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LANGER ON PRACTICAL INTERNATIONAL TAX PLANNING -- FOURTH EDITION*** Current through Release No. 13 ( May 2007 ) ***

Copyright 2007 by Practising Law Institute. All Rights Reserved.

VOLUME 2. FOCUS ON FINANCIAL CENTERS AND TAX HAVENSPART IX: AMERICAN HAVENS

CHAPTER 110. PANAMA

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110:4 Trusts and Foundations

110:4.1 Recognition of Trusts

Since Panama is a civil law jurisdiction, common law precedents concerning trusts do notapply. Someone creating a foreign trust will generally be better advised to select a common lawjurisdiction, although other considerations, such as the avoidance of English injunctions, mayindicate that utilizing a Panamanian trust will be more effective in achieving overall protectionobjectives. Panamas strict confidentiality laws apply to the establishment of a trust.

The 1984 trust law permits revocable trusts and provides for trust secrecy with substantialpenalties for breach thereof. A Panamanian trust may be made subject to foreign law and may be

transferred to another jurisdiction if the trust deed so authorizes. A trust must have a residentagent and pays a $ 100 annual tax. A trust document may be authenticated by any notaryregardless of nationality.

110:4.2 Treatment of Forced Heirship Rules

Panama does not have any forced heirship laws.

110:4.3 Asset Protection Trusts

Panama does not have any asset protection laws, but it does have laws that protects trustassets from attachment unless the creditor can prove that the assets were fraudulently transferred.

110:4.4 Foundations

Panamanian legislation in 1995 enabled the establishment of an entity called a foundation.Similar to the Liechtenstein Stiftung, it creates a vehicle for protecting assets from creditors,avoiding foreign succession laws, and for carrying on business activities. Assets placed in afoundation are then fully owned by the foundation and are not part of the donors estate. Unlessthe transfers were made with an intent to defraud, the assets are not available to creditors.Transfers subject to legal attack are exposed only for three years from the date of transfer.Private foundations are subject to the anti-money laundering laws. The minimum capital

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requirement is US$ 10,000. No accounts are necessary and an audit is not required. As with allPanamanian entities, tax is only levied on income generated within Panama. Foundations aresubject to the same capital taxes (minimum $ 60) and annual registration fees ($ 150) as arecorporations.

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