Private Wealth 2023

Last Updated August 10, 2023


Law and Practice


Morgan & Morgan is a full-service Panamanian law firm that regularly assists local and multinational corporations from different industries, as well as recognised financial institutions, government agencies and individual clients. The firm fields a skilled and seasoned team of attorneys, business executives and accountants with over 30 years of experience in the trust and corporate services industry. The team helps successful families and entrepreneurs around the world to structure their assets in a way that will preserve their wealth now and for future generations. It works with a broad range of clients, including professional and individual trustees, executors and administrators, banks, stockbrokers, family offices, wealth managers and beneficiaries (both individual and charities).

Panama has a fiscal system based on territorial income, so revenues produced from foreign sources are exempt from taxes. This concept applies to both corporations and individuals alike, whether domiciled or non-domiciled, citizens or non-citizens, and only assets located or invested within Panama’s territory are subject to transfer or capital gains taxes.

Panamanian private interest foundations and corporate and fiduciary vehicles are widely used within ownership structures because they are flexible and tax neutral, and allow clients to arrange their estate with considerable freedom.

There is no inheritance or gift tax in the Republic of Panama.

Interest derived from banking deposits is exempt from taxation by law, as is the sale of securities listed on the Panamanian Stock Exchange.

There are no gift, inheritance or estate taxes in the Republic of Panama. A 2% tax on the value of the property is levied upon the transfer of real estate properties located within the Republic of Panama (exemptions are available for spouses and within certain degrees of kinship).

There are ample opportunities for income tax planning in Panama. The more popular methods include setting up in one of the different free trade zones and/or applying for special regimes (such as the Regional Headquarters programme for multinational corporations), which can help to reduce the applicable tax rates, provided that certain requirements are met by the applicant.

Panama does not differentiate between real estate owned by citizens and non-citizens, or by residents and non-residents, for tax purposes. Although it is preferable to have real estate owned by a fiduciary structure for estate planning purposes (to avoid lengthy inheritance procedures), the use of such structures is unlikely to result in a fiscal advantage.

Panama has been very predictable in not imposing certain taxes since the inception of the Republic. Previous governments have favoured stability and steered away from wealth, estate and inheritance taxes, which they find difficult to collect and detrimental to attracting foreign capital. No changes to the Panamanian tax regime are expected any time soon.

Panamanian tax legislation does not include general anti-abuse rules (GAAR).

Panama has been exchanging information automatically, with several jurisdictions under the Common Reporting Standards (CRS) since 2018 (starting with the 2017 fiscal period). The list of reportable jurisdictions currently includes more than 70 countries and all of Panama’s main commercial partners. Panama also has a Model 1- IGA in place with the United States of America for Foreign Account Tax Compliance Act (FATCA) purposes.

Considering that both exchanges (FATCA and CRS) relate to the sharing of financial information, planning for clients using corporate and fiduciary vehicles has not been substantially affected.

Panama has adopted a beneficial owner register, which may be accessed exclusively by the competent authorities; it is not accessible to the public. No initiatives are expected in the short term to make this register available to the public, considering recent European rulings by the Court of Justice deeming them disproportionate and wanting in legitimate interest.

Local and regional clients are increasingly aware of the need for succession planning, mostly in cases of wealthy families. Older generations are usually more reluctant to relinquish control, and predictably turn to more flexible estate planning vehicles that allow them to retain a greater measure of control over their family's assets.

Since a large portion of local wealth is first or second generation produced, the issue of administrating the estate upon the demise of the head of the family becomes a difficult issue to tackle, as opposed to other jurisdictions where a fiduciary culture has a long-established tradition.

Greater connectivity and better communications have translated into increased mobility by family members. It is now commonplace for a family to have children with multiple nationalities or residences, whether by birth or due to their work or studies. These circumstances sometimes entail obligations, fiscal or otherwise, which may affect the family, unbeknownst to them.

Co-operation amongst fiscal authorities will result in serious repercussions if these issues remain unaddressed.

Therefore, when assessing the situation of any family with an international component to their estate planning (eg, assets located abroad or members with multiple nationalities), it becomes of the utmost importance to obtain the opinion of qualified professionals in relevant jurisdictions, in order to avoid any conflict of laws and unwanted tax consequences.

Panama does not have forced heirship laws. Therefore, there is complete freedom to assign inheritance by means of a last will and testament or through estate planning vehicles such as private interest foundations.

As per the Family Code of the Republic of Panama, spouses may agree to a specific economic regime that will determine ownership of the assets held during the existence of the marriage, and the profits such assets may generate. The economic regime and/or agreement may be stipulated either before (prenuptial) or during (postnuptial) the marriage. Modifications to the regime cannot result in the detriment of rights that have been acquired by third parties. Pre-nuptial agreements and amendments thereto must be granted by means of public deed and are valid unless deemed to be contrary to law or morals, or unless they seek to limit the rights and obligations among spouses.

