Although Panama’s first Trust Law dates back to 1925, its current Trust legislation was enacted in 1984 (Law No. 1 of January 5, 1984) and is responsible for the development of competition as a service center fiduciaries There are more than 60 trust licenses issued and are supervised by the Superintendency of Banks of Panama.
The Panamanian trust, which is a hybrid between civil law and customary law trust, has become a perfect complement to the services offered by the international banking center of Panama.
While it was originally conceived as a succession planning device to facilitate the transfer of wealth from one generation to another, the Panamanian trust has also evolved as a widely used instrument to guarantee commercial transactions. According to the statistics prepared by the Latin American Federation of Banks, the country ranks second in the number of guarantee trusts established in the region.
Panama has integrated the international regulations on AML and KYC (Know Your Customer) into its regulations. However, the law imposes on the employees and representatives of the fiduciary, as well as those of the public oversight bodies, the duty to keep strict confidentiality on information related to fiduciary operations.
The tax legislation in Panama determines that 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.
Trusts in Panama are totally tax-free. None of the following taxes apply:
Neither the constitution, modification or extinction of the trust nor the transfer of the trust assets will originate from tax obligations. However, this will be true provided that the assets of the trust:
Continuing with the experience of other countries in Latin America and other examples of common law, Panama has developed as a jurisdiction that allows the creation of trusts for commercial purposes.
Until December 31, 2011, more than 50,000 commercial trusts have been constituted, for the most part, with the purpose of guaranteeing obligations, the issuance of securities and to safeguard pension funds.
The law also allows the creation of the trust. The purpose that, as in English Law, the fiduciary is established for the fulfillment of a purpose, and not for the benefit of a person.
Likewise, the country’s tax system facilitates the creation and management of the trust maintained by funds abroad or assets without causing fiscal consequences in Panama.