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In this news letter: |
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Panama, the ultimate tax haven |
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Panama, a land bridge between north and south, and a portal for west and east, is without a doubt one of most important countries in the world. The Panama Canal, one of the modern wonders of the world, is the main artery of trade on the American continent. With such high volumes of trade in such a centrally located country, it comes as no surprise that Panama is also one of the biggest banking jurisdictions on the western hemisphere. Yet this is one of many reasons why Panama has become the ultimate tax haven.
No central bank
Panama has never had a central bank. In theory, central banks should provide for more stability. Almost a hundred years of experience in central banking has shown the opposite to be true: privately owned central banks that can print money without restrain have inflated currencies, diminishing the purchasing power of the consumer. By lending money to irresponsible governments at interest they have put entire countries like for instance Greece, in great jeopardy. Their practices of artificial low interest rates have disturbed free market mechanisms essential for a healthy investment climate. By bailing out failing banks and insurance companies they have fuelled the excessive irresponsible banking practices that led to the credit crisis. It comes as no surprise that the average taxpayer in a western nations often 'contributes' more than 50% of their income to the treasury. Panamanians don't have to carry such a burden.
A dollarized economy
For over a hundred years, Panama has been using the dollar as its currency. More specifically, they have been using the fictional Balboa, tied one on one to the dollar. The use of the dollar has kept Panama's government limited. Unable to monetize debt on a large scale or inflate the currency, the nations' government has to live within its means. After all, they can only spend their dollar once.
Panama is free to use any currency, or even start their own. But the dollar has served well over the past 100 years, and even though it is being inflated by the Federal Reserve Bank of the United States, there is no immediate need for concern or change.
No military
Panama has no military, no navy and no air force. The country has learned the hard way that armies are mostly used to oppress their own population rather than to defend against foreign invaders. No military means no expenses on the latest fighter jets, missile defence systems or 'peace keeping missions' in foreign territories.
To protect its borders, Panama has a well equipped coast and border guard, plus a well armed civilian population. It also enjoys the protection of the United States owing to its strategic importance.
Clear company law
Panama's corporate law system is based on that of the US state of Delaware. The clear model, over 80 years old, has proven to be highly successful. More about Panama Corporations later on in this newsletter.
A territorial tax system
Panama has a territorial taxation system whereby it only taxes income generated within its borders, as opposed to most western countries that tax world-wide income of its citizens and businesses. Territorial taxation used to be the norm half a century ago; nowadays Panama is quite unique to hold on to this practice. As a result, Panama has no need for any agreements to avoid double taxation (DTA) nor does it need any information about the foreign activities of its residents and resident companies. Although recently the country did sign some DTA's this should be seen merely as a move to improve the international image without any impact on confidentiality.
In practice it means that any foreigner can register a Panamanian company and use it abroad without being liable for any Panamanian taxation. Since Panamanians enjoy the same privileges as do foreigners, Panama cannot be considered a tax haven by definition.
Strict banking secrecy
Panama has the toughest bank secrecy laws in today's post 9/11-world. The statutory banking secrecy law is not being disputed and banks that violate it do get prosecuted (unlike in for instance Switzerland). Panama has no civil judgement collection treaties or any child support, spouse support or alimony collection treaties. Bank secrecy can only be lifted in case of serious crime: child pornography, narcotics trafficking, (real) terrorism, large scale money laundering and Bernie Madoff type fiduciary fraud. Foreign tax offences or civil court cases do not qualify, simply because they are not considered a crime within Panama's borders.
For a foreign nation to request bank account information a crime first has to be proven in the requesting country, before it can be presented to a Panamanian judge. This judge has the liberty to refuse such requests or ask for more substantial evidence. It is their job to prevent big brother government intrusions into the private sphere and human rights violations in countries like Venezuela and the United States.
Low crime rate
Panama enjoys the lowest crime rate in all of Central America. Although the rate for violent crime is certainly higher than in any Western nation, most of these crimes are drug related. For a country on the front line of the 'war on drugs' that should hardly come as a surprise. Other than that, Panama is very safe, and named 'the safest tourist destination in Central America' by Lonely Planet.
In recent years, Panama has started to take over Costa Rica as Central America's main tourist and retirement destination. Panama is cheaper (less taxed), safer, more cosmopolitan, has a more advanced infrastructure and equally impressive natural wonders.
No left leaning government
Although Panama has been through rough times, its leaders have always respected fundamental economic principles and never succumb to the leftism that has impoverished so many other Latin-American countries.
Panama is a stable, open and growing economy with a bright future ahead. The 2009 election that saw businessman and multimillionaire Ricardo Martinelli win illustrates that this understanding flows through all levels of society. At present, Martinelli still enjoys one of the highest approval rates of any current president worldwide.
