Advantages of establishing an entity such as Sociedad Anonima in Panama are clear with a little reading. Panama permits the ownership of bearer share corporations. A bearer share corporation allows a person to own the corporation with out having to acknowledge ownership.

A Panama S.A. corporation, or IBC (International Business Company), is a legal entity that is incorporated in a tax haven.  With the exception of a small annual fee, the tax haven is free of local taxes. The IBC cannot do business in Panama, or it will be taxed, and that would defeat the purpose of creating the IBC in the first place for privacy reasons.

A Panama corporation can be used for all sorts of reasons, with privacy a major deciding factor. Incorporating in Panama while conducting business elsewhere creates many possibilities for the business minded individual who desires protection of his or her assets.  Offshore companies can be used for owning real estate an land, operating businesses, owning bank accounts, ownership of intellectual property, franchising and licensing, e-commerce business and ways to save on taxes. It is really up to your imagination as to how you can benefit from an offshore company!

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Normal business will resume on Thursday February 18.

Thank you for your understanding.

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Por este medio les informamos que durante los siguientes días nuestras oficinas estarán cerradas debido a la celebración de los Carnavales: Febrero 15 y 16. El 17 de febrero nuestra oficina estará abierta en horario especial a partir de las 12 medio día hasta las 5 de la tarde.

Estaremos regresando a nuestros horario normal a partir del Jueves 18 de febrero.

Gracias por su comprensión.

DO BUSINESS IN PANAMA

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Most of my clients are seeking to establish privacy foremost. Those who are willing to go beyond the basic ideas, such as opening an offshore bank account, often ask about Panamanian foundations. They have many questions, but the question I hear most is:  “What’s the difference between a common law trust and a Panamanian foundation?”

A Panama Foundation operates like a trust but acts like a company. A rough translation of this concept into the ‘common law’ framework would be “an incorporated company without participating shareholders but still having limited liability.” In place of a trustee, a foundation has a management council that acts as a board of directors. Your wealth team will be the foundation’s council. The foundation owns its assets rather than vesting ownership in a Trustee.

A common law trust is governed by its Trust agreement. There is no structure that a trust must follow other than the five basic elements of a valid trust. Every agreement is different. Each trust is open to ‘interpretation’ if scrutinized by the courts. In contrast, much of the foundation’s structure is codified in civil law, it is not open to interpretation like a trust. However, this codification of structure does not impair the ‘flexibility’ of the foundation in accomplishing its purposes just as corporate operational ‘flexibility’ is not impaired by incorporation laws. A foundation even has the flexibility to move itself into, or out of, Panama by changing domiciles.

To establish its legal domicile in Panama, the Panamanian foundation must have a local Registered Agent. You could use a qualified lawyer or law firm as the Registered Agent to add the layer of attorney-client privilege. I would be happy to help you make a suitable arrangement.

A Foundation is created by filing a charter. The charter is registered at the Public Registry in Panama City, in the same way as a Panama company (IBC). The goals and operating terms of the foundation charter can be loose or rigid; whichever you desire. A well-written charter has provisions that allow for changes as the goals and objectives of the foundation change. You are not locked in. The management council retains the ability to deal with contingencies.

The Foundation charter is the only document that is public. It will include the names of the nominees who serve as the management council. The typical approach is to appoint ‘Protectors.’ The Protector(s) is responsible for the day-to-day operations, and operates through a Power of Attorney from the council. As a check on his power, a misbehaving protector can be replaced by the council.

The Protector, perhaps you, a trusted friend, or a professional manager, is the ‘main man.’ He has a fiduciary responsibility to the beneficiaries, and holds sole signatory power over bank and brokerage accounts. The Protector appoints the Beneficiaries in a private document.  A well-drafted charter allows him to change the Beneficiaries at any time, without prior consent from any party. A beneficiary does not have to consent to being named a beneficiary; but permission should be gained beforehand to avoid creating an adverse tax situation for the beneficiary.

Often the Protector has the latitude to change nearly any aspect of the arrangement without consent. This in itself offers more flexibility than a common law trust. After a thorough review of your circumstances, you may find that the Panama Private Interest Foundation offers better privacy, security and asset protection than a trust or fiduciary arrangement in advancing your goals.

