A Panama Trust allows foreigners with assets located outside of Panama to form tax free trusts.
Panama’s first law governing trusts was enacted in the 1940’s. A new law was passed in 1984 called the Trust Law No. 1 of 1984 allowing trusts to be more flexible. Law 1 of 1984 (hereinafter “Law 1”) specifically stated that non-Panama assets and properties and all income generated by trusts from assets located outside of Panama are exempt from all taxes.
A Panama Trust provides the following benefits:
• Totally Foreign: Foreigners can set up trusts with foreign beneficiaries and assets in other countries.
• Confidential: The law penalizes anyone associated with a trust who discloses confidential information without a court order or authority punished by 6 months imprisonment.
• Privacy: Since trusts are not registered with the government, the identity of the settlor, beneficiaries, and assets are never included in the public records.
• No Taxation: All assets located outside of Panama producing income or distributed to beneficiaries are completely tax free. However, U.S. taxpayers and anyone paying taxes on global income must disclose all income to their governments.
• Estate Planning: Trusts can have perpetual life for generations of heirs to enjoy.
• Asset Protection: All assets are protected from the settlor’s and beneficiaries’ creditors.
• Fast Formation: A trust can be formed in one day.
• English: While Panama is a Spanish speaking country, all trust documents can be prepared in English.
Panama Trust Name
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.
Trust documents and names can all be written in English.
Trusts do not have to register with the Panamanian government. The only exception is when Panama real property is a trust asset.
As soon as the trust deed is written and signed by the settlor, the trust becomes valid.
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.
The basic trust deed provisions include:
• Appointment of the settlor, trustee, and beneficiaries (unless a purpose trust) and appointing deputy trustees and beneficiaries as an option;
• Description of the assets to be held by the trust;
• Declaration by the settlor creating the trust and if it will be irrevocable or revocable;
• The duration of the trust as either perpetual or specific years which may be revoked or terminated earlier than the stated expiration date if so stated;
• The powers, duties, and rights of the trustee with any restrictions or limitations;
• How the trustee manages, administers, and distributes the trust’s assets and its income;
• Appointment of the registered agent who must be a Panama attorney or a law firm;
• The registered address for the trust; and
• Declaration that the trust meets Panama laws.
The trust deed is a legal contract between the settlor and the trustee signed by both of them in front of a notary public.
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.
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.
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.
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.
The Rule against Perpetuity which prevents perpetual trust lifespans was not adopted in Panama. Trusts can last forever in Panama.
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.
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.
Every trust must appoint a Panama lawyer or a law firm to act as the resident agent using the office address as the registered address.
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.
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.
Depending upon the speed of preparation, a trust could be formed in one day.
A Panama Trust allows the following benefits: complete foreign participation, no taxation, confidential, privacy, asset protection, estate planning, fast formation, and English documents accepted.