Many foreign investors starting a business in Panama or purchasing real estate decide to use a corporate entity as an ownership vehicle.  The specific corporate form is defined during the due diligence phase, and the corporation should be established in conjunction with the project and not as a separate consideration.  The corporate ownership vehicle offers privacy and allows flexibility in estate planning, tax management, asset protection, and representation.

Should an investor use (or form) a local Panama corporate entity, or use an existing foreign corporation? The answer is “it depends,” but in most cases, the use of a local entity creates more benefits.   If you use a foreign entity, make sure to register it in the Public Registery.  Although Law 41 has streamlined the procedures for registration of foreign entities, it could still take several weeks to complete the process.

Panamanian commercial law allows many corporate forms.  Two important forms that offer the investor structures similar to the familiar limited liability company are the “Sociedad de Responsabilidad Limitada” and the “Sociedad Anónima.”   Determining which of the many forms is the correct choice is part of your due diligence efforts, but these are the two most prevalent forms with the S.A. as the preferred vehicle.

The S.A. has many features which offer privacy.  Some of the more important features are: no requirements to disclose ownership; no restrictions on owning investments outside of Panama; no restrictions concerning ownership of shares; no residence requirements for Directors/Officers; no requirements to file annual Financial Statements; no requirement to hold annual General Meetings of Shareholders or Directors.  This feature is very important – the accounting books for the corporation can be kept in any part of the world and in any language.

Entities doing business within Panama must register with the Tax Authority.  Formal tax registration is not needed if the corporation simply holds real estate, or does not generate taxable income within the territory of Panama. “Within” means any transaction that is from a location in Panama to another location in Panama.  Anything that crosses a border is a non-taxable transaction.  Directing transactions in other countries from Panama is non-taxable.

Every corporation must reside in Panama or have a local registered agent.  There is an annual registration fee paid to maintain a valid registration at the Public Registry of Panama.  The fees and taxes are quite reasonable, but must be paid promptly. Late payment can produce penalties or cause the company to be stricken from the Register.

A corporation may adopt by-laws for the regulation of its internal affairs and procedures, but adoption is not mandatory. If by-laws are adopted, they can be registered at the discretion of the directors of the corporation.  Registration of by-laws is not mandatory, but if the directors decide to register the by-laws, any amendments to the by-laws must be registered as well. For privacy and convenience, we recommend against the registration option.

We can assist you in the formation of the correct entity, or with entity management as needs may arise.  We are based in Panama City, but it is not necessary that you come to our offices, ever, unless you want to stop in for coffee.  The usual procedure is that we act according to the information you furnish us.   You can send the information by fax, e-mail, or regular postal mail, whichever you prefer. We will organize the articles of incorporation using a standard format. Normally within 10-15 days, all the pertinent documents will be returned to you.  For immediate delivery, we also have Shelf or Ready Made Companies.

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It seems someone has spotted an opportunity after the recent news that various Panamanian banks, including HSBC and Banvivienda, are ceasing to offer safe deposit box facilities to their clients. A new operation named ‘Best Safety Boxes’ is due to open its doors (and safes) shortly in the Plaza Credicorp Bank Panama Building on Calle 50.

Clients have been asking us for years for a non-bank operated safe deposit facility in Panama. Since this is not a bank, you will not be required to open a bank account in order to use this safe deposit box facility. The privacy and confidentiality advantages to this are substantial. Also, in the event of a systemic collapse leading to temporary closure of all banks (a so called ‘bank holiday’) one hopes that Best Safety Boxes would not be affected.

What could you do with your safe deposit box? You could store gold bullion, the bearer share certificates for your Panama Corporation, or just plain cash that you wish to keep outside the banking system.

We are not sure when Best Safety Boxes are due to open, but if you drive by the Plaza Credicorp Bank Panama building you can already see the signage indicating its imminent opening, so we hope it won’t be long. We will keep you informed.

In the meantime remember that Do Business in Panama is your go-to source for Paama Offshore Legal Services such as Corporations, Foundations and Bank Introductions.  Please feel free to contact us with any questions.

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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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