RELOCATION TO PANAMARELOCATION TO PANAMA

Escobar, Della Togna, Icaza & JuradoEscobar, Della Togna, Icaza & JuradoAttorneys at LawAttorneys at Law

September , 2011 – Panama City, PanamaSeptember , 2011 – Panama City, Panama

BackgroundBackground

Jacqueline Escobar Jacqueline Escobar – Graduated from Duke University – – Graduated from Duke University – Masters in Law (Real Estate Expert)Masters in Law (Real Estate Expert)

Marisel Della Togna Marisel Della Togna – Former Deputy Director of – Former Deputy Director of Panamanian Internal Revenue Service (Tax Consultant)Panamanian Internal Revenue Service (Tax Consultant)

Marisel Jurado Marisel Jurado – MBA and Masters in Accounting – MBA and Masters in Accounting (Corporate Law Expert)(Corporate Law Expert)

Maruquel Icaza Maruquel Icaza – Graduated from American University, – Graduated from American University, – Former Vice Consul Panamanian Embassy at – Former Vice Consul Panamanian Embassy at Washington, D.C. (Immigration Consultant)Washington, D.C. (Immigration Consultant)

Panama´s OverviewPanama´s Overview

• Reasonable life here on about $1,200 a month.Reasonable life here on about $1,200 a month.•Comparative advantagesComparative advantages

Panama´s Economy: Panama´s Economy: -- Dollarized economy. Dollarized economy. -- Services based economy (banking, commerce, transportation, Services based economy (banking, commerce, transportation,

ports and tourism).ports and tourism).-- The country's industry includes, manufacturing of aircraft spare The country's industry includes, manufacturing of aircraft spare

parts, cements, drinks, adhesives, textiles and more. parts, cements, drinks, adhesives, textiles and more.

HEALTH CARE AND INSURANCEHEALTH CARE AND INSURANCE

Infrastructure (e.g. Punta Pacífica Hospital which is affiliated to the John Infrastructure (e.g. Punta Pacífica Hospital which is affiliated to the John Hopkins Hospital in the US)Hopkins Hospital in the US)

Low cost medical services and health insurance premiumsLow cost medical services and health insurance premiums

Recognized local and international insurance companies Recognized local and international insurance companies ((Blue Cross Blue Blue Cross Blue ShieldShield))

Your health insurance policy can cover you for hospitalization and/or Your health insurance policy can cover you for hospitalization and/or medical expenses. You can obtain Local or International Coverage.medical expenses. You can obtain Local or International Coverage.

By Law, all vehicles have to be insured.By Law, all vehicles have to be insured.

INCORPORATION IN PANAMAINCORPORATION IN PANAMA

 

The most common legal instruments for Incorporations in Panama:

1- Panamanian Corporations (Used to do business in Panama or to protect assets such as properties, any legal activity)

2- Private Interest Foundation (Asset Protection)

PANAMANIAN CORPORATIONS

Law 32 of 1927

•IDENTITY OF DIRECTORSNationals or foreigners may establish a corporation

• SHARE STRUCTUREBearer and nominative shares are also permitted. A single person or a corporation may own all shares.

• CORPORATE DIGNITARIES & RESIDENT AGENTPanamanian law requires a President, a Secretary and a Treasurer, and a local resident agent.

• DURATION AND DOMICILE OF CORPORATION Law 2 of 2011 • KNOW YOUR CLIENT – DUE DILIGENCE

Steps to Set Up a CorporationSteps to Set Up a Corporation

Check name availability in the Public Registry.Check name availability in the Public Registry.

Preparation of legal documentation (i.e. corporate by-laws).Preparation of legal documentation (i.e. corporate by-laws).

Upon registry, the Resident Agent prepares share certificates and legal Upon registry, the Resident Agent prepares share certificates and legal books for the corporation.books for the corporation.

The annual corporate tax is of US$300The annual corporate tax is of US$300

Length of time for organizing a company: 3-5 daysLength of time for organizing a company: 3-5 days

Doing Business in PanamaDoing Business in Panama

1.1. Set up a companySet up a company

2.2. Obtention of tax payer I.D. number (Obtention of tax payer I.D. number (R.U.C.R.U.C.))

3.3. Obtain a Commercial License to operate in Panamá (Obtain a Commercial License to operate in Panamá (Aviso Aviso de Operación – Retail activities restriction by Lawde Operación – Retail activities restriction by Law))

4.4. Register the company in the Municipality Office (Municipal Register the company in the Municipality Office (Municipal Taxes)Taxes)

5.5. Hire personnel / Labor contracts sealed in the Ministry of Hire personnel / Labor contracts sealed in the Ministry of LaborLabor

6.6. Register personnel in the Social Security of Panama (The Register personnel in the Social Security of Panama (The rate paid is of rate paid is of 12%12% employers – employers – 8%8% employees) employees)

ASSET PROTECTION ASSET PROTECTION

PRIVATE INTEREST FOUNDATIONSPRIVATE INTEREST FOUNDATIONS

Private Interest FoundationPrivate Interest FoundationLaw 25 of 1995

•These private interest foundations shall not be profit oriented.