So far Martinelli has:
- lowered corporate taxes with 10% and abolished it for small businesses; though increased VAT with 2%
- started the expansion of the Panama Canal
- launched plans for a second mayor free zone in addition to Colon Free Zone
- plans to build a metro system for Panama City and clean up its heavily polluted bay
- not caved in to demands from the OECD and Obama administration to lift banking secrecy
- retreated from Parlacen, Central America's equivalent of the European Union.
- announced plans to relax immigration requirements
Among Central and South-American countries, Panama enjoys a reputation as a safe haven for capital. Wealthy individuals from all over the continent come to Panama for their banking needs. (Economical) refugees from politically unstable countries like Venezuela and Colombia are giving the Panamanian economy a significant impulse.
The Panama Canal
Built by the United States in 1914, and handed over to Panama in 1999, the Panama Canal is the main pillar of the Panamanian economy. It gives the Panamanian government a guaranteed source of income outside of regular channels, and has put Panama on the map for trade, banking and tourism. The canal is currently expended to accommodate the worlds' biggest vessels for the next 100 years.
The government has established free zones on both ends of the canal. On the Atlantic side, the Colon Free zone is the largest free trade zone on the Western hemisphere. On the pacific side, the newly opened Howard Airbase Free Zone offers far reaching tax incentives for a wide array of companies.
The canal has given Panama strategic importance and more weight in free trade and tax treaty negotiations. It has allowed the government to stand up for the countries' sovereignty. Two recent examples: Panama's refusal to lift banking secrecy (a request from the Obama administration), and Panama's retreat from Parlacen, Central America's equivalent of the European Union.
Panama is a lone giant in a world filled with intrusive governments, where privacy is no longer a right, but the reward of those who seek it. Panama is one of the places where one can get it. Its unique features have truly made Panama the ultimate tax haven.
The Freemont Group will hold a tax planning seminar on Panama on Tuesday 5th of October.
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Panama Corporations |
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The Panama corporation is the legal vehicle of choice for those that are looking for a simple tax solution for e-commerce, import/export activities or a (temporary) job assignment in a foreign country.
Panama has a long tradition a financial centre, with a corporate law system similar to Delaware dating back to 1927. A Panamanian features the following benefits:
- No taxation on transactions or business activities taking place outside of Panama
- No minimum amount of paid up share capital
- Fully anonymous bearer shares are still allowed
- Only (nominee) directors and the registered agent appear on public record
- No legal requirement for disclosure of beneficial owner(s)
- No requirement to file annual returns, financial statements or to hold shareholders' meetings.
- Incorporation within 48 hours
A Panamanian corporation with a Panamanian bank account is affordable, flexible, easy and very safe legal vehicle for any offshore activity. From our Panamanian office we can assist you in all your offshore needs. Contact us to inquire how Panama can be used for your corporate and personal finances
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Panama foundations
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The Panama Private Interest Foundation, popularly know as a Panama Foundation, is a type of entity that is a cross-breed between a trust and a corporation, however, it is neither. A Foundation is an entity that is different from any other legal entity known in Anglo-Saxon law because it is not the legal personification of a person or group of persons (as with a corporation), rather it is a legal entity that does not have owners (share-holders, participants, or partners), and it traditionally has a specific purpose for the benefit of a general group of individuals.
The Panama Foundation offers clear advantages for international tax- and estate planning, providing the ultimate in privacy, anonymity, and protection to the beneficiaries of the Panama Foundation. The foundation has a founder, protector, beneficiary and council members. Since there are no owners to a Panama Foundation, day to day business is taken care of by the foundation council. A Panama Private Interest Foundation comes into existence upon its registration in the Public Registry and is regulated under Law No. 25 of June 12, 1995, Panama Private Interest Foundations.
A Panama Private Interest Foundation provides asset protection by owning the shares of subsidiary corporations. They can also be used for Estate Planning where the founder simply transfers title to current assets. A "Letter of Wishes" may be written by the beneficial owner to specify how the foundation's assets should be handled following the beneficial owner's death. Below you'll find a brief overview of the advantages of a Panama Foundation:
- They are not subject to any form of taxation, assessment or levy in the Republic of Panama
- The Private Foundation Law mandates that members of the Foundation Council (who are also known as 'Council Members'), Protectors, supervisory bodies or any persons or institutions who on account of their duties become aware of information relating to the activities, transactions or operations of a Private Foundation are required to maintain strict confidentiality, even after its termination. Failure to do so may result in imprisonment and financial penalties.
- Law does not require the names of the real Founders, Beneficiaries or Protectors to be revealed.
- Filing of Annual accounts and the holding of annual meetings is not required.
