Cross-Atlantic Estate Planning: Wealth Transfer Planning and Administration in an Internationally Challenging Time

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NY S BA International S ec tion
Global C onferenc e”
“C ros s -Atlantic E s tate Planning”
L ondon, November 30, 2022, 3:30 P.M.
Goodenough College
Ques tions for Panel
Michael W. Galligan, Partner, Phillips
Nizer LLP, New York
Rachel Roche, Managing Partner,
Roche Legal, London
Alvaro Aguilar, Lombardi Aguilar
Group, Panama City
Frédéric Barriault, Associate,
FASKEN, Montreal
Mariana Eguiarte-Morett, Partner,
Sánchez Devanny, Mexico City
William Smit, Managing Director,
Amicorp (UK) Limited, London

I – S ome Inheritanc e Planning Bas ic s
• The law of intestacy - Intestate successions may be
started by any person who has an interest in the
estate of a decedent, accompanying death certificate
+ proof of kinship. Rules of inheritance are governed
strictly by civil law.
• No limits are placed on lifetime gifts
• Spouses married after 1995 hold property in
community property during period of marriage
• Laws encourage gifts to charity or bequests to charities
at death

II – Family Rights (and Trus ts )
• Courts may not adjust spousal shares at the time of the first
spouse’s death
• Children under 25, parents, spouse and handicapped
children who may need support are required to be
granted a pension “which allows them to maintain their
standard of living as of the time of death” in a decedent’s
estate plan as a form of “forced heirship”
• Persons feeling aggrieved by the estate plan may assign
by private document their shares adjudged.
• The trust is recognized in the civil law of PAN MEX ELS
GUA and 14 other LATAM countries. Trusts can hold
property in PAN. Family rights can be satisfied through
conferring interests in trusts

III – Adminis tration of E s tates and
S uc c es s ions
• The process of administering a Will to probate is heard
by civil courts
• The granting of a will is subject to ritualistic formalities,
which omission can result in its annulment. Wills may
be common (holographic, open and closed wills) or
special (maritime, military and granted abroad). A
foreign Will that is not executed according to the
local formalities may be accepted when judicial
assistance is requested by the court of the
jurisdiction where granted.
• The law requires the appointment of an Executor who
is legal representative of the estate and vests title in
the heirs.

IV(A) – Taxes and
Donations and E s tates
• Zero death tax
• Zero tax on inter vivos donative transfers during
lifetime of donor.
• “Death tax” relief is provided under double taxation
agreements with UK, France, Mexico, Germany,
EFTA Scandinavian countries etc
• Non-succession transfers to surviving spouses are
eligible for capital gains tax exemption upon previous
authorization
• The receipt of property by inheritance is exempt from
Capital gains tax and succession tax

IV(B) – Taxes (S pec ial C as es )
• From a tax perspective, transfers to revocable
trusts are exempt from transfer taxes, but the
trust is an income tax taxpayer on local source
income
• Limited liability companies and other forms of
organization for privately held businesses are
opaque for tax purposes. Only law firm
general partnerships and microenterpreneur
companies are deemed as fiscally transparent

V- “Foreign” Property and E s tate
Planning
• The succession of property in the country by persons who
are not citizens or residents may be handled through a
probate case or as legal assistance to a foreign probate
case. The local tax authority is served of any probate
case for levying of any outstanding taxes.
• “Foreign” persons may acquire local real estate through
companies or foundations which shares or interests upon
death of the controlling person are transferred privately
• “Foreign” persons may acquire other forms of investments
through similar methods.

VI – “Mobile” Trus ts
• Annual income tax is levied on local source
income of long-lasting trusts at a 20% rate,
capital tax on 2% of local equity (local assets
minus local liabilities)
• If the trust changes situs, similar rates continue
on local source income and local equity,
depending on the availability of lower rates
under applicable DTAs

VII - L iving with Trus ts
• Beneficiaries may request a court to vary the provisions or
terms of a trust established by an ancestor or other
family member when they are contrary to the morality,
laws or public order.
• Trusts offer protection from creditors of beneficiaries until
they are vested trust assets. Board trustees are required
to render account of their performance to beneficiaries
and maintain a duty of care under bonus pater familiae
standard. Directors are liable for inaccuracies in
corporate accounts.
• All trusts and other estate planning entities are required to
disclose their beneficial owners to an ultimate
beneficiaries registry, available for judicial investigations
by public authorities

Additional materials
International Estate Planning Guide Panama, IBA Individual Tax and Private Client
Committee
https://www.ibanet.org/medias/International-Estate-Planning-Guide-Panama-2021-.pdf
Panama: when Panama private foundations go to court— a case law review, Trusts
&Trustees, Vol.16,No.6,July2010,pp.508–516
Panama: Charities as a cornerstone to society, Trusts & Trustees, Vol.17, No.6, July
2011,pp.594–599
Panama private foundations under a tax agreements regime, Trusts & Trustees, Vol.18,
No.6, July 2012, pp.598–603
Convention between the United Kingdom of Great Britain and Northern Ireland and the
Republic of Panama for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income and on capital gains
https://www.gov.uk/government/publications/convention-between-the-uk-and-panama-for-the
Response to the European Commission public consultation on the proposed initiative
“Tax evasion & aggressive tax planning in the EU – tackling the role of enablers”
Feedback reference Feedback reference F3348427,
https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13488-Tax-evasion-a

For more information
Contact: Jorge Lombardi, Alvaro
Aguilar, Gabriel Aguilar

Aquilino de la Guardia St.
Ocean Business Plaza, Piso
12, Ciudad de Panamá,
Panamá

Tel: +507 396-5081

Fax: +507 340-6446

P.O.Box 0831-1110

E-mail: aaguilar@ laglex.com

www.laglex.com

1
Panama
International Estate Planning
Guide
Individual Tax and Private Client Committee
Contact:
Alvaro Javier Aguilar-Alfu
Lombardi Aguilar Group, Panama City
aaguilar@laglex.com
Updated 9/2021

2
I. Wills and disability planning documents
A. Will formalities and enforceability of foreign wills
The granting of a will is subject to ritualistic formalities, whose omission can result in its
annulment. Depending on the circumstances under which they are granted, wills may
be:
• common: holographic, open and closed wills; and
• special: maritime, military and granted abroad.
Witnesses of the will must be economically independent from the grantor, the heirs or
the notary, as well as being mentally capable to serve as such. The notary must
ascertain the identity of the two witnesses required by law and the grantor at the time of
granting. If the grantor does not completely understand Spanish, then two certified
interpreters and three witnesses must be present at the granting.
A holographic will is one which is written by hand by the grantor on normal paper and is
dated. The holographic will remains as a private document until the death of the grantor,
upon which it must be submitted to a notary for transcribing as a public document and
filed before a circuit judge within four years of the death of the decedent.
The open will is read and granted before a notary and three witnesses in the presence of
the grantor. In a situation where no notary exists in the location, or in the case of the
imminent death of the grantor, the will is granted before five witnesses.
The omission of any of the legal formalities of an open will results in its annulment, with
the notary being liable for any damages.
The closed will is that which is written on paper and delivered to the notary inside a
sealed envelope. The notary then drafts an instrument under the other formalities of the
open will attesting to the receipt of the document from the grantor.
After the formalities, the will may be stored by the grantor, a trusted person or the notary.
Once subject to probate, a closed will, which is found void due to the omission of one of
the legal formalities, may still be followed as a holographic will.
Due to the possibility that a holographic will may be challenged through graphological
experts, open wills are more popular.
The military will is granted by draftees and other employees of the armed forces or
police force before an officer or commander, either as a closed or open will. If the
grantor is ill, the will may be granted before a doctor and two witnesses.
The maritime will is granted by anybody in a sea voyage in the presence of two
witnesses before the captain of a merchant ship or the commander of a military ship,
either as a closed or open will. A copy of the maritime will must be delivered to the
Consul of Panama at the next port of call.
Wills granted by foreigners on board a Panama-flag ship are later forwarded by the
Ministry of Foreign Relations to the authorities of the country of the grantor.
Maritime wills granted onboard a foreign-flag ship are deemed valid when granted
according to the formalities of said country, when later delivered to the Panama Consul.

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Wills granted abroad must be granted according to the formalities of said country, when
later delivered to the nearest Panama Consul. Joint wills are not valid in Panama, even
when allowed in the country of granting.
B. Will substitutes (revocable trusts or entities)
Trusts and private foundations may serve as will substitutes for post-mortem disposition
of assets. The trust is a contractual relationship allowed under civil law in Panama
pursuant to Law 1 of 1984. The private foundation is an entity which has assets gifted by
a grantor for the benefit of beneficiaries.
The trust and revocable foundation have the following features.
1. SIMPLICITY OF EXECUTION
Inter vivos trust deeds may be granted by private document by the settlor before a public
notary anywhere in the world. In the case of post-mortem trusts, they must be granted
under the aforementioned will formalities. Only when the trustee is licensed by the
Superintendent of Banks may a post-mortem trust be granted through a private
notarised instrument without the formalities of a will. Private foundations may be formed
by proxy, but require registration of their charter.
2. CONTRACTUAL FREEDOM
A grantor can execute a trust deed or foundation charter with any clauses or distribution
plans provided they are not contrary to law, morality or public interest. This extends to
allow the possibility of post-mortem distributions different from those of the grantor's
estate laws or forced heirship rules.
3. DURATION
The duration of both entities can be indefinite, which excludes them from any rule
against perpetuities.
4. CONFIDENTIALITY
Trust deeds and foundation regulations do not need to be made public by their
registration (except for trusts when real estate in Panama is being settled). The trustee,
foundation council member and their employees are subject to a duty of confidentiality.
Breaches of said duty are subject to imprisonment or monetary fines.
5. NO CITIZENSHIP REQUIREMENTS
Individuals or entities of any country can serve as grantor, trustees, foundation council
members or beneficiaries. None of the parties need to be Panamanian, except for the
attorney who serves as resident agent.
6. REDUCED LICENSING REQUIREMENTS
Any capable person or entity may serve as protector or foundation council member and
does not need to be authorised by a government authority. However, only trustees with a
license from the Superintendent of Banks may act as such,1 in which case the trustee is
subject to quarterly reporting, capital adequacy ratios and know-your-customer rules
similar to those of banks.

