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International Offshore Financial Centre Review: Panama as an Offshore Jurisdiction

PANAMA A GLOBAL DESTINATION

Why Choose Panama as an Offshore Tax Haven

As an offshore jurisdiction, Panama offers excellent advantages. Panama continues to top the list of the best places to live, particularly for expats looking for a lively, modern country in which to retire, with all the comforts of home and the idyllic allure of the tropics.

The ever-increasing creation of jobs in Panama’s thriving economy leaves the country longing for a larger and better-trained workforce than Panamanians alone can satisfy. Looking to attract the international community, the government has developed incentives for entrepreneurs, multinationals and expats to satisfy this growing demand.

Panama has very favorable laws for establishing offshore legal entities for sovereign individuals from countries around the world. It is one of the worlds most popular tax havens, with a sound banking system offering offshore bank accounts that are open to non-resident who establish an offshore company

Panama is the ideal jurisdiction for international investors and businessmen to operate their offshore corporations, banking, investing, finances, and all other areas of international trade as well as a great place to live and work and invest in real estate.

The Panama corporation law was promulgated over 80 years ago and has since been copied by many of the other tax haven nations such as Bahamas, St. Vincent, Bermuda, Belize, Isle of Man, etc.. Panama is one of the most popular places in the world to incorporate, with currently over 350,000 registered entities.

Despite all the negative publicity, especially after the Panama Papers, the jurisdiction's offshore registration market is thriving. Though there have been a few changes since the OECD and FATF, most notably an increase in KYC laws and some tighter regulations, but with a supportive government that continues to stand behind the offshore formation industry Panama its not going anywhere anytime soon.

Panama’s Offshore Benefits and Business Advantages

Non-resident Panamanian International Business Corporations (IBC's) and Private Interest Foundations do not pay tax on any of their income (as indicated below), nor do they have any reporting requirements to the Panamanian government.

  • No tax reporting requirements.
  • No income tax.
  • No capital gains tax.
  • No interest income tax No sales tax.
  • No tax on issuance of corporate shares.
  • No tax to shareholders.
  • No stock sale or transfer tax.
  • No capital stock tax.
  • No property tax.
  • No estate tax.
  • No gift tax.
  • No stamp tax.
  • No succession tax.
  • No inventory tax


Favourable Company Incorporation Laws

Panama offers the most favourable and most flexible incorporation laws available in the world. Private Interest Foundations are also available, and are one of the most widely used estate planning structures in the world today.

  • Panama is the registered domicile for over 400,000 corporations & foundations, making it one of the most popular jurisdictions to incorporate in the world.
  • Panama does not impose any reporting requirements for non-resident Panamanian corporations.
  • Panama corporations do not require Paid-In Capital, nor is there a time limit in which authorized capital must be fully paid.
  • Panama corporation directors, officers and shareholders may be of any nationality and resident of any country.
  • Neither the directors nor the officers of Panama corporations need to be shareholders. Meetings of directors, officers, and shareholders may be held in any country and accounting books may be kept in any country.
  • It is not necessary for interested parties to be present in Panama for the purpose of establishing a corporation. Corporations conducting business outside of Panama do not require a commercial license for offshore business activities.


Stable Currency With No Currency Restriction Regulations

Panama's circulating currency is the US Dollar, and Panama has no currency exchange controls or currency restrictions so funds can flow in and out of the country freely.

  • Panama uses the U.S. dollar as its legal tender (currency), instilling tremendous fiscal and monetary discipline while keeping inflation very low - under two percent for the last 40 years.
  • A dollar economy insulates Panama from global economic shocks. During the Asian monetary crisis of 1998, Panama became one of the healthiest economies in Latin America.
  • No currency exchange controls. Panama has no restrictions on monetary remittances abroad, including dividends, interests, branch profits and royalties. No restrictions on funds flowing in or out of the country.

