A trust is a preferred vehicle for asset protection based on a fiduciary relationship between the owner of the assets and the other party entrusted by the owner to hold the said assets. The function of the trust is to secure the property or assets as well as allow for their distribution as the owner intended it.
Investors who set up a trust in Panama benefit from a number of advantages, among which complete foreign ownership, a lack of taxes as well as easy and fast incorporation.
Trust formation in Panama is based on a simple process and the documents can be drawn up in English with the help of our Panama company formation agents. Investors can reach out to our specialists if they need more information, apart from the general guidelines presented in this article.
The main advantages of a trust in Panama
Panama is one of the top offshore locations in the world, with many foreign investors looking to establish their financial planning and asset protection vehicles here.
The advantages for investors who set up a trust in Panama are the following:
Ownership: a Panamanian trust is fully foreign-owned and there are no requirements for any local control or management.
Foreign-based: this means that a foreigner can set up a trust that has the assets based in other countries and also the beneficiaries live in other countries.
Privacy: the trust is not registered with the Government or any agency, and this allows for complete privacy.
Tax: there is no tax applicable in Panama for trusts, however, there are requirements for foreign taxpayers to disclose all of their income, depending on their country of origin.
Asset protection: the trust is a suitable vehicle that allows for complete protection against possible creditors.
Estate planning: a common use for the trust in Panama as it can be set up with no expiry date.
Easy formation: opening a trust in Panama is a simple procedure that can be accomplished in one day.
The fact that the trust documents can be drawn up in English is another important advantage for many foreign investors, especially those from the United States. Our team of Panama incorporation specialists can help entrepreneurs or individuals who are interested in din drawing up the mandatory documents for a trust in the country.
The local laws allow a trust to be flexible and efficient for foreign entrepreneurs and foreign individuals who wish to use them for asset planning in an offshore manner (meaning that they are interested in setting up the trust outside of their country of residence).
Investors can contact our agents specialized in Panama offshore company formation for complete assistance regarding the formation of trust as well as other vehicles such as foundations. We help our clients find the most suitable solutions for their needs and our team will present all of the available options for asset planning and structuring.
Types of trusts
In broad terms, there are two main types of trusts that can be set up in Panama. They are the revocable and the irrevocable forms. The main difference is that the revocable one can be subject to change after its creation and the irrevocable one will not allow this option or, if possible, it will be only under strict conditions. The main advantage of the latter is that it can provide tax-shelter benefits, which the revocable (sometimes called the living trust) cannot.
The choice will depend on the investor’s needs and whether or not it is likely that a change in beneficiaries will occur at some point in the future. Likewise, the revocable trust leaves the option to remove beneficiaries, if the case should arise, as well as change the manner in which the assets are managed.
The main issue to consider when choosing between these two trust forms is that the revocable one, although flexible, will not offer the same degree of protection against creditors because it can be liquidated to satisfy creditor claims (under certain conditions). Moreover, the tax treatment of the trust (in certain jurisdictions) can be different when it is a revocable one. Our experts remind investors that although Panama offers an attractive taxation regime, assets obtained by beneficiaries may be subject to taxes in their country of origin. You can further discuss such tax aspects with one of our experts, if you are concerned about this issue.
Please keep in mind that the information on revocable and irrevocable trusts it not Panama-specific. These two types of trusts can be set up in other jurisdictions as well. When discussing the types of trusts we are not discussing jurisdiction-specific ones, rather the options that may be used by individuals interested in setting up a trust. Our team can give you more details on how these two types can be used in Panama as well as tailored information, according to your specific needs.
Given the characteristics of the irrevocable trust, it is used for asset planning purposes. The grantor (settlor) can choose to include both tangible and intangible assets in the trust. An important issue to consider is that the grantor of an irrevocable trust is no longer considered the owner of the assets (thus allowing for the particular tax advantages).
The trust can be a valuable asset planning instrument which, when properly set up, will allow the settlor to determine the precise manner in which the beneficiaries will access the assets, all in accordance with the Trust Deed, the founding documents on which the trust was based.
We invite you to watch a video about the Panamanian trust:
Additional information about trusts
A trust is based on a document called the trust deed which will create a fiduciary relationship between two parties: the one that entrusts the protection of the assets and the one that undertakes to secure this protection to the best interest of the beneficiaries. Below, our Panama incorporation agents list the main elements of the trust and outline the requirements for its setup:
•the settlor: the individual who entrusts the assets or property to another party, as he sees fit.
•the trustee: the party that engages to protect the assets and distribute them accordingly.
•the beneficiaries: the party or parties who will receive the assets in the trust, as directed by the settlor.