Property transferred through donation or inheritance does not suffer a cost basis adjustment; only the onerous transfer of property, such as a sale, will result in the cadastral adjustment thereof.

Since Panama has no estate tax, the transfer of assets to younger generations by succession or by means of estate planning vehicles is tax exempt. Nevertheless, to avoid judicial procedures, private interest foundations and trusts are commonly used for estate planning purposes.

There is no specific regulation for digital assets, which should therefore be treated as tangible assets for all legal purposes.


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 chattels, stocks and accounts for the benefit of lenders and creditors in connection with secured loans and note offerings.

Trusts are established in Panama by the 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 property located in Panama, in which case any change in ownership must be duly filed at the Public Registry as a formal requisite. It is not necessary for the settlor, trustee or beneficiaries to be Panamanian citizens or residents. Nevertheless, the trust must have a resident agent in Panama, who must be a registered lawyer or a law firm, and who is required to countersign the trust instrument.

Private 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.

Panama foundations offer a simple, affordable, flexible and structured alternative to a trust or will to attain the preservation and transition of an estate to future generations. The main difference is that, unlike a trust or will, the private foundation has a juridical personality and may own its assets.

Private interest foundations can passively own businesses and produce profits, but they cannot run a commercial business on a regular basis as a matter of law.

Panama introduced the trust into its legislation under its Spanish name fideicomiso, through Law No 9 of 1925, influenced by the Kemmerer mission, which had visited several Latin American countries trying to expand the trust concept as part of its economic and financial policy advice. Law No 9 of 1925 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. Said legislation not only recognises trusts but also allows their continuation into the jurisdiction when settled under the laws of another country.

Panama has ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition.

Panama’s taxation system is mainly territorial because only income earned from Panama sources or in respect of assets located in Panama is taxed. Consequently, benefits distributed by a foreign trust or private foundation arising from assets located overseas are completely tax exempt in Panama (regardless of the beneficiaries' nationalities or countries of residence).

Corporations, branches of foreign corporations, limited liability companies, private interest foundations, trusts and any other entities considered to be juridical persons by law are subject to a 25% income tax on their local income. In the case of trusts, the trustee is deemed the taxpayer and the income tax rate applicable to the trust will depend on the nature of the trustee (ie, individual or company):

  • the rate for banks is 27.5%;
  • the rate for non-bank companies is 25%; and
  • the rate for individuals is:
    1. 0% for up to USD11,000 annual net income;
    2. 15% on the excess of USD11,000 and up to USD50,000 annual net income; and
    3. 25% on annual net income in excess of USD50,000 (although in many of the aforementioned cases the effective rate may be lower).

Income derived from offshore activities is not subject to income tax for trusts, private interest foundations and corporations. No tax returns are required to be filed by trusts, private interest foundations or corporations carrying out activities exclusively outside Panamanian territory.

Other taxes that could potentially apply are value added tax (applicable on the sale or transfer of any tangible chattel and the rendering of services), immovable property tax and immovable property transfer tax.

The tax treatment for trusts whose assets are located outside Panama differs from that of trusts with local assets. If trust assets are located abroad or consist of monies deposited in trust by settlors whose income is not taxable in Panama, or if the trust assets comprise shares or securities of any kind issued by companies whose income does not derive from Panamanian sources, capital gains and income of any kind arising from such assets are exempted from all taxes, assessments, fees or charges, even if such monies, shares or securities have been deposited in the Republic of Panama. In such cases, no capital gains tax is levied on the settlor when assets are transferred to a trustee to be held in trust. In general, the same rule applies to private interest foundations.

In turn, the taxation of trusts constituted over assets located within Panama must be analysed from three different perspectives:

  • the constitution and the transfer of the assets to the trustee;
  • the administration of the trust assets by the trustee; and
  • the distribution of the trust assets to the beneficiaries.

From the first perspective, the transfer of the assets by the settlor to the trustee is subject to the transfer taxes that would normally apply to the transfer of relevant assets between ordinary parties. Notwithstanding, no transfer tax would be levied on transfers made by the settlor to the trust, provided that the trust is created as collateral of indebtedness or other obligations.

Second, once the trust has been constituted, any income generated by trust assets located or invested in Panama during the life of the trust is subject to the same income tax rates as apply to the relevant trustee.

The distribution of assets located in Panama by a private interest foundation to its beneficiaries is not subject to transfer taxes if the transfer is made by the foundation to the parents, children or spouses of the founder of the foundation.

