Private Wealth 2019 Comparisons

Last Updated January 04, 2019

Contributed By Morgan & Morgan

Law and Practice


Morgan & Morgan 's multi-jurisdictional offering of corporate vehicles, trusts and complementary services for high net worth individuals has long been appreciated by their clientele. In addition to those longstanding services, Morgan & Morgan has recently created an International Tax Guidance Department, obtained a licence to create and manage SMART funds in The Bahamas. The International Tax Guidance Department is unique and clients will reap the benefits of their knowledge about tax treaties and new reporting requirements, be they CRS or FATCA. Morgan & Morgan has expertise in this area, regularly assisting local and foreign corporations from different industries, as well as recognised financial institutions, government agencies and individual clients. The firm attracts wealthy families and clients in the region who wish to protect, preserve, grow and distribute their assets; in terms of private wealth, Morgan & Morgan's most significant practice areas are estate planning, fiduciary services and international tax planning.

There are no special tax regimes under Panamanian law that affect estates, trust and foundations. Panama has a territorial tax system which entails that the local source of income for individuals, estates, trusts and foundations is subject to income tax. There is no estate or gift tax in Panama. When income tax is applicable, individuals may deduct health expenses and mortgage interest payments, while legal entities may deduct any expense necessary for the production of income. Panama does have a transfer tax on real estate, however, trusts and foundations are exempt from this tax if the transfer is performed from a vehicle to its beneficiaries. Nevertheless, the transfer from the settlor to the vehicle is not exempt.

As previously stated, Panama has no estate tax and none is being considered. The transfer tax on real estate has been stable for many years and there are no plans to amend it.

There are no proposed or forthcoming tax related regulatory changes of consideration for trusts, foundations and estates.

Income tax planning is a very important practice in Panama, not only for local residents who commonly derive local source income, but for foreigners who seek the benefits of allocating business or passive holding vehicles in a country featuring a territorial tax system. Careful tax planning is essential, especially for foreign residents and it requires that a local practitioner be familiar with both local and international tax principals.

Since Panama has a territorial tax system, there aren’t any general anti-abuse regulations (GAAR) as they are not deemed to be required.  In this regard, the adoption of the Common Reporting Standard (CRS) into Panamanian law does contain anti-abuse regulations in order to avoid any circumvention of the standards. Therefore, anti-abuse regulations are aimed not at abusive tax loopholes but rather at enhancing transparency versus foreign jurisdictions.

A very distinguishable factor in Panama is the level of involvement expected from newer generations in a family business. This can be both beneficial and detrimental to the overall success of an enterprise. It can be beneficial because it instils upon newcomers a sense of belonging and a sense of purpose, which will lead to greater cohesion in the business; but it can come at the expense of professionalism, which in the end will stall growth. This factor plays directly into decisions by older generations to turn over (or not) control to newer generations, and becomes painfully evident in larger families where seeking external counsel has become an imperative.         

International tax planning has been an issue for a number of years; but (in Panama) the concern was, until quite recently, almost exclusive to businesses operating in multiple jurisdictions. Greater transparency, the globalisation of family businesses, as well as multiple nationalities and a greater tendency for family members to relocate have made succession planning a multi-jurisdictional matter. Additionally, extraterritorial laws, such as Foreign Account Tax Compliance Acts (FATCA)/Common Reporting Standards (CRS), apply to clients in general, with many of them unaware of their FATCA/CRS status and that they may need to comply with certain reporting obligations.   

The Panamanian Civil Code upholds, as a paramount principle regarding estate and successions, that the grantor of a will should have absolute discretion over the distribution of his/her estate. This general rule is contained in the prologue to the Civil Code and is generally recognised, except for certain instances where the well-being of specific family members may be at risk.

In the context of private interest foundations, Law No. 25 of 12 June 1995 expressly provides that forced heirship rules, applicable at the place where a founder and/or beneficiaries is domiciled, shall not affect the validity of a Panamanian private foundation, nor “prevent the attainment of [the objective(s)] set forth in the foundation charter…” 

Prenuptial and postnuptial agreements are generally available, unless contrary to law, morale or if they seek to limit certain rights and obligations among spouses, and must be granted by means of public deed.

During life, the cost to transfer a property can be affected due to the applicable taxes. For example, the transferor of real estate must pay 2% in transfer tax and 3% in capital gains tax. The percentages are based on whichever is highest between the cost of sale or in the registered value of the real estate, as shown in Panamanian public offices. After death, and formally appointing successors of a deceased, there is no applicable tax affecting the cost of the property being transferred.

