Tag Archive for: Panama

immigration trouble

Are you living in Panama without a visa? Watch out, the government is targeting expats!

If you’re living in Panama, making multiple visits to the country in a year, or are spending more than 90 days in Panama over a 12 month period, you must get a visa. The government is cracking down on people “living” in the country without a residency permit.

Per the U.S. Embassy in Panama: “The US Embassy in Panama would like to inform all US Citizens in Panama that on March 6th 2017, the Panamanian Immigration Authority (Servicio Nacional de Migracion-SNM) announced new guidance for Panamanian immigration officials on the enforcement of pre-existing regulations. According to the SNM, immigration officials have been instructed to be stricter about the enforcement of the regulation that foreigners entering Panama with tourist status prove that they are in fact entering Panama as tourists and not residing in Panama.”

The above warning was issued by the US Embassy in Panama to US citizens. But it’s equally valid for anyone making multiple trips to Panama within a year. Whether you’re from the US, Canada, Latin America, UK, or the EU, you’re at risk of being refused entry to Panama.

Also, Panama is adding stronger requirements to the “onward departure” rule. Whenever a tourist enters Panama (or just about any country for that matter), you’ve always needed a fight out… a departing flight… a onward departure.  Tourists can’t usually enter a foreign country on a one-way ticket.

For example, I could fly from California and fly out in 90 days to Medellin, Colombia. Since this was the cheapest flight, it costs me less when I cancel and stay in Panama.

As of 2017, proof of onward departure may no longer be sufficient. Panama is sometimes asking for proof of a return flight to the country from which your passport is issued. This can be a HUGE headache for those living in a country other than their country of birth.

There are several reasons for the change. First, Panama wants to increase fees and keep closer track on people “living” in their country, using their services, driving on their roads, and crossing the border multiple times in a year.

For years, many of us have been living in Panama without getting a visa, without paying any taxes, and without paying any government fees. We’ve been entering as tourists, leaving for a weekend party trip to Colombia or Costa Rica every couple months, and returning to Panama.

I did this for 3 years and never had a problem. I even did the border walk from Panama to Costa (Puerto Viejo). Walk across from Panama to Costa Rica, stay for an hour at the border bar, and walk back… usually paying the border guard $20 to modify the date on your stamp.

Now, it’s a new world where the government needs to increase control and fees.

Second, the Panama Papers put a lot of negative attention on Panama. Banks, airlines, and everyone in between is worried about being mixed up in money laundering. One way to fight this stigma is through tighter border controls.

And it’s not just the Panama Papers causing the problem. The US government has been all over Panama for the last few years and Papers gave them the news coverage they needed. For example, the US Government Shutdown Balboa Bank back in 2015. This had a big impact on the economy as thousands of locals lost their jobs.

All of this has forced Panama to appear stronger in fighting money laundering. One of the ways they’re doing this is by tightening border crossings. It’s all about appearances, even though it’s causing great pain for many of us expat entrepreneurs.

Third, pressure has been put on the government by real estate developers in the country (pressure or payment, however you see it) to increase sales. The most common residency visa for those living in Panama is to buy a condo in the city with a value of $350,000 or more.

But there is a way for those of us from friendly nations to get residency in Panama without buying real estate and without those high carrying costs.

If you’re from the US, Canada, UK, EU, or any of the 50 Friendly Nations, you can get residency in Panama through the Friendly Nations Reforestation Visa program. Invest $20,000 in teak and get residency immediately.

No more questions about how many days you spend in Panama each year. No more worrying at the border crossing. No more buying and cancelling airline tickets. No more pirate style border runs (though, they were fun).

Simply invest $20,000 to help keep Panama green and you’re in. And this investment amount will cover you and your family (your spouse and dependent children under 19). Legal and filing fees will apply to each person, but the investment amount remains the same.

And US citizens can make this investment using their IRA. Invest your retirement money in teak, and pay the fees with personal money to ensure compliance with US rules. For more, see: How to get Residency in Panama Using Your IRA.