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7. CHARITABLE OR FOR-PROFIT PURPOSE
Trust and foundation charter provisions may appoint a general class of beneficiaries or
unborn beneficiaries. Alternatively, they may also serve for commercial transactions,
such as securitisation of receivables or other assets.
8. REVOCABILITY OPTION
Trusts and private foundations are irrevocable by default, unless parties decide
otherwise.
9. SEPARATE PATRIMONY
Trust and private foundation assets are deemed as separate from assets of the grantor
and trustee or foundation council member.
10. LOW LOCAL TAXATION
Income earned from assets located abroad or funds held in any bank in Panama are
exempt from local Panama taxes. However, legislation from the countries of residence or
citizenship of the grantor, trustee or foundation council member may impose additional
tax obligations.
11. REPORTING REQUIREMENTS
Will substitutes without assets in Panama or not earning income in Panama are exempt
from having to file tax returns. However, trustees are required to draft financial
statements of the trusts they manage.2 Trustees are required to render account of their
performance to the beneficiaries and maintain a duty of care under the bonus pater
familiae standard.
C. Powers of attorney, directives and similar disability documents
Powers of attorney and all mandates become extinguished upon death of the grantor,
which makes them inefficient for estate planning.
Directives which do not follow the formalities of a will cannot prevail over testamentary
provisions or intestacy rules.
II. Estate administration
A. Overview of administration procedures
Post-mortem estate administration procedures are carried out under succession, which
is defined as the assignment of active and passive rights which comprise the inheritance
of a dead person, to the surviving person, which the law or the testator call to receive.
Both the testate and intestate succession require that probate proceedings be opened,
which takes place upon death of the decedent or in the case of presumption of death.
A testamentary succession starts by filing in court the original death certificate and copy
of the will. Once the judge evaluates the documents necessary to open a probate
procedure, resolution is issued naming the persons appointed as heirs in the will for
publication in a newspaper, after which it will proceed to the adjudication of the property.
During this period, any person having an interest in the property may contest the
decision, in which case it is left to a judge to render the decision.
Intestate successions may be started by any person who has an interest in the estate of
a decedent, accompanying to the petition:

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• proof of death of the decedent of the estate;
• affidavits from the notaries in the domicile of the decedent stating that no will has
been filed with them; the affidavit is not necessary when the decedent, not
domiciled in Panama, has died abroad; and
• full proof of kinship on which the plaintiff bases his or her right to succession.
In either case, the executor will have to conduct an inventory of the assets and liabilities
of the decedent. Creditors may appear in order to submit any liabilities for consideration.
The probate judge decides on the challenges submitted and approves the inventory in
order for assets to be adjudicated to the heirs and legatees.
Any individual or entity has the right to receive assets upon succession, unless excluded
by law, such as aborted creatures and persons unable to succeed due to indignity3
pursuant to the specific situations under Article 641 of the Civil Code.
The acceptance or repudiation of the inheritance are acts which the law deems entirely
voluntary.
Co-heirs may ask at any time for the partition of the inheritance either through the courts
or extrajudicially.
B. Intestate succession and forced heirship
Intestate succession is carried out upon full or partial absence of a will.
Under Panama intestate succession rules, children of the decedent and their
descendants – whether illegitimate or adopted – receive their inheritance in equal parts.
Upon lack of descendants, ancestors will inherit excluding siblings – who inherit as
collaterals upon lack of ascendants of the decedent.
The surviving spouse, who is not legally separated or divorced from the decedent,
inherits equally with each of the aforementioned classes.
The absence of all of the above results in the municipality, where the decedent had
domicile, inheriting all assets.
Testamentary succession laws allow substantial freedom to dispose of assets, as long
as a pension is provided for children up to the age of 25, and for parents, spouse and
handicapped children for the time they may need support4 which allows them to maintain
their standard of living as of the time of death.
C. Marital property
Marriages before 1995 are subject to Civil Code rules, while those marriages after that
date are subject to the Family Code. This is important because Civil Code marriages are
subject by default to the rules of separation of assets, while the Family Code marriages
are deemed by default to be under a regime of participation in gains (participacion de
ganancias). The following regimes for marital property currently exist:
• joint property (sociedad de gananciales): assets obtained during the marriage by
any of the spouses are owned jointly; assets may not be disposed without
consent of the other party;
• separation of assets: each member owns his or her assets, but the obligation
subsists of contributing to common marriage expenses according to their
individual income; and

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• participation in gains: unlike the other two regimes, which require a pre-nuptial or
post-nuptial agreement, this is the current marital property regime by default.
Each spouse has a right to participation in gains earned by the other spouse, but
each spouse retains private ownership of his or her assets.
D. Tenancies, survivorship accounts and payable-on-death accounts
1. TENANCIES
All rights and duties of the decedent become assets and liabilities of the estate. This
means that rights held by the decedent under tenancies and survivorship accounts also
become assets of the estate.
2. SURVIVORSHIP ACCOUNTS
Accounts owned jointly (ie, Account of A and B) are subject to the shares of the
decedent account holder being turned over to the estate for inventory. The balance of
accounts owned severally (ie, Account of A or B) may be disposed of by the surviving
account holder without regards to the existence of a probate procedure.
3. PAYABLE ON DEATH ACCOUNTS
Banks are required to disclose details on accounts held by the decedent if they receive a
request from a probate judge. Post-mortem instructions to banks for performance upon
death of the account holder have been deemed as valid by the Supreme Court, even
though they do not have the formalities of a will.
III. Trusts, foundations and other planning structures
A. Common techniques
The most common alternative technique has been to place assets under the name of
corporations, which bearer shares are placed under safekeeping and hopefully passed
on to the heir by delivery of the certificates. A will is still executed for the purpose of
dealing with guardianship issues. This method can result in litigation when a large
number of descendants exist or share certificates are lost.
Trusts and private foundations are exempt from forced heirship and succession rules, as
the only legal requirement is that rules of accumulation, distributions or disposition of the
assets may not be contrary to the morality, laws or public order.
An inter vivos trust may be granted through a notarised private instrument or a public
deed. In the case of post-mortem trusts, they must be granted under the aforementioned
formalities of a will. Only when the trustee is licensed by the Superintendent of Banks
may a post-mortem trust be granted through a private notarised instrument without the
formalities of a will.
B. Fiduciary duties (trustees, board members, directors, etc)
Panama is a civil law country, so fiduciary duties exist solely by virtue of a written trust
deed and may not be construed. However, attorneys-in-fact, and other representatives,
are subject to fiduciary-like duties under Civil Code mandate provisions and the specific
law applicable to the entity they represent.
The Civil Code provides that the representative (mandatario) must comply with the
mandate and is liable for damages caused to the grantor (mandante) for not carrying it
out. The representative must act according to the instructions of the grantor and ‘in their

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absence, will carry out everything that, according to the nature of the business, a good
father of family (bonus pater familiae, in Spanish, buen padre de familia) would do’.
Trustees and foundation council members are required to render account of their
performance to the beneficiaries and maintain a duty of care under the bonus pater
familiae standard subject to the trust and private foundation law, respectively.
The duty of directors is more limited in scope, being more applicable to the accuracy of
corporate accounts. Directors are not personally liable for the liabilities of the
corporation, but they will be personally or severally liable, as the case may be, to it or to
third parties, for the effectiveness of payments which appear as being made by the
shareholders; for the true existence of agreed dividends; for the proper management of
the accounting; and, in general, for the proper or improper execution or performance of
the agency or for the violation of the laws, articles of incorporation, by-laws or
resolutions of the General Meeting. Those directors, who were absent with cause or who
protested in due time against the resolution of the majority, shall be exempt from liability.
The liability of directors may only be demanded by virtue of a resolution of the General
Shareholders Meeting.
C. Treatment of foreign trusts and foundations
Panama trusts may be redomiciled to another country when the trust deed allows so.
Foreign trusts may be subject to Panama law, as long as the trustee alone, or jointly with
the settlor, states so. Panama is a member of The Hague 1985 Convention on the Law
Applicable to Trusts and on their Recognition from its ratification by Law 44 of 2012.
IV. Taxation
A. Domicile and residency
For contractual purposes, the legal domicile of a person is in the place where he or she
is normally employed, in his or her profession or industry, or has his or her main place of
business. Mere residence serves as civil domicile, with persons that do not have a
formal domicile elsewhere.
For tax purposes, an individual who remains more than 180 days during the fiscal year in
Panama and earns any taxable income is subject to income tax at normal rates, despite
his or her immigration status. Income taxes owed by a deceased individual at the time of
death are payable by the heirs as a debt deducted from the estate assets.
Foreigners may source their income in Panama by several methods, such as
establishing residence, invoicing from Panama, or acting through Panamanian vehicles.
Individuals and legal entities that do not have a registered domicile or place of
incorporation or registered branch in Panama may be subject to taxation. Generally,
taxpayers are considered to be the individuals or entities, despite their nationality,
domicile, or residence, that earn Panama income considered taxable by law (ie, non-
exempt local-source income).
B. Gift, estate and inheritance taxes
Estate or mortis causa, as well as gift or inter vivos taxes, were abolished in 1985 and
2002, respectively.