It is important to highlight that there are no estate taxes applicable under Panamanian law, therefore any transfers done by way of succession are tax-free. There are several vehicles or planning mechanisms available to help transfer assets, such as wills, trusts and/or private interest foundations.

Private interest foundations specifically provide for strong asset protection, because the assets allocated therein, if transferred in good faith, cannot be attached nor their transfer contested except for obligations that are personal to the foundation (as opposed to those personal to a founder and/or beneficiaries).

Additionally, the beneficiaries of a private interest foundation are designated via a private document and no judicial intervention is necessary for the Foundation Council to act in connection with their duties.

The Panamanian legal system recognises various entities that exclude the personal liability of shareholders or participants from debts or obligations of a corporate vehicle. These include corporations; limited liability companies; general partnerships (where limited liability is established) where Panamanian entities have been used by publicly held multinational corporations; private equity funds; closed-end funds and mutual funds, active trading corporations and by individuals for their personal investment or estate planning purposes.

Panamanian Corporation

Panamanian corporation law is based on early 20th century Delaware and New York corporate law. Its flexibility has successfully enabled it to be used in many forms in international commerce.

Limited Liability Companies

Limited liability companies have become popular with US taxpayers as they qualify for a check-the-box election, which allows limited liability companies to be treated as disregarded entities for US tax purposes.

Private Interest Foundations

Private interest foundations were introduced through Law No. 25 of 12 June 1995 and Executive Decree No. 417 of 8 August 1995. Modelled after the Liechtenstein Family Foundation, they have rapidly become a vehicle of choice for asset protection and estate planning structures in Latin America.

Panamanian foundations offer a simple, affordable and structured alternative to attain the preservation and transfer of an estate to future generations. The main difference is that, unlike a trust, the private foundation has a legal status and may own its assets.


Panamanian trust law is one of the most flexible in Latin America. Panamanian trusts are frequently used to create collateral trust arrangements to hold a wide variety of assets, including real estate and chattel, stocks and accounts for the benefit of lenders and creditors in connection with secured loans and note offerings. Other common uses of Panamanian trusts include voting trust agreements, retirement and pension funds, estate investment funds and estate planning.

Trusts are established in Panama by execution of a trust agreement between the settlor and trustee. There is no need to file the trust agreement in Panama unless the trust owns real estate located in Panama. It is not necessary that the settlor, trustee or beneficiaries be Panamanian citizens or residents. Nevertheless, the trust must have a resident agent in Panama, who must be a lawyer or a law firm, and who is required to approve and sign the trust instrument.

Panama introduced trusts into its legislation through Law No. 9 of 1925. Said piece of legislation was replaced by Law No. 17 of 1941, which in turn was replaced by Law No. 1 of 1984, which together with subsequent regulations and amendments is still in force. In May 2017 the trust law was amended and new regulatory provisions were included.

On 15 September 2017, the Hague Permanent Bureau was informed that on 30 August 2017, Panama had deposited its instrument of accession to the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition (Trust Convention).

Trusts are very popular instruments used in financial transactions and estate planning structures. As of 2017, assets under management by trusts exceeded USD21 billion dollars, being the most common guarantee and investment trusts.

The adoption of the CRS rules in Panama and several jurisdictions has added reporting requirements for trustees and directors of corporations. Irrevocable and discretionary trusts and private interest foundations are now being used for succession planning more widely now.

As previously mentioned, in May 2017 the Panamanian Trust Law was amended and now in order to act as trustee (corporate or individual) for a trust under Panamanian law a trust licence is required.

Purpose trusts are now available under the Panama Trust Law. A settlor's capacity to settle a trust and transfer assets to it will be governed by Panamanian law, irrespective of the nationality or domicile of the settlor or the assets. No taxes are due for transferring assets to the trust nor for returning them to the settlor.

There are no tax consequences for a fiduciary or beneficiary of a foreign trust due to the fact that Panama’s taxation system is mainly territorial inasmuch as, generally speaking, only income earned from Panama sources or in respect of assets located in Panama are taxed. Income that is not derived from activities carried out in Panama is not subject to taxation. This territorial principle partly accounts for the successful development of Panama as a base for international operations.

