Panama as a jurisdiction for trusts

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.

Some of the key features of Panama trust:

  • A basic rule of law in the matter of trusts is that it is required to obey the provisions of the constitutive act with respect to the rights of the beneficiaries and the administration of the trust,
  • The assets constitute separate equity that does not form part of the property of the trustee and that can not be the object of accessories or other preventive actions, except for those originated or acquired by the trust,
  • Trusts may be constituted on any kind of property, present or future and for any legal purpose,
  • Ownership of the assets of the trust is in the name of the administrator, who has all the powers and rights inherent to the property,
  • The beneficiary may be the trustor itself and the fact that the trustor reserves powers, such as the power to modify the trust or direct investments, does not jeopardize the integrity of the trust,
  • Panamanian law imposes very strict rules regarding confidentiality. With the exception of real estate located in Panamanian territory, there is no public registry.

Fiscal efficiency

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:

  • Nor estate tax,
  • Nor inheritance tax,
  • No tax on donations
  • No liens or other charges from the beneficiaries
  • There are no taxes on interest accrued on bank deposits.

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:

  • They are located abroad,
  • They have been derived from foreign sources,
  • Be the shares or securities of any kind, issued by entities whose income does not derive from a taxable Panamanian source, even when such shares or securities are deposited in the Republic of Panama.

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.

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