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C. Taxes on income and capital
Panama follows a territorial system which taxes only income from local sources,
excluding from taxation any income which is earned from activities the effects of which
occur outside of the Republic of Panama.
Income tax is payable in Panama only by individuals and entities that have
Panama-source income from transactions with Panamanian taxpayers on a regular
basis, minus the deductions for office expenses and those allowed by law. Taxpayers
with income sourced from Panama must file an annual income tax return. Individuals
and entities whose sole income has been subject to income tax withholding (eg, salaries,
dividends from local companies or social security funds) or whose income is tax exempt
(eg, interest from bank accounts), or individuals whose net taxable yearly income is less
than US$9,500 are not required to file a tax return.
The duty to file tax returns falls on the executor of an estate, the trustee of a trust or the
legal representative of a private foundation. Special rules for estates, trusts or private
foundations with international parties are stated in double taxation agreements and (in
their absence) the Tax Code.
Merchants performing operations with effects in Panama, and which are not exempt by
special law, are subject to two per cent tax on capital, defined as assets in Panama
minus liabilities.
Notes
1 Art 4 of Law 21 of 2017. Art 22 of Law 21 of 2017 specifically prohibits acting as a
trustee without a licence.
2 Art 29 of Law 21 of 2017.
3 ‘Indignity’ here is defined under Article 641 of the Civil Code, which includes
reasons as to why one would be deemed ‘undignified’. These include ‘[p]arents
who abandon their children and prostitute their daughters or reduce their modesty’.
4 Art 778 of the Panama Civil Code.

