Legal Framework and Formation Rules and Fees
The first trust law in Panama was adopted in the 1940s, based on the common law trust. However, in 1984 new provisions on trusts were enacted by means of Law No. 1 of January 5th.
Panamanian trusts (Fideicomiso) must be expressed in writing, so cannot be constructive. Trusts can be stated to be revocable but otherwise are irrevocable. The settlor, trustees and beneficiaries need not be Panamanian nationals or resident in Panama. Both the settlor and the trustee and/or beneficiary may be a corporation.
A Panamanian lawyer must act as an agent for the trust. Trusts may be settled in respect of existing or future property; additional property may be included after the settlement either by the settlor or a third party.
There are no registration or minimum capital requirements, or fees, and trust documents can be in English or Spanish. Trusts are not protected by specific provisions against foreign inheritance laws, judgements or creditors. However, purpose trusts are allowed for.
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.
If a trust earns a taxable income in Panama, then tax is levied directly on the trust and not on the trustee.
Article 37 of Law No.1 expressly guaranteed confidentiality for the execution of a trust, providing imprisonment of up to six months and a fine of up to USD50,000 for those that break confidentiality.
The assets of a trust 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.
Trusts created pursuant to foreign law may be governed by Panamanian law provided they are subject to the formalities of the law on trusts.
The National Banking Commission of Panama regulates the transactions of entities acting as trustees. The Banking Commission does not have the authority to investigate the terms of particular trusts or the relevant parties, except where complaints are raised by beneficiaries.
In common with many other offshore jurisdictions, Panama responded to pressure from the FATF by tightening up its regulatory regime. At the end of 2000 Panama enacted two laws addressing money laundering and issued Executive Decrees to effect accompanying administrative changes. As a result of these new laws, all financial institutions in Panama now come under the watchful eye of the bank superintendency, including trusts, whereas previously only banks were legally bound to report financial transactions over USD10,000 and other suspicious activities.
However, Panama still has some way to go to convinve the OECD that it is serious about implementing the 'agreed international tax standard' with regards transparency, which, in effect, means the signing of a dozen Tax Information Exchange Agreements. While Panama has committed to implement this standard, it has signed only one TIEA, with the United States in late 2010, suggesting that the country risks staying on the OECD/G20's radar. "Secrecy laws" are also said to be holding up the ratification of a free trade agreement between Panama and the US.
MEPs Approve PANA Committee Tax Recommendations Friday 15/12/2017Members of the European Parliament have approved the recommendations made by the European Parliament's special committee on tax avoidance and evasion, calling for open registers of beneficial owners, effective protections for whistleblowers, and new rules for intermediaries.