accrue whatever pertinent value without being subject to domestic taxes.
Safety: Keeping assets offshore provides you a financial reserve should disaster strike at home, or in your domestic financial life.
Protection against Judgement: In a lawsuit-happy world it’s nice to have reserves that can’t be “seized”, “liened” or “attached” with the stroke of the Court’s pen or the phone call of a tax authority. Though not impossible for them to get at, it’s much harder for them to attach your assets, when they’re held in Trust, offshore, by a Trustee who isn’t beholden to anyone but the wishes and the good of the beneficiaries.
A private contract, a legal agreement, and the business of no one but yours, the trustee’s, and whomever else you think needs to know. The offshore Trustee is required to say nothing to external inquisitors.
Ease of Transfer of Interest to Heirs or others: Wills, living trusts, and domestic trusts invariably pay taxes – especially when assets are transferred. An offshore trust does not.
Earnings and a Faster Accumulation of Wealth: Trusts can own companies, have bank accounts, own portfolios, and hold trading accounts. and not pay taxes.
The Trust is one of the most flexible financial instruments and entities to ever come about. We offer the establishment and management of these offshore trusts primarily under the jurisdictions of Belize and the Jersey Islands in the English Channel. We can provide them in many other jurisdictions as well.
Why Global Premier?
What separates us from our competitors is that our services don’t end with the registration of your company. We offer a wide range of additional services others can’t or just won’t offer, such as lifetime free support.
Whilst most providers either specialise on personalized consultation at relatively high rates or run bulk registration factories without any support, we want to offer the positive aspects of both types.
Therefore Global Premier combines professional advice, worldwide registration services, reasonable fees, customized order processing, lifetime support and fast processing. Where others see company formation services as a bulk registration with no support and no individual assistance, we do care about your business needs.
Should you have any question or matter
You would like to discuss or clarify with us
Should you like to receive further Information
About our services and fees, …
Our multi-lingual team of business advisors is happy to assist you with all upcoming questions and issues in relation to your company.
You may call or email us, and we will be happy to assist you in a fast and efficient manner.
You can also come and visit us at our Limassol offices to discuss issues face to face if you prefer. Just arrange an appointment and we will be happy to meet with you.