Panama is one of the few jurisdictions that cater for both trusts and foundations. While trusts are peculiar to systems of law based on common law and are not generally found in civil law countries, Panama, a civil law country, is an exception to this rule.
Built on the key concepts of certainty, security and confidentiality, Panama is an attractive location for the establishment of trusts. It gives high-net-worth individuals (HNWI) the peace of mind that comes with a highly regulated environment that remains faithful to the original concept of a trust
As a reputable trust jurisdiction and with the number of authorized trustees increasing every year, Panama introduced its trust law in 1925 and its latest amendment in 2005 and its further legislation. The updated law brings Panama in line with international developments which offers interesting opportunities to HNWIs and families who favor tailor made trustee solutions.
Panama law caters for all the main types of trust normally found in traditional common law jurisdictions such as:
Benefits of Panama Trusts & Foundations
Whether for tax planning purposes, inheritance planning, shareholdings, or the protection of assets, trusts and foundations are becoming the first choice for everyone from high-net-worth individuals to corporate entities. The recent banking failures, financial crisis and economic recession in other countries have also made asset protection popular for those of more modest means. While there are no figures on the number of structures established in Panama due to the sector’s confidential nature, foundations appear to be primarily attractive to continental European, Latin American, Middle Eastern and Asian clients for whom the concept of a trust is less familiar. Trusts are usually found in common law countries, however trusts became fully ingrained in Panama’s civil law framework. Nevertheless, the country’s practitioners point out that foundations are also of increasing interest to affluent individuals from common law countries. They like the fact that a foundation offers all the benefits of a trust, with the added advantage that the founders can maintain a greater level of control. Unlike trusts, foundations have a separate legal personality and can hold assets in their own name.
Panama’s trust practitioners and foundation administrators stress that both structures have their specific uses and operate in parallel in Panama. Panama does not offer ‘off-the-shelf’ trusts, and each trust is structured carefully to reflect the requirements of the client. Panama’s legislation recognizes all forms of trusts one would find in other jurisdictions, such as discretionary trusts, accumulation and maintenance trusts, fixed interests trusts, spendthrift and charitable trusts. In addition, the trust law identifies a number of commercial situations within which the use of trusts would attract more favorable treatment. These include security trusts, real estate trusts, unit trusts or collective investment schemes and securitization, among others. Foundations can be used in most cases where a trust or a company could be set up, with the most common structures having a wealth planning and philanthropic background.
Recognition of Foreign Trust Law
Panama’s trust law also allows settlors to establish trusts governed by a foreign law, and foreign trusts are fully recognized. Panama is a signatory to the Treaty of Bustamante. Panama is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition, however, the Trust Law complies with the trust concepts expressed therein. Panama law ensures that rules such as the forced heirship do not apply. A properly executed foreign trust will be recognized and enforced in Panama, provided that the settlor and the trustee agree to abide by the formalities and requirements of Panama law. The trustee individually can make this statement, if so authorized by the trust deed. Accordingly, foreign investors seeking to use the Panama trust to streamline their assets or organize their estate need not be concerned about the Panama public policy rules.
Reliable Service Providers
In Panama, a professional trustee and a foundation administrator have to be licensed by the Panama Banking Authority This system ensures that certain standards are met and provides settlors with a higher degree of assurance. The PBA has already licensed some 80 Panamanian and international fiduciary companies to offer trust and trustee services in the country, proving this is a rapidly expanding segment of the financial services sector.
Lower Set-up Costs
Another key attraction Panama offers for those considering where to set up a trust or foundation is its significantly lower set up and administrative costs. On average, setting up a trust in Switzerland will cost a minimum of US$8,000, while in Panama the cost of setting up a fully-fledged trust or foundation is around US$2,500. Professional fees in Panama, including trust management fees, legal fees and audit fees, are also significantly lower than in other jurisdictions, while the country’s professional classes enjoy an excellent international reputation.
A Robust Structure
Across the world, the awareness for the need to establish compliant structures for wealth and succession planning is growing. The Panama Banking Authority and the Panama Securities Authority have gained a reputation as an effective and responsive regulator that works hand-in-hand with the government to cement the country’s position as a wealth management hub. Panama’s advantageous taxation regime enhances the attractiveness of the jurisdiction, though naturally the actual impact of taxation on foundations and trusts depends on a number of issues, including the source of income. However, where the beneficiaries under a company, foundation or trust are non-residents and the income of the trust does not arise in Panama, there is no taxation in Panama.
Geared to Service
Trusts and foundation practitioners setting up in Panama will find the highest professional standards in the country, with many Panama accountants, auditing practitioners, bankers, lawyers and investment advisors possessing experience and qualifications from overseas. Legal and administrative support ranges from small boutique practices to the global ‘Big Four’ accountancy firms with Deloitte, PwC, Ernst & Young and KPMG all operating branches on the country. Individuals looking to set up trusts or foundations can also benefit from Panama’s robust banking sector, with ScotiaBank, Bank of China, BSI, PKB Banca, AndBank, and others, all providing additional custodial services. These twin pillars of Panama’s fiduciary sector are built upon strong foundations of a well-educated and multilingual workforce, which can easily be sourced from within the country at two thirds of the labor costs found in other US or European nations.
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