In the case of trusts and private interest foundations, income derived from offshore activities is not subject to income tax. No tax returns are required to be filed by trusts, private interest foundations or corporations carrying on activities exclusively outside Panamanian territory.

Traditionally, Panamanian fiduciary structures have enjoyed a great level of flexibility; allowing clients to be involved in the decision-making process of certain aspects of the management of their trusts or foundations without compromising the legality or integrity of the fiduciary vehicle.

As a consequence of the introduction of new fiscal legislation, such as controlled foreign corporation rules, FATCA and the CRS; there has been an increase in the demand of irrevocable fiduciary structures that legally allow tax deferral opportunities and can defer the mandatory automatic exchange of fiscal information on beneficiaries (until they effectively received distribution).

Therefore, some clients have elected to delegate most of the powers they previously enjoyed with third parties (such as trustees or protectors), that now hold the necessary faculties to execute future changes in fiduciary structures.

There are no tax consequences if a beneficiary or the donor of a trust or a private foundation also serves as a fiduciary or member of a foundation council.

Having said the above, if the sole beneficiary becomes the sole trustee, the trust will have extinguished as a matter of law. The aforementioned rule does not apply to Panamanian private interest foundations.

Consequently, the absence of restrictions and fiscal adverse consequences, allows clients to retain a great degree of control without compromising the legality and effectiveness of the fiduciary structure.

The most basic (and oldest) method recognised by Panamanian law to transfer assets mortis causa are wills. Nevertheless, even when a testament is in place succession procedures have proven to be lengthy and cumbersome and are usually avoided in lieu of more effective forms of estate planning. Private interest foundations and (to a lesser degree) trusts, are the preferred vehicles when setting up a comprehensive structure.

The reason why private interest foundations seem to be more popular with clients is because they allow for greater flexibility and for clients to engage directly in the management of the structure, whereas trusts require the intervention of duly licensed entities. Still, circumstances may dictate for a trust to be the preferred solution and a number of factors (such as place of residence, type of assets, etc) must be taken into account when determining the best alternative for a client.   

Since donations are not taxed in Panama, there is no need to reflect a discount for lack of marketability and control. Transfers of real estate will trigger 2% and 3% taxes (please refer to section 2 Succession). Clients may request the authorities reimburse the 3% capital gains tax, after submitting evidence that the transfer was done for bona fide purposes (as opposed to an onerous transaction).   

Private interest foundations are fiduciary vehicles incorporated for a specific purpose (object) as determined in the Act of Constitution or Charter. The pursuance of the object of a foundation is entrusted to an appointed body known as the Foundation Council. The person(s) who transfers the assets is known as the founder and the persons who benefit from the private interest foundation (traditionally the founder and/or members of his family) are known as the beneficiaries.

Once the Foundation Charter is registered at the Public Registry, the transferred assets become an estate separate from that of the founder.

The rights and information concerning the beneficiaries of a private interest foundation are set forth in a private document (the Regulations) and the administration of the relevant assets is usually entrusted to the Foundation Council. 

Private interest foundations, contrary to a traditional corporation do not issue shares, and the founder does not acquire special rights in relation to the relevant assets, except for those that have been specifically reserved in the governing documents.

In Panama, a substantial number of disputes (regarding wealth and estate planning) are succession proceedings which the Panamanian Civil Code divides into two categories: testate and intestate, where the sole difference is the existence of a valid will.

If no orderly disposition of the estate has been provided by the deceased or a will is held void, Panamanian law will govern the relationship among heirs (including the determination of such standing). Judicial intervention is necessary for both types of proceedings.

Panama does not have forced heirship rules (except for the obligation to maintain children until the legal age). Therefore, grantors are allowed much freedom when setting up a will or other type of fiduciary structure.

Most disputes regarding fiduciary vehicles -such as trusts and private interest foundations-  will arise from alleged misconduct by the trustee/foundation council in the performance of their duties. These types of structures frequently include arbitration clauses which are preferable to the lengthy proceedings that characterise civil jurisdiction (even though private interest foundations are subject to summary proceedings as a matter of law).   

Regarding compensation within a legal dispute of any kind (including disputes involving trusts, private interest foundations or similar entities), the obligation of the responsible party for the harmful conduct due to fault, negligence, wilful misconduct or delinquency - generates the obligation to compensate for the damages caused by such conduct - including consequential damages and profit loss.

