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Getting the Deal Through - Private Client - Panama Chapter 2019

Private Client 2019

Juan F Pardini, Eduardo Achurra and Juan R Sevillano
Pardini & Asociados


Pardini & Asociados is delighted to be part of the seventh edition of Private Client, 2019 of Getting the Deal Through. This publication provides international expert analysis in key areas of law, practice and regulation for corporate counsel, crossborder legal practitioners, and company directors and ofcers. As a leading practitioner, our law firm was invited to cover the Panama chapter.



1- How does an individual become taxable in your jurisdiction? (Include considerations of residence and domicile and what types of income and gains are chargeable.)

Residents and non-residents of the Republic of Panama are subject to taxation.

Panama taxation law is based on the territoriality principle whereby, all foreign source income is exempted, but income and revenues produced within Panama are subject to Panamanian tax.

In other words, income tax is levied on all revenues produced within the boundaries of the Republic of Panama, irrespective of where the income is received and of the domicile or residence of the taxpayer. Activities which take place outside of panama are considered foreign source income and not liable to tax.


2- What, if any, taxes apply to an individual's income?

Based upon our previous answer, an individual’s income generated from salaries, business investment or commercial activities within the Republic of Panama will be subject to income tax and/or taxes (capital gain, VAT, dividend, interests, etc.)

Income tax chart

Taxable income Tax Rate
Up to US$ 11K 0%
From 11K up to US$ 50K 15% for the exceeding of US$ 11K up to 50K
More than 50K US$ 5,850.00 for the first 50K and a rate of 25% for any amount above of US$ 50K

3- What, if any, taxes apply to an individual's capital gains?

Capital gains derived from the sale of securities and negotiable instruments are subject to a 10% tax.  The purchaser must withhold 5% of the sales price as an advance payment of income tax and remit that amount to the tax authorities.

Profits from the sale or transfer of real property are considered capital gains.  If the transaction giving rise to the gain is part of the taxpayer’s ordinary business activities, the gain is subject to the corporate tax rate; if the transaction is not part of the taxpayer’s ordinary business activities, the gain is tax at a reduced rate of 10%.  However, in the latter case, the purchase must withhold 3% of the higher of the purchaser price or the ratable value of the property as an advance payment of tax.


4- What, if any, taxes apply if an individual makes lifetime gifts?

In Panama, there are no taxes applicable to lifetime gifts.


5- What, if any, taxes apply to an individual's transfers on death and to his or her estate following death?

In Panama, there are no succession taxes.


6- What, if any, taxes apply to an individual's real property?

In accordance to our tax legislation (recently updated in 2017), individuals owning real property are subject to pay property taxes every year in accordance to the below described chart.


Property Tax chart – Main family property

Property Value

Tax Rate

US$ 0.00 to US$ 120K


US$ 120K to US$ 700K


US$ 700K and above



Second properties and Commercial real estate      

Property Value

Tax Rate

US$ 0.00 to US$ 30K


US$ 30K to US$ 250K


US$ 250K to US$ 500K


US$ 500K and above


It is quite important to inform that any property tax exemptions granted prior to the new property tax legislation will be honored in accordance to the time frame awarded.


7- What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Import duties, value added tax and/or luxury could apply for the import of goods.

VAT = 7% is the general basis, however some products are subject to 10% or even up to 15%

Import duties = based on the goods

Luxury tax = 0% up to 25%

Taxes are calculated on CIF value.

Import of goods up to US$ 100.00 are exempted of VAT and duties


8- What, if any, other taxes (eg, wealth tax, VAT) may be particularly relevant to an individual?

Residents and non-residents of the Republic of Panama are subject to indirect taxes, which are related to the consumption of goods or use of services.

  • VAT is normally 7% and it is applied to several goods and services.
  • Luxury tax may apply to several goods such as cigarette & tobacco, liquor, jewelry, vehicles and others.  The applicable rate will vary upon the goods or services.


9- What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?  (If trusts do not exist or are not recognised in your jurisdiction, please focus on other asset-holding vehicles that may perform a similar role in estate and succession planning.)

Asset holding vehicles including trusts, corporations and/or foundations are not taxable as long as they do not generate income and revenues within Panama. If such vehicles produce income and revenue within Panama, then they will be taxable at the corporate rate of 25% from net revenue.


10- How are charities taxed in your jurisdiction?

Charities officially registered as non-profit entities before the Ministry of Government and the Tax Office will not be subject to taxation in connection with income received from donations. 

Donors to officially registered charities will be capable to deduct any donation performed.



