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The Panama Corporation

Panama City

The Panama corporation or “Societe Anonyms,” is a company with limited liability, and is an ideal vehicle for offshore purposes, providing excellent asset protection or for operating an offshore business. The entity offers many benefits and is very flexible to utilize.

A Panama corporation can operate worldwide and it is not taxed on transactions occurring outside of Panama. The corporate charter gives the broadest of powers to the corporation and the maximum benefits to the beneficial owners. Panama also allows a Panama corporation to re-domicile to another jurisdiction at any time.

Panama is one of the best offshore havens in the world, and very much like a cross between Hong Kong and Switzerland as a renowned offshore banking center and shipping center. Panama has been a tax haven and offshore banking center since the 1920’s, making it one of the oldest, and comparable in that way to Liechtenstein, both being based on civil law and not English common law. Today, Panama boasts strong bank secrecy that is protected by a mosaic of forty laws. Panama is attracting banking and investment business from around the world. North Americans and others have also discovered that Panama is a favorable expat haven with attractive real estate investment opportunities.

A Panama company is managed by a board of at least three directors. As the corporate charter is public record, typically, the principals utilize nominee directors who are Panamanians furnished by a local law firm, providing a desired layer of privacy. Panama lawyers are also bound by bank secrecy laws. Judicial entities may also be substituted for natural persons, and in this instance, an offshore corporation from another jurisdiction like Belize, Nevis or Cook Islands, for example, could act as one of the directors. This can provide further secrecy and control.

Directors are not required to be shareholders, and they may also act in the capacity as officers—but are not required to do so—and additional officers may be appointed. Directors may manage the company without the need to appoint or elect officers. An officer, whether a person or an entity acting in this capacity, may hold up to two positions. Although commonly employed in U.S. companies, it is not recommended that the President and Secretary be the same person. Officers are not required to be directors.

When nominee directors and/or officers are engaged, the beneficial owners, commonly known as the shareholders, can have the board of directors grant an unlimited or general power-of-attorney to represent the company as attorney-in-fact in whatever capacity. This document can be very broad. On the other hand, in the case where you want to give authority to someone to represent the company, you may want to limit their power by having the board grant a limited power-of-attorney with specific parameters. As required by law, a registered office and registered agent are including when incorporating the company.

The Panama Foundation

The Panama foundation structure was codified into law in 1995 and while it is a fairly new entity for Panama, the foundation concept itself has existed in Liechtenstein for a long time. In fact, the Panamanian structure was modeled after Liechtenstein legislation, but the Panama entity has more flexibility and the Liechtenstein structure is much more costly.

The private foundation, as it is also known, is an independent juridical entity (like a corporation), which functions similarly to a trust for estate planning, but operates more like a company, although it may not operate as a business itself. It may invest in businesses and buy and sell assets in order to maximize patrimony. The Panama foundation structure offers some of the best benefits of both the trust structure and the offshore corporation in a single entity. For further information on trusts and foundations, and offshore estate planning, please refer to Freedom Without Borders by Hoyt Barber.

The Panamanian foundation can be created by one or more natural persons or legal entities, such as a corporation. The foundation charter is drafted, a document similar to the incorporation papers for a Panama company. As with incorporation documents in Panama, the foundation charter is a matter of public record. The foundation is administered by the foundation council, a board of three or more members. This is similar to a corporation, which is managed by three directors or board members.

The assets placed in the foundation are sole and separate property from the founder’s assets and cannot be seized to satisfy any personal judgment or obligation against the founder or the beneficiaries of the foundation, including judgments for divorce, lawsuits, creditors and other liabilities. Assets endowed to the foundation by the founder, or any third party, cannot be contested by creditors after (3) years from the date of transfer. If this period is too long, seriously consider a Belize Asset Protection Trust (APT). The founder may be a sole beneficiary, one of the beneficiaries and/or maybe a council member.

The Panama foundation offers the best qualities of both an offshore trust and an offshore corporation. While the foundation cannot technically engage in actual business activities, it can own the shares of a company that is an operating business. The foundation may engage in any activity which will increase the value of its assets. This means that a foundation can own bank accounts, securities brokerage accounts and real estate, for example.

The foundation does not pay taxes on all transactions executed outside of Panama. No license is required to operate even if there are foundation assets located within Panama. A nice feature of Panama law allows the foundation to have the option of re-domiciling to another jurisdiction, if desired, and vice versa.

There are no shares of ownership in a Panama foundation. As such, the founder gains important tax reporting and protection benefits. However, in the case of U.S. taxpayers, it is best to avoid using a civil law foundation, and instead establish an offshore asset protection trust, in Belize, Cook Islands, or Nevis, for example. Note: Panama is no longer advantageous for U.S. citizens since they recently signed a Tax Information Exchange Agreement (TIEA) with the United States. However, Canadians and others are still enjoying their benefits. U.S. persons may refer to Belize, Nevis, and Cook Islands; Canadians are best served to look at Panama, Belize and Cook Islands, as Nevis has a TIEA with Canada.

NOTE: Belize recently passed legislation for the formation of foundations in competition with Panama; these are an option for Americans and others.