As Panama is a civil law jurisdiction, legal precedents are not legally binding. Instead, any limitations on the transfer and management of property must be specifically provided by the applicable statute.

To date, there are no restrictions on the powers that a settlor or founder can reserve for themselves.

However, careful consideration should be given to the fiscal consequences that may arise in the settlor's and beneficiaries' countries of residence and/or citizenship, if powers are reserved by them.

Undoubtedly, private interest foundations are the most popular method for asset protection planning in Panama. They offer similar advantages to a trust, with the added benefit of allowing family members to be part of the Foundation Council (administrative body), thereby retaining administrative control of assets within the family.

The more common family business succession planning structures are family trusts and private interest foundations. To be effective, however, they should be complemented with a family protocol that outlines the core family values upon which the family business and wealth was built.

Except for real state, which is subject to immovable property transfer tax, the distribution of benefits out of a trust or foundation is tax-exempt in Panama.

Under Panamanian legislation, if a partial interest in an entity is transferred inter vivos, the base used is the fair market value of the interest, for transfer tax purposes, when consideration is paid to the registered owner. Legislation does not offer any adjustment to reflect a discount for lack of marketability and control.

Since Panama has no inheritance tax, assets transferred in probate are exempted.

There has been a recent trend in disputes involving Panamanian private interest foundations, where council members and/or protectors and/or beneficiaries have acted in contravention of Panamanian law and/or the rules governing the relevant private interest foundations, and emergency measures are sought to preserve the status quo or to avoid the destruction of the foundation's patrimony.

Arbitration clauses are common and, because private interest foundations are governed by Panamanian law for reasons of public order, it is normal for disputes to be settled in Panama-seated arbitrations (under the rules of Panama’s domestic arbitration centre or the International Arbitration Rules of the International Chamber of Commerce), notwithstanding any foreign elements to the controversy that may exist (such as the location of the assets and/or the nationality of the council members and/or beneficiaries).

Most wealth disputes involving Panamanian corporate vehicles such as private interest foundations involve claimants seeking declaratory rather than compensatory relief. In this sense, examples of claims in disputes involving acts allegedly illegally committed against the interests of a private interest foundation include claims for restitution by claimants as beneficiaries, claims alleging that a foundation council’s member was illegally designated or claims where claimants assert the illegality of newly adopted regulations or the foundation charter amendments. Although these claims may involve economic damages, arbitrators are mostly requested to revert a foundation’s situation to how it was before an alleged breach of its charter or regulations.

Whenever arbitration is not included as the dispute resolution mechanism of choice in a private interest foundation charter (eg, based on the Panamanian Foundation Law), beneficiaries are also allowed to seek reports/information on asset management from the bodies in charge of a foundation’s management by filing claims before the Panamanian courts. In this sense, if justified, the Panamanian courts will order a foundation’s management to render accounts to said foundation’s beneficiaries.

Under Panamanian law, trustees must be duly licensed, regulated and inspected by the Banking Superintendency of the Republic of Panama. Applicants for a trustee licence must post a bond to guarantee their fiduciary performance and have a minimum paid-in capital (in the case of natural persons, this is reserved as determined by the Banking Superintendency). Consequently, most trustees are corporate fiduciaries, which need to comply with the duties and standards set forth in the laws that govern trust agreements in general, but these duties are not necessarily enhanced because of the trustee's corporate nature.

Contrary to trusts, licensing is not a prerequisite for council members of Panamanian private interest foundations. Therefore, it is common for natural persons (which may include the settlors and/or members of their immediate family) to directly administrate the patrimony of the fiduciary vehicle.

Under Panamanian law, responsibility derived from negligence is demandable in all obligations but may be moderated by the courts (Article 988 of the Panamanian Civil Code). Trustees and private interest foundation council members may be held accountable for breaches of the governing documents and/or the law, and/or for failing to discharge their fiduciary duties or acting in a way that is self-serving or contrary to the interests of the beneficiaries.

Exculpatory clauses are widely used in trust agreements and foundation charters.

Law No 25 of 1995 (governing private foundations generally) allows for certain privileges to be retained by the founder or vested directly upon the protector or other supervisory body, thereby effectively limiting the exposure of the foundation council.

Panama follows a civil law approach to trust agreements. Therefore, few duties are implied (although some are explicitly provided in the trust regulations) and courts will, in many instances, give relevance to what has been contractually stipulated by the parties.

There are no laws that encourage fiduciaries to invest assets in any particular form. Nevertheless, they are obliged to act as a bona fide paterfamilias, which, according to the Panama Civil Code, amounts to the standard of care ordinary people use when looking after their own affairs (ie, ordinary negligence).

