Understanding Panama’s Tax System
Posted by admin in Panama Taxes, Panama banking on September 2nd, 2009
Panama has defined its national strategy to remove the label of “tax haven” that has been hung on it by the Organization for Economic Cooperation and Development (OECD). This is a continuation of its long standing policy, adopted over many years, of insisting that nations recognize its tax system as legitimate and fair – one that if adopted by more countries could cause an explosion in productivity, wealth and ingenuity by its citizens. Witness the incredible success of Hong Kong’s economy over the last thirty years which adopted a similar tax policy.
This more equitable “territorial tax” system is in actuality a system shared in part or in whole by a number of other jurisdictions including Hong Kong, Singapore, Cyprus, Costa Rica, Uruguay and others and contrasts with the U.S tax system that requires all U.S. persons to pay taxes no matter where they live or earn income.
Therefore part of the government’s strategy in their negotiations with the OECD is to re-emphasize that Panama is not a “tax haven.” This is a key distinction, because Panama does tax all income produced within its borders, but it does not tax income earned outside its borders by its residents, whether they be foreigners or nationals.
However, companies with physical offices in Panama earning their income from outside of Panama do have to pay taxes on all funds remitted to or “perfected” in Panama – such as using a Panama bank to process credit card payments. This is an important change to understand in the previous administration’s 2006 overhaul of the tax and social security system.
However, it is perfectly legitimate to set up a foreign subsidiary, such as in Belize to accept all worldwide payments including those made by credit card. This means that with proper tax planning little or no taxes would ever need to be paid in Panama, as one would typically remit only those funds from the offshore subsidiary needed for the running of the Panama company and the paying of salaries etc.
If intending to set up a resident company in Panama to operate from physical offices here, our capable team of attorneys and accountants can navigate you through Panama’s simple yet equitable tax system as well as its labor laws and licensing procedures. We at Sovereign Management and Legal can be contacted here.
Despite Debate, Security of Offshore Structures Remains “Bullet Proof”
Posted by admin in Uncategorized on August 20th, 2009
Regarding the hype and misinformation around the issue of jurisdictions relaxing their secrecy laws and allowing for exchange of information, reality ends up being far removed from what the anti-offshore protagonists like to claim is really happening.
Take the case of the current UBS settlement deal between the U.S. and Switzerland that is being reached. What is quite clear is that the wholesale lifting of banking secrecy in Switzerland is clearly not happening as many in the U.S. government and its media mouthpieces had been hoping. Instead it’s a much more limited exchange of information based on a very small fraction of the 52,000 U.S. account holders probably based on documented details of tax evasion being first presented rather then a wholesale “fishing expedition”.
Of course, even with Panama, we can expect to see some “tinkering around the edges”, such as removing the largely irrelevant but highly irritating (at least to the OECD) bearer share option that has always been a characteristic of Panama corporate law. Banks worldwide, in any case, require account holders to state who is the actual beneficial owner, so the anonymity it sustains has largely to do with situations where banking is not involved – such as in a transfer of a piece of property owned by a bearer share company.
In actuality even if countries like Panama or Belize ended up relaxing banking secrecy for documented cases of tax fraud, (unlikely at this point) it would not make any difference to our offshore planning advice. This is because our offshore planning strategy has never really relied on banking secrecy and financial privacy in the first place.
Therefore, whether or not any concessions end up being made is largely a non-issue. This is because we regularly recommend “layering” techniques that use multiple structures and jurisdictions along with the use of shareholder foundations, properly structured with beneficiaries such as legitimate charities or testamentary trusts. We can also set up a true charitable public foundation where international recognition of the charity is vital.
We have always offered this type of “bullet proof” offshore protection to those that need a more thorough and robust system but in the past many people did not feel they had a sufficient incentive and would cut corners by just setting up a basic structure relying on financial privacy laws to do the rest. In many cases this may have been because many did not want to invest that much more then what was required for a company and a bank account.
However, even a sophisticated system with a layered design using multiple jurisdictions, bank accounts and several different structures does not need to cost much more then $5,000 or $6,000 at most. Yes, it’s more costly then just setting up a company but it will make the ongoing debate and fear mongering largely irrelevant as you will be protected come what may. There is no doubt that changes will happen, but don’t expect the type of drastic changes being hyped, and even if they eventually do sleep well at night knowing that you planned for the worst contingencies.
