Banking in Panama is a powerful asset protection technique, but it also has tax implications.  Except for the $300US/year corporation renewal there are no taxes to be paid.

Tax Evasion vs Tax Planning

This is a very important area to consider if you are going to build your asset base.  Tax evasion is illegal in some countries and we would never recommend it.  In fact, we are not going to speak about any particular Country's tax laws.  Everything you read on this page is NOT to be construed as tax advice.  We are simply going to explore some tax planning ideas.

Hiding income is tax evasion 

Tax evasion is when you hide / do not report income for the purpose of evading paying the taxes due.  Do NOT do this!  Even though it is possible to hide money in a Panama bank account because of the strong bank secrecy laws, it is tax evasion in some countries.  Although tax evasion is not a crime in Panama and the Panamanian authorities would not co-operate with foreign tax authorities investigating you, it is a bad idea to hide money in Panama.  If your tax plan requires you to hide money it is likely not a tax plan but rather tax evasion.  Instead you should consider planning your affairs to legally reduce the amount of taxes due.

Again, we cannot give you tax advice, but here are some tax planning ideas to explore with your local tax professionals:

1)  Have a Panama bearer share corporation, or a Panama corporation owned by a foundation , own any intellectual property rights.  Have your onshore company license or pay a royalty to the offshore corporation which owns the intellectual property rights.  In almost any business, there are strategies, software, or business critical ideas, otherwise known as intellectual property, that are valuable.  These ideas often make or break a company.  When you setup your business don't just lump it all into one onshore business.  Instead, use an offshore corporation while developing your ideas.  That way the offshore corporation will own these rights.  Consider a franchise.  The franchisee pays a portion of all earnings to the franchiser for the rights to use their marketing ideas and concepts.  Why can't you setup a similar structure?  After paying the franchise / royalty fees your onshore business will likely make a modest profit which you can pay the legally owed taxes on.  The offshore business will have to pay taxes in the jurisdiction where it is located.  If you choose a jurisdiction wisely, like Panama for instance, only $300/year is due.

Transfer Pricing - Offshore vs Onshore

Transfer pricing refers to the pricing of contributions (assets, tangible and intangible, services, and funds) transferred within an organization, or between related companies.  In our case, this refers to the price the onshore entity charges for its services.  The onshore order fulfillment company must charge what it's competitor's charge for the same service.

Warning:  The above ideas could become tax evasion if they are not implemented properly.  Some countries have "arm's length" laws, which must be satisfied to avoid your tax plan becoming tax evasion.  Arm's length laws are usually not a problem as long as you use fair transfer pricing (call for details).  Please see our article on