Incorporations - Panama Foundations - Offshore Banking
Many people contact
our office inquiring about forming an offshore company or similar
structure.
Certainly there are a number of jurisdiction to choose from or
consider,
but one of our general preferences has always been Panama.
.There are a number of reasons why someone is looking at an offshore company, but regardless of the need or reason, Panama does have some important points to offer that may make it a much better choice over a common law jurisdiction, such as the Bahamas, Belize, Isle of Man, just to name a few. With regards to incorporated companies from the places just mentioned, one should remember that the IBC legislation from these countries is both fairly new and also somewhat restrictive. . For example, in the case of a Bahamas IBC, most people do not realize that an IBC structure only has a tax holiday for 20 years. This tax free status must be renewed after such time has passed, and who knows what the "political wind" will be in the Bahamas at that time. Also, a Bahamas IBC may not own real estate in the Bahamas nor engage in business with residents of the Bahamas. While this may not be an important point depending on how or what you want to use the company for, it is a striking difference from what is permitted with a Panama Company. . In contrast to what was just mentioned, a Panamanian Company enjoys a 100% tax-free status Permanently providing that the company profits or earnings are derived from sources outside of Panama. The exception to this rule is of course interest or earnings from your bank account in Panama, which is 100% tax-free regardless. In addition, a Panama Incorporated Company may own title to real estate, vehicles or other property located in Panama without any kind of restriction. . In my opinion, the real benefit of a Panama Company however centers around privacy issues, and more importantly - Panamanian Law. While other jurisdictions do claim they offer "banking secrecy" and protection to the investor under the law, recent court cases (in the Bahamas especially) indicated that this is more "lip service" than reality. One high profile case tried in Bahamian courts centered around an American couple that had placed their assets inside a Bahamian Trust. The gentleman previously was the president and owner of a construction company awhile back in the US, which he had subsequently closed in order to retire. The Bahamian Trust was established prior to his retirement and the couple had in fact been retired for a number of years (this is a very important legal point with regards to what is known as "fraudulent conveyance", whereby someone attempts to hide assets knowing they are being sued - this was clearly not the case here). As it turns out, the gentleman found himself personally named in a liability suit, after it was discovered that the US company was in fact closed. The verdict? The Bahamian judge heard the case (which was carried over to the Bahamas after it was discovered "that's where the money is") and ordered that the Trust be invaded and attached to satisfy the US civil law suit. Whether you had agreed with the lawsuit of not is irrelevant. The important point to understand is, just as has happened in US court rooms (which is common law, just like the Bahamas), a judge has now "interpreted" the local law to mean something different than what is written (or previously understood to be written). .. While a Trust is a distinctly different structure than an incorporated company, it is meant in theory to offer even more protection to the investor with regards to the assets held inside of it. What is the point of establishing any kind of structure at all if the local courts or legal system offer no protection at all? . This is really our main concern regarding the Bahamas, or any other English speaking common law jurisdiction for that matter. It is also the reason, why we highly favor a Civil Law jurisdiction, such as Panama for those clients truly concerned about asset protection. Panama is one of the few jurisdictions that follows the law on it's books, and offers true protection to the investor. And why not. Because there is no special legislation differentiating a structure created by a foreigner vs. a local citizen (which really is the case with the Bahamas & Belize IBC legislation, which was aimed at attracting incorporation business from non residents of that particular country). It is much easier to "sell out" a foreigner or non-resident than your own citizens, is it not? So, for this reason, Panama Incorporation Law (and other structures such as the Foundation - the ideal alternative to a Trust), is meant for local citizens as well. You can call it a "political reason", or you can call it perhaps a "social reason". Whatever label you want to use, Panama has a self motivating interest in protecting all individuals that form such entities in Panama, because to do otherwise would affect local Panamanians as well. . Is is difficult or expensive to form a Panama Company? Not at all. A simple application form and passport photocopy is all that is required. In addition, you may use nominee services if you wish, further protecting your confidentiality. Concerned about the fact that the documents are in Spanish? Not to worry, a certified English language translation is automatically provided, allowing the investor to use their company documents anywhere they wish. . About Forming A
Panama Foundation:
.Some clients come to us after reading about structures, such as the Offshore Trust or Common Law Trust, as a mechanism for estate tax planning or mere asset protection. I of course have written about trusts, as a point of information for my clients, but is a trust really the vehicle for you? Well, the trust vehicle is not a bad idea, nor is there anything wrong with laws that recognize trusts. The problem really is the judges that enforce such statues, and the fact that it is an entity only found in common law nations (such as the Bahamas, Canada, and the US). Because many judges have gone the route of "re-interpreting" the law in such a way that the Trust structure is not as secure as one would be lead to believe, our advise is to take a look at the Panamanian Foundation instead. .. Why? For one thing is does have some attributes that actually make it superior to a trust in many ways, and perhaps more importantly, it is a vehicle backed by a civil law country. . The Panamanian Foundation structure was codified into law in 1995. While this structure is a fairly new entity for Panama, the Foundation structure itself has existed in Liechtenstein for quite some time and the Panamanian structure was in fact modeled after the Liechtenstein legislation. Some advantages a Panamanian foundation has