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Panama: Offshore Legal and Tax Regimes

Offshore Legal Introduction

The term 'offshore' is not used in Panamanian legislation; since taxation is on a 'territorial' basis, i.e. only Panama-sourced income is taxed, an entity which has its activities or assets outside Panama will automatically escape taxation. There are more than 120,000 corporate entities in Panama, of which the majority are 'offshore'.

In April 2009, following that month's landmark G20 summit in London, Panama was placed on the OECD's 'grey list' of territories which have committed to, but not yet substantially implemented, the internationally agreed standard in tax transparency and information exchange. Later that month, the government of Panama announced the conclusion of the first round of negotiations towards a double tax agreement with the Netherlands, including tax information exchange provisions in line with the OECD standard. Panama’s deputy Economy Minister, Frank de Lima explained at the time that these negotiations "marks progress towards the removal of Panama from the Organization for Economic Cooperation and Development’s ‘grey list.’

The OECD announced in July 2011 that Panama had moved to the list of jurisdictions considered to have substantially implemented the standard for exchange of information when it signed a tax information exchange agreement with France. This brought the total number of agreements to 12 - the international required minimum.

A DTA with Spain came into force in July 2011 and in September, a tax information exchange agreement with the country was signed by Panama. Israel and Panama initialled a double tax treaty in August 2011.

DTAs with France, Portugal and South Korea have come into force during 2012. Agreements with the Czech Republic, Ireland, Israel, Italy and the UAE have been signed but are not yet in force.

Offshore entities may take the following forms:

Licences are only required for financial institutions (see Offshore Business Sectors). Corporations do not have to disclose beneficial ownership, and Trusts and Foundations need not disclose the names of their beneficiaries. Limited Partnerships do however need to disclose the names of their members.
In 2007 Panama inaugurated a headquarters company regime (sedes de empresas multinacionales, or SEM) which offers tax breaks to encourage multinational companies to set up various types of service companies. SEM companies are exempt from VAT on services rendered to non-Panamanian taxpayers, and are exempt from income tax on profits from such services. Expatriate employees of SEM companies also receive tax privileges.

In order to achieve SEM status, group assets must be worth at least US$200 million. A minimum initial capital of US$2 million is required if the group's main office is to be in Panama.

 

 

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