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•    The Trust concept is grounded in Common Law and does not exist in Civil Law. This can lead to odd interpretations of Trust agreements by those grounded in Civil Law. If a country where assets are located interprets trust law differently from the domiciliary country of the Trustor, the results could be unexpected. As more people are choosing to live, invest, retire, and do business in the global economy, this problem is becoming more prevalent.

•    Second, trust rights have been under pressure from many sources in recent years, even in Common Law countries. Grantor trusts have never shielded trust assets from attachment by creditors, tax authorities, or greedy ex-spouses; irrevocable trusts are used for that purpose. However, the statutes that concern “fraudulent” transfer to irrevocable trusts have changed. The timeframe in which the assets are in jeopardy has been extended, and the definition of ‘fraudulent’ has been watered down.

For these reasons, and in particular the second reason, Trusts that are domiciled in the U.S. and other common law countries may not be as secure as previously thought. This is not to say that the laws regarding these structures are poor. The laws are good. The problem is one of interpretation and of courts reacting to political expediencies. Overall, common law trusts are not as powerful an asset protection vehicle as they once were. When you become serious about protecting your assets, you should choose the most secure vehicle available to you.

There is nothing inherently wrong with offshore trusts, although some writers try to infer that anyone who owns such a vehicle has ‘something to hide’ and must therefore be guilty of ‘something.’ Offshore trusts and offshore banking can be ideal vehicles for establishing privacy, and for tax and inheritance planning in some circumstances. There are a significant number of privacy havens offering trusts. Each jurisdiction has tailored its laws and jurisprudence in slightly different manners, so offering a comprehensive examination of ‘acceptable’ and ‘improper’ types of trust is not possible here; that effort could fill several thick volumes. So, in summary, the main difference between trusts and corporations is that trusts are designed for holding and preserving assets, while corporations are designed for doing business.

Where does the Panama Private Interest Foundation, which is a Civil law Foundation, fit into the spectrum of available tactics?

The Panamanian foundation offers the best features of a trust and the best features of an offshore corporation. There are no shares in a Panamanian foundation, so it has no ‘owners.’ The founder does not own the foundation and through this separation gains important tax reporting and asset protection benefits. 
 
While the foundation cannot engage directly in business activities, it is an excellent vehicle for owning the shares of a company engaged in business activities.  Since the foundation has a fiduciary responsibility to its beneficiaries, the foundation is obligated by law to make the assets of the foundation productive. This allows the foundation to engage in any activity designed to increase the value of assets, meaning that a foundation can be the owner of bank accounts, securities brokerage accounts, real estate holdings, and can be the sole shareholder of a corporation.

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While the Foundation structure, incorporated under Panamanian Law 25 of 1995, is a fairly new idea for Panama, the idea itself is not new. The law governing Panamanian foundations is based on the Stiftung and Anstalt (“Family Foundation”) laws, which were originally codified in Liechtenstein in 1926. Wealthy citizens of the continental European nations have been using Family Foundations as an estate and inheritance planning and asset protection tool since then. So, the nature of the Panamanian foundation is understood and appreciated by many continental Europeans; however, a Panama Private Interest Foundation is less expensive to establish and maintain, offers greater privacy, and perhaps most importantly offers the better flexibility than similar forms domiciled in Liechtenstein. The Panamanian Foundation, like the Anstalt, offers the best features of the Trust structure and offshore corporation in one entity. 

To fully appreciate the benefits that can result from the Foundation structure, you first must understand the differences between a corporation and a common law (Anglo) trust before we can begin a discussion of Civil law Foundations.

The concept of a corporation is global and well understood. Corporations around the world operate along similar lines. Corporations are designed for doing business. Although they can be structured to hold assets, assets are usually held for the purposes of advancing the corporate interests. A corporation is a legal entity, separate and distinct from its owners or managers. It has all of the rights and responsibilities of a natural person under the law. It can sue or be sued in its own name, sign contracts, or take on debts in its own name, without creating a liability for its owners. The liability of the owners is limited to their invested capital; that is the key point. No court in any jurisdiction would entertain an argument to the contrary (except in cases of deliberate fraud).

A trust is a different vehicle; it is designed to hold assets in safe keeping for a designated beneficiary (or beneficiaries). A grantor trust does not have a separate legal personality from the grantor. Trust assets can be attached in the event of judgment against the grantor. Title to the Trust assets is held by a Trustee. Common law recognizes that the Trustee is holding those assets as a fiduciary responsibility to another person. Judgment against a Trustee or bankruptcy by the Trustee has no effect on the assets of the Trust; they can not be attached to satisfy the trustee’s creditors.