over a Liechtenstein foundation include; it is far less expensive to create (A Panamanian Foundation costs less than $3,000 while some firms have charged as much as $10,000 to create a Liechtenstein foundation), it is far less expensive to maintain, it offers more flexibility. . To understand the idea and benefits of the foundation structure, clients should first understand the difference between a trust and a corporation. It is also important to note the difference between English speaking countries that use Common law and many non-English speaking countries that use Civil Law. I mention both these points because, in fact, the Panamanian Foundation structure offers some of the best benefits of both the trust structure and offshore corporation in one. Also, in my opinion, a structure domiciled in a Civil Law jurisdiction is the better choice for a client that is resident or domiciled in a Common Law country. . It is true that most clients are seeking some way to create a vehicle to reduce tax liabilities and protect their assets from lawsuits or claims against their estate. This is easily understood. The difficulty for many clients is of course deciding upon the best plan of action or structure to use. As a brief comparison, I think most people understand the idea behind a corporation and how it works. The corporation structure is used worldwide to basically carry out a business enterprise and keep the owners business assets (and liabilities) separate from his own. As a separate entity, The corporation usually has it’s own tax identification number and is what can be termed a juridical person. Certainly it is not a human being, but it has all of the rights and responsibilities of a natural person under the law. The key point is that the assets and liabilities of the corporation are separate and distinct from those of the shareholders. . The trust structure, however, is a vehicle usually only found in common law countries and is most commonly used as an estate planning mechanism. The history of the trust is an interesting one and dates back to the period in England when wealthy noblemen and knights were called to fight in the crusades. In order to protect inheritance rights and of course family assets, lands and holdings were placed “in trust” and were managed by a well regarded friend or family member. This was done to insure that the property was not mismanaged and to also insure that a trusted friend or family member was present to make sure the owner’s wishes were carried out in case of the owner’s death or incapacitation. The trust structure was meant to be a safe haven, with the trustee as the guardian of that safe haven. It was not meant to be a structure that would engage in business activities (as a corporation). Again, under current interpretation in modern law, the trust structure is in theory meant to be a separate juridical person. In this was it also is meant to separate the owner from his assets and offer protection under the law. Like any other entity, the purpose is to keep the owner’s previously held assets safe and secure from violation or attachment. It
is unfortunate, but recent court cases
in the US have proved that US judges either do not understand the
essence
of what a trust is meant to be or simply have made decisions that in
essence
disregard trust legislation altogether. For this reason, any
trust
structure that is a domiciled in the US and some other common law
countries
are not worth the paper they are written on. This is not to say
that
the laws in these countries are always poor regarding these
structures.
The real current problem is that those upholding the law (judges and
court
systems) have chosen to disregard the law or interpret the law in such
a way that no real protection is offered with these type of
structures.
This is why I strongly prefer Civil Law jurisdictions over those based
upon common law. Part of the reason is how the legal systems in
these
countries operate. How
to Create a Panamanian Foundation
. The Foundation Charter must contain: Name of the Foundation – The name of the foundation can be expressed in any language, but must contain the term foundation as part of the title to indicate that the entity is in fact a foundation structure. The Initial Patrimony - The initial patrimony is the amount used to fund the foundation. The foundation can be funded in any currency, but the initial patrimony cannot be less than the equivalent of US $10,000. An important point to note is that this initial funding or contribution does have to be done at the time the foundation is created. Rather it can be done after the fact. In reality, there is no public record of the foundation assets other than the fact it was originally funded with ten thousand dollars. Council Members – The foundation structure must have a minimum of three council members who are natural persons or a juridical person, such as a corporation that has three natural persons as directors. The names and addresses of the council members is public record. The Purpose of the Foundation - The foundation may be created for any lawful purpose. Examples of such purposes could include; the maintenance and welfare of minor children, a college scholarship fund for any person, the maintenance and welfare of the founder upon his or her retirement, the maintenance of a building or property, the benefit of any charitable foundation or organization, or any other purpose that the founder can think of that is within the confines of the law. Beneficiaries – The foundation structure, like a trust document, must name beneficiaries and also what percentage each beneficiary is entitled. The foundation charter must also indicate how assets are to be distributed upon its dissolution. The founder of the foundation, or the client, Can be named as a beneficiary. Domicile – The domicile of the foundation can be located or indicated as any desired jurisdiction, but it is suggested that Panama or another civil law jurisdiction be used. Resident Agent – The foundation must have a local resident agent which is a duly authorized lawyer or law firm, with a physical presence in Panama. Duration
of the
foundation – The
foundation can have a limited life span if
the client wishes to indicate as such. The Assets placed inside a Panamanian foundation are sole and separate property and cannot be seized to satisfy any personal judgements or obligations of the founder or the foundation’s beneficiaries. Assets inside a Panamanian foundation cannot be attached in order to satisfy any claims against the founder, including judgements for divorce, lawsuit and other liabilities. . The Panamanian foundation offers the
best
of a trust and the best of an offshore corporation.
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