11- Does your jurisdiction recognise trusts? (In the briefest terms, give details of the most salient points of the trust regime in your jurisdiction, and whether trusts governed by the laws of another jurisdiction are recognised.)

Panama law caters for all the main types of trust normally found in traditional common law jurisdictions such as:

  • Discretionary trusts
  • Fixed interest trusts
  • Charitable trusts
  • Investment trusts
  • Real estate trusts; and
  • Others

One of the basic features of taxation of trusts in Panama is that, unlike in many other Latin American countries, where in the case of trusts with settlors as beneficiaries the taxpayer is the settlor-beneficiary himself, in Panama trusts in all cases the taxpayer is deemed to be the trustee in his capacity as such, an obligation being limited to the tax liability generated by the trust fund and to the extent of the trust fund itself, in accordance with the principle that the trust is a separate patrimony from that of the trustee.

The territorial tax system immediately assures the settlor that no income other than that generated within Panama, and only from non-exempt sources, will be taxed. Panama law expressly provides that, once a beneficiary has received trust property from a trust intended to have effect after the death of the settlor, all income deriving from such transfer is income tax exempt in Panama, making an excellent case for looking into suitable residence arrangements either in Panama itself, or in a country where foreign source income is only taxed on remittances.

It should be pointed out that there is no Estate tax, Succession tax, nor any kind of forced heirship legislation in Panama or recognition of foreign forced heirship rulings. Once an individual has transferred property into a Panama trust structure during his lifetime, no one can claim any rights over that property by way of right of inheritance unless they are named beneficiaries of the trust.

Panama’s trust law also allows settlors to establish trusts governed by a foreign law, and foreign trusts are fully recognized. Panama is a signatory to the Treaty of Bustamante. Panama is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition, however, the Trust Law complies with the trust concepts expressed therein. Panama law ensures that rules such as the forced heirship do not apply. A properly executed foreign trust will be recognized and enforced in Panama, provided that the settlor and the trustee agree to abide by the formalities and requirements of Panama law. The trustee individually can make this statement, if so authorized by the trust deed. Accordingly, foreign investors seeking to use the Panama trust to streamline their assets or organize their estate need not be concerned about the Panama public policy rules.


12- Does your jurisdiction recognise private foundations? (In the briefest terms, give details of the most salient points of the regime for private foundations in your jurisdiction, and whether trusts governed by the laws of another jurisdiction are recognised.)

Foundations fully own the assets contributed to them and are managed by a foundation board or council. The founder of the foundation (the person establishing the foundation) normally establishes the foundation for a particular purpose.

The organs of the foundation are strictly bound to this purpose. The founder decides the beneficiaries of the Foundation and to which benefits the beneficiaries are entitled. All the intentions of the founder are written down in the bye-laws of the foundation. The foundation board is entitled to distribute assets to the beneficiaries of the Foundation, based on the bye-laws of the Foundation. The founder can also appoint an advisor or guardian to control the foundation board.

Significant advantages are offered by the Panama Private Interest Foundation. The following are some highlights:

  • Total exemption of taxes in the Republic of Panama, including without limitation, income tax, wealth tax, real estate tax, inheritance tax, sales and transfer tax and others.
  • There is no legal requirement to disclose the name of the real founder, beneficiary or protector.
  • There is no requirement to file any annual tax return or financial statement.
  • There is no obligation to hold an annual meeting of the foundation council, the founders or the protectors
  • There is no legal requirement of maximum authorized capital.
  • The payment of the foundation capital is not required for the incorporation of the foundation and there is no maximum time or deadline to make such contribution.
  • There is no limitation in respect of perpetuities, accumulation of capitals and other restrictions which are required in similar structures in other jurisdictions, such as the Anglo-Saxon or common law trust.
  • The private interest foundation can engage in any business or civil transactions (only in exceptional cases) in part of the world and in any currency.
  • The founders, members of the foundation council, beneficiaries and protectors may be individuals or corporations of any nationality.
  • The members of the foundation council need not be founders.
  • The founders, the protectors and the members of the foundation council may be beneficiaries of the foundation.
  • There is no limitation on the maximum permitted number of founders, members of the foundation council, beneficiaries or protectors.
  • The founders and the members of the foundation council may hold their meetings in any country and may be represented by proxy.
  • The foundation books and accounting books may be maintained in Panama or abroad.
  • The foundation charter can be signed by an attorney in fact or by a trustee without the need to disclose the name of the founder.
  • Private Interest Foundations incorporated in other countries can be redomiciled or continue existing as Panama Private Interest Foundations and viceversa following a simple continuation procedure.