- Easy administrative procedures, quick formations.
- There is no limitation whatsoever as to perpetuities, accrual of capital and other restrictions that are enforced in similar legal entities of other jurisdictions such as Anglo-Saxon type trusts.
- The Foundation may (non-habitually) carry out any kind of civil or commercial transactions, anywhere in the world and in any currency.
- Founders, Protectors or Superintendents and members of the Foundation Council may be Beneficiaries of the Foundation.
- There are no limitations as to the maximum number of Founders, Council Members, Beneficiaries or Protectors allowed.
We provide the foundation council for foundations from our offices in Dubai and Panama. We also provide so-called nexus foundations where assets are held in separately on behalf of different clients. The advantage of this is more protection (because the foundation was not formed solely for one person,) and cost effectiveness, however the choice is up to you. |
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Dutch expats in the Emirates can profit from tax treaty |
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 After the Netherlands and the UAE signed a treaty for the Avoidance of double Taxation in May of 2007 it finally has entered into force on the 2nd of June 2010.
There are hardly any taxes in the UAE. There is no VAT or income tax and corporation tax is reserved for oil-producing companies and branches of foreign banks. The Netherlands have some of the highest taxes in the world. The treaty therefore is especially good news for residents of the Netherlands investing in the UAE, investors in the Netherlands living in the UAE, and even for residents of the Netherlands working temporarily in the UAE.
Dutch expats living in the Emirates owning a 5% or higher participation in a Dutch company can benefit from the treaty. The Emirates do not levy any withholding tax on dividends, but the Netherlands does so normally at a rate of 15%. The treaty reduces the maximum allowed withholding tax to 5% if paid to a UAE corporation. Dutch expats in the Emirates should consider transferring their shares in a Dutch company to a local UAE company.
Transferring any shares held in a Dutch holding will trigger Dutch capital gains taxes at a rate of 25% based on the value of the shares at the time of leaving the Netherlands. However after the shares have been transferred to a UAE company it can receive dividends from the subsidiary companies in the Netherlands subject to only 5% dividend tax. The dividend can then be withdrawn from the UAE company without paying any dividend tax.
Not acting and thus keeping your shares privately means the default withholding Dutch withholding tax rate of 15% continues to apply. In case there were any unrealised capital gains upon leaving the Netherlands the rate will be initially 25% until this tax on the deemed disposal of the shares upon emigration is paid.
If you are in the lucky position that you have lived outside the Netherlands for ten years or longer you can transfer the shares of your Dutch holding to a UAE company without paying capital gains tax. A further benefit of the treaty is that residents of the Netherlands who temporarily work in the UAE can do so tax free by ensuring they are employed by a UAE employer. Salaries received will be exempt in the Netherlands and not be taxed the UAE of course. The advantages that already existed for Dutch investors in the Emirates will remain the same: e.g. when a Dutch company sets up a UAE subsidiary the participation exemption will apply: any dividends the untaxed UAE company pays up will not be taxed. The same applies to activities carried out by a Dutch BV through a permanent establishment in the UAE.
Freemont Group can support you with the incorporation of a UAE companies and tax compliant structuring. We invite you to make an appointment with one of our advisers. |
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Events Calendar |
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Visit our website (section agenda) to keep informed on upcoming activities. Below you'll find our schedule for the upcoming month. All seminars are held in Dutch but English speakers can be accommodated.
September 21: Seminar: is saving tax something for you?
This seminar is targeted at entrepreneurs and organised in association with Paritax international Tax Advisers. Is your business such that you can make substantial tax savings and benefit from the lower taxes in other countries? There might be more opportunities than you would think. We will provide some tantalising examples on how to make substantial tax savings.
Date: Tuesday 21 of September 2010 14.00-17.30 hours.
Location: Rondweg 11d, 8091XA Wezep, The Netherlands.
The seminar is free of charge. Naturally drinks and snacks are served and sufficient time is made available for personal questions. If you want to participate in this seminar, send an email to seminar@freemontgroup.com.
October 5: Panama seminar : meet our country manager
The country manager of Freemont Panama will pay a quick visit to the Netherlands during the first week of October. He will speak at our seminar dedicated to "Panama". Subjects he will cover are the following:
- How can Panama be used to save tax.
- When is Panama a better choice than other offshore jurisdictions.
- What are the pros and cons compared to other offshore jurisdictions.
- Why it is Panama particularly suitable for internet based businesses
There will be plenty of time to query him about all the ins and outs of "Panama" whether pertaining to business, asset protection, investment opportunities and recent developments.
The seminar will be held the 5th of October at 7 pm at a central location and is free of charge. Reserve your place now. Send an email to seminar@freemontgroup.com
The next seminar will be held on October 26.
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