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Panama's Offshore Virtues - A Diverse Portfolio |
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Panama has long stood as one of the world’s soundest offshore business destinations, and today it stands out as a clear leader in the wake of dramatic changes and shifting pressures.
The world’s offshore centers are shifting as international pressure to sign tax information exchange treaties mounted in recent years, with traditional offshore meccas like Lichtenstein, the Grand Cayman Islands, and Monaco agreeing to share information with major signatories, and one of Switzerland’s biggest banks, UBS, being forced to give up the names and financial records of thousands of offshore account holders.
For many of the ‘old guard’ of offshore banking, the veil of banking secrecy, now torn aside, was the only point in favour of these offshore financial centers, with little else to recommend them to the international business community.
Panama, in contrast, has not only managed to preserve intact its tough banking secrecy laws, but has a great deal more besides to attract offshore activity.
Tax benefits Panama does not tax any income earned outside of its territory, even when the person or corporation is a resident of Panama, or holds Panamanian accounts. Only income earned in Panama is subject to taxation; income from any offshore activities does not need to be reported.
Taxes on income earned within Panama are also lower than many other competitive countries, increasing the country’s attractiveness to business. Today, for example, the domestic corporate tax rate is a full 7.5% lower than in the United States, and in 2012 it will fall an additional 2.5%.
This has helped to attract many international companies to Panama’s shores, who also take advantage of Panama’s modern technological infrastructure, dollar economy and prominent English-speaking population to establish head offices and subsidiary branches on the isthmus. Often times, many small and mid-sized business also find it advantageous to incorporate in Panama where they can then declare credit card revenues, which are subject to the lower tax rates, and certain levies such as sales taxes may not apply at all.
Useful Financial Instruments Panama offers two powerful financial instruments with which to conduct business, manage investments and protect assets: the Corporation and the Private Interest Foundation.
Each of these offers tremendous flexibility for a wide range of purposes, and are relatively simple to establish and operate.
The Panama Corporation requires only two people to be established; these can be residents of any country, and the corporation can conduct business both within and without Panama. No paid-in capital is required to establish the corporation, and annual fees come in under $1000.
Shares can be issued in nominee or bearer form. Changes in ownership do not need to be reported in Panama, nor are the company’s books required to be kept in Panama. Once established, the Panama corporation can be used to open bank accounts, trade stocks, purchase property and conduct business anywhere in the world. To date, there are nearly a half million corporations registered in Panama.
The Panama Private Interest Foundation can be established by a single founder, and while it essentially a non-profit entity, it can conduct commercial activities toward its established aim, which can be as broad as desired: for philanthropic purposes, to fund research, even to serve as a last will and testament.
Paid-in capital for a private interest foundation is $10,000, and the foundation can also own property, open bank accounts, conduct business, and even own shares in a Panama corporation. The foundation’s assets are also protected from claims against the founder, while the foundation’s beneficiary may remain entirely confidential.
These two instruments prove especially useful when used in tandem, as tools for asset protection and other legitimate interests.
Banking Secrecy Laws The laws in Panama safeguarding the confidentiality of private financial information are some of the toughest on the books, and among the few that are not compromised by TIEAs. In the few mutual assistance treaties that Panama has signed, the supremacy of the banking secrecy laws can be set aside only in cases of serious criminal activity such terrorism, money laundering, drug trafficking, etc. Furthermore, the matter involved must be a crime in Panama as well as the country requesting information; this deflects frivolous inquiries, or ‘fishing expeditions’.
The banking secrecy laws are spread across a handful of statutes, involving access to information, penalties for breaches of information (a crime in Panama), and the conditions required for a court order to grant access to confidential information.
Strong Economy Unlike some of the offshore destinations in the world today, which have little to attract foreign business other than lax taxation laws, Panama has a thriving economy, with a diversified portfolio that draws on an established financial sector (represented by nearly 150 banks from around the world); the Colon Free Zone, the second largest free trade zone in the world; the Panama Canal, a vital component of world trade; and the development of tourism and commercial exports, among others.
After weathering the storm of the global economic crisis admirably, Panama’s economy is projected to grow 5% in 2010, according to the Economic Commission for Latin America and the Caribbean, the second strongest forecast in all Latin America.
This economic growth, combined with a welcoming atmosphere in which to do business, makes Panama one of the most desirable offshore centers in the world.
Political Stability Political stability is an essential component of any truly successful offshore jurisdiction. Those who do business within a country’s shores need assurances that the laws under which they operate will remain in existence; far too often, fly-by-night offshore jurisdictions are established in countries whose track record is dubious at best in protecting the interests of investors.
Panama is a functioning democracy, with democratically elected representatives. Since the handover of the Panama Canal by the United States in 1999, the country has known exceptional peace and stability. In fact, the crime rate is one of the lowest in the entire region.
Some of the country’s business laws have been on the books since the country was established at the turn of the 20th century, including the Corporation Law, which came into effect in 1927 and remains to this day unchanged.
A Dynamic and Reliable Business Atmosphere Since that time, Panama has seen incredible economic growth, tremendous real estate development, a burgeoning tourism industry, the overhauling of the Panama Canal, and the successful implementation of incentives to encourage retirement to Panama, as well as strong business and real estate investment. In short, Panama has proved itself to have a dynamic and reliable business atmosphere, with clear priorities and keen responsiveness to the needs of today’s offshore clients.
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