Open a Panama Bank Account

The Panamanian banking industry grew during the last quarter of the 20th century into a regional banking centre for Latin American and the Caribbean, due to a variety of factors including the absence of exchange controls, the rapidly increasing volume of trade being conducted through the country (and through the Colon Free Zone in particular), liberal banking legislation and tight secrecy provisions. At the end of 1997 more than 100 banks were licensed in Panama, from more than 20 countries and with assets of about $23bn; however the country responded to international pressure by tightening up on banking regulation, and a number of banks closed their offices in 2000 and 2001. By mid-2005, 80 licensed banks remained, of which 30 had international licences. Assets amounted to $7bn.

By 2007, the banking sector had rationalised further as foreign giants sought a piece of Panama's fast-growing services economy. Four deals at the latter end of 2006 had a major impact on the competitive environment of Panama's banking industry; these included HSBC's acquisition of Banco del Istmo - Panama's largest bank - for $1.8 billion, and Citibank's purchase of Grupo Financiera Uno, Latin America’s largest credit card issuer, for $1.1 billion. By the end of 2007 total consolidated assets in the banking sector reached $69bn. The majority of assets are domestic - as opposed to offshore - as demand by wealthy expats, particularly from the US, for loans on second homes increases seemingly unabated. In 2008 banking assets grew by 21.7%.

Panama introduced a new and comprehensive banking law (which covers local trust companies as well) in February, 1999, replacing one that had been in place since the 1960s. The National Banking Commission that previously issued licenses has been replaced by a Superintendency which comprises a Board of 5 Directors and a Superintendent. In addition to increased investigative powers, the new law has tightened general controls and regulations and brought the country’s supervision more in line with the regulatory standards found in European and American banking centres.

There are three types of banking license:

  • General Licences permit trading both in and outside Panama, and can be issued to Panamanian or foreign banks; minimum capital is US$ (Balboas) 10m.
  • International ('Restricted') licences allow offshore banking to be conducted from an office in Panama; minimum capital is US$ (Balboas) 3m.
  • Representation Licences are issued to foreign banks and permit a local office but no local trading. Activities must be be limited to contacting third parties interested in carrying out operations with the Head Office. Representative Offices are not authorized to carry out any kind of operations from or within Panama.
  • Combined General and International licences are available. Licence fees are, approximately, US$ (Balboas) 5,000 (initial) and up to US$ (Balboas) 50,000 (annual) depending upon the jurisdiction and the type of licence required.

Branches of major international banks are particularly welcome as they will be able to offer not only traditional retail banking, but also services such as investment management, back-to-back loans and documentary credit facilities, credit card services and trust management.

The 1999 law uses the guidelines of the Basle Committee on Banking Supervision. The Superintendent oversees the soundness and efficiency of the banking system and endeavours to strengthen it as part of the continuing development of Panama not only as a regional, but as an international, banking centre. The Superintendent, whose office is independent of central government, has wide powers of examination and investigation, but that authority is subject at all times to strict compliance with the country’s firm rules of confidentiality. Heavy criminal and civil sanctions can be imposed on bankers as well as the Superintendent for wrongful disclosures.

Although confidentiality is enshrined in the new law, a prima facie case proving funds are illicit will open criminals to exposure. Banks must conform with stringent monitoring and vetting procedures; each bank has a compliance officer who is responsible for ensuring that controls are applied.

Three additional laws passed in 2003 have increased Panama's defences against financial crimes, money laundering and terrorism.

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Panama Offshore Companies

Panama Corporation (Sociedad Anonima)

The corporation limited by shares is the most frequently used corporate form in Panama, and is the usual choice for an offshore operation.

Corporations are formed under the Law No. 32 of 1927 and the Commercial Code (Decree-Law No. 5 of 1997, Article 5). A corporation is formed by two subscribers (or nominees in the case of absent foreign subscribers) who execute the Articles of Incorporation (Statutes) before a notary and then record them at the Public Registry Office, paying a capital tax (minimum $60.20 on the usual capital of $10,000. There is an annual registration fee ('franchise tax') of $300 (from 2006, $250 previously).

Following incorporation, only one shareholder is necessary. Shares can be of various classes, can have par value or not, may be registered or bearer. There is no minimum capital, and no paying-up rules, except that no-par-value and bearer shares must be fully-paid when issued. Strict regulations now apply to bearer shares: the registered agent must keep the bearer share certificate in safe custody and must notify the Registrar about such shares.

There must be at least three directors, and their names must be in the Articles as filed; changes to directors must also be filed. Each corporation must have a resident Panamian agent (a lawyer), named in the Articles; there are no other filing requirements unless the Articles are changed or the corporation is merged or dissolved.