Contact us if you need to set up a “bullet proof” offshore strategy that will work as effectively now as it will in the future no matter what changes lay in store for the world.
Panama Tax Haven Status is Secure: Panama’s Answer to The OECD Tax Bullies
Posted by admin in Panama banking, Swiss Banking Alternatives, asset protection, offshore asset protection on August 10th, 2009
President Roberto Martinelli, Panama’s new president (below) has decided to take a strong stand against the anti-tax haven bullying of the Organization for Economic and Community Development (OECD). Therefore, we believe that the Panama tax haven for offshore banking and investing remains secure.
Panama will not agree to the automatic exchange tax information demanded by the OECD and that group’s high tax, G-20 nations sponsors. Currently Panama law makes it a crime to release any financial information unless under court order and action by the new conservative dominated National Assembly would be necessary to change that law. Obtaining a court order is not an easy process and usually can only be obtained in the cases of drug trafficking, terrorism and serious financial crimes (such as ponzi schemes).
At a meeting last Thursday of a special commission charged with developing the strategy for dealing with the OECD, it was determined that Panama will hold firm to its financial privacy laws…only doing that which is beneficial for Panama.
That means Panama will be pleased to negotiate double taxation treaties that will benefit companies doing business in Panama, but the government refuses to go along with wide-open tax information agreements demanded by the OECD which automatically opens the door to one-way “fishing expeditions”.
This is a very good and firm positioning strategy and once again is a reminder to those, mostly self serving commentators and marketers, who continue to affirm that Panama has no choice but to back down and “open its books”.
Hard Line Defense of Panama’s Priorities
The High Level Commission for the Defense of International Financial Services together with the Cabinet Council approved a policy that is grounded “on the basis of national priorities,” and not on political demands by other countries.
The official policy goes even further, and restates the government’s intention to apply the existing “law of retaliation” to countries that discriminate against Panama on the basis that it is a tax haven.
This law allows sanctions and trade restrictions for those countries that discriminate against Panama. Countries mentioned were Spain, Mexico, Argentina, Peru, Ecuador and Venezuela.
Not content to stop there, Panama will also file complaints with the World Trade Organization (WTO) against nations that place Panama on phony “blacklists” and also raise the issue at the International Monetary Fund.
The Panama Chamber of Commerce, which our company is a long time member of, has come out in support of this new initiative. According to its chairman, Adolfo Linares, it is a first step to counter the unjust OECD attacks on Panama. Linares also advised the government to match its rhetoric with substance by follow through on applying Panama’s law of retaliation.
From all appearances, a very independent Panama, home to one of the world’s essential commercial waterways, is not going to allow the OECD and its high tax backers to dictate national policy. At the very least it will be a good and strong positioning strategy to start any negotiations from.
Rumors of Panama’s Imminent Death as an Offshore Financial Center Greatly Exaggerated
Posted by admin in Panama banking, Swiss Banking Alternatives, asset protection, offshore asset protection on July 21st, 2009
We are constantly being asked by potential and some existing clients concerning information they see on a (former) competitor’s website proclaiming the end of Panama offshore services as we know it because of the Tax Information Agreements that many offshore jurisdictions are signing. Until recently they were incorporated here in Panama as a law firm and have now moved their operation to Guatemala on the premise that they do not feel that a small country like Panama can withstand the demands of the OECD countries and their desire for greater tax transparency. Moreover, they are counseling everybody to pull their funds out of Panama banks, or a Panama foundation if they have one, as they are predicting a liquidity crisis before long once Panama supposedly completely caves in.
However, we would not counsel such a rush to judgment. Our last blog stated clearly the position of Panama’s previous outgoing government. The new incoming government led by Hugo Martinelli is, as predicted, looking at ways of appeasing the OECD demands, appearing to be cooperative, but doing as little damage as possible to the offshore financial industry. A clear lead in this came in yesterday’s article in La Prensa which this former Panama law firm interpreted to be the end of financial privacy in Panama. “Panama banking industry given 15 days to open their books” screamed the headline on our former competitors website but in reality the La Prensa article was titled as “Panama should define within 15 days the policy the country will follow to defend its international and financial services”. That is quite a difference.