The bottom line is this: If you have significant ties to Panama, you must get a residency visa. If you have investments in the country, spend more than 90 days a year there, or make multiple trips within a 12 period for any reason you need a visa.

The easiest visa to get is the Friendly Nations Reforestation Visa. If you don’t want to buy a condo in the city, take a look at this teak program.

For more information on this and other Panama residency programs, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to review your options and get you residency in the most cost effective way possible.

Offshore Trust or Panama Foundation

Offshore Trust or Panama Foundation?

The top two international asset protection structures are the offshore trust and the Panama foundation. These tools are very different from one another and I don’t think of them as competing solutions. Even so, I’m asked all the time, offshore trust or Panama foundation? In this article I’ll try to explain the differences.

A properly structured offshore trust formed in and managed from a tax free and max protect jurisdiction such as Belize or Cook Islands, provides the strongest asset protection. A foreign trust is more secure than a Panama foundation and offers a wider range of estate and tax planning options.

But these benefits come with limitations. In order to maximize the asset protection benefits, you must be willing to give up control of the assets. An offshore trust is best when a foreign trustee and a foreign investment advisor are making the decisions.

Likewise, the settlor (you) and any U.S. persons connected to the trust should not have the ability to replace the trustee nor the right to terminate the trust. If these rights rest in a U.S. person, a U.S. court can compel the trust be dissolved and the assets brought back to this country.

In most cases, both the offshore trust and the Panama foundation will be tax neutral. They’ll not increase nor decrease your U.S. taxes and all income and gains generated in the structure will be taxable to the settlor as earned.

A trust has additional advanced tax planning options not available to the foundation. For example, you can build a dynasty trust or multi generational trust that can eliminate gift, estate, and capital gains tax. In addition, a trust can hold a U.S. compliant offshore insurance policy which will operate as a massive tax free account, with no capital gains and estate tax due when the assets are distributed to your heirs.

For these reasons, an offshore trust is best for someone who wants to put a nest egg offshore for his or her heirs. A foreign trust will provide the highest level of protection and give you access to banks and investment options around the world typically closed to Americans. And it will accomplish this by bringing in foreign advisors and other professionals to make the trades, distancing itself from its American owner.

An offshore trust is not the structure for someone who wants to manage their own investments, is an active trader, or wants to protect an active business. A trust is meant to be static and stable over many years. It’s the castle behind whose walls you store your wealth… a castle that will stand the test of time and will prove impenetrable for decades and generations to come.  

If you prefer to balance flexibility with asset protection, then consider a Panama Foundation. While the offshore trust is about maximum protection, the foundation is about control and maximum privacy. If you need an estate planning and asset protection structure to hold an active business, look to a Panama foundation.

The Panama foundation is a hybrid foreign trust and holding company. It’s meant to hold both active businesses and investments (real estate, brokerage accounts, etc.). And it comes with many of the same asset protection benefits of a traditional offshore trust.

One reason I’m so high on the foundation is that it’s used by foreigners (Americans, Canadians, etc.), expats, and locals (Panamanians). Every wealthy family in Panama holds their local assets inside of a foundation. Also, the shares of most most banks, investment firms, and large businesses in the country are held inside of foundations.

Because Panama is a major financial center, and because the foundation is used by both locals and foreigners, it’s unlikely the laws will ever change. The Panamanian government will not reduce the protection or privacy of it’s foundations because to do so would go against their ruling class and entrepreneurs.

The bottom line is that both offshore trusts and foundations are sold asset protection and estate planning tools. Each has its strengths and weaknesses and each will give you access to a wide range of offshore banks and investment opportunities.  

So, should you go with an offshore trust or Panama foundation? That depends on your situation. If the above hasn’t answered this question yet, then consider the costs of each and compare that to amount of assets you need to protect.

The costs to form an offshore trust can range from $10,000 to $30,000 compared to $3,500 to $9,500 for a Panama foundation. Also, the costs to maintain an offshore trust will be much higher than a foundation because of the use of foreign trustees and advisors. Most foundations are managed by the founder / owner.

For this reason I recommend a trust when a client has $2 million or more in assets they wish to protect. More importantly, they have this amount in cash and want to hold it offshore to be managed by a Swiss, Cook Islands, or Belize investment advisor.