In Panama it is uncommon for professional fiduciaries to directly invest or manage the assets of a trust or a private interest foundation. Most professional trustees/council members will rely on qualified investment advisers and limit their responsibility to exercising due care when selecting professionals who are both reputable and capable and, thereafter, overseeing that the actions and decisions of such person or firm are sound and result in the benefit of the trust/foundation.

Panama has several programmes that allow for residency to be obtained under different conditions, including the following.

  • Residence permit as a Qualified Investor: this grants the applicant a permanent residency in one stage. A USD300,000 real estate investment is required, which can be substituted for a USD500,000 investment in qualified securities or a USD750,000 fixed term deposit in a local bank.
  • Residence permit under the “Friendly Nations” programme: residency is granted in two stages to nationals of certain countries. Requirements include investments in real estate or fixed term deposits above a certain threshold.
  • Residence permit issued through the Panama–Italy Treaty: this grants permanent residence in one stage to nationals from Italy.
  • Residence permit as a retiree or pensioner: this grants permanent residence in one stage to those pensioners or retirees who receive a minimum stipend of USD1,000 per month.
  • Economic Solvency Visa: this grants the applicant permanent residency in two stages, provided that an investment in real estate or a fixed term deposit is produced above a certain threshold.

It is important to note that not all visas provide a path to citizenship, and that labour restrictions may apply for certain migratory programmes.

Whether or not there are any expeditious means for an individual to gain citizenship will depend on the type of migratory visa that is obtained and whether said visa allows for a path to citizenship.

Aside from the appointment of a legal guardian for individuals with special needs, the most common planning mechanisms or structures to safeguard minors' interests and the interests of adults with disabilities are special needs trusts or private interest foundations. If properly planned, such structures should guarantee a steady flow of income to cover the basic needs of such individuals.

In the Republic of Panama, court proceedings must be brought before a family court to appoint a Guardian or Conservator. Their performance is subject to ongoing scrutiny, supervision and, in certain instances, the prior consent of the courts.

Panamanian law grants elderly Panamanian residents mandatory discounts on certain goods and services, such as medicine, transportation and leisure. The purpose is to reduce the cost of living of the elderly, in other to help pension plans cover their living expenses.

Panamanian law does not distinguish between legitimate and illegitimate children. The distribution of an individual’s estate, without prejudice to the class of assets, is governed by the Civil Code. Complementary legislation includes the Civil Procedure Code, Law No 21 of 2017, Law No 1 of 1984 (“trust legislation”) and Law No 25 of 1995 (“foundation legislation”).

Unrecognised children at the time of a parent's death will remain unprotected, unless they are benefited by a valid will. Adopted children will enjoy the same rights as natural legitimate children.

The Republic of Panama does not have a specific law addressing surrogacy, so the subject remains largely unregulated.

Although the issue has been brought before courts, Panama does not currently recognise-same sex marriages or domestic partnerships. However, Panama does recognise the testator's freedom to dispose of assets as they see fit.

Nevertheless, same-sex couples are advised to conduct their estate planning through private interest foundations or another type of fiduciary arrangements, where their partners can be included as beneficiaries, and lengthy and bureaucratic probate procedures can be avoided.

Donations to recognised charities that are registered in the Republic of Panama are tax deductible for up to 1% of the donor's taxable income for juridical persons, and up to USD50,000 for individuals.

Non-governmental organisations (NGOs) and charitable foundations are permitted under Panamanian law. Previous recognition and approval from the Ministry of Government is necessary for such entities to be registered at the Public Registry. This prerequisite results in a very slow and bureaucratic process. Additionally, except for a few allowances established by law, all members of the board of directors of NGOs/charitable foundations must be Panamanian residents.

It is simpler and preferable to conduct private and philanthropic charitable planning through private interest foundations. The downside of using fiduciary vehicles is that they limit the receipt of third-party funds because tax deductions will not be available (as opposed to NGOs/charitable foundations, which may apply for such benefit), and that banks are usually reluctant, when conducting due diligence, to allow unsupervised entities to receive payments from unrelated third parties.

Morgan & Morgan

MMG Tower, 23rd Floor
Costa del Este
Paseo del Mar Avenue
Panama City
Republic of Panama

+507 265 7777
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Law and Practice


Morgan & Morgan is a full-service Panamanian law firm that regularly assists local and multinational corporations from different industries, as well as recognised financial institutions, government agencies and individual clients. The firm fields a skilled and seasoned team of attorneys, business executives and accountants with over 30 years of experience in the trust and corporate services industry. The team helps successful families and entrepreneurs around the world to structure their assets in a way that will preserve their wealth now and for future generations. It works with a broad range of clients, including professional and individual trustees, executors and administrators, banks, stockbrokers, family offices, wealth managers and beneficiaries (both individual and charities).

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