• They may engage in commercial activities in a non-habitual manner.

• The founders must select a name to identify the foundation.

• The objectives, duration, domicile, and board of the foundation must also be indicated, along with the beneficiary or beneficiaries.

Private Interest FoundationPrivate Interest Foundation

Foundation charter must be notarized and registered as trust deed Foundation charter must be notarized and registered as trust deed does.does.

The private interest foundation is very similar to a trust in its The private interest foundation is very similar to a trust in its operation, but unlike the trust, there is no need to transfer the assets operation, but unlike the trust, there is no need to transfer the assets to a third party.to a third party.

When the assets are from outside the territory of Panama, no taxes When the assets are from outside the territory of Panama, no taxes are levied when these assets (whether movable or immovable, shares, are levied when these assets (whether movable or immovable, shares, bonds, and others) are transferred.bonds, and others) are transferred.

Private Interest FoundationPrivate Interest Foundation

•It may be established for the benefit of a person or It may be established for the benefit of a person or persons, a family, or a specific social purpose.persons, a family, or a specific social purpose.

•PIFs are a viable solution for estate planning, PIFs are a viable solution for estate planning, providing privacy, and protection of assets.providing privacy, and protection of assets.

Private Interest FoundationPrivate Interest Foundation

Your Foundation books are mantained 100% private Your Foundation books are mantained 100% private and confidential by law.and confidential by law.

The Beneficiaries are not registered in the Public The Beneficiaries are not registered in the Public Registry.Registry.

Beneficiaries can be appointed through a Private Beneficiaries can be appointed through a Private letter of wishes written and signed by the Protector.letter of wishes written and signed by the Protector.

The PIF does not require Paid In CapitalThe PIF does not require Paid In Capital

IMMIGRATIONIMMIGRATION

PENSIONADO PROGRAM PENSIONADO PROGRAM Law No. 9 /June 24, 1987Law No. 9 /June 24, 1987

Pension income of at least Pension income of at least US$ 1,000.00US$ 1,000.00 per month and an per month and an additional additional US$ 250.00US$ 250.00 for each dependent. for each dependent.

Private and public pensions apply (retired by the government, social Private and public pensions apply (retired by the government, social security or private pension programs) security or private pension programs)

Your application must be processed by a Panamanian attorney Your application must be processed by a Panamanian attorney through a Power of attorney.through a Power of attorney.

Indefinite legal residence statusIndefinite legal residence status

Does not grant you a Passport nor a Panamanian I.D. CardDoes not grant you a Passport nor a Panamanian I.D. Card

Private Income Retiree Visa Private Income Retiree Visa

This visa has an income requirement of US$ 850.00 monthly.This visa has an income requirement of US$ 850.00 monthly.

Approximately US$350K (Time deposit) with current interest Approximately US$350K (Time deposit) with current interest rates.rates.

The time deposit has to be free of any liens.The time deposit has to be free of any liens.

This visa has to be renewed every five (5) years.This visa has to be renewed every five (5) years.

Grants Special Panamanian Passport but not Panamanian I.D. Grants Special Panamanian Passport but not Panamanian I.D. Card Card

IMMIGRANT VISA AND RESIDENCE PERMIT TO IMMIGRANT VISA AND RESIDENCE PERMIT TO FOREIGNERS WITH ECONOMIC SOLVENCYFOREIGNERS WITH ECONOMIC SOLVENCY

   The Self-Economic Solvency Visa offers three (3) different The Self-Economic Solvency Visa offers three (3) different investment options to qualify for residency status in the Republic of investment options to qualify for residency status in the Republic of Panama:Panama:

InvestmentInvestment Option A:Option A: Requires a Requires a minimum of US$300,000 in a minimum of US$300,000 in a three (3) year time deposit (or "certificate of deposit" or "CD") three (3) year time deposit (or "certificate of deposit" or "CD") without liens at any licensed bank in Panama.without liens at any licensed bank in Panama.