508 Trusts & Trustees, Vol. 16, No. 6, July 2010, pp. 508–516
Panama: when Panama private foundations
go to court—a case law review
Alvaro Aguilar-Alfu*
Abstract
This article explores how private foundations fare
when legal issues are examined by high courts in
Panama. While the advantages of flexibility,
confidentiality and asset-protection are self-
evident in the 1995 Private Foundation Law,
decisions by Panamanian courts are helpful to
know with a view to how onshore judges may
rule cases to which a Panama foundation is a
party. Confidentiality provisions also have been
invoked by higher courts to deny information
requests from local and foreign authorities.
Assets are protected by a foundation from most
civil claims, except for damages caused through
the performance of the purposes of the
foundation.
Key points
Panama has been an open economy, having
flexible investment laws for almost a century.
Taxing only local-source income means that
income earned outside by entities owned by
foreign investors are not subject to Panama tax.
40,000 private foundations have been chartered
in 15 years.
Private foundations provide advantages of flex-
ibility, confidentiality and asset-protection.
Panama courts zealously uphold provisions
which protect information from requests by
foreign governments.
Foundation assets are generally not subject to
seizure, except for a few cases provided for in
the law.
Introduction
With the start of the Canal works in 1904, the U.S.
State Department sent a Diplomatic Note to the
recently created Panamanian government, specifying
the conditions under which U.S. Dollars—which at
the time were flooding the tiny Isthmian economy
from the hands of thousands of Canal labourers—
could be used and supplied to the Panamanian bank-
ing system, which at that time comprised a National
Bank and Citibank. The Panama Foreign Minister
replied with a one paragraph acceptance note on the
basis of which the ‘Monetary Convention’ of 19041
was executed. Panama became the first Latin
*Alvaro Aguilar-Alfu, Attorney at law (PA) LLM, Lombardi Aguilar Group, Aptdo 0831-1110, Panama Republic of Panama. Tel: þ507 66388707;
Fax: þ507 3406446; Email: aaguilar@laglex.com; www.laglex.com
1. Agreement relating to legal tender and fractional silver coinage by Panama. Exchange of notes at Washington and New York 20 June 1904; entered into force
20 June 1904. In the U.S.: 10 Bevans 681. In Panama: Gaceta Oficial [G.O.], 10 December 1904 (Pan.).
ß The Author (2010). Published by Oxford University Press. All rights reserved. doi:10.1093/tandt/ttq040
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American nation to renounce the power to print
paper money and use foreign hard currency instead,
setting the new nation on its way to becoming an
international financial centre and a maverick in dol-
larization policies decades later.
Panama became the first Latin American
nation to renounce the power to print
paper money and use foreign hard currency
instead, setting the new nation on its way to
becomingan internationalfinancialcentre and
a maverick in dollarization policies decades
later
The administration of President Rodolfo Chiari
between 1924 and 1928 was a period when crucial
laws were enacted. Law 32 of 1927 on Corporations
(Sociedades Anonimas) was approved by the legisla-
tor and is still in force despite anti-tax haven pressure
by foreign powers from the days of the 1981 Gordon
Report and before. Law 8 of 1925 has remained in
force for 70 years and created the Panama Merchant
Marine as an open registry available to foreign ship-
owners. The first law on trusts in a civil law jurisdic-
tion in Latin America was enacted in 1925, later to be
replaced in 1941 and again by its current version in
1984.
The first law on trusts in a civillawjurisdiction
in Latin America wasenactedin1925
A territorial taxation system was another important
aspect of the financial centre. After Law 40 of 1919
had created a poll tax on all men between 21 and 70
years of age, income tax started to be levied at pro-
gressive rates under Law 62 of 1938 on all activities
‘conducted in territory under the jurisdiction of
the Panamanian government’ by all individuals and
entities. The administration of Juan Demostenes
Arosemena was careful enough to include a caveat
to Article 1 by specifying that:
Income from acts or contracts executed within
the Republic, but which have their effects outside
of it, and the income earned from international
shipping trade, merchant ships owned by entities
registered in the country or abroad or from nationals
of other countries which are resident or have
representatives in Panama or abroad, which transpor-
tation contracts are executed in Panama, will not pay
this tax.2
Income from acts orcontracts executed within
the Republic, but which have their effects out-
side ofit, willnot pay this tax
A wider exception is still in force after 70 years,
namely in the current 1957 Tax Code, attracting
foreign investors to set up regional headquarters
in Panama which is regarded as a low-tax
jurisdiction.
As to foundations, the 1917 Civil Code contained
three articles about the public interest foundations,
specifying that their civil capacity was regulated in
their charter as approved by the Executive Power.
A speciallaw for private interest
foundations
The shortcomings of the public interest foundation
became obvious to any person with a philanthropic
interest in creating a charitable institution. Public
interest foundations required approval of their char-
ter as an association by the Ministry of Government
and Justice, which enacted cumbersome regulations
that ensured long delays, even though the right to
form association is enshrined as a fundamental right
under the Constitution.
2. Ley No. 62, 27 December 1938, Por la cual se establece el Impuesto sobre la Renta Neta y sobre los Bienes Muebles e Inmuebles y se dictan otras disposciones
de carácter fiscal [Whereby the Net Income and Property Taxes are created and other tax provisions are enacted] Article 1, Gaceta Oficial [G.O.], 18 January 1939
(Pan.). Translations are made by author. Panama laws are available online at the LEGISPAN public database http://www.asamblea.gob.pa/busca/index-legispan.asp.
Trusts Trustees, Vol. 16, No. 6, July 2010 Jurisdiction-specific articles 509
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In 1995 a special law was enacted which created
private interest foundations. Law 25 of 19953
was
enacted without much coverage from local media.4
The, then, Director of the Public Registry in charge
of the filing of charters explained that the Panama
private foundation:
has its background in the small Principality of
Liechtenstein where it has been used since 1926,
becoming an instrument of great acceptance in
Continental European Law, particularly in
Switzerland where it is used in management of perso-
nal and corporate assets.5
The Panama private foundation has its
background in the small Principality of
Liechtensteinwhereit hasbeenusedsince1926
The main features of the private interest
foundation are:
i. Simplicity of execution: foundation charters
may be granted by private document, by the
founder before a Notary Public anywhere in
the world.
ii. Contractual freedom: a founder can grant a
foundation charter with any clauses or distribu-
tion plans as long as they are not contrary to
law, morality or public interest. This extends to
allow the possibility of post-mortem distribu-
tions different from those of the founder’s
estate laws or forced heirship rules. The law
also allows practitioners to draft foundation
charters for variations such as execution of
Sharia-compliant foundations or appointment
of a protector to limit the foundation council’s
powers.
iii. Duration: the duration can be indefinite, which
represents a deviation from the rule against per-
petuities in other legislations.
The names of beneficiaries are contained in
foundation Regulations which do not need to
be made publicuponregistration
iv. Confidentiality: the names of beneficiaries are
contained in foundation Regulations which do
not need to be made public upon registration.
The foundation parties and its employees are
subject to a duty of confidentiality. Breaches of
said duty are subject to imprisonment or mone-
tary fines.
v. No citizenship requirements: individuals or enti-
ties of any country can serve as founders, foun-
dation councils, protectors or beneficiaries. None
of the parties needs to be Panamanian or resident
in Panama, except for the attorney who serves as
resident agent.
vi. No foundation council requirements: any cap-
able person or entity may serve as foundation
council or protector and does not need to be
authorized by a government authority.
vii. Charitable or for-profit purpose: the provisions
may appoint a general class of beneficiaries or
unborn beneficiaries. Alternatively, foundations
may also serve for commercial transactions,
such as holding intellectual property, shares or
other assets.
viii. Revocability option: foundations are irrevo-
cable by default, unless the parties decide
otherwise.
ix. Separate patrimony: the assets are deemed sepa-
rate from the assets of the founder and the foun-
dation council.
3. Ley No. 25, 12 June 1995, Por la cual se regulan las Fundaciones de Interés Privado [Whereby Private Interest Foundations are regulated]. Gaceta Oficial
[G.O.], 14 June 1995 (Pan.).
4. Local media reports that during the debates, two-thirds of the legislators were present but the majority was chatting or rocking their chairs, while a small group
followed the explanation of the law by an offshore law attorney. See Manuel Alvarez Cedeño, En segundo debate – Asamblea aprueba ley para fundaciones de interés
privado, LA PRENSA, 24 April 1995. 5http://biblioteca.prensa.com/contenido/1995/batch04/mafia.003-0001933.html4 accessed 17 January 2010.
5. Roberto R. Rojas C., La fundación de interés privado en Panamá., LA PRENSA, 24 September 1995, page A47.
510 Jurisdiction-specific articles Trusts Trustees, Vol. 16, No. 6, July 2010
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x. Alternative to forced heirship: the law expressly
states that the existence of legal provisions in the
country of domicile (of either the founder or the
beneficiaries of the Foundation related to inheri-
tance matters) will not affect the validity of the
Foundation, the distribution of the estate to the
Foundation, nor the compliance or carrying on
of its objectives.
xi. Low local taxation: income earned from assets
located abroad or funds held in any bank in
Panama are exempt from local Panama taxes.
However, legislation from the countries of resi-
dence or citizenship of the founder or founda-
tion council may impose additional tax
obligations.
xii. Minimum reporting requirements: foundations
without assets in Panama or not earning
income in Panama are exempt from having to
file tax returns or financial statements.
Foundation Councils are required to render
account of their performance to the beneficiaries
and maintain a duty of care under the bonus
pater familiae standard.
The existence of legal provisions in the country
ofdomicileofeitherthefounderorthebenefici-
aries of the Foundation related to inheritance
matters will not affect the validity of the
Foundation
40,000 private interest foundations were formed
in Panama up to January 2010. Private foundation
laws, among others, also exist in Austria, the
Bahamas, Belize, St Kitts, the Netherlands, Antilles,
Nevis, and Malta. However, only Panama remains
as a jurisdiction truly independent from onshore
regulations and not hindered by anti-offshore centre
commitments to European Union onshore banking
centres and tax information exchange agreements.
40,000 private interest foundations were
formedin Panamaupto January 2010
The Panama Private Foundation Law allows the
foundation charter or the regulations of the founda-
tion to provide that any controversy among founda-
tion parties shall be resolved by arbitration under the
procedure that they agree to abide by. Arbitration
proceedings can be held in any country, which is
convenient for parties who may prefer specialized
panels in Europe or other locations. When no applic-
able procedure is decided upon, Article 36 provides
that internal controversies should be resolved through
summary proceedings before Panama courts which
are meant to be shorter than ordinary proceedings.
The Panama Private Foundation Lawallowsthe
foundation charter or the regulations of the
foundation to provide that any controversy
among foundation parties shall be resolved by
arbitration
Arbitration is more popular on a worldwide basis
and Panama courts have a tradition of upholding
foreign arbitration decisions when all parties have
provided proper consent to enter into arbitration.
On occasions, private foundations may still find
themselves in court when third parties file actions
against them, despite all the advantages that asset
protection providers promote in their publications.
Flexible nature of private interest
foundations
Unlike public interest foundations, the private inter-
est foundation brought the flexibility of corporate
formations to non-profit entities. Private foundations
may be created either upon their registration or after
the passing away of the founder. The execution can be
made by the founder before a Notary abroad or
through proxies in Panama, followed by the registra-
tion of a deed containing its text. The Supreme Court
has explained the nature of these entities as follows:
It suffices to appreciate, for example, that the legal
existence of these entities is not subject to any legal
or administrative authorization, but only the
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registration in the Public Registry foundation charter
and from there, they can incur obligations and acquire
assets of any kind, of which public funds could form
part. This is compounded by the fact that this patri-
mony is not subject to seizure measures, except in
three cases provided for in Article 11 of Law 25 of
1995. Moreover, in accordance with Article 32 of the