Strict Privacy Laws

Panama continues to maintain what we consider to be the most solid banking and corporate book secrecy laws in the world, which are engraved in its' constitution. With Britain's proposed regulation for removal of bank and corporate book secrecy in the UK offshore territories, plus considerable dilution of privacy laws in jurisdictions such as Bahamas, Antigua, St. Vincent etc. it is clear that Panama remains the most secure offshore financial centre - where privacy and confidentiality is not only respected, but vigorously protected by constitutional law. 

  • Panama offers some of the best bank secrecy laws in the world.
  • Panama offers the best corporate book secrecy laws in the world.
  • Revealing banking information to third parties is a crime, punishable by prison.
  • Panama Corporations offer 'Bearer Shares', allowing shareholders to maintain 100% anonymity and privacy.
  • Panama Private Interest Foundations allow for Private Protectorate Documents and Private Letters of Wishes, enabling controllers (Protectors) and beneficiaries of Private Interest Foundations to remain 100% private.

Stable Government

Panama has what is considered by government analysts to be the most stable government in all of Central or South America.

  • Democratic government since 1990. The Government of Panama is headed by the executive branch, which is composed of a president and two vice presidents, democratically elected for a five-year term by direct vote.
  • The Panamanian military was abolished by constitutional amendment in 1994, and the government still has a unique security arrangement with the U.S. due to the Neutrality Treaty of the Panama Canal. As a result, the risks of going back to the earlier military regime are virtually non-existent (Source: Euromoney Report/Lehman Brothers, Feb. 26, 1999).
  • Stable government with excellent government infrastructure.
  • Pro-business government attitude and policy.
  • Roman law system.
  • Moody's has issued Panama a sovereign debt ceiling of Ba1 and Standard & Poors has assigned a default-risk rating of BB+.
  • Panama is a peaceful country with no military. Unlike many neighbouring countries, personal security concerns are limited. Panama has the lowest crime rate in all of Central and South America.


Stable Economy

Panama's economy is one of the most stable, prosperous, and most advanced in all of Central and South America.

  • Panama is home to the second-largest international distribution and trade centre (free trade zone) in the world next to Hong Kong. Panama's Colon Free Zone has over 1500 international import/export businesses operating within it, receives more than 250,000 visitors yearly, and generates exports and re-exports valued at more than US$11 billion annually.
  • Panama is a genuine international trade and banking centre that is well known and respected throughout the world.
  • The banking and commercial trade industry is alive in Panama with the US Dollar as it's circulating currency. There are over 150 international banks in Panama.
  • Little inflation in the last decade it was under 1.5%.
  • Panama's GDP is over US$7 Billion. In recent years, the service sector has accounted for over 80% of the country's GNP. The Panama Canal is also a large contributor to Panama's overall economic success.
  • Panama is at the top of the list of the world's freest economies, according to Canada's Fraser Institute (Economic Freedom of the World: 1998/9 Interim Report, Nov. 1998). Ranked eighth with Australia, Ireland, the Netherlands and Luxembourg, Panama represents an environment conducive for the creation of companies, jobs and prosperity.
  • Panama is a member of the World Trade Organization (WTO) and is a beneficiary of the Caribbean Basin Initiative (CBI). Panama is negotiating the Free Trade Agreement of the Americas (FTAA) and will become the headquarters for the administrative offices between the years 2001 and 2003. Panama has initiated formal negotiations pertaining to free trade agreements with numerous countries and regional groups.
  • Panama has been ranked first in Central/South America for low cost of living, operational cost and index of labour by the Tripartite Committee, which consists of the Economic Commission for Latin America and the Caribbean (ECLAC), the Organization of American States (OAS) and the Inter-American Development Bank (IDB).
  • Political Risk Services (PRS) placed Panama in the top three countries of the hemisphere with the best risk-investment qualifications. The Wall Street Journal/Heritage Foundation's annual Index of Economic Freedom found Panama second in the region.
  • Panama's open economy offers the lowest tariffs in the region, which has helped increase foreign investment in both the public and private sectors. There are more than 40 laws and decrees that offer investors special import, tax, and operational incentives. Sectors enjoying these incentives include tourism, export processing zones, mining, reforestation, insurance and re-insurance, agro-industry, petroleum free zones, infrastructure and construction.
  • The Investments Stability Law (Law No. 54 of July 22, 1998) guarantees all foreign and national investors equal rights, continuing Panama's long-standing policy of providing a foreign-investment environment that requires no special authorizations, permits or prior registration.
  • Major companies in Panama include Federal Express, DHL, Sears, Price Costco, Bell South, Kansas City Southern Railways, Continental and American Airlines, ICA (construction), Cable & Wireless, Evergreen and Hutchinson Whampoa, and many others. Donald Trump is adding its contribution to the rapidly expanding Panama City skyline with its Trump Centre which is the largest Latin American real estate mega-project ever and only the second project outside of the U.S. for the Trump Organization.