Investment Option B:Investment Option B: Requires Requires a minimum of US$300,000 in a a minimum of US$300,000 in a titled property (real estate) in Panama without any liens.titled property (real estate) in Panama without any liens.

Investment Option C:Investment Option C: Requires Requires a time deposit and property, for a time deposit and property, for the amount of US$ 300,000 for both investments.the amount of US$ 300,000 for both investments.

  

General Documentation RequiredGeneral Documentation Required

Registration Process is the first step. To register at the Immigration Office, the Registration Process is the first step. To register at the Immigration Office, the applicant must go in person with his original passport and 2 pictures.applicant must go in person with his original passport and 2 pictures.

Power of attorney (we provide it)Power of attorney (we provide it) Health certificate issued by a Panamanian Doctor.Health certificate issued by a Panamanian Doctor. Police report.Police report. Complete passport copies (all pages including cover), notarized in Panama (we Complete passport copies (all pages including cover), notarized in Panama (we

take care of that).take care of that). Six (6) photographsSix (6) photographs Sworn statement about personal background. (We provide the form)Sworn statement about personal background. (We provide the form) All document coming from a foreign country needs to be authenticated by a All document coming from a foreign country needs to be authenticated by a

Panamanian Consulate in the U.S or by Apostille. If it is a private document, it has Panamanian Consulate in the U.S or by Apostille. If it is a private document, it has to be notarized before sending it to the Consulate.to be notarized before sending it to the Consulate.

All documentations requires to be translated into Spanish by a Panamanian All documentations requires to be translated into Spanish by a Panamanian authorized translator. authorized translator.

OPENING BANK ACCOUNTSOPENING BANK ACCOUNTS

BANKING REGULATIONSBANKING REGULATIONS

A foreigner can have a Panama Bank Account. A foreigner can have a Panama Bank Account.

The bank account minimum is $1000, for both checking and savings The bank account minimum is $1000, for both checking and savings accounts, in USD or Euros. accounts, in USD or Euros.

Article 194 of this law specifically enshrines the client’s right to privacy and Article 194 of this law specifically enshrines the client’s right to privacy and confidentiality in its relationship with the bank with respect to third parties, confidentiality in its relationship with the bank with respect to third parties, and Article 110 makes explicit the bank’s obligation to maintain this and Article 110 makes explicit the bank’s obligation to maintain this confidentiality. confidentiality.

More than 75 banks are stationed in Panama, 36 of them with international More than 75 banks are stationed in Panama, 36 of them with international (offshore) licenses. The financial sector represents a full 8% of the GDP, and (offshore) licenses. The financial sector represents a full 8% of the GDP, and employs 17% of the labour force. employs 17% of the labour force.

BANK ACCOUNT REQUIREMENTS- PERSONAL ACCOUNT AND CORPORATE ACCOUNT- Please note that requirements can vary from Bank to Bank.

Requirements to apply for a personal account (deposit) – Basic requirements.•Personal interview with Branch Manager – Main Branch•Required documents: - Passport – original- Bank reference letters (preferable two)- Personal reference letters (from a known friend /customer with residence in

Panama ) - Business reference letters (job, accountant, lawyer or broker). (Two in total). •Internal bank papers will need to be signed and completed by applicant.•Application documents will be evaluated by our Compliance Office •Bank reserves the right to request additional information if considered necessary•Brief description of background and current activities.

Requirements to apply for a deposit account in the name of a corporation (local) with foreign directors and/or signers – Basic requirements

•Personal interview / bank forms•Copy of articles of incorporation and its amendments (if applicable)•Legal I.D. for all directors of corporation are required•Reference /Presentation letter from lawyers in Panama.•Bank reference letters •Business/commercial letters of reference of corporation and or directors

and signers to account•Validation Certificate of Corporation issued by the Registry Public in

Panama (recent)•Brief description of background and current activities of the authorizing

signatures.