said law, private interest foundations and their assets
can be transferred or subject to, ‘‘the laws and juris-
diction of another country as provided for in the
foundation charter or its regulations’’. . .6
The Supreme Court further promotes the virtues of
the private foundations by stating that they are effec-
tive institutions:
to plan the use and disposition of property during the
life of the founder, to plan the disposition of property
after its founder’s death, for a distribution of assets
different to that under the inheritance laws in coun-
tries where there is no freedom of bequest.
This type of foundation:
offers the investor the opportunity to protect their
assets by transferring assets to it. It is the ideal vehicle
for investment planning in the Founder’s life, which
can be used as a holding of your investment portfolio
and used its regulatory provisions for beneficiaries
designated by it may dispose of their income. It is
also used in the planning of estates and bequests,
giving the possibility of incorporating founder regula-
tions which enter into force at the time of his death.
Finally, it is used as a protection of assets other than
investments such as real estate, provided that the laws
of the country where the property is located does not
contain provisions prohibiting the transfer to foreign
legal persons of such assets7
Private foundations are effective institutions‘to
plan the use and disposition of propertyduring
the life of the founder, to plan the disposition
ofpropertyafteritsfounder’sdeath, foradistri-
bution of assets different to that under the
inheritance laws in countries where there is no
freedom ofbequest
Confidentialityprovisions applicableto
private interest foundations
Article 35 of Law 25 contains strict penalties against
those who breach the confidentiality of matters
related to private foundations:
Members of the Foundation Council and of the super-
visory bodies, if any, as well as public servants or private
sector employees who have knowledge of the activities,
transactions or operations of foundations shall main-
tain secrecy and confidentiality regarding these at all
times. Breach of this obligation shall be punishable by
six (6) months imprisonment and a B/.50,000.00
fine, without prejudice to the corresponding civil
liability.
The provisions of this Article are applicable without
prejudice to the information that must be disclosed to
official authorities and the inspections the latter must
carry out in the manner established by the law.8
Breach ofthis obligation shallbe punishable by
6 months imprisonment and a B/.50,000.00
fine, without prejudice to the corresponding
civilliability
The matter of confidentiality is important when it
comes to the identity of the beneficiaries of a founda-
tion. Their names are stated in the Regulations, which
6. Decision of 13 May 2004, by Supreme Court of Justice—Administrative Section, Case 267-02. Translations are made by author. Panama Supreme Court
decisions from 1993 are available online at the Judicial Documentation Center public database 5http://bd.organojudicial.gob.pa/registro.html4.
7. Ibid.
8. See (n 3), above, Article 35.
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are not required by law to be registered before a
public entity but due diligence provisions require
that the resident agent or foundation council be
aware of their identity. Confidential information
may be released under very specific conditions, such
as in criminal investigations related to international
crimes such as drug trafficking and others, excluding
specifically tax crimes.
Plaintiffs seeking judicial assistance from Panama
courts to acquire information for non-criminal cases
abroad have found that the Code of Commerce is
invoked by the Panamanian judges to deny most
requests for information. The Panama Code of
Commerce provides in Article 88:
Article 88: No authority, judge or tribunal, may carry
out or order a search or procedure, to determine
if a merchant is entering properly or not its account-
ing books, nor conduct a general investigation or
examination of the accounting at offices of
merchants . . .
And in Article 89:
The general communication, delivery or review of
books, correspondence or other papers and docu-
ments of merchants or brokers may not be decreed.
The only exceptions are in probate or bankruptcy
cases or when liquidation is relevant. The provisions
also prohibit the authorities from ordering a business
to provide copies or reproductions of its books, cor-
respondence or other documents in their possession.
The business which provides a foreign judge with a
copy or reproduction of its books, correspondence or
other documents to be used in litigation abroad is
subject to a fine.
Requests for judicial assistance are handled by the
General Affairs Section of the Supreme Court which
declares that Panama respects international comity
while summarily denying requests for financial docu-
ments made by foreign prosecutors or judges. For
example, the Court denied several requests, among
them requests by the Leicestershire Police of the
United Kingdom for bank and corporate documents
for a fraud case, a request by the Russian Federation
Attorney General in a maritime fraud case deposing a
Panama attorney, a request for documents relating to
an account held in a Panama branch of a Spanish
bank by a Zurich cantonal prosecutor and a question-
naire by a Czech prosecutor to the Panamanian gov-
ernment about the activities and bank accounts of 5
Panama companies and 2 individuals.9
The Supreme Court declares that Panama
respects international comity while summarily
denyingrequests offinancial documents made
by foreign prosecutors orjudges.
Judicial actions for discovery of private interest
foundation documents were reviewed by the higher
courts when a foundation received funds from the
local government. The habeas data action is filed
against government entities for request of informa-
tion in a manner similar to the U.S. Freedom of
Information Act request. The Panama Law of
Transparency provides that habeas data requests
may be filed against
mixed-capital companies, cooperatives, foundations,
and non-governmental organizations which have
received or receive funds, capitals or assets from the
State.10
Based on this provision, public interest groups
requested that the private interest foundation
Fundacion M del S—which had received funds from
the Panamanian Government for the management of a
9. Decision of 15 September 2005, by Supreme Court of Justice—General Affairs Section, Case 729-04; Decision of 29 June 2006, by Supreme Court of Justice—
General Affairs Section, Case 267-02; Decision of 11 February 2003, by Supreme Court of Justice—General Affairs Section, Case 812-02; Decision of 7 October
2005, by Supreme Court of Justice—General Affairs Section, Case 382-05.
10. Article 1, Ley No. 6, 22 January 2002, Que dicta normas para la transparencia en la gestión pública, establece la acción de Hábeas Data y dicta otras
disposiciones.[Whereby provisions for transparency in public administration are enacted, creates the Habeas Data action, and other provisions are adopted],
Gaceta Oficial [G.O.], 23 January 2002 (Pan.).
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hospital construction—deliver detailed accounting
information of payments made to contractors. The
initial request was denied by the foundation officials
because the entity was not a Government entity and the
Supreme Court confirmed the denial based on the right
to confidentiality set forth in the Constitution and the
Code of Commerce. In order for a private foundation
to release information under a habeas data request:
. . . the law itself also adds that such foundations must
have received or continue to receive funds, capital or
assets from the State, so we find that not all founda-
tions are within the regulatory framework of the Law
of Transparency, but only those which receive or
manage mainly and on a regular basis funds or
assets of the State. . . . Fundacion M del S is a private
foundation which assets consist of ‘‘. . . the contribu-
tions of money or property which, by way of contri-
butions, gifts, inheritances, bequests, shares or under
any other title the foundation receives from third par-
ties . . .’’, and there it does not administer or receives
money or property of the Panamanian State mainly or
on a regular basis, hence its private documents there-
fore are protected by Article 29 of the Constitution
and Article 89 of the Code of Commerce.11
The burden of proof of the regular receipt of gov-
ernment funds and therefore the piercing of the con-
fidentiality of a private foundation with a habeas data
action is placed by a later decision squarely on the
applicant:
The associations of private nature, foundations and
non-governmental organizations in general may be
subject to the habeas data, provided that the said pri-
vate entities which have received ‘‘funds, capital or
property of the State’’, extremes these that, naturally,
must come accredited in the request for information
or in the report of conduct of the defendant authority,
a situation which operates as an assumption of fact
from these private entities for the required informa-
tion to be relevant. This requirement has not been
fulfilled in the case before the Court, and therefore
must be declared as not viable, because such is
appropriate.12
These decisions on the non-applicability of habeas
data were used by the Supreme Court when denying a
request by the Directorate of Revenue—the Panama
tax collection authority—for accounting reports or
audits of funds received by the non-profit club
during 5 years of their yearly telethon.13
T
esting the limits of asset protection
As an asset protection entity, the foundation, as a
legal entity, is an estate separate from the personal
assets of the founder and the foundation council
members. Therefore, the assets cannot be seized,
attached or be subject to any precautionary action
or measure, except for liabilities incurred, or for
damages caused by virtue of fulfilling the purposes
and objectives of the foundation, on behalf of the
legitimate rights of its beneficiaries. In no case shall
the assets be used to satisfy the personal obligations of
the founder or of the beneficiaries. Transfers to the
foundation cannot be challenged as fraudulent con-
veyances 3 years after they are performed.
T
ransfers to the foundation cannot be chal-
lenged as fraudulent conveyances 3 years after
theyare performed
While the private foundation laws may protect
assets belonging to the foundation, the same cannot
be said for funds distributed by the foundation when
Panama public funds are involved. While the
Supreme Court denied information requests for
accounting information from the above-mentioned
Fundacion M del S, it did uphold a seizure of funds
11. Decision of 28 February 2003, by Supreme Court of Justice—Administrative Section, Case 066-03.
12. Decision of 22 July 2004, by Supreme Court of Justice—Administrative Section., as quoted in Decision of 12 April 2007, by Supreme Court of Justice—
Administrative Section, Case 1001-06.
13. Decision of 12 April 2007, by Supreme Court of Justice—Administrative Section, Case 1001-06.
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paid to a construction contractor by the foundation.
The seizure was decreed by an entity in charge of
investigating government fraud and the funds were
donated by a foreign government to the Panama
government. The Supreme Court held that:
the payments which Fundacion M del S had made to
[the construction contractor] due to the [hospital]
construction, were payments from public funds, so
the Comptroller of the Republic was duly authorized
to decree the seizure measures which were necessary
for the patrimonial liability process not to become
illusory in its effects, avoiding in this manner a patri-
monial damage to the State.14
In another case, a British Virgin Islands interna-
tional business company served as founder and
Council member of Fundacion F—a Panama Private
Foundation which owned a Panama City apartment.
The IBC granted the foundation charter through its
President RN, who also was the tenant of the said
apartment where he and his family lived and had
their personal property. When a Panama court
declared the bankruptcy of a group of entities which
included Fundacion F, the bankruptcy judge also
ordered the judicial eviction of the apartment. The
tenant was evicted as part of the judicial deposit
and his personal items removed even though he sub-
mitted to the judge a valid rental agreement with
Fundacion F.
When the tenant filed an Amparo suit against his
eviction, the Supreme Court held that the judicial
deposit of the Foundation apartment had been per-
formed by solely registering the said order at the gov-
ernment property registry. The only way to remove
the tenant would have been that the receiver of
Fundacion F, who had been appointed by the bank-
ruptcy court at the time, would have commenced a
normal judicial eviction proceeding for non-payment
of rent or termination of the agreement, of which the
tenant would have been served in person and be
allowed to challenge. Therefore, removing the tenant’s
property was a violation of his right of protection
against unlawful entry.15
This case presented an inter-
esting situation where the Court upheld the separa-
tion of the personal assets of the tenant as an
individual from the assets of the foundation whose
President and sole council member was the tenant
of the apartment.
A case which received wide coverage because of the
use of the Internet was the precautionary seizure16
by
a British bank of the account held by a Panama foun-
dation at its Panama branch. The case started when
the Panama branch felt that a number of emails
posted in an Internet listserv by a beneficiary of the
private foundation Fundacion G affected the prestige
of the bank and it hence filed a lawsuit for US$ 5
million in alleged damages. As a precautionary mea-
sure, the bank asked a judge to order a pre-judgment
seizure of the account held by the foundation who
