With a suite of attractive Company, Foundation & Trust products, over the course of the past fifty years or so, Panama has built a name for itself as the Premier International Offshore Financial Centre of the Americas/Caribbean region.
Whilst the Panama Foundation garners a lot of attention internationally, an often overlooked gem of the Panama Financial Services Product Suite is the Panama Trust.
A Panama Trust allows foreigners with assets located outside of Panama to form tax free trusts.
Panama’s first law governing trusts was enacted in the 1940’s. A new law was passed in 1984 called the Trust Law No. 1 of 1984 allowing trusts to be more flexible. Law 1 of 1984 (hereinafter “Law 1”) specifically stated that non-Panama assets and properties and all income generated by trusts from assets located outside of Panama are exempt from all taxes.
Benefits
A Panama Trust provides the following benefits:
• Totally Foreign: Foreigners can set up trusts with foreign beneficiaries and assets in other countries.
• Confidential: The law penalizes anyone associated with a trust who discloses confidential information without a court order or authority punished by 6 months imprisonment.
• Privacy: Since Panama trusts are not registered with the government, the identity of the settlor, beneficiaries, and assets are never included in the public records.
• No Taxation: Income produced from Assets owned by a Panama Trust outside of Panama is not taxed in Panama.
• Estate Planning: Panama Trusts can have perpetual life for generations of heirs to enjoy.
• Asset Protection: All assets owned by a Panama Trust are protected from the settlor’s and beneficiaries’ creditors.
• Fast Formation: A Panama Trust can be formed in 1 – 2 weeks.
• English Docs: While Panama is a Spanish speaking country, all trust documents can be prepared in English.
Panama Trust Name
Every Panama Trust must include the word “Trust” at the end of its name so everyone knows what type of legal entity that are dealing with.
Trust documents and names can all be written in English.
Registration & Establishment
Panama Trusts do not have to register with the Panamanian government. The only exception is when a Panama Trust acquires Panama Real Estate.
As soon as the Trust deed is written and signed by the Settlor, the Trust becomes valid.
The Trust Deed
The Settlor of a Panama Trust can have great discretion in terms of how the Trust is created, its purposes, the types of assets it holds, the powers of the Trustee, rights and limits of the Beneficiaries, the appointment of a Protector (and what powers he or she is to have), and the life span of the Trust.
According to Law 1, Panama Trusts can be created to fulfill any lawful purpose. This means that besides a typical trust established for specific beneficiaries, a purpose trust can be created with no beneficiaries and a specific event or purpose which must occur.
The basic Panama Trust Deed provisions include:
• Appointment of the Settlor, Trustee, and Beneficiaries (unless its a Purpose Trust) and appointing deputy trustees and beneficiaries as an option;
• Description of the assets to be held by the Trust;
• Declaration by the Settlor creating the Trust and if it will be irrevocable or revocable;
• The duration of the Trust as either perpetual or specific years which may be revoked or terminated earlier than the stated expiration date if so stated;
• The powers, duties, and rights of the Trustee with any restrictions or limitations;
• How the Trustee manages, administers, and distributes the Trust’s assets and its income;
• Appointment of the Registered Agent (who must be a Panama Attorney at Law or law firm);
• The registered address for the Trust; and
• A Declaration that the Trust meets Panama laws.
The Trust deed is tantamount to a legal contract between the Settlor and the Trustee signed by both of them in front of a notary public.
Settlors
Settlors can be citizens of any country and reside anywhere. The Settlor may be a natural person or a legal entity. (The person who authorizes the set-up of a Trust is known as the “Settlor”).
Beneficiaries
Beneficiaries are persons who are designed to benefit financially from the set up of a Trust. Like the Settlor, Beneficiaries do not have to reside in, or be citizens of, Panama. They can reside anywhere. Beneficiaries may be natural persons or legal entities. (“Beneficiaries” are persons who are designed ultimately to benefit from the set up of a trust).