A Panama foundation can be formed for a variety of reasons. Most clients either hold $100,000 in assets or an active business. Because of it’s lower cost, the foundation is an excellent estate planning tool for anyone with foreign investments.

I hope you’ve found this article on the offshore trust vs Panama foundation to be helpful. For more information, and a confidential consultation, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We will be happy to review your situation and devise a custom solution that fits your needs.

panama residency

How to get Residency in Panama Using Your IRA

Here’s how to get residency in Panama using your IRA or other US retirement account. If you want to get residency in Panama through investment, you can use your retirement account in one and only one opportunity.

First, let me mention the rules in play when you make an investment and get residency in Panama using your retirement account. These rules significantly restrict your options to get residency, but there is one path open you you.

Note that, even when you take your IRA or other retirement account offshore, you must follow all US IRA rules. If you get caught cheating, your entire IRA may be considered distributed, taxes due on the total amount (not just the amount used improperly), plus a 10% penalty for early withdrawal and other charges.

The most important IRA rule is that you can’t receive a personal benefit from investing your IRA. So, you can’t simply invest $x in Panama and get residency in return. The residency permit must be done as a side deal not directly related to the investment made by your IRA.

Second, you can’t borrow from your retirement account. As the owner of an IRA, you are prohibited from borrowing against the account for more than 60 days. Therefore, you can’t borrow from your IRA to invest in Panama. The investment must be made by your IRA and the asset must be titled in the name of your IRA or your IRA LLC.

Third, let’s consider the residency programs in Panama. For a complete list, see my article Top 6 Panama Residency Programs.

The options that require an investment are the Person of Means visa, the Friendly Nations Visa, and the Reforestation Visa.

Because a person with a US retirement account is likely a US citizen, and thus from a “friendly” nation, we will ignore the Reforestation Visa option. That visa is intended for people not from friendly nations. This is because the friendly nations investment program requires an investment of $20,000 and the reforestation visa requires an investment of $80,000. For a list of “friendlies”, see: Best Panama Residency by Investment Program.

So, we’re left with the Friendly Nations visa and the Person of Means investment offerings.

In order to qualify for residency in Panama using the Person of Means visa, you must a) deposit $300,000 in a bank account in Panama, 2) buy a home for at least $300,000, or 3) invest a minimum of $100,000 in a two-year certificate of deposit in a bank located in Panama and buy a home in Panama. The combined total of your CD and real estate should be at least $300,000.

The Person of Means visa requires that the bank deposit, CD, and/or real estate be in your name. You can’t use a corporation or trust. Because the investment in Panama for the Person of Means visa must be titled in your name, this program is not compatible with the US IRA rules.

Your IRA LLC, or assets purchased with your retirement account, must be titled in this manner:

US Custodian, Inc. FBO Your Name IRA # 55-55555555

Remember that, even after you take your IRA offshore through an IRA LLC, you will have a US custodian involved. You will be in control of the account and the custodian will be responsible for annual filings in the United States.

FBO = For the Benefit Of

And here lies the conflict – any investment made by your IRA must be titled in the name of your account. If you’re using an offshore IRA LLC, the investment can be titled in the name of your LLC. Under no circumstances may an IRA investment be titled in your name.

If you were to use IRA money to buy a home, CD, or deposit into a bank account in Panama, and that account is in your name (not in the name of your IRA), this would be a distribution subject to US taxes and penalties.

Now we’re left with the Friendly Nations visa. If you want to invest in Panama using your IRA or other retirement account and get residency in return, this is the only option available.

And the only investment compatible with both the IRA rules and the Friendly Nations Visa is teak. If you invest $20,000 in teak, you will get residency in Panama for free (included in the investment amount.

When you invest in teak to get residency in Panama through your IRA, you need to break-out the investment and the costs associated with residency. To avoid self dealing, you invest about $16,000 in teak through your IRA and pay other fees of about $4,000 from your personal savings (not your IRA account).

