Under the recently enacted legislation on insurance, reinsurance and captive insurance companies, the Panamanian Government has instituted substantial reforms in this important sector. The goal sought by these reforms is to bring the insurance business up to the modern economic trends, encouraging the autonomy of management administration and the preventive control and supervision of the financial solvency of sureties.
Law No. 59 of 29th July, 1996 has superseded the current 1984 legislation on insurance. The minimum paid-in capital to be deposited in cash by companies requesting authorization to operate in increased to US$2M. This requirement is also applicable to foreign branches. Additional reserves are required and up to 25% of these reserves may be invested abroad. A 2% tax is levied upon insurance companies for net premiums received for local risks. Customers of fire insurance policies pay a tax of 5%.
In addition to enhancing the authority of the Superintendency of Insurance, Law No. 59 regulates extensively for the first time all matters in connection with voluntary liquidation, intervention, reorganization, dissolution, insolvency and bankruptcy of insurance companies.
Authorization to operate will be issued under any of the following licenses: (1) General reinsurance license, to those companies in Panama engaged in the reinsurance of local or foreign risks; (2) International reinsurance license, to those companies which contract exclusively, through an office established in Panama, the reinsurance of foreign risks; (3) Reinsurance Administrator license, to those companies in Panama that represent other companies which contract reinsurance of local or foreign risks.
Local risks are defined as those related to persons, movable property or real estate property physically located in Panama; vehicles registered or licensed in Panama; tort liabilities derived from damages incurred in Panama, and the transportation or merchandise which final destination is Panama. All other risks are presumed to be foreign, unless proven otherwise.
As a tax incentive to foster the establishment of reinsurance companies in Panama, neither the reinsurance of foreign risks are taxable in Panama. In addition, technical and other kinds of reserves are deductible for income tax purposes.
3. Captive Insurance Companies:
By means of Law No. 60 of 29th July, 1996 captive insurance companies are regulated in Panama for the first time. Captive insurers are defined as those companies seeking to operate exclusively, from an office established in Panama, activities of insurance and reinsurance of foreign risks. Authorization to operate may be granted for long-term risks or general risks. Both the premiums and the income derived from the captive insurance company activities are not taxable in Panama. Minimum paid-in capital requirements range between US$ 150,000 and US$ 250,000.Tweet
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