Excellent Offshore Banking System

Panama City is home to the second largest international banking centre in the world next to Switzerland. Panama has the most modern and successful international banking centre in Latin America, with more than 150 banks from 35 different countries.

  • Approximately 150 international banks are located in Panama. Total assets in Panamanian banks are over US$150 billion.
  • Panama offers a modern and technologically advanced banking system.
  • Panama is one of the most stable banking jurisdictions in the world. Panamanian laws require over US$15 million in proven capitalization just to apply for a full banking license ($3 million for an international license, all of which must be put on deposit with Banco Nacional de Panama – the government owned bank).  Other tax haven countries today issue banking licenses with as little as US$500,000 in capitalization.
  • Only a few banks have failed in Panamanian banking history. Switzerland had 5 bank failures just in 1999 - 2000, not to mention other tax haven's bank failure rates.
  • The Panamanian government has enacted strict bank auditing guidelines, to monitor banking practices, credit guidelines, and overall bank administration. Each bank must submit monthly auditing reports to Panama's Banking Superintendence, which is under direct supervision by the Banco Nacional de Panama (BNP).
  • The Panamanian banking system is set up to ensure depositors the security of their deposits, similar to the US banking system. The National Banking Commission (NBC) and the Banco Nacional de Panama (BNP) execute the functions of a central clearing bank. The NBC oversees the banking system, sets the reserve requirements and regulates interest rates. The BNP functions as the Panamanian governments principal depository, manages the country's international reserves and is the clearing-house for the banking system.
  • Panama's new comprehensive banking law (Decree No. 9) meets the standards of leading financial centres around the world for transparency and regulation, and conforms to the statutes of the Basle Commission.
  • Some of the banks present in Panama's banking center are: Citibank, HSBC, Dresdner Bank, Bank of Tokyo, Bank of Boston, Banco Nacional de Paris, International Commercial Bank of China, Societe Generale, Banque Sudameris, BBVA, Banco Uno, Banco General, PriBanco, Banco del Istmo, Global Bank, MultiCredit Bank, PanaBank, ABN Amro, Banco Aliado, Banco Continental, BancoLat, BIPAN, Lloyds TLB Bank, Bank of Nova Scotia BIPAN, Bank of Nova Scotia, and much more.
  • The Panama Stock Exchange is the fastest growing in the region with an average total trading volume of US$900 million.
  • Some of the brokerage firms present in Panama are (some through affiliates): Merrill Lynch, Pershing / DLJ, Paine Webber, Solomon Smith Barney, Bear Stearns, etc.