You will get teak of the same value had you invested $20,000 and avoid the IRA self dealing rules. And you and your family may all apply under the Friendly Nations visa with an investment in teak.

Note that this Panama residency option also avoids the issue of titling. You can hold the investment in teak in the name of your retirement account or in the name of your IRA LLC and process the Friendly Nations visa under your name.

If you would like to get residency in Panama using your IRA or other US retirement account, the Friendly Nations visa is your friend. For more information, please contact me at info@premieroffshore.com or call (619) 483-1708. We will be happy to work with you to get residency using your IRA.

residency and second passport

What’s the Difference Between Residency and a Second Passport?

I’m asked just about every day to compare Panama residency with a second passport program from somewhere in the world.  The caller usually has $200,000 to $500,000 to spend or invest and wants to know whether they should go for residency or a second passport. Here’s what you need to know about residency and second passport.

As for residency, I suggest Panama is the best available. If you’re from a “friendly nation,” then you can get residency for about $8,750, or even for free. If you’re not blessed with a good passport, then you need to deposit $300,000 into a Panama bank account and pay about $30,000 in fees.

Residency allows you to live in that country. It usually permits you to operate a business there but not be employed by someone else. There are many different visas available in Panama, in addition to the Friendly Nations visa, and some do include a work permit.

Once you’ve had residency in Panama for 5 years, you may apply for citizenship. This doesn’t mean you will get a second passport, it means only that you may apply for one. The decision to grant citizenship lies solely with the president – whomever that may be 5 years from now.

Some presidents, such as Martinelli, gave out Panama passports to anyone who made sizable donation to his campaign. On the other hand, the current president, Juan Carlos Varela, is all about fighting corruption. I don’t think he’s granted even one Panama passport in his 3 years in office.

My point here is that residency means you can live in a particular country. It does not give you a travel document nor any of the benefits of citizenship. If you want to live in Panama and/or maximize the benefits of the Foreign Earned Income Exclusion, then you need residency in Panama. If you want a low cost exit plan, consider residency from Panama.

If you want a passport, then you can wait and hope that a “friendly” president comes to power… and with a “donation” amount you can afford… or you can buy a second passport from a country that offers economic citizenship.

A second passport is a whole different level of global access above residency… and at a completely different price point.

Someone from the US can get residency in Panama for $8,750. Someone from India can get residency for $30,000 + a deposit of $300,000 in a bank in Panama. This $300,000 is not a cost. The money belongs to you and can be taken out any time.

On the other hand, the minimum price for a second passport is $150,000, and can go as high as $8 million. Most second passports are sold for $240,000 or can be acquired with an investment of $550,000 + fees of $40,000.

Economic citizenship gives you all of the rights and privileges of a citizen from whichever country you buy in to. This means the right to live, work, vote, etc. It also gives you a passport from that country.

Second passports are valued based on 1) the number of visa free travel options they include and 2) where they allow you to live and work.

For example, a second passport from St. Lucia gives you visa free travel to 125 countries, which is very good. The cost is about $240,000 for St. Lucia.

For comparison, a second passport from Malta gives you visa free travel to 168 countries, including Canada and the United States, the two countries most difficult to access. A passport from Malta will cost about $1.2 million plus legal and other fees.

A passport from Matla also allows you to live and work anywhere in the Schengen Region of the European Union. Schengen encompases 26 countries including Austria, Germany, France, etc. For a complete list, click here.

So, St. Lucia is a valuable passport because it gives you access to 125 countries, plus an exit plan, the ability to give up your US citizenship and escape the IRS, etc.

A passport from Malta is valuable for all of these reason, plus several more visa free countries and the ability to live anywhere in the European Union.

Fore more, see Top 10 Second Passports, which includes a variety of economic citizenship options at different price points.

Here’s the bottom line on residency and second passports:

If you want to live in a country like Panama, then you need residency there. If you’re an American operating a business abroad, then you need residency to maximize the value of the Foreign Earned Income Exclusion. If you want a low cost exit plan, then you can start with foreign residency.

If you want a second passport, then you need to buy a second passport. This is the only guaranteed route to acquiring economic citizenship and a quality travel document.