Panama Foreign Corporation

A foreign company can be registered in Panama by depositing the following documents at the Public Registry Office:

  • A notarised Spanish translation of the Articles of Association;
  • A Board minute authorising the Panamian registration;
  • Copies of the most recent financial statements;
  • A certificate from a Panamian Consul confirming that the company is organised according to the laws of its place of incorporation;
  • Notification of the allocation of capital to the Panamian operation.

Capital taxes on formation and annual registration fees are payable as for Panamanian corporations (see above).

A foreign company can transfer its 'seat' (meaning roughly speaking the place from where its directors control the company) to Panama, and will then be subject to Panamian laws regarding public policy, while remaining under its originating law in other respects. A foreign company operating in Panama but not registered there may be sued in the courts of Panama but does not have the right to sue.

Panama General Partnership

A General Partnership is permitted under the Commercial Code. The partners have unlimited liability.

Panama Limited Partnership

Limited partnerships (sociedad de responsibilidad limitada) are governed by the Commercial Code and Law No 24 of 1966. Such a partnership may have between two and twenty partners. There is no restriction on the nationality of the partners or their domicile. Capital must be between $2,000 and $500,000. The names of the partners must be registered in the Public Registry Office along with details of the amount of capital committed and paid in (in cash or kind) by each of them. The liability of each partner for the debts of the partnership is limited to the amount subscribed to but unpaid.

The partners can appoint an independent administrator for the partnership whose name must also be registered.

A limited partnership with up to 5 members is not obliged to hold meetings. Otherwise, the partners must meet at least once each year. There is no requirement for annual returns or the filing of accounts.

An Individual Limited Proprietorship (empresa individual de responsibilidad limitada) is set up in the same way as a limited partnership with the exception that there is only one member. Details must be recorded at the Public Registry. The sole proprietor transfers assets to the business for the purpose of trading. The business liability of the proprietor is then limited to the amount of the assets committed.

Panama Civil Partnership

The Commercial Code and Law No 24 of 1966 also govern the Civil Partnership (sociedad civil), which has legal personality, although the liability of the partners is unlimited. This type of partnership is often selected by professionals such as lawyers and accountants.

Panama Commandite Company

The Commercial Code and Law No 24 of 1966 also govern the Commandite Company (sociedad en commandita) which is a hybrid partnership and corporation. At least one partner must have unlimited liability, while the liability of the limited partners is limited to the amount of capital subscribed. In one form, the Commandite Company can have shares which are transferable; but the Commandite Company is seldom used nowadays.

Panama Foundation

The Private Foundation Law 1995 governs private foundations in Panama. Unlike the common law trust, the foundation is an autonomous legal entity with no members or shareholders. It is generally used for the protection of assets and no business activities are permitted.

The founder establishes the foundation by depositing a notarised private foundation charter at the Public Registry; or the Charter can be executed before the Notary Public. The Charter must specify the names of the Foundation Council (who administer the foundation on behalf of the beneficiaries), the property of the Foundation, its domicile, the name of its Panamanian agent and other details; but the names of beneficiaries and principles of operation can be contained in separate Regulations which do not need to be filed.

The minimum capital requirement is US$10,000. No accounts are necessary and an audit is not required. As with all Panamanian entities, tax is only levied on income generated within Panama. Foundations are subject to the same capital taxes (minimum $60) and annual registration fees ($300 from 2006, previously $250) as are Corporations.

Panamanian law specifically excludes the operation of foreign 'forced heirship' rules or judgements against foundation assets. Panama itself has abandoned these typical civil law provisions in its own legislation.

Panama Trusts

Panamanian trust law was updated with Law No 1 of 1984. Panamanian trusts (Fideicomiso) must be expressed in writing, so cannot be constructive. Trusts can be stated to be revocable but otherwise are irrevocable. The settlor, trustees and beneficiaries need not be Panamanian nationals or resident in Panama. A Panamanian lawyer must act as an agent for the trust. Trusts may be settled in respect of existing or future property; additional property may be included after the settlement either by the settlor or a third party.

There are no registration or minimum capital requirements, or fees, and trust documents can be in English or Spanish. Unlike foundations (see above), trusts are not protected by specific provisions against foreign inheritance laws, judgements or creditors. However, purpose trusts are allowed for.

If a trust earns a taxable income in Panama, then tax is levied directly on the trust and not on the trustee.

The National Banking Commission of Panama regulates the transactions of entities acting as trustees. The Banking Commission does not have the authority to investigate the terms of particular trusts or the relevant parties, except where complaints are raised by beneficiaries.

At the end of 2000, Panama enacted two laws addressing money laundering and issued Executive Decrees to effect accompanying administrative changes. As a result of these new laws, all financial institutions in Panama now come under the scrutiny of the bank superintendency, including trusts, whereas previously only banks were legally bound to report financial transactions over US$10,000 and other suspicious activities.

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