PANAMANIAN TAX LEGISLATIONPANAMANIAN TAX LEGISLATION& &

BENEFITSBENEFITS

1. INCOME TAX Individuals Companies

2. ALTERNATIVE METHOD FOR CALCULATION Companies with taxable income of more than 1.5 millions pay income tax on the greater of applying the traditional method (25%) or 4.67% of total net revenues

2.1 ADVANCE INCOME TAX - Companies that earn taxable income1% of the monthly taxable income

M A J O R T A X E SM A J O R T A X E S

Up to 11,000 O%

11,000 – 50,000 15%

+ 50,000 USD5,850 for the first 50,000 and 25% of the surplus

PERIOD TAX

2011 27.5%

2012 25%

3. TRANSFER OF MOVABLE GOODS & SERVICES TAX / VAT (7%) Exceptions – (10% & 15%)3. TRANSFER OF MOVABLE GOODS & SERVICES TAX / VAT (7%) Exceptions – (10% & 15%)

4. SELECTIVE CONSUMPTION TAX (varies depending on the goods such as cars, cigarettes, 4. SELECTIVE CONSUMPTION TAX (varies depending on the goods such as cars, cigarettes, liqueurs, etc.)liqueurs, etc.)

5. COMMERCIAL OR INDUSTRIAL LICENSE TAX5. COMMERCIAL OR INDUSTRIAL LICENSE TAX• 2% of the company’s total capital , with a minimum payment of 100 and a 2% of the company’s total capital , with a minimum payment of 100 and a

maximum of 60.000 maximum of 60.000

6.6. INCOME TAX RELATED TO REAL ESTATE INCOME TAX RELATED TO REAL ESTATE a.a. Habitual BusinessHabitual Business

a.a. Brand new - Brand new - Progressive Tableb.b. Used – general income tax tariffs as individuals or companiesUsed – general income tax tariffs as individuals or companies

b.b. Non-habitual BusinessNon-habitual Business a. Income tax at a rate of ten percent (10%) on taxable income. The taxpayer is a. Income tax at a rate of ten percent (10%) on taxable income. The taxpayer is obliged to pay a sum equal to 3% of the total value of the transfer or the cadastral obliged to pay a sum equal to 3% of the total value of the transfer or the cadastral value, whichever is greatervalue, whichever is greater

7.7. TRANSFER OF REAL ESTATE TAX TRANSFER OF REAL ESTATE TAX a. Property vs. Panamanian Corporation (2%)a. Property vs. Panamanian Corporation (2%)

8.8. PROPERTY TAXPROPERTY TAXa. Progressive tablea. Progressive tableb. 1% of land value for condos (if improvements are exempt)b. 1% of land value for condos (if improvements are exempt)

9. CAPITAL GAINS TAX (10% - 5% witholding)9. CAPITAL GAINS TAX (10% - 5% witholding)

10.10. IMPORT DUTIES (varies depending on the good – in many cases IMPORT DUTIES (varies depending on the good – in many cases ISC supplanted import tax)ISC supplanted import tax)

11.11. BANKING & FINANCIAL INSTITUTION TAX / Insurance Tax (FECI)BANKING & FINANCIAL INSTITUTION TAX / Insurance Tax (FECI)

12.12. OTHERS: Oil Tax, Municipal Tax, Vessel Flag TaxOTHERS: Oil Tax, Municipal Tax, Vessel Flag Tax

INCOME TAX

Individuals earning income in Panama, who stay more than 183 consecutive or alternate days, must pay income tax

Sums derived from income generated in Panama that are remitted abroad pay withholding tax of 27.5 % (for companies) or 15% (highest rate for indivIduals) on 50% of the total income

Foreign Income non-taxable

•Invoicing from a company in Panama

•To conduct transactions in Panama that have its effects abroad (offshore)

•To distribute dividends generated from foreign income or from companies that do not require commercial license

TERRITORIALITY PRINCIPLE

T R A N S F E R S T R A N S F E R S A B R O A DA B R O A D

• Interest, commissions and others credited or remitted abroad, pay income tax at regular rates over 50% of remitted sum, withheld from the total amount paid to the foreign creditor.

• The beneficiary of the service may deduct the payment remitted from its taxable income.

• Foreign source income is not subject to tax.Example: company has administration and accounting in Panama; operations are abroad.

• Co. established in CFZ or special regimes (export & re-export) sales – distribution of such earnings.

G E N E R A L G E N E R A L P R I N C I P L E S O N P R I N C I P L E S O N D I V I D E N D T A X E SD I V I D E N D T A X E S

NON-TAXABLE

• Distribution of such earnings derived fromits internal sales in Panama.