then imposed the bond required for said measures
under the Judicial Code. The private foundation suc-
cessfully moved for a lifting of the measure before the
hearing of the case, which was later revoked on appeal
filed by the bank.
The counsel for Fundacion G argued that the man-
date granted to the account signatory by the
Foundation Council, as an act of the Foundation
for the opening of and withdrawal from a bank
account, does not cover the acts from the said same
individual as contained in the mentioned emails and
such action on an exceptional basis would allow the
seizure due to acts of Fundacion G if they were carried
out in performance of its purposes while causing
damages. In the opinion of the Court:
. . .for purposes of determining whether or not of a
precautionary measure against the property of a
14. Decision of 8 April 2009, by Supreme Court of Justice—Administrative Section, Case 667-05.
15. Decision of 28 October 2003, by Supreme Court of Justice—en banc, Case 419-03. The Amparo suit is an action available in most Latin American countries
to recurrents when an appeal or reconsideration action is not available against an official decision and constitutional freedoms are threatened.
16. In Spanish secuestro, which in Panama is a prejudgment seizure of the defendant’s assets which precedes a judicial sale if the judge decides a case in favour of
the plaintiff.
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private foundation, it is sufficient that the sequestering
party bring his action against the private foundation
and that it allege that it claims liabilities or damages
arising from the performance of the purposes
or objectives of the foundation and, of course, the
consignment of the corresponding bond for damages17
However, the Supreme Court pointed out that the
appeals court had reinstated the sequestration as a
precautionary measure because the bank had filed
for the imposition of a bond against the foundation
for damages and court costs which the said measure
would cause if the final judgment resulted in a deci-
sion against the plaintiff. This precautionary measure
may be decreed by a judge before an actual complaint
is filed by the imposition of a bond for 10–20 per cent
of the amount claimed. On this basis, the Supreme
Court held that it could not lift the sequestration
because the plaintiff would be unable to safeguard
satisfaction from the proceeding against a foundation
which allegedly caused damage through emails sent by
an individual allegedly authorized by the entity to act
before the bank. The Supreme Court deemed that a
prima facie evidence of a legal exception to the rule of
non-attachment of foundation assets existed, subject
to further confirmation at the later evidence stage of
the main trial:
With the foregoing, this panel should be clear in stat-
ing that the decision by the Ad quem Court does not
infringe, or violates Article 11 of Law 25 of 1995, in
accordance with article 1650 of the Judicial Code,
because the genesis of the alleged cause of action in
this process occurs presumably as a result of imple-
mentation or performance of the goals of Foundation
Geelong, being the case under review within the
exception described in Article 11 of Law 25 of 1995
which reads: ‘‘For all legal purposes, the assets of the
foundation shall constitute assets separate from of the
personal assets of the founder. Therefore, they may
not be sequestered, garnished or subject precautionary
action or measure, except for the obligations incurred
or damages caused during the performance of the
purposes or objectives of the foundation, or from
legitimate rights of their beneficiaries. The provision
partially transcribed does not give absolute immunity
to private foundations so that they can never be
sequestered or seized.’’18
The bank was successful in maintaining the seizure
because after the imposition of the bond no other
previous claims or liens existed which would have
obliged the court to lift the measure.
Conclusion
The existence of an open economy for almost a cen-
tury has created a framework for the success of private
foundations in Panama. In 15 years, 40,000 private
foundations have been formed by international
investors and Panama remains as a jurisdiction inde-
pendent from onshore political or economic
pressures.
Confidentiality is ensured by substantial fines for
undue disclosures along with a track record of
Panama courts rejecting requests of information for
non-criminal cases. Proper use of foundations further
ensures that claims by third parties will not be suc-
cessful in defeating asset protection plans.
17. Decision of 17 July 2008, by Supreme Court of Justice—Civil Section, Case 36-07.
18. Ibid.
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Panama: charities as a cornerstone to
society
Abstract
This article describes how charities are regulated
in Panama. Charitable institutions which benefit
the community are granted special tax benefits.
For entities receiving these benefits, reporting is
substantial, which involves complying with local
regulations, as charities may be entrusted with
public funds. Private foundations and trusts, how-
ever, serve as alternatives for charitable endeav-
ours which do not require special tax assistance.
Key points
Panamanian law does not define charitable
purposes.
Associations, private foundations, and trusts
are used for purposes which are usually con-
sidered as charitable.
The establishment of a Civil Code charity is
scrutinized by the Ministry of Government
and takes several months.
Panamanian charities which have been carrying
out charitable work for the benefit of the
community-at-large for more than 1 year can
be granted NGO status for tax purposes.
Panamanian Real estate is exempt from prop-
erty tax when it serves charitable purposes.
Private foundations and trusts are alternatives
to Civil Code charities and ensure confiden-
tiality.
Introduction
Current Panamanian legislation is based on Civil Law
principles with a number of Common Law institu-
tions having been introduced by virtue of legislative
action. Charities under Civil Law were preceded in
Ancient Roman Law by the sodalitas, collegium, and
universitas with members dedicated to religious
or community purposes, as well as the settlement of
patrimony with piae causae for the benefit of the eld-
erly, orphans and other needy persons.1
However, Panama has no single specific charities
act that has been enacted as of this day which defines
a charitable purpose. Associations, private founda-
tions, and trusts are now used by philanthropists
and the community to carry out educational,
religious, community-oriented, and anti-poverty
purposes usually considered as charitable.2
Latin
Americans, including Panamanians, have a con-
cern for charitable causes, but prefer alternatives
which ensure confidentiality in order to avoid becom-
ing high-net worth targets for blackmail or other
crimes.
Associations, private foundations, and trusts
are now used to carry out educational,
*Alvaro Aguilar-Alfu, Attorney at law (PA), LLM, Lombardi Aguilar Group, Aptdo 0831-1110, Panama, Republic of Panama. Tel: þ507 3406447;
Fax: þ507 3406446; Email: soluciones@geocities.com; www.laglex.com.
1. See Juan Iglesias, Derecho Romano – Instituciones de Derecho Privado, Barcelona, Editorial Ariel S.A., 7a
ed., 1982, 168–76 (for a summary of charitable
institutions under Ancient Roman Law).
2. These are also called the McNaughten principles identified by Lord McNaughten in Commissioners for Special Purposes of Income Tax v Pemsel (1891), as the
accepted definition of charity prior to the Charities Act.
594 Trusts Trustees, Vol. 17, No. 6, July 2011, pp. 594–599
ß The Author (2011). Published by Oxford University Press. All rights reserved. doi:10.1093/tandt/ttr043
Advance Access publication 26 April 2011
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religious, community-oriented, and anti-
poverty purposes usually considered as
charitable
Instead, the Civil Code defines as juridical persons
several non-profit legal entities which have been used
for charitable purposes:
. . . 2. Churches, religious congregations, communities
or associations;
3. Public-interest corporation and foundations
created or acknowledged by special law;
4. Public-interest associations acknowledged by the
Executive Power;
5. Private-interest non-profit associations which are
acknowledged by the Executive Power . . . 3
The Civil Code defines as juridical persons
several non-profit legal entities which have
beenused forcharitable purposes
On occasions the implementation of narrower
charitable purposes is made through trusts under
Law 1 of 19844
and private foundations under Law
25 of 1995.5
These entities have the additional
advantages to the above Civil Code charitable
institutions:
they do not require previous approval from the
Executive Power,
filing of a trust deed or foundation charter is made
in 1 to 3 days,
no special license is required to serve as trustee,
foundation council member, or protector and
individuals or other entities of any nationality can
be parties of the trust deed or foundation charter.
The confidential character of operations of a trust
and private foundations means that only Civil Code
charities receive an additional acknowledgement
from the Panama tax authority as non-profit associ-
ations (in Spanish, asociacion sin fines de lucro) or
non-governmental organization (NGO) which can
be recipients of donations deductible by their
donors for Panama income tax purposes. Around
700 non-profit associations have been granted this
benefit.
Approval process for Civil Code
charities
The requirements to form an association under sec-
tions 2 and 5 of Article 64 of the Civil Code are set
out in Executive Decree 524 of 2005.6
Executive
Decree 440 of 20067
was enacted later for the public
interest associations and foundations described in
Article 64.4 of the Civil Code where the State is a
board member and which have as purpose the devel-
opment of activities deemed to be of national interest,
such as in Public–Private Partnerships. Under these
decrees, an organization which seeks to obtain legal
status must submit an application before the Ministry
of Government through an attorney-at-law which
contains the purpose of the association. In addition,
the draft by-laws must be included. The members of
the board must be Panamanian citizens or foreigners
with permanent residence, unless they are officials of
embassies and diplomatic personnel. The application
also must also include a work plan for the first five
years.
Foreign non-profit entities can also form branches
in Panama, submitting similar documentation as well
as authenticated copies of the charter from its
3. Ley No 2, 22 August 1916, Por la cual se aprueba el Código Civil de la República [Whereby the Civil Code of the Republic is approved]. Gaceta Oficial [GO]
2418, 7 September 1916 (Pan) [hereinafter Civil Code], art 64. Translations are made by author. Panama laws are available online at the LEGISPAN public database
5http://www.asamblea.gob.pa/busca/index-legispan.asp4 accessed on 6 February 2011.
4. Ley No 1, 5 January 1984, Por la cual se se regula el Fideicomiso en Panamá y se adoptan otras disposiciones [Whereby trusts are regulated and other
provisions are adopted]. Gaceta Oficial [GO] 19971, 10 January 1984 (Pan).
5. Ley No 25, 12 June 1995, Por la cual se regulan las Fundaciones de Interés Privado [Whereby Private Interest Foundations are regulated]. Gaceta Oficial
[GO], 14 June 1995 (Pan). See also Alvaro Aguilar-Alfu, ‘Panama: When Panama Private Foundations go to Court—A Case Law Review’ (2010) 16 (6) TT
508–16. (for case law on the limits of private foundations in Panama).
6. Decreto Ejecutivo No 524, 31 October 2005. Gaceta Oficial [GO] 25420, 2 November 2005 (Pan).
7. Decreto Ejecutivo No 440, 12 September 2006. Gaceta Oficial [GO] 25636, 21 September 2006 (Pan).
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jurisdiction of registration along with translation into
Spanish. However, the board of the Panama branch
must still be comprised of Panama citizens or residents
as described in the previous paragraph.
The application is thoroughly reviewed by the
Ministry of Government and is subject to objections
which must be remedied within three months or risk
rejection. After a long process which can last several
months, the approval is granted by the Minister of
Government.8
Registration is completed by the inter-
ested parties filing a copy of the charter in a public
deed at the Public Registry.
No charity may advertise or act as such, without
having been acknowledged by the Ministry of
Government. The Ministry may revoke the approval
granted to charities if they engage in illegal acts or are
found to have been inactive for more than five years.
No charity may advertise or act as such,
without having been acknowledged by the
Ministryof Government
Charities may manage their own funds as provided
in their by-laws. When a charity manages public
funds from local or foreign governments or interna-
tional organizations, it is required to submit to its
sponsor monthly financial statements and progress
reports related to the advance, justification, and per-
formance of the project. Copies must be kept at its
domicile for inspection by the Ministry and the
Government Comptroller Office.9
T
ax benefits for Civil Code charities
Income tax has been levied by the Panama tax
authority since income tax started to be levied at
progressive rates under Law 62 of 1938 on entities
and individuals which income is ‘conducted in the
territory under the jurisdiction of the Panamanian
government’. This rule exempts from taxation
‘income from acts or contracts executed within the
Republic, but which have their effects outside of its
territory’.10
Therefore, charities which receive dona-
tions or income from abroad are not subject to
Panama income tax.
Charities which receive donations or income
from abroad are not subject to Panama
incometax
Charities which seek to raise funds from Panama
donors and have been carrying out charitable work