13- Does your jurisdiction have any form of legally recognised same-sex relationship? (Provide details of the status of such relationships and how they are formed. Please also discuss how individuals in such relationships are treated for tax and succession purposes to the extent that such treatment is not covered elsewhere in the questionnaire).

Panama still has not recognized any form of legalized relationship status for same sex couples.


14- Does your jurisdiction recognise any form of legal relationship for heterosexual couples other than marriage? (Provide details of the status of such relationships and how they are formed. Discuss how individuals in such relationships are treated for tax and succession purposes to the extent that such treatment is not covered elsewhere in the questionnaire).

Panamanian law does not comprehend any type of legalized union among heterosexual couples other than marriage. There are many forms to acquire a marriage status, such as a common law marriage, although this one does not produce any legal effects, unless the couple request the recognition of their common law marriage, before the authorities, which will immediately transform the status from single to married. Therefore, still constituting the same type of legal relationship of marriage duly recognized by the Law.



15- What property constitutes an individual's estate for succession purposes? (Address issues such as legal and beneficial ownership and co-ownership affecting estate property.)

Any assets located in Panama, registered or non-registered, under the ownership or possession, included or not, on a person will, are subject to be inherited through a succession process.


16- To what extent do individuals have freedom of disposition over their estate during their lifetime? (Any restrictions on lifetime giving should be set out here. This would include any community property (marital property) regime in the jurisdiction. Rules relating to clawback of gifts on death may be dealt with here or at question 17.)

During lifetime, an adult person, is entitled to dispose of their assets, as long as they have complete control over them, in any way they find suitable for their conditions, without any boundaries that might limit their will.


17- To what extent do individuals have freedom of disposition over their estate on death? (Forced heirship rules or other restrictions on testamentary freedom should be set out here.)

As long as a person prepares a will in time and through the valid means recognized by the Law, in principle, the freedom of disposition over a person’s estate is total in Panama.

Nonetheless, there are some variables that can limit their will to secure some interests. A person may be limited in disposing a part of the estate in those cases where the testator has an underage child or an adult son or daughter who is under 25 and is still completing education, or an adult son or daughter who is incapable of sustaining him or herself owing to a medical condition, in order to provide them enough funds to cover fnancial support or their needs.

In any of the previously mentioned cases, the will can be approved, although if a person appears before a judge after the death of the testator claiming support for a child under these conditions, the judge will limit the estate of the deceased and ensure the provision of sufcient funds from the estate to cover the child’s support. On the other hand, if the deceased does do not leave a will, a judge, after submitting a motion, will dispose of the deceased’s estate in favour of his or her legally recognised married partner and recognized sons or daughters.


18- If an individual die in your jurisdiction without leaving valid instructions for the disposition of the estate, to whom does the estate pass and in what shares?

If an individual dies in Panama without leaving valid instructions for the disposition of the estate, after the submitting of a motion a judge will dispose of the deceased’s estate in favour of the deceased’s legally recognised married partner and recognised sons or daughters in equal parts. If there is no wife or sons, it will go to their closest ascendants. If there are no ascendants alive, the estate will go to the closest relative. If there are no relatives, the assets will be transferred to the government.


19- In relation to the disposition of an individual's estate, are adopted or illegitimate children treated the same as natural legitimate children and, if not, how may they inherit?

If an individual dies without leaving valid instructions for the disposition of the estate, there is no di?erence between adopted or illegitimate children among natural legitimate children. But if the individual did not prepare a valid will, the law will not recognise the rights of an illegitimate or unrecognised son. Properly registered adopted children will always be treated as a natural legitimate child. Properly registered adopted children will always be treated equally as a natural legitimate child.


20- What law (eg, lex situs or lex domicilii) governs the distribution of an individual's estate and does this depend on the type of property within it?

The Civil Code is the statute that governs the distribution of an individual’s estate regardless of the type of property within it. Nonetheless, the location of the assets determines the applicable law, therefore lex situs governs all matters in Panama relative to the estate.


21- What formalities are required for an individual to make a valid will in your jurisdiction?

There are three types of will valid in Panama. The simplest one is a handwritten sheet of paper signed by the individual. The only formality required for this type of will is that it has to be written and signed by a person of legal age and it has to include the date on which it was signed.

The most commonly used type of will is a deed drafted by a Panamanian lawyer, properly notarised by a Panamanian notary.


22- Are foreign wills recognised in your jurisdiction and how is this achieved?