Dividends: Nominative 10% Bearer 20%

TAXABLE

R E A L E S T A T E R E A L E S T A T E R E L A T E D T A X E SR E L A T E D T A X E S

Real Estate Tax Progressive Table / 1% condos

Transfer Real Estate Property Tax

2%

Capital Gains Tax

3%

TAX ABATEMENT – REAL ESTATETAX ABATEMENT – REAL ESTATE

RESIDENTIALS: RESIDENTIALS:

COSTSCOSTS FROMFROM UP TOUP TO YEARSYEARS

UP TOUP TO 100,000100,000 15 15

MORE THANMORE THAN 100,000100,000 250,000250,000 1010

MORE THANMORE THAN 250,000250,000 55

INDUSTRIAL, INDUSTRIAL, COMMERCIALCOMMERCIALAGRO – INDUSTRIAL:AGRO – INDUSTRIAL:

1010

PANAMA AS TAX HAVENPANAMA AS TAX HAVEN

Panama has triumphed in the process of not being considered a tax haven. Finally, after a successful negotiation and subscription of 12 double taxation agreements and the implementation of deep changes within the internal revenue and tax administration, the OCDE introduced our country into the so called “white lists”.

PENSIONADO PROGRAM BENEFITSPENSIONADO PROGRAM BENEFITS

Selective Consumption Tax (ISC) of 5% plus 7% Service Tax on cars (*)Import tax exemption for households up to US$10,000 Import tax exemption for household goods 25% discounts on utility bills 25% discount on airline tickets and 30% on other transportation 15% discount on loans made in your name 1% reduction on home mortgages for homes used for personal residence (The house has to be purchased at your name not a company or SA) 20% discount on doctor's bills 15% on hospital services if no insurance applies 15% off dental and eye exams 10% discount on medicines 20% discount on bills for professional and technical services 50% discount on entrance to movie theaters, cultural and sporting events 50% discount at hotels during Monday to Thursday, 30% on weekends, among others.

(*) Law 33 of 2010

COLON FREE ZONE (ANNUAL GROWTH 15%)COLON FREE ZONE (ANNUAL GROWTH 15%) EXPORT PROCESSING ZONESEXPORT PROCESSING ZONES PANAMA-PACIFIC SPECIAL ECONOMIC AREA ($400M)PANAMA-PACIFIC SPECIAL ECONOMIC AREA ($400M) PETROLEUM OIL FREE ZONESPETROLEUM OIL FREE ZONES CALL CENTERS (14,000 JOBS)CALL CENTERS (14,000 JOBS) CITY OF KNOWLEDGE AND THE INTERNATIONAL CITY OF KNOWLEDGE AND THE INTERNATIONAL

TECHNOLOGICAL PARKTECHNOLOGICAL PARK TOURISMTOURISM PENSIONADO PROGRAMPENSIONADO PROGRAM

SPECIALSPECIALTAXTAXREGIMESREGIMES

TIEA PANAMA - USTIEA PANAMA - US

In effect since April 2011In effect since April 2011 1. Includes the 1. Includes the following taxes imposed by the United States:following taxes imposed by the United States:

(a) Federal income taxes;(a) Federal income taxes; (b) Federal taxes related to employment;(b) Federal taxes related to employment; (c) Federal estate and gift taxes; and(c) Federal estate and gift taxes; and (d) Federal excise taxes.(d) Federal excise taxes.

2. Includes the 2. Includes the following taxes imposed by the Republic of Panama:following taxes imposed by the Republic of Panama: (a) Income Tax(a) Income Tax (b) Real Estate Tax(b) Real Estate Tax (c) Vessels Tax(c) Vessels Tax (d) Stamp Tax(d) Stamp Tax (e) Notice of Operations Tax(e) Notice of Operations Tax (f) Tax on Banks, Financial and Currency (f) Tax on Banks, Financial and Currency Exchange Companies.Exchange Companies. (g) Insurance Tax(g) Insurance Tax (h) Tax on the Consumption of Fuel and Oil (h) Tax on the Consumption of Fuel and Oil DerivatesDerivates (i) Tax on the Transfer of Movable Goods and (i) Tax on the Transfer of Movable Goods and the Provision of Servicesthe Provision of Services (j) Tax on the Consumption of certain Goods and (j) Tax on the Consumption of certain Goods and ServicesServices (k) Tax on the Transfer of Immovable Goods(k) Tax on the Transfer of Immovable Goods

3. 3. Under section 274(h) of the U.S. Internal Revenue Code, an individual may deduct from income expensesUnder section 274(h) of the U.S. Internal Revenue Code, an individual may deduct from income expenses

Escobar, Della Togna, Icaza & Jurado47th Street and Aquilino de la Guardia Ave., The Ocean Business Plaza, Suite 1003Panama City, Panamawww.edtij.com – info@edtij.comTel.(507)340.63.24Fax. (507)340.63.25