for the benefit of the community-at-large more for
more than one year can apply to the Ministry of
Economy and Finance to be granted NGO status for
tax deductibility purposes. The main benefit is that
donors who are Panama taxpayers can deduct from
their income tax the amounts gifted as donations
to the NGO. Among the requirements for said
status are:
printed evidence of charitable work carried out
during one year before the application,
names of at least 25 members of the charity,
on-site inspection of its headquarters by the tax
authority and
resolution from the Ministry of Social Develop-
ment (or relevant Ministry depending on its char-
itable purpose).11
Granting of the NGO status is a discretion of the
tax authority, not a right of the charity. The Supreme
Court upheld the decision to deny the NGO status
request of the Comunidad Arabe de Panama charity
8. Charities related to sport, agricultural, cooperative, and labour matters are approved by other government institutions which regulate said activities. See
Decreto Ejecutivo No 524 (n 6) at art 1.
9. See Decreto Ejecutivo No 440 (n 7) art 13–16.
10. Ley No 62, 27 December 1938, Por la cual se establece el Impuesto sobre la Renta Neta y sobre los Bienes Muebles e Inmuebles y se dictan otras disposciones
de carácter fiscal [Whereby the Net Income and Property Taxes are created and other tax provisions are enacted] art 1. Gaceta Oficial [GO], 18 January 1939 (Pan).
11. Resolution No 201-2788. Whereby Resolution No 201-039 of 1997 is abrogated and the Acknowledgment and registration of non-profit Educational or
Charitable Institutions in the Country is updated. Gaceta Oficial [GO], 21 January 2009 (Pan).
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by holding that the study of the application docu-
ments showed that:
even though the by-laws of the Comunidad Arabe do
not have for-profit purposes, among its main pur-
poses is to develop and foster everything related to
the interest of the Arabic community of Panama,
which limits the social and charitable purposes of
associations . . . which must be oriented to the welfare
of the National Community in general, without
distinction due to class, religious belief or ethnic
considerations.12
In order to maintain the NGO tax deductibility
status, charities must submit on a yearly basis a list
of all donations received as well as all payments made.
This information is subject to the taxpayer confiden-
tiality provisions of the Tax Code which allows its use
by the tax authority to cross-check donations claimed
by donors. As long as the status is maintained, cha-
rities do not have to file tax returns even if income is
from Panama sources.13
Tax Code Article 708 further
describes as income which is not levied with income
tax:
. . . c) Income from churches of any religion or seminars
and religious or charity societies, when said income is
directly earned from the religion or the charity;
d) Income from nurseries, hospices, orphanages,
churches, foundations and non-profit associations
acknowledged as such, as long as said income are
dedicated solely from social assistance, public welfare,
education or sports
The Panama Supreme Court struck down a
regulation by the tax authority which would have
required tax returns from charities and in the
process explained why charities and private
foundations are not levied taxes on their non-profit
income:
. . . non-profit associations, whose existence as jurid-
ical persons is provided for in Article 64 of the Civil
Code, by their own nature and definition, do not
carry out for-profit activities, but are generally
formed for purposes of civic, social, sport, religious
or other nature. Therefore, they do not earn taxable
income under the law.
In the same manner, we must point out that private
interest foundations, regulated under Law 25 of
1995, are organizations destined basically to manage
a patrimony, according to the purposes set out in the
Foundation Charter, and according the law which
regulates them, they cannot be created for purposes
of earning profit (see article 3 of Law 25 of 1995).
Thereby, the law does not create them as generators
of taxable income.14
The Panama Supreme Court struck down a
regulation by the tax authority which would
haverequiredtaxreturns fromcharities
Real estate located in Panama is exempt from
property tax when its purpose is to serve:
religions allowed by the State, seminars, bishop houses
and those destined solely to social-religious and edu-
cational non-profit acts.15
This benefit is not granted to educational institu-
tions chartered as corporations, as they are not
deemed to serve charitable purpose:
In for-profit activities, the real estate is part of the
assets of companies and the same is for the production
of goods or services to earn income in order to make
12. Decision of 3 April 2000, by Supreme Court of Justice – Administrative Section. Translations are made by author. Panama Supreme Court decisions from
1993 are available online at the Judicial Documentation Center public database 5http://bd.organojudicial.gob.pa/registro.html4 accessed on 6 February 2011.
13. See Ley No 8, 27 January 1956, Por la cual se aprueba el Código Fiscal de la República [Whereby the Tax Code of the Republic is approved]. Gaceta Oficial
[GO] 12995, 29 June 1956 (Pan) [hereinafter Tax Code], art 694.
14. Decision of 23 June 2008, by Supreme Court of Justice – Administrative Section, Case 222-07.
15. See Ley No 8 (n 13) art 764.
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an earning or gain (profit). On the contrary, in
non-profit activities, even if the property is intended,
also, to produce goods or services, it is not intended in
the end to obtain a profit or gain.
We conclude therefore that if the property meets the
condition of being intended for religious ceremonies
and social and educational but on a for-profit basis,
the owner must therefore pay the corresponding real
estate tax.16
Charitable institutions which engage in research,
development, and education can apply for benefits
granted to entities with headquarters in the City of
Knowledge (COK). The COK is a research facility
located next to the Panama Canal which serves as a
development centre. Charities which have a contract
with the COK Foundation (private-interest founda-
tion chaired by government trustees) are granted
25-year (renewable) tax holidays on goods and
services transfer (GST) tax, customs duties or
import fees on machinery, vehicles, and appliances
necessary for the project.17
Charities which have a contract with the COK
Foundationaregranted 25-year taxholidays
Preferential withholding tax rates under
double-taxation benefits may be applicable in inter-
national operations of charities involving parties in
signatory countries. A double-taxation agreement is
in force with Mexico, while others with Barbados,
Luxembourg, the Netherlands, Portugal, Qatar,
Singapore, South Korea, Spain, and a tax information
exchange agreement with the United States await rati-
fication.18
Cooperation by local authorities is subject
to the requesting authority fulfilling the regulations of
Law 33 of 2011.19
Sustained acceptance of these tax benefits is condi-
tioned on the entity maintaining its purely charitable
status. Therefore, engaging in business activities can
put those benefits at risk. The tax authority can
render a private opinion on the for-profit nature of
future schemes planned by charities.
The tax authority can render a private opinion
on the for-profit nature of future schemes
plannedbycharities
Confidentiality provisions applicable
to charities
Charities seeking additional tax benefits face increased
rendering of accounts before local authorities and
reduced confidentiality of their internal matters.
Charities which seek NGO status from local tax
authorities submit annual lists of their donors and
purchases made. Interested parties may file judicial
actions for release of information against charities
which have received government funds. The Panama
Law of Transparency provides that habeas data
request may be filed against:
mixed-capital companies, cooperatives, foundations,
and non-governmental organizations which have
received or receive funds, capitals or assets from the
State.20
However, the Supreme Court has limited the scope
of these habeas data action to deny a request by the
16. Decision of 23 June 2006, by Supreme Court of Justice – en banc, Case 337-05.
17. Decreto Ley No 6, 10 February 1998. Gaceta Oficial [GO] 23480, 12 February 1998.
18. See Ministerio de Economia y Finanzas, Gobierno Crea Dos Subdirecciones de Tributacion e Intercambio de Informacion,5http://www.mef.gob.pa/Portal/
2011-Comunicados/2011-GOBIERNOCREADOSSUBDIRECCIONESDETRIBUTACINEINTERCAMBIODEINFORMACIN.html4 accessed 24 January 2011.
19. Ley No 33, 30 June 2010, Que adiciona un capı́tulo al Código Fiscal sobre normas de adecuación a los tratados o convenios para evitar la Doble Tributación
Internacional y adopta otras medidas fiscales [Whereby a chapter of the Tax Code on implementation of international double taxation avoidance treaties or
agreements is added and other tax measures are adopted]. Gaceta Oficial [GO] 26656-A, 30 June 2010 (Pan).
20. Ley No 6, 22 January 2002, Que dicta normas para la transparencia en la gestión pública, establece la acción de Hábeas Data y dicta otras disposiciones
[Whereby provisions for transparency in public administration are enacted, creates the Habeas Data action, and other provisions are adopted], Gaceta Oficial
[GO], 23 January 2002 (Pan) at art 1.
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Directorate of Revenue—the Panama tax collection
authority—for accounting reports or audits of
funds received by a non-profit club during five years
of their yearly telethon21
The Supreme Court explains
that:
. . . non-profit groups such as the Active 20-30 Club
do not seek the enrichment of its members, so none of
them earn the income received by the organization.
This is therefore a private character entity, which mem-
bers are not considered government officials, and
therefore do not carry out any role related to public
affairs, and while it is true that they must submit
accounting reports to the Ministry of Economy and
Finance, it is no less true that fundraising, manage-
ment, spending and performance of funds they receive,
are activities carried out by the group itself. Therefore,
it is undeniable that this group receives funds from
Government entities, however, these contributions
are not received on a regular basis and even less
constitute the main source of income of said entity.
Private foundations and trusts are alternatives to
Civil Code charities and have provisions that ensure
confidentiality when funds do not need to be raised
from the public in Panama. Information related to
activities, transactions, or operations of trusts and
foundations are subject to secrecy and confidentiality
by law. Breach of this obligation is being punishable
by six months imprisonment and a fine of up to
US$50,000.00, without prejudice to the correspond-
ing civil liability.22
Private foundations and trusts are alternatives
to Civil Code charitiesand have provisions that
ensure confidentiality when funds do not need
to beraised fromthe publicin Panama
These features make trusts and private foundations
ideal for philanthropists concerned with confidential-
ity. These entities can make donations to other recipi-
ent charities with NGO status, which would only
report the name of the donor entity while concealing
the name of the philanthropists.
Conclusion
Several structures are allowed by Panama law to
engage in activities traditionally considered as charit-
able. Different entities may be chosen depending on
the nature of the donors, the need for fundraising, the
destination of the beneficiaries, and the degree of
accountability to third parties.
Tax laws free all entities from taxes on income
earned from foreign sources. Charities acknowledged
as such by tax authorities also receive benefits such as
exemption of taxes on Panama-source income and
the ability for its donors to deduct donations
from their income tax liability. However, the names
of donors and beneficiaries must be disclosed to
the tax authority on a yearly basis. Preapproval
from several authorities is required to be granted
this status.
Trusts and private foundations still provide a
more flexible authority for philanthropists eager to
conduct charitable endeavours. Their fast formation
process, confidentiality of its operations, and lack of
nationality requirements or government approvals
make these entities a flexible alternative for this
purpose.
21. Decision of 12 April 2007, by Supreme Court of Justice – Administrative Section, Case 1001-06.
22. See Ley No 1 (n 4) at art 35.
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Panama private foundations under a
tax agreements regime
Abstract
This article describes the special provisions on pri-
vate foundations to be found in tax agreements
entered into by Panama. Some of these provisions
deal with tax rates that may or may not apply to
private foundations. Other provisions relate to the
requirements for information on beneficiaries and
limits to confidentiality. Additional local legisla-
tion places new limits on how exchange of infor-
mation for tax purposes can occur between treaty
members.
From low-tax haven to treaty
network hub
Throughout history small nations in strategic loca-
tions have relied on a liberal regulatory environment
to attract foreign investment that brings employment
to their population. Hence, it has been the intent for
successive Panamanian administrations since the early
20th century not to levy taxes on foreign source
income while subjecting local source income to
increasing tax rates and reporting requirements.
Panama pioneered in its region with the enactment
of a corporation law that reduced the timeframe
for incorporations from several months—as it is
prevalent among its neighbours—to what was then
a few days. Many of these companies were the ship