Foreign notarised wills are recognised under Panamanian law. As long as the will complies with the formalities established by the law of the country in which it was rendered and the document is legalised by apostille under the Hague Convention or by a legalisation process at the Consulate of Panama, the document will be valid and executable in Panama.


23- Who has the right to administer an estate?

According to Panama law, the testator has the authority to designate a person to administer the estate. If there is no determination on the will, the Court will appoint an administrator of the estate.

The only limitation, according to our Law, is that the administrator must be a person of age, capable of undertake legal obligations.


24- How does title to a deceased's assets pass to the heirs and successors? What are the rules for administration of the estate?

The only way to pass title over the deceased’s assets is through a judicial process before a Panama court.

Depending on the successor’s age and conditions, commonly there are no administrators, unless there are under age child or persons with limited capabilities that might not be able to freely dispose of their assets.

Normally, the assets remain on the same condition, while heirs go through the process before the Court until the Judge renders a judgement recognizing their rights as successors.


25- Is there a procedure for disappointed heirs and/or beneficiaries to make a claim against an estate?

Within the required judicial process, there is a phase, in which disappointed heirs, beneficiaries or even creditors are able to show up before the Court and submit a motion supporting their claimed right.

This phase begins with a public announcement, of the deceased succession process been open, rendered by the Court, and published on a national journal by the heirs, for 5 consecutive days.



26- What are the rules for holding and managing the property of a minor in your jurisdiction?

In cases in which the one or more heirs are underage children, the court will appoint an administrator of their assets until they reach the age of 18. Most of the time, this administrator is the same living relative who retains custody of those children.

The rules for holding and managing the property of a minor are open to the testator’s will. If the deceased does not leave instructions, then the rules of the Panama Civil Code will apply.


27- At what age does an individual attain legal capacity for the purposes of holding and managing property in your jurisdiction?

An individual attains legal capacity for the purposes of holding and managing property at the age of 18.


28- If someone loses capacity to manage their affairs in your jurisdiction, what is the procedure for managing them on their behalf?

If a person losses the capacity to manage his or her a?airs, a judge must declare him or her incompetent and appoint an administrator of his or her assets. Normally, this is decided in a custody process, in which a relative requests to be named custodian, and after the court’s judgment this person may gain administration powers over the assets.



29- Do foreign nationals require a visa to visit your jurisdiction?

Panama is visa-free for an extensive list of countries; nevertheless, the immigration authorities do have a list of citizens that require a travel visa for Panama as such countries are considered a massive migration risk or a threat to local economy.

Some citizens may have more restrictions than others.


30- How long can a foreign national spend in your jurisdiction on a visitors' visa?

In general, a foreign national may stay in Panama up to 6 months, nevertheless, there are some citizenships that the immigration authorities have limited the stay time to 1  month or up to 3 months.


31- Is there a visa programme targeted specifically at high net worth individuals?

There are few programmes that could be considered as targeted at high-net-worth individuals based upon the investment amount (ie, a person of means programme, free trade zone investor, large investor programme, second passport and others).


32- If so, does this programme entitle individuals to bring their family members with them? Give details.

Our immigration regulations entitle the principal applicant to claim family members as dependents under the following rules:

  • her or she is the principal applicant’s parents;
  • he or she is the principal applicant’s spouse;
  • they are principal applicant’s children up to 18 years old; and
  • they are the principal applicant’s children between 18 and 25 years
  • if such children are still under the economical protection of the applicant as well as attending university or a college.


33- Does such a programme give an individual a right to reside permanently or indefinitely in your jurisdiction and, if so, how?

Depending on the residency programme, the granting of permanent residency status could be in di?erent stages.

There are two immigration residency programmes that grant immediate permanent residency status to the applicant, which are the retiree and the friendly nation programmes.

  • Retiree – The principal applicant must be receiving from a government or private entity a lifetime pension of no less than US$1,000 per month.
  • Friendly nation programme – The principal applicant must be from a citizenship considered as part of the friendly nation list and further comply in creating an economic link with Panama by means of setting up a business or purchasing a real estate. Unlike other programmes, there is no specifc amount for the investment.
  • Other programmes, such as the investor and some employment programmes, initially grant a two-year temporary residency status and further the right to apply for a permanent residency status.


34- Does such a programme enable an individual to obtain citizenship or nationality in your jurisdiction and, if so, how?

All Permanent Residency Programs (Friendly Nation, Investors or Employment) grant the applicant the right to apply for citizenship after 7 years. However, the Retiree program is not included.


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