Trustees
Even though the Trustees of a Panama trust do not have to be citizens of, or reside in, Panama, their actions come under government scrutiny. (A Trustee is a Person or Company to whom management of a Trust and its assets are delegated)
In Panama Trustees are regulated by Panama’s National Banking Commission which includes Companies/Firms providing Trustee services. While the Banking Commission does not have the authority to investigate the terms and conditions of a trust, they are empowered to investigate all complaints made by Beneficiaries.
Trustees can be individuals or legal entities.
Protectors
A Protector is a person (or Company) whose consent may be required before a Trustee can do certain things (eg change Beneficiaries, buy assets, sell assets, incur debts, make payments etc). Whilst not compulsorily required in Panama, the appointment of a Protector in the Trust Deed is an option.
Perpetuity
The Rule against Perpetuity which prevents perpetual trust lifespans was not adopted in Panama. Trusts can last forever in Panama.
Confidentiality
Confidentiality is guaranteed by Article 37 of Law 1 for the protection of Trust information. Violation of this confidentiality by the Trustee or anyone involved with the execution of the Trust entails a crime punishable with six months’ imprisonment and a fine up to $50,000 USD.
Asset Protection
Law 1 provides that the Trust’s assets constitute a separate estate from the Trustee’s assets. Therefore, the assets held by a Panama trust cannot be seized, attached, or subject to any liens resulting from the debts or obligations of the Trustee. Only the Trust’s liabilities could affect the assets.
There are no restrictions of the types of properties or their locations around the world from becoming assets of a Panama Trust.
A Panama Trust will not become void or voidable if the Settlor becomes bankrupt or insolvent. The only exception occurs when a creditor proves to a Panama court that the Settlor intended to defraud his or her creditors when the trust was created.
Taxes
Law 1 provides that Panama Trusts are exempt from all Panama taxes as long as these conditions are met:
• Assets and properties must be located outside of Panama;
• Trust funds are not derived from Panama sources or subject to Panama taxes;
• Corporate shares and all securities issued by corporations are not located in Panama. (Foreign corporation shares or securities deposited in Panama are, however, exempt);
• Panama bank savings accounts and time deposits are exempt.
Distributions of trust income and assets to foreign beneficiaries by a Panama Trust are not taxed in Panama.
Law 1 states that upon termination of a Panama Trust all distributions will be tax free.
If a Panama Trust earns taxable income in Panama, the tax is imposed on the Trust and not the Trustee.
Money Laundering
As a result of international regulatory agencies and watchdog organizations, Panama enacted two laws regarding money laundering in 2000. Every financial institution in Panama comes under the supervision of the Banking Superintendency government agency which includes Trusts.
Public Records
Since Panama Trusts do not have to be registered with the government, no public records exist regarding a Panama Trust.
OCI Panama Trust Packages
At OCI we believe in giving you more for your money than would the average Trust formation service. Hence included in the registration package for your Panama Trust is the following…
Services:
• Unlimited name availability inquiries
• Advice from an experienced International Corporate Lawyer on how to structure your Trust
• Preparation (overseen by a lawyer) of application to register the Trust
• Preparation (overseen by a lawyer) of the Trust Deed
• Attending to filing the Trust registration request with the registry
• Attending to payment of government filing fees
• One year’s Registered Trustee’s service in the country of registration
• One year’s Registered Office service in the country of registration
• Mailing address in the country of registration
• Delivery of registration pack by international courier (ie DHL/Fedex/TNT etc) • Unlimited free legal consultations for 12 months
Documents included in your Incorp pack:
• Certificate of Registration
• A sealed/stamped copy of the filed registration application
• Resolution by Trustee accepting appointment
• Resolution to open a bank account
• Resolution to appoint a lawyer for the Trust
• Resolution to appoint an accountant for the Trust
• Sample/template letter of wishes
• Resolution appointing you as the Trust’s authorised representative in commercial negotiations
• Resolution appointing you as Investment adviser to the Trustee
• Agreement authorising you to represent the company in commercial negotiations
• Agreement appointing you as Investment adviser to the Trustee
Price (all inclusive): $US3,500
From 2nd year $US2,500
Would you like to know more? Then please Contact Us:
info@offshorecompaniesinternational.com
DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.