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Panama, like any other sovereign nation, has a currency, so my statement is not 100% correct. Panama’s currency is the Balboa, which has been fixed to the U.S. dollar at a one to one exchange rate since 1904. Here’s why people mistakenly believe that Panama does not have its own currency – the Balboa only exists as a coin, and the largest denomination of coin is 1 Balboa. So trying to buy any pricey items using the local coinage would be cumbersome. You would need reinforced pockets, a belt and suspenders, to carry the equivalent of $50 US without losing your trousers! For currency amounts above 1 Balboa, merchants and businesses simply deal in and accept the U.S. dollar. Panamanian law allows the Balboa and the dollar to be accepted side by side.

I find the history of how this came to be quite interesting. Panama gained independence from Spain in the South American revolutions of 1821, as part of Colombia. Several attempts to break away from Colombia failed, but the Thousand Days War (1899–1902) nearly succeeded. When diplomacy between Colombia and the U.S. for the rights to a future canal project in Panama failed, the U.S. took advantage of the recent uprising.

The U.S. decided to support the Panamanian independence movement. President Theodore Roosevelt declared Panama an independent nation, and sent troops. In November 1903, Panama proclaimed its independence and a compliant government quickly signed the Hay/Bunau-Varilla Treaty with the U.S. The treaty granted rights to the United States “as if it were sovereign” in what became the “canal zone.” The U.S. was to build a canal, then administer, fortify, and defend it “in perpetuity.”

Law 84 of 1904, which created the Balboa only provided for the creation of gold and silver coins; the law did not provide for the issuance of paper currency. Article 8 of this law also provided that these coins were to be sculpted and minted by the U.S. Mint in Philadelphia. Most governments would find this inconvenient, but the advantages outweigh the inconveniences. In recent years, Argentina contemplated the advantages of this arrangement after currency speculators attacked the Argentine peso.

Unlike the U.S., Panama can not play monetary games like printing trillions of Balboa against its own bonds. Fiscal policy is the government’s macroeconomic policy instrument. This is the basis for my claim. Wise fiscal policy is paramount in the minds of officials at all times. Government spending and investment is bound by revenues and the government’s ability to borrow. Revenues come from creating an attractive environment for business, part of which appears in the form of a tax friendly environment. Panama’s creditworthiness is linked to public finances, and the government watches its credit measures like a hawk.

Panama has averaged less than two percent annual inflation since the 1960’s, but spiked to 2.3 percent in 2005, the worst figure in years. Panama’s economy is perhaps the healthiest in Latin America, likely due to this arrangement. A nice benefit of this is that Panama has no restrictions on the outflow of capital or outward direct investment.

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More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets.” He said the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.

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This result should not surprise anyone. The Republic of Panama is a great place to do business, just as it has been for decades. I live here and I have the experience of doing business here every day. It’s a wonderful experience. This is a nation that does business on an international scale and accommodates the wants and needs of international businessmen. Panama has always respected the entrepreneur and the go-getter. Great places to do business attract investors who want to do business there. I know that sentence sounds like circular logic, but self-reinforcing phenomena often seem that way.

Panama has also been consistently ranked amongst the world’s freest economies with an open door policy for foreign investment that provides important incentives to business. In 2007, Panama attracted $6.2 billion in foreign direct investment… from the U.S. alone, says the Office of U.S. Trade Representative. Enactment of Law 41 in August of 2007 has made investment in Panama an even more attractive proposition. Through the first quarter of 2008, 15 companies had taken advantage of the benefits offered under Law 41. I see no reason why this trend would not continue.

The success of Panama as a place to do business is no accident. All the key elements are here – A stable constitutional government, an economy based on the U.S. dollar, low inflation, no foreign exchange restrictions, equal treatment of foreign and local citizens, and a favorable tax system. The workforce is literate (91.9% literacy) and largely bilingual / multilingual.

Panama has Free Trade Agreements with the United States, Europe, Asia and Latin America countries, and is a member of the World Trade Organization (WTO). Panama is active in the Caribbean Basin Initiative. The Economic Commission for Latin America and the Caribbean, the Organization of American States, and the Interamerican Development Bank have given Panama positive ratings. Panamanian government bonds are consistently graded B+ or higher by Standard & Poors ratings service.