Excellent Communications System

  • Panama's communications systems and infrastructure are the equivalent of any first world country such as the USA, Canada, or the United Kingdom. Telephone, fax, internet, and cellular communications are all offered in Panama by the worlds largest communications companies.
  • Panama has the highest level of communications infrastructure for telephone, fax, internet, and cellular communications in all of Central & South America, including the Caribbean.
  • Panama's privatization efforts in the telecommunications sector were initiated in 1995, with the restructuring of the state-owned monopoly operator, INTEL, the subsequent concession to Bell South in 1995 to operate one of the two (2) cellular mobile telephone licenses and the sale of 49% of the shares of INTEL to Cable & Wireless (a UK company) in 1997.
  • Cable & Wireless enjoys complete management responsibility, exclusivity in certain telephone services (including international long-distance services) for a period of five years which expired in 2003 and has a license to operate in the mobile cellular communications sector. Bell South has the second-largest share in the mobile cellular communications sector and now has sold out to Spanish giant Telefonica.
  • Panama has the best access to multiple high-bandwidth continental fibre optic networks in telecommunications infrastructure. The extremely low risk of natural disasters (hurricanes etc.), gives the Panama telecom sector security and reliability of service as well as a competitive advantage over other offshore jurisdictions.
  • Panama is extremely easy to access from almost anywhere, due to its central location in the middle of the Americas. Its proximity to large cities in the US and Europe makes it relatively cost-effective to bring in specialist know-how for installation and maintenance.
  • Panama's long history as an international banking and services jurisdiction has resulted in the availability of technical know-how in internet technology and information technology as well as sufficient human resources to install and maintain e­commerce operations. The MAYA-1 and ARCOS-1 ring systems link the continental Americas and the Caribbean Basin, which was completed in December of 2000.
  • All the preceding advantages, incentives and infrastructure place Panama as an ideal location for: Internet Service Providers, E-Commerce Providers, Applications Outsourcing ASP, Broadband Content Providers, New Media Content Providers, and Exchange Traffic.

 

Benefits of Panama Offshore Company Formations

  • Panama’s territory-based tax system does not levy an income tax as long as your income is earned outside the Republic.
  • Panama offers the most cost-effective, and by far and away the easiest residency program in the world, with its new 'favoured nation visa'. Also popular is its long standing 'pensionado' visa for retirees.
  • Government investment incentives slash tax rates and fees for entrepreneurs.
  • Panama's economic growth rate is among the highest in the hemisphere, surpassing ten percent in 2011 and 2012.
  • Exchange risk is minimized since Panama’s currency is the US dollar. This makes it highly attractive to American citizens and provides the foundation for one of the most stable economies in Latin America.
  • Panama has a high level of privacy protection for all non-US foreigners doing business lawfully in Panama.
  • Panama leads the world as the top yacht and ship registration jurisdiction.
  • Panama’s advantageous Private Interest Foundations (PPIF) are similar but much more affordable than those offered by Liechtenstein.
  • With an extensive list of national and international banks, Panama continues to be a robust global banking region.
  • Panama is an independent jurisdiction and has a stable, democratically elected government (voting in Panama is mandatory).
  • Outside of Panama City, Panama remains a relatively affordable place to live. In places like the rainforest town of Santa Fe and the beach towns in the Azuero peninsula, a typical couple can live comfortably for as little as US$1,200 per month.
  • Panama’s diverse lifestyle destinations—from idyllic tropical islands and vast jungles to a booming metropolis with vibrant cultural activities—make it one of the best places to spent quality time.
  • Panama is a perfect hub from which to travel throughout Latin America. The capital city’s international airport is growing by more than 50% and will provide routine flights to every country within South and Central America.
  • Panama boasts a lush, tropical climate all year round.


In-Depth Information about Panama

Location

Bordered by Colombia to the west, Costa Rica to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south, Panama is strategically situated on the isthmus connecting North and South America.

Panama took control of the Panama Canal in 2000, which connects the Atlantic Ocean and the Caribbean Sea to the North of the Pacific Ocean. Panama’s 75,515 km2 land size makes it slightly bigger than the province of New Brunswick in Canada and slightly smaller than the state of South Carolina in the U.S.

Political Structure

At the close of the 21-year military rule, Panama has smoothly finished four exchanges of power to contradicting political groups, thus giving footing to a strong and stable democracy. Two major parties (and several smaller parties) control the political landscape, many of which are propelled by individual leaders more than belief systems.