•the trust deed: the document that includes information about the appointment of the parties, the assets, the duration, the powers, duties or limitations of the trustee.
In Panama, a trust can be created to fulfill any lawful purpose. After the trust deed is drawn up, both the settlor and the trustee must sign it and the document is to be authenticated in front of a notary. It is useful to note that the trust is not perpetual, unless this is stated in the Deed. In all other cases, the duration of the trust will be clearly stated.
Panamanian law allows for a high degree of confidentiality for trust creation purposes. This is granted through a special article referring specifically to confidentiality and the fact that the trustee will maintain discretion in relation with the settlor and the beneficiary or beneficiaries. The violation of this article is punishable by law with a fine and imprisonment in some cases.
Another characteristic is that the settlors, trustees and beneficiaries can be natural or legal persons. In addition to this, the settlor may also make a provision so that, in addition to Panamanian law, foreign law will also apply.
The settlor has the possibility to change the trustee, if he sees fit. The legal duties of the trustee include an important fiduciary duty, among which a duty of loyalty to administer the trust only as instructed and only in the beneficiary’s interest. Moreover, the trustee has a duty of prudence and to maintain an adequate standard of care when managing the assets of the trust. When there are more categories or classes of beneficiaries, the trustee will not favor any of them, but will maintain an impartial attitude. In some cases, the trustee may choose to obtain the written consent before acting on important matters. This can be part of the process of ensuring that he has acted in good faith.
It is possible to set up a trust that will have multiple trustees and in this case the Deed will specify the manner in which they are to jointly handle matters related to the trust, its administration and satisfying the best interests of the beneficiaries. All trustees are required to use reasonable care when managing the assets of the trust. They are also the ones concerned with observing relevant anti-money laundering rules. For this purpose, companies that provide professional trust management services are required to perform client verifications.
The asset protection trust in Panama
The trust used for asset protection purposes allow the grantor to place property and other classes of assets that will then be separate from him and directed to the use of the beneficiary. The main feature of the asset protection trust is that the grantor and the beneficiary are the same person, meaning that the individual or investor will be the one who places the assets in the trust as well as the one who accesses them.
When using a Panamanian trust set up for asset protection services, the individual separates his assets from himself in the event in which he is sued, meaning that the said assets cannot be claimed by an authority or a creditor.
The assets intended for the beneficiary are protected under the trust deed. The grantor will also be the one to include the manner in which these assets will be then distributed and treated, according to his wishes.
A trust set up in Panama solely for asset protection services is self-settled (essentially the settlor and the beneficiary are the same person), as opposed from the ordinary trusts when these are separate parties expressly named in the trust deed.
Another option for this type of trust would be to appoint another independent trustee that would have the rile of managing the assets in the trust, as opposed to allowing the grantor to also be the one to manage them. The form that also includes an appointed trustee can be a suitable feature in the event in which a creditor makes a claim against the assets placed in the trust. In this particular case, the trustee would have the role of protecting the assets against a claim and the fact that he is a separate person could be an advantage (at the same time, the grantor retains a certain level of control over the assets through the trustee who is appointed according to a power of attorney in most cases). However, one should keep in mind that the trustee cannot act under duress and that his main obligations are towards the trust.
Asset protection is a manner in which the assets can be protected without having to resort to illegal concealment methods or fraudulent transfers. When working with our team of agents, investors can form a trust and transfer their assets accordingly, without any tax events or by engaging in tax avoidance practices. When choosing to set up a trust in Panama, and by appointing a trustee, the beneficiary rests assured that his assets will be handed by a neutral third party according to his wishes, should be become incapacitated.
A trust can be used for wealth protection to safeguard the assets form several types of claimants, be it creditors, legal proceedings, account seizures, or family members. At the same time, as the founder sees fit, an asset protection structure can be used to safeguard the assets precisely for certain family members. The conditions of asset release will be included in the trust deed.
Options for investors
Entrepreneurs as well as individuals who are interested in asset protection can also choose to set up a foundation in Panama. This is a structure that can be successfully used for asset protection purposes and it also presents certain features found in the trust, however, it also shares characteristics with a company, not in the sense that is has legal identity, but for purposes that can include entering into agreements.
The foundation has no shareholders and the asset are not entrusted to the management of an appointed trustee in the best interest of the beneficiaries. It does however have a management body that is entrusted to administer the assets for a particular purpose (that can also include the best interests of an individual or group of individuals, thus making the foundation suitable for estate planning purposes).
Both the trust and the foundation can have their purposes designed to feet the need of the founder/settlor, however, in a broader sense, both of these options can be used to fulfill different needs related to asset protection and estate planning as well as investment and charitable purposes.
