Panama (Republic of Panama)
- The Republic of Panama is an independent democratic state in the Central America region located on the neck of land between Central and South America. The capital is Panama City. Official language is Spanish (along with Spanish, English is used in business).
- Legal system of Panama belongs to Romano-Germanic law system (Latin-American subgroup), but significantly influenced by Anglo-American law.
- Strategic geographical position, sovereign control of the Panama Canal (since 2000) along with stable political system, favourable corporate and tax laws, developed sector of legal services made Panama a well-known center of international business where thousands of international firms and sea crafts are registered.
- The national currency is the balboa and the US dollar (being a legal tender, it is in free circulation in Panama). There are no currency exchange control and no limits on cash flow movements. Transactions may be effected in any currency.
- Panama is included in the Offshore Zones List of the Ministry of Finance of Russia No. 108н, but it is not listed in the Instructions List of the Central Bank of the Russian Federation No. 1317-У. Also, Panama is not listed in the Offshore Zones List of Ukraine of 2013.
Key features of Panamanian Corporations
- Principal corporate legislation is the Corporation Law of 1927 (as amended), the Commercial Code (as amended), and the Limited Liability Companies Law of 2009.
- The most popular company form is a share company (corporation) (Sociedad Anonima, S.A.). The law also provides for partnerships, limited liability companies (S de RL), branches of foreign companies, private foundations (for non-commercial purposes).
- S.A. has general legal capacity and may be engaged in any legal business activity (in line with the Articles), including abroad. Some types of business require a special license (banking, insurance, financial and fiduciary services, etc.). In order to have offshore (tax free) status and avoid local taxes, the company should not conduct business inside Panama, with residents of Panama or buy property in Panama.
- To create the corporation the organizer or subscriber will have to appear before a Notary Public for execution of a Deed containing the text of the Articles (in Spanish) which is to be registered in the state registry.
- The name must be different from already existing names and must include one of the following legal endings: “Sociedad Anonima”, “S.A.”, “Corporation”, “Corp”, “Incorporated”, “Inc”.
- The company must have the registered office and the registered agent in Panama (usually, a Panamanian attorney or a law firm).
- Founders of the Panamanian corporation (at the stage of its registration) may be 2 or more individuals or corporate bodies, residents of any country. A minimum number of shareholders is one (of any residency). The meetings of shareholders should be held only in Panama if otherwise is nor provided by the Articles.
- Shares of any class are allowed, with par value or no-par value. The corporation may issue registered and bearer shares, but under the law of 2013 bearer shares have to be restrained and kept at the custodian (see below for details).
- No requirements for minimum amount and due date of payment of the share capital (except in the event of issue of bearer shares or no-par value shares). Normally the authorized share capital amounts to 10,000 US dollars.
- A minimum of 3 directors is required: individuals or corporate bodies (of any residency). The Board of Directors elects officers of the company: president, treasurer, secretary. The directors may hold office in the company. The meetings of directors can be held in any country. The directors may appear at the meeting personally or through a proxy or via electronic means of communication.
- Corporate seal is not required and may be applied at the discretion of the company.
Taxes and levies
The Panamanian tax system is characterized by a territorial principle of taxation which means that earnings of the Panamanian corporation operating outside of Panama are tax free. Dividends paid by the Panamanian corporation operating outside of Panama are not taxed at source if profits from which the dividends are distributed have been derived from foreign sources. These rules allow to equate Panama to classic offshore jurisdictions.
Profits tax is imposed only on earnings received from operations in Panama. The corporate tax, in such case, will amount to 25%.
Annual fixed fee is the only levy compulsory for payment by all companies. In case of failure to pay annual fee, the fines will arise.
Records and statements
Corporate and financial documents of the company should be kept in Panama if the company effects taxed transactions within Panama. This information should be updated and available to local tax authorities. If the company effects only offshore transactions, such documents may be kept anywhere, including abroad.
Companies not operating in Panama are not required to file the annual accounts, tax return and audit report.
Panama Private Foundations
Panama Private Foundation is a unique legal instrument with all opportunities and advantages of a trust, but at the same time is a legal entity. The foundations are non- commercial organizations (not to confuse with investment foundations).
Panamanian foundations are characterized by:
- high level of confidentiality;
- not required to disclose beneficiaries;
- not required to file annual accounts and financial statements;
- earnings received from operations and transactions effected outside of Panama are not taxed;
- assets of the foundation are managed by the board (nominee members of the board can be provided). The board of the foundation should consist of at least 3 individuals or at least 1 corporate body;
- founders, members of the board and its protectors may be citizens and residents of any country;
- founders may be individuals or corporate bodies;
- founder of the foundation may be its beneficiary;
- assets of the foundation may not be applied for repayment of liabilities of the founders or beneficiaries of the foundation;
- accounting documents may be kept inside or outside of Panama.
To create a foundation the founder is required to contribute money or assets into the foundation.
The foundation acquires rights of a legal entity immediately after registration of its Articles in the Public Registry. The Articles contain the following information:
- name of the foundation (must include the word “foundation” in any language);
- registered address of the foundation;
- initial capital or property (expressed in any currency) not less than 10,000 USD or its equivalent in any other currency;
- names and addresses of the members of the board managing the assets of the foundation (individuals or corporate bodies);
- name and registered address of the registered agent of the foundation in Panama (must be a local lawyer or law firm);
- statutory purposes of the foundation (must be reasonable, practicable, legal and within the rules of morality);
- method of appointment of beneficiaries of the foundation (the beneficiaries are not required to be appointed in the Articles);
- who may amend the Articles;
- the operation period of the foundation;
- methods of application of the assets and their use in case of liquidation of the foundation.
The beneficiaries of the foundation, and method of profits distribution are indicated not in the Articles, but in the Foundation’s Regulations, an internal document of the foundation kept by the registered agent as a strictly confidential information.
Confidentiality and international exchange of tax information
The names of directors are indicated in the public registry of Panama.
Details of shareholders and beneficiaries are not disclosed and kept only in files of the Panamanian registered agent.
In accordance with Law No. 47 of 6 August 2013 bearer shares should be kept in safe custody. Under this Law such shares issued after entering of the law in force (after August 2015) must be transferred to the custodian along with an affidavit from the owner of the shares stating identification details. The same relates to the shares issued before introducing of the law (for execution of the law a 3 year period is set up: until August 2018). The owners of the shares preserve all the rights connected with such ownership. The custodians may be the following local (Panamanian) persons: banks with general licenses; a regulated (supervised) trustee, brokerage firm; centralized securities depositary, lawyers meeting the requirements of the law, and similar foreign organizations registered in special registry of Panama.
Panama has valid agreements for exchange of tax information with Ireland, Canada, Norway, the USA, Finland, Sweden.
There are Double Taxation Agreements signed with Barbados, Ireland, Spain, Qatar, Luxembourg, Mexico, the Netherlands, Portugal, the Republic of Korea, Singapore, France, the Czech Republic (all these agreements were concluded in 2010-2013).
As at the start of 2014 Panama is not a member of the Convention of the OECD on Mutual Administrative Assistance in Tax Matters (revised edition of 2014).