Consequential damages include material and economic results caused directly by an offence, and loss of profit refers to loss of earnings, these are susceptible to being increased if the behaviour attributed and proven is wilful and malicious.

The concept of punitive damages or exemplary damage does not exist in Panama.

The use of corporate fiduciaries in Panama is fairly common, from performing various roles in the process of entity formations to directorship and management functions. Regarding their standard of conduct, insomuch as they perform a regulated and supervised activity, fiduciaries and the service providers controlling them are indeed subject to the standard of care of a good pater familiae (good father, derived from Roman Law) which may be considered the equivalent in common law of the Prudent Man Rule.

Generally, trustees and council members (in private interest foundations) are not responsible for the liabilities and obligations of the fiduciary structures managed by them.

Notwithstanding the foregoing, Panamanian courts have pierced the corporate veil in certain circumstances where not doing so would be tantamount to promoting fraud. It is not a remedy contained in the law; but the measure has been upheld by courts in a number of instances. 

As previously mentioned, the disregard of corporate formalities is not enough to justify the piercing of the corporate veil, and the measure has been applied exclusively to cases of fraud and certain cases where the Panamanian state is a party. The Supreme Court of Justice has limited the definition of fraud, in this context, to apply to:

  • the use of a legal entity to hide assets that are part of a judicial investigation regarding a criminal act; and
  • circumstances where a corporate personality has been used as part of a scheme to evade legal obligations.

Pleas to disregard the veil are likely to be dismissed, unless the fall into one of these categories.

A fiduciary's investment of assets will be subject to the standard of the good pater familiae provided a different standard is agreed by settlor and service provider. This standard, while not exactly similar to the Prudent Man Rule, is a staple of civil law jurisdictions and upholds the desired level of care a fiduciary should employ in investing assets , which is based on the level of care and prudence a person shall employ in investing and managing for his/her own assets to support his/her family. The standard is set forth in our Trust Act Law 1 of 1984 (revised) Article 27.

Panamanian legislation allows that the standard applied to the fiduciary investment of assets be contractually agreed by the settlor/founder and its trustee/foundation council.

In the absence of any agreed standard, the fiduciary investment of assets should be conducted following the standard of the good pater familiae, since the trustee/foundation council would be compelled to invest assets with the level of care and prudence a person employs in investing his/her own assets to support his/her family. They should invest in order to achieve an adequate level of diversification and to preserve the trust fund value.

Trusts, private interest foundations and similar entities are authorised to hold active businesses and could, depending on the responsibilities actually undertaken by the trustee or foundation council , effectively run a commercial enterprise. However, this premise does not disregard the legal personality of the commercial entity performing the enterprise. This is especially important in the case of private interest foundations which are not allowed to execute commercial activities on an ongoing basis, and thus the business owning entity must perform its management functions through its corporate structures (directors, supervisory boards, committees, etc). Apart from applicable laws, the rules and limitations to the activity will arise from contractual agreements among the parties to a scheme, so major care should be exercised to the drafting of the trust, contracts or the foundation's by-laws. 

Trust Act Law 1 of 1984 (revised) Article 27 details the mechanisms to protect fiduciaries as it is allowed to limit its liabilities, however, it will not be released from such liability in the case of negligence or fraud. Statutory obligations of the trustee are regarded as ordinances of “public order” and may not be delegated, unless expressly authorised by the settlor. Functions may, of course, be delegated by the trustee however it may not delegate liability arising from the provision of such services.

With respect to residency, as a general rule, foreigners enter as tourists for a period of three-six months, allowing them to do tourism, business or investment activities within the country. However, nationals from certain countries including China, India and many other Asian and African countries, must request an entry visa that, when granted, is stamped at a Panamanian Consulate before travel. This entry visa applies unless the person has a valid multiple entry visa from the US, Canada, the UK, the EU (Schengen visa) or Australia, and has used it at least once to enter the territory that issued said visa, in which case the person can enter Panama without prior authorisation.   