Panama's political structure occurs in a system of a presidential representative democratic republic, whereby the president of Panama is chief of state, head of government and of a multi-party framework. The government exercises executive power while the power to enact laws is assigned to both the administration and the National Assembly. The court system is separate from judicial and legislative branches.

Voting for national elections are general and compulsory for all Panamanian citizens 18 years and up. National races for the legislative body and the judicial branch occur every 5 years. The head of state has the power to designate the members of the judicial body. Many minor parties are represented in Panama's National Assembly due to it being proportionally represented by fixed electoral districts.

Representing the four-party Alliance for Change, conservative supermarket mogul, Ricardo Martinelli, was elected in a massive landslide victory, winning 60% of the popular vote at the May 2009 presidential election against the left leaning Democratic Revolutionary Party (PRD) nominee, Balbina Herrera. Martinelli’s business credentials attracted voters jaded by the slowing economic growth stemming from the world financial crisis. His victory was an exception to a trend of victories for socialist Latin American candidates. Martinelli’s five-year term ends on June 30th, 2014.

Economy and Infrastructure

Panama’s economic performance is, year after year, better than nearly every other Latin American country, and it is one of the fastest growing countries in the Americas. For 40 years Panama’s inflation rate averaged less than 2% per year — unheard of south of the U.S.

Annual growth continues at a rapid clip of around 10% per annum and, even during the recent economic crash of 2008, never dropped below 5%. GDP expanded 7.6% in quarter two of 2013 (as compared to Q2 in 2012). At an annual growth rate averaging 9.3% from 2010 to 2013, Panama achieved a record high of 12.2% in June of 2011 and an all-time low of 6.2% in the same month in 2010.

Economically influenced by the legendary canal that couples the Pacific and Atlantic Oceans, as well as its business-friendly regulations, Panama has a robust service industry. Accounting for upwards of 75% of GDP, Panama’s well-developed service sector is the foundation for Panama's dollar-based economy. This sector includes operations of the Panama Canal, the Colon Free Zone, banking, insurance, logistics, container ports, flagship registry, and tourism.

Panama’s booming logistics and transportation services segments, together with aggressive infrastructure development projects, lead the economy to continued high growth in 2012. Contributing about 10% of GDP in both 2011 and 2012, foreign investment has helped to sustain strong growth in Panama.

Panama has the largest banking sector south of Miami. Panama banks average 60% liquidty — astoundingly high. In other words, in the hypothetical event of a bank run 60% of all deposits could be withdrawn from banks before any bank assets would need to be liquidated. Only offshore banking jurisdictions such as Singapore and Hong Kong can match this.

The Panama Canal Expansion Program will more than double the Canal's capacity, enabling it to accommodate ships that are too large to traverse the existing canal. The major users of the canal are the U.S. and China. Begun in 2007 and due to be completed by 2015 at a cost of approximately $5.3 billion – about 10-15% of current GDP, this ambitious reconstruction project continues to boost economic growth in Panama. As of mid-August 2013, the expansion project is 64% complete.

Started in 2007, a new city called Panama Pacifico is being built on the old U.S. Air Force base of Howard. The ambitious 40-year, 3,450 acre, mixed-use real estate development project is one of the largest in the world.

Aimed at attracting foreign investment, several global corporations have already moved into Panama Pacifico, including Caterpillar,3M, DELL, BASF,VF and Samtec. Due to a Special Economic Area law, Panama is highly attractive to multinational corporations looking to set up regional headquarters in Central America. Special tax, labor, and legal incentives have been granted to companies set up in these zones.

Designed to improve public transportation options throughout Panama City, the government is currently also building a major metro system to cut through principal parts of Panama City. Estimated at $1.2 billion and scheduled for completion in 2014, this mega-project is also helping to further economic growth.

