Panama a Safe Jurisdiction to Establish Trusts

Panama a Safe Jurisdiction to Establish Trusts

Although the first Panamanian Trust legislation dates back to 1925, the current legislation was enacted in 1984 (Law No. 1 of January 5, 1984) and was responsible for its development as a fiduciary service center. There are more than 60 licenses of fiduciary agents issued and supervised by the Superintendency of Banks of Panama.

Under Panamanian law, a trust fund, trust or trust fund is a hybrid between civil law and customs law, so it has become a perfect complement to the services offered by Panama’s international banking center.

Although originally conceived as an inheritance planning mechanism to facilitate the transfer of wealth from one generation to another, the Panamanian fund has also evolved as an instrument widely used to secure commercial transactions. According to statistics prepared by the Latin American Federation of Banks (Felaban), the country ranks second in the number of guaranteed trusts established in the region.

Panama has incorporated in its regulations the international standards of AML and KYC (Know Your Customer). However, the law imposes on the officials and representatives of the trustee, as well as public oversight bodies, the strict duty to maintain the confidentiality of information concerning fiduciary operations.

Some of the main features of the Panama Trust:

  • A basic rule of trust law is the need to comply with the provisions of the constituent act with respect to the rights of the beneficiaries and the administration of the trust.
  • Assets constitute a separate estate, which is not part of the assets of the trustee, and may not be the subject of ancillary actions or other preventive measures, except those originated or acquired by the trustee,
  • Trusts may be established on any kind of property, present or future, for any legal purpose and with the OffShoreCitizen help.
  • The property of the assets of the trust is in the name of the trustee who has all the powers and rights inherent in the property,
  • The beneficiary may be the trustee’s own trustee, who may maintain powers such as the power to modify the trust, make direct investments without placing the trust’s integrity,
  • Panamanian law imposes very strict rules on confidentiality. With the exception of properties located in Panamanian territory, there is no public registry.

Fiscal efficiency

The tax legislation in Panama determines that the income tax is based on the principle of territoriality. Consequently, the tax is applied only to net income derived from operations within the territorial limits of the Republic of Panama. This basic principle has remained virtually unchanged since the founding of the Republic.

In Panama, the trusts are totally exempt from taxes. None of the following taxes apply:

  • Tax on equity,
  • Estate tax,
  • Donation tax,
  • Taxes or other charges of the beneficiaries
  • There are no interest taxes on bank deposits.

Neither the constitution, modification or extinction of the trust nor the transfer of its assets generate tax obligations. So it will be, whenever the assets of the trust:

  • are guarded abroad,
  • are derived from foreign sources,
  • are shares or securities of any type issued by entities whose income is not derived from taxable Panamanian sources, even if such shares or securities are deposited in the Republic of Panama.

Continuing with the experience of other Latin American countries, and following examples of common law, Panama has developed as a jurisdiction that allows the creation of trusts for commercial purposes.

As of December 31, 2011, more than 50,000 commercial trusts were formed, for the most part, to guarantee bonds, securities issues and safeguard pension funds.

The law also allows the creation of trusts, as in English law, the trust is established for the fulfillment of a purpose, not for the benefit of a person.

Likewise, the country’s tax system facilitates the creation and management of trusts that maintain funds or assets abroad, without generating tax consequences in Panama.