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Trusts in Panama


According to Law 1 of January 5, 1984, regulated through Executive Decree 16 of October 3, 1984, the Panamanian trusts is a finely honed, flexible and safe instrument to channel investments, to make plans for patrimony or to protect goods.

The Panamanian trusts may be set up with any kind of goods, even future goods, and for any legal purpose or aim, whether they are purposes while living or “mortis causa”.

The goods of the trust will make up a patrimony separated from the goods of the trustor and the trustee.

The trust is a specific contract, where the Trustor (person who transfers goods to the Trust) transfers goods to a Trustee, so that (s)he administers them according to his/her instructions, to the benefit of the Beneficiaries. The administrator may be a person appointed by the Trustor or a professional with a fiduciary license (generally a bank or a company which holds a license issued by the Superintendence of Banks).

The Law of trusts contains stipulations that obligate the trustor to keep confidentiality regarding fiduciary operations of his/her client; for that reason in these cases the identity of the trustor and the beneficiaries remains confidential.

The assets transferred to a trust are managed on the basis of the last will or a letter of wishes in such a way that it corresponds to the will of the trust founder. The trustor may also appoint a protector, who may supervise the activities of the agent, if the administrator acts according to the will and the instructions or wishes of the founder and the persons entitled to the benefits of the trust (beneficiaries). A protector may be any person, such as a friend of the family, attorney or any other person trusted by the agent. It is not obligatory, it is appropriate in the cases in which the founder does not wish to appear as Trustor, but wants to keep control over the Trust.

A trust is created during the life of the Trustor and (s)he keeps control of the Trust until his/her death. Upon the death of the Trustor, the Trust becomes irrevocable so that it can not be modified nor finished; it will be managed in accordance with the stipulations of the trust contract. The trust can only be revocable, i.e. finished or modified, during the life of the Trustor.

Our legislation allows for goods of any kind and nature, present or future, to be able to form a trust, e.g.: cash funds, investment porfolios, insurance policies, stock certificates with or without voting rights, guarantees, mortgages, promissory notes’ portfolios, cashflow, pledge over stocks, bonds, movable and immovable assets or rights over them, bills of exchage and certificates of warehouses, among others. It is also permitted to add goods after making up the trust, as long as the trustee accepts that.

The notion that the goods of the trust are an autonomous patrimony, separated from the assets owned by the trustor, implies their exclusion from the general guarantee of the trustee’s creditors, since the accounting records of those goods are done separately, in such a way that they may not be confused with the other goods that the trustee has or manages. This situation entails some advantages from the points of view of fiscal benefits and the protection of assets to avoid possible sequestration or seizure by third parties. Therefore, for example, the trustee who wants to have a credit for him/herself can not offer as a guarantee the good(s) that are kept in the trust. The patrimony held in the trust is also excluded from the creditors of the beneficiary, since (s)he is not the owner of the goods and has only an expectation regarding the transference of the goods, or part of them, or receives their yields periodically, so that his/her creditors have no rights over such goods, except for the sequestration or seizure of the yields that the corresponding beneficiary must effectively receive.

The trusts made up in accordance with the laws of the Republic of Panama will be governed by Panamanian law. However, they may also be executed with subjection to a foreign law if it is stipulated by the instrument of the trust.

The trust, along with the goods that it contains, may be transferred or be subjected to the laws or jurisdiction of another country, according to the stipulations of the instrument of the trust.

The goods of the trust are held under the name of the trustee, but they do not belong to the personal patrimony of the trustee.

The property of the goods has a fiduciary status and to dispose of them it must be done in accordance with what is set forth in the contract of the trust.

According to article 694 of the Tax Code, the incomes earned by any natural person or legal entity from sources outside of Panama are not levied. The legislation stipulates expressly that the following operations are not subjected to income tax in Panama:

– Invoicing abroad a company (from an office in Panama) for the sale of goods for an amount higher than the amount for which such goods were invoiced in the office in Panama, as long as such products are exclusively dealt with abroad.

-Dividends from incomes earned by a company when they are produced or yielded abroad.

-To direct or administer (from an office i n Panama) the operations and transactions that are carried out, finished or come into effect abroad.

Some characteristics of trusts in Panama:

  • Trusts are created in a private document. The only formality involved is that the signature of the founder and administrator must be authenticated by a Panamanian notary, guaranteeing its confidentiality. It is not necessary its execution through neither a public document nor its registration in the public registry, except for the immovable items located in Panama that is given in such trust.
  • Article 37 of Law Nº1 expressly guarantees the confidentiality in the execution of the trust. It is stipulated that the agent, representatives, employees and any other person involved in its execution must keep the secret of the operation. The violation of this disposition is sanctioned with up to six (6) months of prison and a fine of up to 50.000 U.S. dollars.
  • The founder is the one who must determine the period of the trust’s existence. The duration of the trust must be expressly specified. It may also be revocable or cancelled before its expiration date, if the founder of the trust stipulates such in the agreement.
  • The fiduciary agreement may contain any legal clause that may be needed by the trustor, according to articles 5 and 9 of Law Nº1. They may be created for any purpose as long as the law and the peace are not disturbed.
  • The founder and the administrator, and/or the beneficiary may be a corporation. They do not have to be natural persons.
  • Tax on trusts: The law sets forth that the actions of execution, modification and termination of a trust, as well as the transference, transmission or taxing of the fiduciary funds and the income or interests produced by the assets and properties that belong to the trust are exempted from all taxes, contributions, quotas or encumbrances, as long as the trust implies the following advantages:
    1. Interests paid by the banks located in Panama to their clients for the savings accounts and fixed term deposits kept in Panama;
    2. Salary or wages paid to directors, officials and executives of companies located abroad, outside of Panama.