In October of 2012, the U.S.-Panama Trade Promotion Agreement was put into effect. Panama also achieved removal from the Organization of Economic Development’s (OECD) gray-list of tax havens by signing various double taxation treaties with other nations.

If you're looking for a country of residency, Panama boasts one of the most attractive programs for foreigners on offer anywhere in the world. As a Panama 'pensionado', you are eligible for discounts on just about everything you buy. With only $1,000 USD needed in foreign-earned income (from either a social security or pension), Panama's Pensionado program is the world's benchmark of retirement programs.

In 2012, Panama magnified an already attractive list of programs for obtaining residency with its 'favoured nations' option, making it easy for nationals of more than 47 countries, including the US, Canada, New Zealand, Australia, UK and almost all the EU countries, among others.

This was designed in recognition of the possibility that Panama's stellar growth could be hampered by a local skills shortage. A local company with bank account with a minimum US$5,000 deposit (plus US$2,000 per family member), is all that is required and an intent to pursue a profession or business. Alternatively, a local job offer will also qualify you for this visa.

Despite the strong economic performance in recent years, for most Panamanians this has not translated into broadly shared prosperity. With the second worst income distribution in Latin America, Panama has about 30% of its population still living in poverty. Between 2006 and 2012, poverty was reduced by only 10%, while in 2012, unemployment slid from 12% to 4.4% of the labor force.

Looking forward, to maintain the current pace of growth, Panama’s government will need to continue to address the shortage of skilled workers, corruption and lack of judicial independence.

Population, Language and Culture

According to the 2013 census, the Republic of Panama has a population totaling 3,661,868. Seventy percent of Panamanians are mestizo (mixed Amerindian and white), 14% are primarily black and mulattoes (West Indian), 10% are white, and the remaining 6% are Amerindian. Some East Asians like the Chinese are less than one percent.

Panama has a surprisingly high literacy rate. About 92% of the population greater than 15 years of age can read and write. Approximately 93% of Panamanians speak Spanish, the country’s official language, as their native tongue. About 14% of the population also speaks English, either as a first or second language, particularly many professionals, business people and governmental employees.

The culture, customs, and language of Panama are predominantly a mix of Spanish and Caribbean. Panama has a very diverse population, which is largely of mixed Spanish, Native American, and African descent/ancestry.

Several ethnic groups that migrated to Panama from the 1800s to the 1900s make up Panama’s colorful tapestry. These include descendants of British, Irish, Dutch, French, German, Italian, Portuguese, Polish, Russian, Ukrainian (of which a large number are Jews), U.S. Americans and Caribbean (esp. Afro-Caribbean) nationalities. Thousands of Barbadian and Jamaican workers played a major role in the construction of the Panama Canal. The immigration of Arabs and Asians was also significant, in particular Chinese, Lebanese, Palestinians, South Asians (from India and Pakistan) and Syrians.

Between 1980 and 2012, Panama's Human Development Index (HDI), which represents a broader definition of well-being and provides a composite measure of health, education and income, rose by 0.5% annually from 0.634 to 0.780 today. This gives Panama a rank of 59 out of 187 countries with comparable data, and positions Panama above the average for the Latin America and Caribbean region.

Exchange Control

None. There are zero exchange controls in Panama and there is no central bank. The U.S. dollar is used as its primary currency, that is, other than for very small transactions where the Panamanian Balboa may be used (which is at parity with the dollar).

Type of Law

Panama law is a very unique blend, centered on Spanish Civil Law, but with many influences from Common Law, particularly with respect to Company Law (based on the Delaware model).

Principal Corporate Legislation

Panama Corporation Law 32 of February 26, 1927 (Official Gazette No. 5067 of March 16, 1927).

Panama’s corporate law is founded on legislation from Delaware and New York (Corporation Law No. 32 of the 1927 Commercial Code, Decree Law 5 of 1997 and Executive Decree 296 of 1997), but written in the form of Spanish Civil Law.

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