During this period, the foreign national that wishes to apply for a residence permit, must choose from a wide spectrum of options, depending on the intention for establishing residency in Panama. The main categories to apply for a residence permit are the following:

  • Permanent Residence Permit for Nationals from Countries with Professional and Economic Ties with the Republic of Panama: The key requirement of this residence permit is to be a citizen of a country that has professional and economic ties with Panama, according to a list included published in the Official Gazette, by means of an Executive Decree.
  • Permanent Residence Permit for Nationals from Italy: For this residence permit, the main requirement is to be an Italian national. 
  • Permanent Residence Permit based on Company Quotas: This type of residence permit is based on a company’s quotas under the 15% of technical employees, experts or trust personnel and 10% of ordinary personnel rule.
  • Temporary Residence Permit for Executives working for a Company with a Multinational Headquarters Licence: This type of residence permit can be applied for executives that work for companies holding a Multinational Headquarters’ Licence, granted by the Ministry of Commerce. In this case, foreigners can obtain the residence permit without a quota limitation.
  • Permanent Residence Permit based on Financial Means: The key requirement for this residence permit is to have an investment of at least USD300,000.00 in Panama, either through a real estate investment, a fixed-term deposit or a combination of both.

As for citizenship, the requirements to apply for Panamanian citizenship are established in the Political Constitution of Panama. These requirements are to have: five consecutive years of permanent residency in Panama; three consecutive years of residence in Panama and have children born of a Panamanian father or mother or spouse of Panamanian nationality or to be a national by birth of Spain or of a Latin American State, if they fulfil the same requirements that are requested by Panama in order to apply for citizenship in said countries. 

There are no expeditious means for an individual to obtain citizenship in Panama, as there are several requirements that need to be met before being able to apply for citizenship, one of them is the course of time after acquiring permanent residency.

In order to obtain permanent residency, the more expeditious manner is by applying for a Residence Permit for Nationals from Countries with Professional and Economic Ties with the Republic of Panama or applying for a Residence Permit for Nationals from Italy, as both of these permits grant permanent residency in approximately four months.

There are no special planning mechanisms for minors or for adults with disabilities in Panama. However, nothing prohibits using and customising a trust or private interest foundation to a special needs situation.

The appointment of a guardian as part of family law proceedings does require a judicial order as well as court supervision. Outside the scope of family law disputes, there are some cases in which court supervision is not required.

The provisions of the Panamanian Civil Code that distinguish “legitimate children” (those that were born inside wedlock) from “natural children” (those that were born out of wedlock) were eliminated under Panamanian law over 50 years ago. Therefore, children, including those who have been adopted, have the same inheritance rights with no distinctions or limitations whatsoever.

Panama does not recognise same-sex marriages.

The term domestic partners is not common to Panamanian law. However, de facto marriages, where a man and a woman have been living under conditions of singularity and stability for a period of five consecutive years, are given the effects of a civil marriage. The condition of stability is fulfilled when cohabitation is continued, lasting and permanent. The effects of a de facto marriage are produced when the aforementioned conditions are achieved, even though the marriage may be judicially recognised later on.

Given the fact that Panama has a territorial tax system and that estate taxes do not apply, the need for charitable giving as a fiscal tool is relatively minor. Donations in Panama can only be deducted up to USD15,000.00 per annum, thus, charitable giving as a tax planning instrument is not relevant.

There is no prevalent structure for charitable planning as a tax tool. Nevertheless, stipulations may be included in trusts/foundations/wills to benefit charitable institutions and otherwise fulfil the philanthropic intentions of a founder/grantor.

Attorneys and wealth managers are relying modern vehicles such as the private interest foundation to prepare clients and their estates for healthier and longer lives. By providing an asset protection and succession planning vehicle, where all control is not lost, the private interest foundation is becoming an increasingly popular instrument.

The succession of digital assets in Panama is not regulated in any special law. Therefore, the post mortem transfer of said assets will have to conform to the rules that apply to analogous non-digital assets, as set forth in the Panamanian Civil Code.

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Law and Practice


Morgan & Morgan 's multi-jurisdictional offering of corporate vehicles, trusts and complementary services for high net worth individuals has long been appreciated by their clientele. In addition to those longstanding services, Morgan & Morgan has recently created an International Tax Guidance Department, obtained a licence to create and manage SMART funds in The Bahamas. The International Tax Guidance Department is unique and clients will reap the benefits of their knowledge about tax treaties and new reporting requirements, be they CRS or FATCA. Morgan & Morgan has expertise in this area, regularly assisting local and foreign corporations from different industries, as well as recognised financial institutions, government agencies and individual clients. The firm attracts wealthy families and clients in the region who wish to protect, preserve, grow and distribute their assets; in terms of private wealth, Morgan & Morgan's most significant practice areas are estate planning, fiduciary services and international tax planning.


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