Law N°1 of 1984 was at the time of its enactment one of the most innovative laws for wealth planning in Latin America. Prior to Law 1, Panama had already enacted in 1925 the first trust Law in Latin America.
Law N°1 has been recently amended by means of Law 21 of 2017.
The purpose of the new Law 21 is to introduce several changes to Law 1 in terms of its practice or substantive application and also to introduce regulatory changes.
The following are some of the most relevant changes to Law 1 in terms of trust supervision or regulation:
State owned financial institutions, state owned companies, pension management funds and any other entities authorized by especial legislation are exempted from applying for trust licenses.
The Regulator may carry out inspections at discretion.
In regards to financial obligations and the operation of the business there are special sections for the liquidation of a trust business and the protection of assets managed in trust by the licensee. This becoming that bankruptcy will be inadmissible under the new management standards introduced by Law 21.
Amendments to Law 1 of 1984
Law 1 continues to be the applicable law that will regulate all matters related to the creation and substance of a Panama trust. However, there are articles of Law 1 that have been modified or re-drafted by Law 21 of 2017.
Law 21 reintroduces the application of Section 1 of Art 709 of Panama Fiscal Code, which establishes that once the taxable income on which the income tax is to be paid, natural persons will have the right to deduct annually the interest that is paid by reason of trusts on real estate that are constituted with the purpose of guaranteeing the repayment of a loan for the acquisition, construction, building or improvements of the principal housing of own use of the natural person taxpayer, provided that the taxpayer is the joint debtor of the guaranteed obligation and the annual amount to be deducted does not exceed fifteen thousand dollars. In these cases the financial creditor will issue the respective certification.
With regard to Art 752 of Panama Fiscal Code, it adds a new subsection, number 15, which states that false statements will be sanctioned with a fine ten times the amount certified, to both the beneficiary who makes use of said certification and the financial creditor that issues it.
Dr. Juan José Espino Sagel
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