owners of foreign service vessels serving elsewhere.
And the case of the Panama-flagged Struma, a ship
built in Greece that left for Palestine with Jews fleeing
from the Romanian Axis government, is ignored by
most economic historians.1
In addition, US service
members sailed onboard of several dozens of
Panama flag merchant ships during World War II
that were operated or leased by the War Shipping
Administration of the then neutral United States.2
The 1956 Panama Tax Code levied tax rates of up
to 34 per cent on income from activities carried out in
Panama. However, Panama acquired the reputa-
tion—justified or not—of being a tax haven because
activities carried out abroad were exempt from
income tax. Like most Latin American countries,
the Panama tax administration was hampered by a
lack of career civil servants, reliance on paper filing,
and technological deficiencies, which did not result in
an efficient tax enforcement.
The 1956 PanamaTax Code levied tax rates of
upto 34 percentonincomefromactivitiescar-
riedoutin Panama.However,Panamaacquired
the reputationçjustified or notçof being a
tax haven because activities carried out
abroad were exemptfromincometax
* Alvaro Aguilar-Alfu, Attorney at Law (PA), Lombardi Aguilar Group, Aptdo 0831-1110, Panama, Republic of Panama. Tel: þ507 66388707; Fax: þ507
3406446; Email: aaguilar@laglex.com; Website: www.laglex.com
1. The Struma sailed out of Romania for Palestine on 12 December 1941, with 769 Jews heading for Palestine, one year after Romania had joined the Axis and a
few days after Panama had declared a state of war with Japan and Germany.
2. See Foreign flag vessels under control of the War Shipping Administration lost or damaged during World War II5http://www.armed-guard.com/panama
.html4 accessed 24 December 2011) for a list of 67 Panamanian and Honduran ships damaged during and after US neutrality.
598 Trusts Trustees, Vol. 18, No. 6, July 2012, pp. 598–603
ß The Author (2012). Published by Oxford University Press. All rights reserved. doi:10.1093/tandt/tts047
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Panama enacted its first trust law in 1941 and it was
not until 1995 when it enacted a private interest foun-
dation law as Law 25. Its text is based on
Liechtenstein’s pre-2008 foundation law (Stiftung).
By June 2011 at least 600 foundations had been
formed in Panama, whereas another 600 had been
dissolved in Liechtenstein. Redomiciliation of private
foundations provided another option for private
foundations fleeing the tightening of regulations in
traditional private foundations jurisdictions.
During most of the 20th century Panama did not
negotiate comprehensive agreements to prevent
double taxation and tax fraud. A number of bilateral
double taxation agreements were signed during that
period with several shipping nations (Japan, the
United States, France, and others) limited solely to
air and shipping matters, in order to allocate
income earned during trips to either one or both of
the signatory nations.
During most of the 20th century Panama did
not negotiate comprehensive agreements to
preventdoubletaxationandtax fraud
Let us now jump to 2008, when the economies of
several members of the Organization of Economic
Cooperation and Development (OECD) members
collapsed. The issue of ‘Harmful Tax Competition’
by economies that had escaped the collapse
was brought to the attention of the heads of state
of the organization who gave their blessing to a
‘black list’ of ‘tax havens’. In May 2010 Alberto
Vallarino, Panama’s minister of economy and finance
said that:
the OECD, as well as several countries in particular,
has historically tried to classify Panama as a country
that has a preferential tax regime and qualify it as a tax
haven due to the fact that we have a territorial tax
regime. A territorial tax regime does not necessarily
equate to a tax haven and this is a stigma with which
Panama has been fighting over the past couple of
decades.3
The OECD, as well as several countries in par-
ticular, has historically tried to classify Panama
as acountry that has a preferentialtaxregime
and qualify it as a tax haven due to the fact
that we have aterritorialtaxregime
A negotiation offensive by the last administration
resulted in achieving the ratification of eight
double-taxation agreements in force with Mexico,
Barbados, Qatar, Spain, Luxembourg, Netherlands,
Singapore, and France, and a tax information ex-
change agreement with the United States that has al-
ready been implemented. Panama has also ratified
double taxation agreements still awaiting ratification
by Italy, South Korea and Portugal, and has nego-
tiated five agreements with the Czech Republic,
Belgium, Israel, Bahrein, and United Arab Emirates
that currently await signing.4
Despite the progress in
this area and the qualification of Panama as a juris-
diction that has substantially implemented the inter-
nationally agreed tax standard, it seems as if nothing
will ever satisfy the economic powers in charge of the
black list of the day.
Information requirements of local
legislation
In the 1990s the Panamanian administrations enacted
several regulations regarding the formation of entities
and on the control of the abuse of banking facilities
that centred on the concept of knowing the customers
of these services. Executive Decree 298 of 1994 was
one of the first legal provisions worldwide that
imposed upon resident agents forming companies
the requirement to know and identify their cus-
tomers. Information on clients was required to be
provided to the Panama authorities in a form that
pierced the attorney–client privilege. Article 34 of
3. 5http://www.internationaltaxreview.com/Article/2606307/Panama-makes-progress-on-tax-information-requirements.html4.
4. See Ministerio de Economia y Finanzas, Convenios para Evitar la Doble Tributacion 5http://www.dgi.gob.pa/documentos/doble_tributacion/listado_
convenios.pdf4 accessed 12 February 2012) for updated list of agreements.
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the Panama Private Foundation Law required that
resident agents have to comply with all the legal pro-
visions contained in the said Executive Decree 468 in
order to avoid the unlawful use of the said entity, as
well as to comply with any other rule in force aiming
at fighting money laundering related to drug traffick-
ing. Local banks agreed to abide by Interbanking
Agreement 34 of 1995 that contained detailed prac-
tices to identify customers possibly using banking
facilities for laundering money obtained from drug
trafficking.
In the 1990s the Panamanian administrations
enacted several regulations regarding the for-
mation of entities and on the control of the
abuse ofbanking facilities
These first efforts were followed by laws that first
criminalized money laundering and later also the fail-
ure by those who aid money laundering by failing to
enforce the know your customer provisions. Mutual
Legal Assistance Treaties with the United States,
Russia, and several OECD and Latin American coun-
tries were ratified. However, all of these provisions
contained exclusions when information requests
were related solely to tax matters without reference
to any behaviour that was deemed criminal under the
laws of Panama.
Private foundations in double taxation
agreements
The present generation of double taxation agreements
closely follows the provisions of the OECD Model Tax
Convention and Panama has made concerted efforts
to improve tax transparency such as implementing its
Article 26, which is taken as the standard for the ex-
change of tax information. Most agreements are
drafted with either individuals or corporate entities
in mind, as can be seen from their detailed regulations
on dividends, related entities, interests, capital gains,
compensation and professional fees. Few address the
peculiar facts of foundations that do not distribute
dividends or have shares. Some charitable founda-
tions may even have as beneficiaries a general class
instead of a specific number of physical taxpayers
from a signatory country.
The Agreement between Panama and the Kingdom
of Spain to Avoid Double Taxation in Income and
Capital Tax Matters and to Prevent Tax Evasion5
addresses specific issues of the distribution of benefits
from a private foundation. Article 10 provides for a
taxation of up to 10 per cent of dividends by the state
where the payer is resident. Article 10.8 states that:
the term ‘dividends’ in the sense of this article means
the returns from shares . . ., from the portions of the
founder or other rights, except those of credit, which
allow to participate in the benefits, as well as the re-
turns from other social participations subject to the
same tax regime as the returns from shares by the
legislation of the State where the entity that carries
out the distribution is resident’.
At first sight this would imply that distributions made
by private foundations to beneficiaries other than the
founder do not fall within the benefits of the article.
A Protocol signed separately provides in Section
VII that the provisions in Articles 6 (Property taxes)
to 22 (Capital) will not be applicable:
2) To trusts, private interest foundations and
non-governmental organizations.
It furthermore provides that:
The previous paragraph shall not apply to private
interest foundations when information may be ob-
tained relating to the beneficiaries and the income
earned and distributed to the same.
5. Ley No. 22, 30 Mar. 2011, por la cual se ratifica el Convenio entre la República de Panamá y el Reino de España para evitar la doble imposición en materia de
impuestos sobre la renta y sobre el patrimonio y prevenir la evasión fiscal [Law No 22 of 30 March 2011 whereby the Agreement between Panama and the Kingdom
of Spain to Avoid Double Taxation in Income and Capital Tax Matters and to Prevent Tax Evasion is ratified]. Gaceta Oficial [G.O.] 26,754-B de 31 March 2011
(Pan).
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T
ax information exchange agreements
Although the double taxation agreements Panama has
entered into have provisions for the exchange of in-
formation, the only Tax Information Exchange
Agreement (TIEA) currently in force exists with the
United States. The US Department of the Treasury
had already acknowledged under its Qualified
Intermediary Program that appropriate procedures
to complete identification of customers were in
place at Panamanian banking institutions that had
already agreed to obtain such information under
Interbanking Agreement 34 of 1995 and subsequent
laws.
Article 5 of the Panama–US TIEA addresses the
possibility of using exchange of information not
only for corporations but also in regard of trustees,
as well as founders, foundation council members and
beneficiaries. Each of the parties is required to have
mechanisms in place to be able to provide upon
request:
a. information held by banks, other financial in-
stitutions, and any person, including nom-
inees and trustees, acting in an agency or
fiduciary capacity; and
b. information regarding the ownership of com-
panies, partnerships, trusts, foundations, and
other persons, including, within the con-
straints of Article 2 of this Agreement, owner-
ship information on all such persons in an
ownership chain; in the case of trusts, infor-
mation on settlors, trustees and beneficiaries;
and in the case of foundations, information
on founders, members of the foundation
council and beneficiaries.
In the protocol to the TIEA Panama undertook a
commitment to enact legislation requiring the identi-
fication of the holders of bearer shares by the resident
agent for corporations that had been formed at least
five years prior to the enactment of the law. A resident
agent is only exempt from obtaining and maintaining
information sufficient to identify substantial owners
of legal entities in cases where the resident agent acts
for a professional client that is part of an organization
required to maintain information on such entities and
that has agreed to make available such information to
the resident agent when requested.
Said legislation was enacted a few months after the
signing of the TIEA as Law 2 of 2011. The law
imposed on the resident agents requirements similar
to those of Executive Decree 468 but also set fines of
up to US$25,000 that could not have been enacted by
decree. Article 14 of Law 2 provides that:
For purposes of the attorney-client professional priv-
ilege, the lawyer is not required to provide any infor-
mation or documents required by this Law which are
subject to a legitimate professional privilege, unless
said information limits itself solely to that required
under know your customer duties.
The right of the competent authority to obtain in-
formation is not deemed as an authorization to in-
spect the offices of the resident agent or to seize files
or filing media. These actions must be carried out by
the competent authority pursuant to corresponding
laws for said purposes, as set out in Panamanian or-
dinary law.
Forpurposesofthe attorney-client professional
privilege, the lawyer is not required to provide
anyinformation or documents required by this
Law which are subject to a legitimate profes-
sional privilege, unless said information limits
itself solely to that required under know your
customerduties
Since by law only Panamanian attorneys at law or
law firms can serve as resident agents of private inter-
est foundations and other entities, qualified profes-
sionals can enhance the confidentiality of legitimate
transactions. Article 16 provides that the resident
agent shall not have the obligation of providing infor-
mation upon a petition from a competent authority,
when the request is made without proper compliance
with the laws, requirements, and procedures provided
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Cross-Atlantic Estate Planning: Wealth Transfer Planning and Administration in an Internationally Challenging Time

Cross-Atlantic Estate Planning: Wealth Transfer Planning and Administration in an Internationally Challenging Time

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