Panama Offshore Information: The Panama Incorporation Process

Forming an Offshore Incorporation in Panama...............

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.

This information was provided by John Schroder, Ascot Advisory Services. For additional information or to send an email via a reply form ~ Please Click Here