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Thursday, October 15, 2009

Panama - a trust jurisdiction in a Civil Law region


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PANAMA – A TRUST JURISDICTION IN A CIVIL LAW REGION

Panama is traditionally considered a Civil Law jurisdiction like the rest Latin America where judges construe the law as stated in Codes. However, its long relationship with the United States makes it an exception in a region where laws originate from French Civil Code. As of this day:

  • the U.S. Dollar is currency of legal tender since 1904,

  • the 1917 law of commercial paper is based on the U.S. Uniform Negotiable Instruments Law,

  • the 1927 corporation law is based on the law of Delaware of the time,

  • trusts may be formed since 1925.

The original 1925 law was changed in 1941 and finally its current version of Law 1 of 1984. Its main features are:

1. Simplicity of execution: Trust deeds may be granted by private document, granted by the settlor before a Notary Public anywhere in the world.

2. Contractual freedom: A settlor can grant a deed with any clauses or distribution plans as long as they are not contrary to law, morality or public interest. This extends to allow the possibility of post-mortem distributions different from those of the settlor's estate laws or forced heirship rules. The law also allows practitioners to draft trust deeds for execution of Sharia-complaint trusts or appointing a protector as a limit to trustee powers.

3. Duration: The duration of the trust can be indefinite, which represents a change from the rule against perpetuities in the previous 1941 law.

4. Confidentiality: Trust deeds do not need to be made public by their registration (unless real estate in Panama is being settled). The trustee and its employees are subject to a duty of confidentiality. Breaches of said duty are subject to imprisonment or monetary fines.

5. No citizenship requirements: Individuals or entities of any country can serve as settlors, trustees or beneficiaries. None of the parties need to be Panamanian, except for the attorney which serves as resident agent.

6. No trustee requirements: Any capable person or entity may serve as trustee and does not need to be authorised by a government authority, unless they market themselves as such on a regular basis. Trustees serving as commercial custodians may seek to apply for a trustee license from the Superintendent of Banks in which case the trustee is subject to quarterly reporting, capital adequacy ratios and know-your-customer rules similar to those of banks.

7. Charitable or for-profit purpose: Trust provisions may appoint a general class of beneficiaries or unborn beneficiaries. Alternatively, trusts may also serve for commercial transactions, such as securitization of receivables or other assets.

8. Revocability option: Trusts are irrevocable by default, unless parties decide otherwise.

9. Separate patrimony: Trust assets are deemed as separate from assets of the settlor and trustee. Therefore, creditors of the settlor1 or trustee – such as commercial creditors or inheritance creditors in probate cases - cannot seize assets settled. Trust assets may be seized for liabilities incurred or damages caused from the performance of trust or by third parties when assets have been transfered or withheld by fraud.

10. Low local taxation: Income earned from assets located abroad or funds held in any bank in Panama are exempt from local Panama taxes. However, legislation from the countries of residence or citizenship of the settlor or trustee may impose additional tax obligations.

11. Minimum reporting requirements: Trusts without assets in Panama or not earning income in Panama are exempt from having to file tax returns or financial statements. Trustees are required to render account of their performance to the beneficiaries and maintain a duty of care under the bonus pater familiae standard.

Conflicts of Laws

The trust is subject to Panama law once it is stated in the trust deed. However, parties may agree to settle disputes under foreign law.

Disputes by default are resolved by Panama courts under a summary procedure with a shorter evidentiary stage. Parties may agree to have controversies settled by arbitration or before foreign courts.

Panama trusts may be transferred to another country when the trust deed allows so.

Foreign trusts may be subject to Panama law, as long as the trustee alone or jointly with the settlor, states so.

Foreign trusts are subject to Panama law, when enforcing their rights in court.2

Panama is not a member of The Hague 1985 Convention on the Law Applicable to Trusts and on their Recognition. Panama courts have cooperated in international service of process under international comity rules, but strictly enforce confidentiality and trust privilege granted by trust law3. National treatment is granted to nationals under Bilateral Investment Treaties (with U.S. and other countries) and Free Trade Agreements (Singapore and – pending ratification by Congress - U.S.).

1A vehicle held in trust by a trustee company for the benefit of its driver, cannot be seized by a government-owned bank to satisfy consumer debt of said driver. Decision of March 2, 2004, by Supreme Court of Justice – Administrative Section, Case 281-08.

2When a will granted in Panama by a St. Kitts national which appointed a St. Kitts & Nevis trust as heir. The trustee of the Nevis trust – not the trust itself - was held to be the rightful representative of the heir, because both Panama and St. Kitts trust laws consider the trust to be a relationship between settlor, trustee and beneficiary but not a separate entity in itself. Decision of May 4, 2007, by First Superior Tribunal of Justice, In re Estate of Wilson Charles Lucom.

3Two Panamanian principals of a BVI trustee company may answer the deposition requested by Polish authorities through exequatur but not provide copies of the trust documents. Decision of December 30, 2004, by Supreme Court of Justice – General Affairs Section, Case 110-04.




See also:
Should You Use an Offshore Entity?
US forms required for Panama trust and other non-US entities

Oct 15 is last day to report offshore accounts


A message from the IRS to those US taxpayers who have not disclosed offshore accounts...

Taxpayers Have Until Oct. 15 to File Extended 2008 Tax Returns; Offshore Voluntary Disclosures Also Due

IR-2009-87, Oct. 1, 2009

Listen to an Audio File for Podcast Watch a Video







Deadline nears for Special Offshore Voluntary Disclosures

Oct. 15 is the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore financial accounts.

Under the special provisions issued in March, taxpayers with these accounts originally had until Sept. 23, 2009, to come forward. Those taxpayers who do not voluntarily disclose their accounts by Oct. 15 face harsh civil penalties, where applicable, and possible criminal prosecution.

Tax professionals or individuals who want to initiate a voluntary disclosure should call their local IRS Criminal Investigation office. Individuals or their representatives may either contact the nearest Special Agent in Charge, IRS Criminal Investigation, stating their wish to make a voluntary disclosure, or provide a letter outlining information needed to assist the IRS in determining their acceptance into the voluntary disclosure program.

See the Voluntary Disclosure page on IRS.gov for more details.

Taxpayers with questions on the offshore issue may also call the IRS Voluntary Disclosure Hotline (215-516-4777) .



On September 21, 2009, the IRS announced a one-time extension of the September 23, 2009 deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts. Taxpayers now have until October 15, 2009. There will be no further extensions.
The September 23, 2009, deadline for certain FBAR filers and certain offshore-related information returns who have no unreported income is also extended to October 15, 2009. All other guidance included below may still be relied upon. For more specific information regarding the voluntary disclosure of offshore accounts and FBAR filings, see the related items below:

News Release IR-2009-84 and Overview of the Voluntary Disclosure Program





























News Release



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