Another notable difference between the foundation and the trust is that the first one is based on the Charter, its constitutive documents and the ones that specify the purpose for which the foundation is set up as well as the manner in which it will be governed. As previously mentioned, the trust is formed based on the Trust Deed, a document that is privately established between the settlor and the trustee, with the knowledge of the beneficiaries.
In Panama, a foundation has its constitutive documents (declaration) registered with the Public Registry and a certain amount if information is disclosed about its scope. However, the foundation does not need to have funds transferred to its accounts immediately in order to become operational, while for the trust the assets will need to be placed accordingly upon its formation.
Both the trust and the foundation can be used to hold tangible and intangible assets (property, cash, real estate, art and jewelry, copyright, insurance policies, shares in a company). The trust has no limit for the amount of assets, however, certain requirements can apply for a foundation, depending on its type (a minimum of 10,000 $ can apply – our team of specialists can give you more information on the minimum amount that is to be donated).
Investors who wish to find out more about the foundation as an alternative to a trust can reach out to our team of company formation experts for complete details about the key features of the private foundation.
If you want to move to the country before you start a trust, our experts can give you details in how to immigrate to Panama.
Company formation in Panama
Opening a trust for asset protection purposes is a common reason why investors choose Panama, however, the jurisdiction is also suitable for opening an offshore company given the fact that a territorial tax system is in place. Company formation in Panama is a simple process that can be accomplished easily with the help of our team, in addition to setting up a trust for asset protection services, should investors also be interested in this.
In most cases, an offshore company package is offered as per the investor’s requirements, meaning that a new company is incorporated as per the local rules. However, investors also have the option to acquire a ready-made company, a legal entity that has already been registered for certain business purposes that suit most needs related to engaging in international services provision or international trade.
Some of the main requirements for a new company in Panama is for the legal entity to have an original name (it cannot copy the name of an already registered company, nor can it resemble it to a certain degree). Apart from the name requirement, the company will also need to have a corporate bank account in most cases. All companies have a registered agent and pay a government fee. Secretarial services can also be included in the tailored company formation packages. Licensing is required for certain companies in Panama and foreign individuals who wish to provide professional services may need to comply with the professional license recognition requirements.
Investors who are interested in offshore company formation in Panama in addition to opening a trust here for asset protection or estate planning can reach out to our team of incorporation agents for complete services related to the registration of the exempt company.
Investments in Panama
Panama is a country that is attractive for investors who wish to set up a trust or a foundation and also for those who are interested in offshore company formation.
Some of the main reasons to open a company in Panama include the following:
Tax advantages: only the income derived from Panama is taxed at the local corporate income tax rate of 25%; offshore companies that do not derive income from Panama (they offer their services outside the jurisdiction) are exempt from corporate taxation;
Flexibility: there is no need for the shareholder or director meetings to take place in Panama; they can be scheduled at another location or held by proxy;
Capital: there are no paid up capital requirements, thus making the effective company incorporation cost quite low;
Easy incorporation: there are no nationality or residency restrictions for the founders of the company and the company can be incorporated in a matter of days, when all the documents are in order;
Confidentiality: Panama is a suitable jurisdiction for asset protection purposes because of the high level of confidentiality investors are awarded here.
There are no exchange controls, meaning that company owners have a high level of flexibility regarding how they choose to remit their income derived from Panama. Complete assistance for tax-related purposes can be provided by our team of company formation agents upon request. We can also give you details about the nominee director services, an option for those investors who wish to further increase the level of confidentiality.
The reduced tax rates and the favorable business climate attract foreign direct investments. The following statistics were made available by the Public Registry:
-foreign direct investment inward flow in 2016: 4,866 million USD;
-foreign direct investment inward flow in 2017: 4,569 million USD;
-foreign direct investment inward flow in 2018: 5,549 million USD.
According to the Panama Public Registry, the number of anonymous companies in 2021 was 4,285 and the number of these types of companies that were dissolved was 1,632, with 103 such companies having underwent a merger until the end of April. By contrast, in 2021, a number of 21 foreign companies had been registered until April 6 were dissolved and 4 underwent a merger. 39 limited liability companies had been registered thus far during the year.
A trust or a foundation can be suitable vehicles to meet diverse needs for asset protection.
Investors who are interested in opening a trust, as well as Panama incorporation for offshore legal entities, can contact us.
Call us now at +44 203 287 0408 to set up an appointment with our business consultants in Panama City, Panama. Alternatively you can incorporate your company without traveling to Panama.
As a BridgeWest client, you will benefit from the joint expertise of local lawyers and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Panama.