Legal landmarks for Investing and doing business in PANAMA Septiember 5, 2013 RAINELDA MATA-KELLY, LL.M.

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1 Legal landmarks for Investing and doing business in PANAMA Septiember 5, 2013 RAINELDA MATA-KELLY, LL.M.

2 Asset Protection & Doing business in Panama Whether you are planning to do business, invest or protect your assets, you may find that Panamanian entities can be effective, easy to create, and operate. Stay away from packages, one-size-fits-all solutions and structures that may be too complicated or costly to preserve your assets. Personalized attention and analysis of your situation is key in making your investment a success and protecting your assets. Also a consultation with a tax specialist of your own jurisdiction is necessary to understand any reporting requirements.

3 Corporations Requirements: 3 Directors (persons or companies of any nationality) Nominative Shares Bearer shares must be inmobilized Resident Agent Annual Tax No annual Board Resolutions required Incorporation Process: Confirmation of name availability Registration in 3-4 days References, passport copy, Incorporation Questionnaire and Release Form (only for internal purposes)

4 Advantages Excellent for business endeavours. Property holding: partially avoid probate, but no longer affords any tax advantage. No tax implications in Panama if operating abroad. Names of directors are registered, but names of shareholders are not. However, new legislation requires the Resident Agent to disclose information on ultimate beneficiaries, upon official request. Limited liability.

5 Private Interest Foundations Created by law of 1995 Requirements: Founder Protector (optional) 3 Managers or 1 corporation of any nationality Beneficiaries Resident Agent Annual Tax Formation process: Confirmation of name availability Registration in 3-4 days References, passport copy, Incorporation Questionnaire and Release Form (for internal purposes only)

6 Advantages Excellent estate planning tool. Property holding: avoid probate completely. Assets are protected against liens or attachment, except for PIF debts and for fraud of creditors within 3 years of the transfer. Unlike trust, allows founder to be part of the management and beneficiary. Beneficiaries are appointed by notarized (not registered) document, which may be changed at the Founder s will or with the Protector s consent. New legislation requires the Resident Agent to disclose information on ultimate beneficiary upon official request. Not a charitable foundation for tax purposes.

7 Bank accounts Generally banks all over the world open accounts for Panamanian entities. There are just over 90 banks, both foreign and local operating in Panama, within a fully supervised Banking Center. (No paper banks) Regional Banking Center FATF compliant U.S. Currency No currency controls. Limited gold or bullion markets WARNING: Savings and Loan Coops are not as well regulated as banks in Panama.

8 Bank accounts Your personal presence is necessary to start the account opening process. Timeline: 3 weeks to a month. Banks will require the following before opening an account: a) bank references, and attorney or accountant reference, b) proof of source of income, tax return and credit report c) copy of utility bill (as proof of address) d) full copy of your passport e) personal details and ownership disclosure (if account is owned by Corporation) f) local introduction / reference

9 Note: Due to strict regulations for the protection of the banking system, many banks will restrict the opening of bank accounts to foreigners who have plans to reside in Panama or who have made actual investments in Panama. With the TIE Treaty Panamanian banks will have to disclose information to local authorities regarding specific U.S. citizen accounts, upon request by IRS. FATCA requirements will be followed by banks wishing to retain U.S. Clients. If your plan is just to have a foreign account for investment purposes, we find that using a Panamanian entity and opening a bank account in Europe works well.

10 Taxes The Panamanian taxation system does not discriminate between Panamanians and foreigners. The rules are the same: tax is paid only on income generated in Panama. Interest on bank accounts is not considered taxable income in Panama. NOTICE: Tax free in Panama, does not mean tax free in your jurisdiction, please verify your reporting requirements.

11 Taxes INCOME TAX: The Income Tax rate for corporations or foundations that produce taxable income in Panama is 25% The Income Tax rate for individuals is: From $1 to $11,000 = 0% From $11,001 to $50,000 = 15% From $50,000 + = 25% OTHER: Dividend Tax: 10% Capital Gains Tax: 10%

12 Conveyancing Foreign nationals may own property in Panama, whether or not they are permanent residents. Only exception: border with neighbouring countries (10km). There are no restrictions for foreigners to own islands or coastal land (save for public easement). Title searches are done prior to purchase. Ownership Title is registered at the centralized Public Registry. Rights of Possession are not title, nor are they advisable in many cases.

13 Conveyancing process First you sign a Promise to Purchase Agreement and the first down payment is given. Before signing you should have your attorney review title and negotiate the contract. Down payments will vary: 5-10% if buying from an individual and 20-30% if buying from a developer. The Seller receives the down payment directly (no escrow). Then, final price is escrowed with a bank and the title deed is prepared and registered. Title is not conveyed until the title deed is registered. ALTERNATIVE: Sale of shares if property is owned by a corporation

14 Conveyancing Property taxes are applied after the first $30,000 on land and improvements. Except for land where condos are built, which pays property tax from the first $1, while the condo itself is exempted. There are tax exemptions for new improvements. These exemptions are transferable with the property. Properties with construction permit issued before 1st July 2009 get 20 years, otherwise you get 20,15,10 or 5, depending on value of construction. Property tax is on a scale that begins at 1.75%, up to 2.1%. Which can be reduced by voluntary re-assessment of the property to 0.75% to 1%.

15 Remember that you are moving to a new country and that as many similarities as there may be, there will be substantial differences. Get good advise and do your research and you are less likely to make costly mistakes. Enjoy your adventure!

16 Contact in Panama: Rainelda Mata-Kelly Tel. (+507) Fax (+507) Office , Tower B, Torres de las Americas Punta Pacifica Panama City, Panama