Actually the article shows that in fact our new government is taking the lead in proposing Double Taxation Agreements with individual countries rather than the more damaging Tax Information Sharing Agreements, which this former Panama based firm is assuming will be the inevitable outcome. The complete English texts can be seen on Panama Guide’s website plus the site author’s own pertinent comments which clearly shows Panama is not about to cave in any time soon: http://www.panama-guide.com/article.php/20090719104705657.
What is clear here is that Panama is not going to destroy the underpinning of its incredibly successful offshore financial services platform which accounts for at least 20% of its economy. There is a lot at stake here, and even assuming every other offshore jurisdiction throws in the towel, they are more than likely to move cautiously in relinquishing any of the features that make Panama attractive as an offshore haven. Expect to see some tinkering around the edges but don’t expect any real substantive changes.
Panama Standing Firm on Tax Information Exchange and Banking Secrecy
Posted by admin in Panama banking, asset protection, offshore asset protection on May 30th, 2009
In a letter to the OECD after the London G-20 meeting at which Panama arbitrarily, (along with Switzerland and a number of other respected offshore financial centers), was placed on a “less than black” list (the Grey List), President Martin Torrijos’ Minister of Commerce and Industry, made clear that his government would only go so far in exchanging tax information.
She condemned the G-20 and the OECD for “…discriminatorily affecting the good name and competitiveness of the international [financial] services offered by the Republic of Panama and that are the backbone of our economy.”
The minister laid down these pre-conditions under which Panama would exchange tax information:
- “The privacy of persons will continue to be protected and guaranteed against undue interference.
- There shall be no automatic exchange of information.
- There shall be no undue triangulation of information furnished among nations.
- Any exchange of information shall be done based on individual requests supported by a specific and justified principle or law.
- There shall be a reasonable transitional period with respect to any measure that must be implemented and that has an impact in the international services platform offered by the Republic of Panama, it being understood that the application of any measure shall occur at the same time as similar measures applied in each and every one of the states that are members or not of the OECD and that Panama considers to be competitors in the provision of international services.”
Note the emphasis in the last pre-condition above. Panama will only concede to any limited measure at the same time as similar measures have been applied to all other competitors in the provision of international services. That’s a long list and we doubt that every other competitor will come into conformity. China in the form of Hong Kong and Macau just for starters has signaled no such intentions.
Some commentators have inferred that the pending free trade agreement between Panama and the U.S., which has been pending congressional approval for some time, will be used to pressure Panama into caving in. What is lost in the small print is the fact that this agreement is far more beneficial to the U.S. side then the Panamanian.
Panama exported $377 million to the United States last year and 96% of the goods from Panama already enter the U.S. duty free under existing trade preferences. By contrast, Panama currently applies tariffs ranging from 8% to 15% on most manufactured goods, with rates in the high double and even triple digits for U.S. agricultural products. Panama also bans the import of re-manufactured goods. That’s a potentially lucrative market for U.S. industrial and consumer exports, including cell phones, computers and earthmoving equipment.
We have read many uninformed, misleading and self-serving articles even on supposedly well informed asset protection websites predicting the demise of Panama as an offshore financial center. We quote from one:
“Since the G20 meeting the Panama company has been under quite a bit of fire from the US Government and Congress. Currently the US and Panama have a reciprocal free trade agreement between the two and the US government wants to do away with this agreement until Panama either hands over information on Americans in the jurisdiction which means doing away with their banking privacy laws or taking drastic measures to change legislation which makes Panama a fiscal paradise. The US has always had a strong hold in Panama even after their retreat and the handover of the Panama canal. Many Americans who currently own or are the beneficial owners of a Panama Company have been looking for safe alternatives before the house of cards begins to fall down around them”.
Apart from the erroneous fact that the free trade agreement has yet to be ratified and the fact that the U.S. has not had a strong hand in Panama since it removed its forces 10 years ago and has been denied even the use of one of its former bases just for drug interdiction and intelligence purposes, we would say just the opposite is the truth. Also, Americans with Panama companies are not looking for other alternatives fearing everything is about to come tumbling down. Au contraire…. they are looking to Panama as one of the last few bastions with clout and independence to continue their long standing policies. The smaller nations are inevitably more vulnerable and with much smaller economies open to bribery. Those other alternative jurisdictions, many of which we offer such as Belize, Nevis and the Seychelles, will have had to go the way of the OECD wishes first before Panama will even consider implementing any changes. Therefore if Panama goes it will be because every other offshore financial center has already agreed to do so. We consider that eventuality highly unlikely based on the current scenarios before us.