The Republic of Panama does not simply rely on its strategic location, privacy haven reputation, and low cost of living to attract foreign investment. While the various political parties have their differences, they all recognize the goose that laid the golden egg is business. The Colon Free Zone and City of Knowledge initiatives, as well as Law 41, are major efforts to ensure that corporations of all sizes will find Panama an attractive place to do business for many more years into the future.

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One of the things that I think speaks volumes to this idea is the consistent inflow of foreign investment capital. In another of my articles, I discuss the details of how and why foreign capital flows into Panama. I think an investment of $6.2B (US) by U.S. companies alone in 2007 is strong proof of credibility.

Mercer Multinational Consultants reported on quality of life and personal safety in 215 cities worldwide. Panama City, the national capital, was ranked 96th, which places it above all other Central American cities. Mercer created these ranking by analyzing social, political and economic environment, health, education and transportation factors for each city.

A major consideration in making the choice to do business in Panama is quality of life. Panama City is cosmopolitan and offers excellent living conditions. Office, commercial, industrial and housing spaces are available, as are skilled, multilingual employees. Panama City is 5th in Latin America behind San Juan, Montevideo, Buenos Aires and Santiago de Chile. Panama City is first in Central America, 12 places above San Jose, Costa Rica.

With an index of 91.4, Panama City is the third safest city in Latin America, only behind San Juan, Puerto Rico and Santo Domingo, Dominican Republic according to a report by International Scope.

With an 8% increase in GDP, Panama was the leader in economic growth in Latin America during 2008. Much of this due to the fact that Panama has a US dollar-based economy, low inflation and little foreign exchange risk, an absence of exchange controls, favorable and equal tax treatment of foreign and local citizens.

Panama has a stable Constitutional government with a keen understanding of its reliance on international trade. The Economic Freedom Index for 2009, a joint publication of The Heritage Foundation and the Wall Street Journal, ranked Panama 55th of 157 countries. Citizens and expatriates alike have freedom to make their own decisions for their benefit and for the benefit of their families.

You may argue that some of these are not indications of ‘credibility’ per se, but they are certainly evidence that something special is going on here in Panama; something worthy of international attention. Something worthy of your attention.

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The best part of retiring to Panama is not just that it’s great place to live, and inexpensive, but the government actually encourages foreign retirees to come live here! Qualifying for a retiree visa is easy. If you can prove a monthly income of $500, pass a basic health check, and pass a police background check, you’re eligible.

On top of that, the government offers what some call the best retiree benefit program in the world. Retirees, both Panamanian and expatriate, are entitled to 15-50% discounts on a variety of goods and services ranging from movies and concerts to domestic and international airline tickets to medical and dental services.

The U.S. Social Security system still pays retirement benefits, which count toward the earnings requirement, if you choose to live here. If you averaged yearly earnings of $9152, you are entitled to a $500 per month benefit at “full retirement age.” For the early benefit, at age 62, you would need $12,203. In reality, almost anyone drawing benefits meets the income qualification to retire here. With a little planning, you can live tax-free.

Healthcare is always a concern for retirees. The majority of local doctors and dentists were educated in the U.S. Both health insurance and health care are very inexpensive. The quality is excellent with the latest in diagnostic testing and services. Unfortunately, Medicare benefits do not cover local services. Just buy a small policy to cover that, but if you return to the States for treatment, Medicare coverage will apply.

While Panama has its own Caribbean culture, you will feel at home. Panama has always been an international business crossroads and has a welcoming attitude. Restaurants, entertainment and shopping accommodations are all first class. But if you get a little home sick, the States are only a short flight away via Tocumen International Airport.

A legacy of the U.S. involvement in the Canal is a modern American-style infrastructure. You can drink the water. Transportation and roads are reliable. Telecommunications and Internet systems are world class. Banking systems and ATMs are readily available, and the dollar is accepted as currency – no need to exchange.

Panama has a variety of climates. There are wonderful beaches, cosmopolitan Panama City, mountains, and lush tropical areas. You can find a suitable locale here. Choose a beachfront home or condo on the Pacific or Caribbean shore. The mountain areas offer perfect all-year-round spring weather. Foreigners who buy property enjoy all the same rights and protections as Panamanians.

I am sure you will think of “Panama City” and retirement in a new way from now on.

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