Panama, country of Central America located on the Isthmus of Panama, the narrow bridge of land that connects North and South America. Embracing the isthmus and more than 1,600 islands off its Atlantic and Pacific coasts, the tropical nation is renowned as the site of the Panama Canal, which cuts through its midsection. It is equally well known for its natural beauty, for its diverse plant and animal life, including hundreds of bird and tree species, and for its vibrant music and culture.
Panama enjoys a lively mix of cultural influences, expressed in the country’s cuisine, artwork, music, and literature. Its capital, Panama City, is located on the Pacific coast just east of the canal. A cosmopolitan city where skyscrapers tower above whitewashed bungalows, it enjoys a handsome setting and a growing importance as a commercial and financial services centre for the region.
Panama is by far the safest country in Latin America with a very low crime rate in Panama city and almost no violent crime; Panama has diverse living from mountains and cooler climate to tropical Caribbean beach paradises at very affordable prices, there are over 30 international schools, medical facilities are first-world-class and on par with the United States, the city is considered an international first-class city with close access to the rest of the world.
This is the reason why many businessmen are choosing to leave the United States, Europe, China, and Latin America and move their families to Panama. Indeed, Panama is extremely multicultural and extremely tolerant of foreigners.
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Law No. 1 of 1984
Every trust must include the word “Trust” at the end of its name so everyone knows what type of legal entity that are dealing with.
The person creating a trust is known as the “settlor”. Settlors can be citizens of any country and reside anywhere. The settlor may be a natural person or a legal entity.
Even though trustees do not have to be citizens or reside in Panama, their actions come under government scrutiny.
Trustees are regulated by Panama’s National Banking Commission which includes companies providing trustee services. While the Banking Commission does not have the authority to investigate the terms and conditions of a trust, they are empowered to investigate all complaints made by beneficiaries.
Trustees can be individuals or legal entities.
Like the settlor, beneficiaries do not have to reside or be citizens of Panama. They can reside anywhere. Beneficiaries may be natural persons or legal entities.
A protector protects the rights and interests of the beneficiaries. While not required in Panama, the appointment of a protector in the trust deed is an option.
Settlors have great discretion with how a trust is created, its purposes, the types of assets it holds, the powers of the trustee, rights and limits of the beneficiaries, the appointment of a protector and what powers he or she have, and the life span of the trust.
According to Law 1, trusts can be created to fulfill any lawful purpose. This means that besides a typical trust established for specific beneficiaries, a purpose trust can be created with no beneficiaries and a specific event or purpose which must occur.
Confidentiality is guaranteed by Article 37 of Law 1 for the protection of trust information. Violation of this confidentiality by the trustee or anyone involved with the execution of the trust entails a crime punishable with six months’ imprisonment and a fine up to $50,000 USD.
|Protection from foreign Judments|
Although the trust shall be regulated by Panamanian law, the settlor and the trustee may agree that foreign law will be applicable. Also, the trust and the trust fund may be transferred to another jurisdiction or country.
|Protection from creditors|
Law 1 provides that the trust’s assets constitute a separate estate from the trustee’s assets. Therefore, the assets cannot be seized, attached, or subject to any liens resulting from the debts or obligations of the trustee. Only the trust’s liabilities could affect the assets.
There are no restrictions of the types of properties or their locations around the world from becoming assets of a trust.
A Panama trust will not become void or voidable if the settlor becomes bankrupt or insolvent. The only exception occurs when a creditor proves to a Panama court that the settlor intended to defraud his or her creditors when the trust was created.
|Protection for immigrant trusts|
Trusts created pursuant to foreign law may be governed by Panamanian law provided they are subject to the formalities of the law on trusts.
The Rule against Perpetuity which prevents perpetual trust lifespans was not adopted in Panama. Trusts can last forever in Panama.
As a result of international regulatory agencies and watchdog organizations, Panama enacted two laws regarding money laundering in 2000. Every financial institution in Panama comes under the supervision of the Banking Superintendency government agency which includes trusts.
Since trusts do not register with the government, no public records exist regarding the trust.
Law 1 provides that trusts are exempt from all taxes as long as these conditions are met:
• Assets and properties must be located outside of Panama;
• Trust funds are not derived from Panama sources or subject to Panama taxes;
• Corporate shares and all securities issued by corporations are not located in Panama. However foreign corporation shares or securities deposited in Panama are exempt;
• Panama bank savings accounts and time deposits are exempt.
Distributions of trust income and assets to foreign beneficiaries are not taxed by Panama.
Law 1 states that upon termination of the trust all distributions will be tax free.
Note: U.S. taxpayers and all others subject to worldwide income taxation must disclose all income to their tax authorities.
If a Panama trust earns taxable income in Panama, the tax is imposed on the trust and not the trustee.
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