Use the following link to find out more information about why to bank offshore in Panama.
For more information about how Sovereign Management & Legal can help you with Offshore Banking Services, see our homepage http://www.offshore-protection.com/ or contact us here: https://secure.offshore-protection.com/contact/contact-us.html
Offshore Asset Protection Simplified
Posted by admin in asset protection, offshore asset protection on March 6th, 2009
Offshore asset protection needn’t be as difficult as it’s frequently made out to be. Often we find offshore providers creating all sorts of hypothetical and theoretically possible, but entirely unlikely scenarios, to justify complex and expensive multiple structures, sometimes in multiple jurisdictions, all diagrammed with lots of interconnected boxes to look impressive. While some businesses and those with extensive assets may require quite complex designs to make sure all their assets are properly segregated and protected, and using more than one jurisdiction can be useful for different reasons, most do not. It’s best to start with the core basics and the first consideration is always the principal jurisdiction. A country like Panama with no information sharing agreements with any country and strict banking secrecy means you can be more than half way to having a solution before you even consider what structures are needed.
With the U.S. in conjunction with France, Germany and the U.K. throwing their weight behind the desire to “outlaw tax havens”, Panama may be one of the few countries left able to stand up against this new onslaught, as these and other countries look for ways to stem capital flight and attempt to mend their broken financial systems. Panama has always insisted on a “level playing field”, before being willing to consider any changes to its laws, knowing full well there will never be one. Also Panama, which is an officially neutral country, has sovereignty over the Canal, its international waterway available to all nations by treaty. This gives it some clout and in the past Panama has been mostly left alone from being pressured to conform to the type of transparency desired on the part of the governing elite of these countries, who effectively want to put an end to meaningful asset protection, since financial privacy has to be at the core of any meaningful strategy.
A country where information is impossible to pry from banks and that does not recognize foreign judgments already drastically narrows the scope of the potential risk, especially when considering that it may be one of only a small handful of bastions likely to stay this way into the coming decade. The next step is to consider what information will need to end up being in the public domain, which as far as corporations and foundations is concerned, becomes solely limited to company directors and foundation council members, since company shareholders and foundation beneficiaries are private information. The generally accepted use of nominees to fill those positions, whose only role is to lend their names to provide such a service, and who hold no real power, solves the public domain information dilemma. With these basic issues understood, one is then free to create whatever asset protection structure is needed to do the job but it does not have to be that complicated. For the vast majority of “financial refugees”, a foundation (or trust) owning one or more corporations will fit the bill perfectly for only a few thousand dollars including assisted account openings.
Swiss Bank UBS Reveals Client Information – Panama the Swiss Bank Alternative
Posted by admin in Swiss Banking Alternatives on February 20th, 2009
The agreement by the Swiss Bank UBS in its settlement with the U.S. government in regards to the Swiss banking giant’s marketing of Swiss banking and investment services to U.S. citizens and residents is in effect the end of Swiss banking secrecy, despite assurances by the Swiss president that nothing had changed. By UBS agreeing to reveal their clients’ account details they have stated clearly that the bank’s needs came before their clients and the trust and discretion that they had taken for granted. Of course they did not have many options given the fact that they marketed their products and met with clients inside the U.S. rather then outside – and therefore the U.S. government had clear jurisdictional authority over the bank.
But even before this Switzerland has been gradually compromising its banking secrecy with its information and tax sharing agreements, and although tax evasion is not a recognized offence tax fraud is, so it is just a matter of re-defining an allegation. Most Swiss banks will not even open accounts for Americans because of the potential hassle factor involved. There are far better alternatives to Swiss banking, especially for Americans and Europeans, if they are looking for real banking secrecy.
Panama clearly offers some of the best banking secrecy and safety in the world with an average banking liquidity ratio of close to 60%. That means if there was a run on the banks, the typical bank in Panama would have 60% cash on hand before it would even need to move on to liquidating assets. Compare that ratio to 8% in the U.S. and you can see why Panama banks are among the safest banking options in the world. Panama also has no information sharing treaties and is unlikely to sign any after all these years. It owns the strategic Panama Canal, and as an officially neutral country on the international stage, gets left alone by other countries.
Although Panama does not have the centuries of banking tradition that the Swiss have, today it has become the best offshore banking solution and Swiss bank alternative. Read the rest of this entry »