I hope you have found this article helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 with any questions on second passports or residency programs. If you are from a friendly nation, can even help you get Panama residency for free.

panama residency

Best Panama Residency by Investment Program

If you want to plant a major flag offshore, think about residency in Panama. For those who qualify, the best residency in Panama is the Friendly Nations Visa . Of the 8 or 9 visa programs Panama is running at any given time, the best Panama residency program is the Friendly Nations Visa.

Here’s why you want residency in Panama and how to get it.

Why You Want a Foreign Residency

If you’re an American, you have many reasons to want a second residency. Getting that residency in a tax friendly jurisdiction such as Panama is a no brainer.

First, Panama residency will allow you to maximize the benefits of the Foreign Earned Income Exclusion. If you’re living AND working abroad, you can exclude up to $101,300 of salary from your US taxes. A husband and wife operating a business from Panama could earn $200,000+ per year tax free.

I won’t bore you with a dissertation on the FEIE, as I’ve been known to do. Suffice it to say that, if you qualify for the Exclusion using the Residency Test, you can spend 4 months a year in the US. If you don’t have residency, then you must use the Physical Presence test and be out of the US for 330 out of 365 days.

Second, Panama allows you to plant a major flag offshore. Once you have your international bank account and your offshore structure, the next flag to plant is residency. Residency in Panama demonstrates that you are an international citizen – someone who is experienced at living, working and investing abroad.

Third, Panama residency gets you access to all of the international banks in Panama. About 90% of Panamanian banks prohibit US persons unless you have a residency permit. Big banks, such as Banco General, CrediCorp, Global Bank and Scotia Bank (the Canadian Bank with offices in Panama) all restrict access to US persons with residency in Panama.

Fourth, Panama residency gives you a place to “land” should you decide to leave the United States. Maybe you’re retired and don’t care about the tax benefits (the FEIE doesn’t apply to passive income or capital gains). If you’re planning an exit strategy, foreign residency is a must.

If you are concerned with the direction of our country, finding a safe haven, then residency is one of the most important flags to plant. First is an offshore structure, then offshore bank account, and finally residency for the trifecta.

Why Panama has the Best Residency Program

Panama has the best residency program because:

  1. If you are from a friendly nation, a residency visa is very easy to get.
  2. Panama is a place you can live and work tax free (if you have a portable / internet business).
  3. Panama is a place many people would like to live. It’s one of the top business and retirement options for those seeking a higher quality and lower cost quality of life.

Considering Panama is where you want to be for lifestyle as well as business reasons, and because their residency permit is easy to get, Panama is my number one recommendation.

Let me be clear, I’m not here to analyze a bunch of jurisdictions and hedge my bets. I’m here to tell you what I think. Yes, I’m a big fan of Panama… a cheerleader if you will. Bullshite like the Panama Papers have reinvigorated that feeling.

Premier is incorporated in Panama, it’s the home base of this business, it’s where I have lived for years at a time, it’s where I travel to often these days, and Panama City one of the best places in the world to live and work. Likewise, Boquete is one of the best places to retire on a budget.

Updated List of 50 Friendly Nations for the Panama Residency Program

In order to qualify for the Friendly Nation visa, you must hold a passport from an approved country. One that is “friendly” with Panama.

Here is the current list of friendly nations for the Panama residency by investment program. This list has been updated through May 24, 2016.

If your country is listed here, you may apply for residency in Panama under the friendly nations Panama residency program.

If your country is not listed, then you may apply for residency in Panama under one of their other programs. In most cases, you will need to enter under the Person of Means visa by making a substantial investment or a deposit of $200,000+ into a local bank.

For example, if you hold a passport from India, then you do not qualify for the Friendly Nations Panama Residency visa. The only way to get a visa from a non-friendly nation is to make an investment or deposit in a local bank.

For more information on countries NOT listed below, please see: Residency in Panama from Restricted Countries

Andorra Czech Republic Israel Netherlands South Korea
Argentina Denmark Japan New Zealand Sweden
Australia Estonia Latvia Norway Switzerland
Austria Finland Liechtenstein Poland Taiwan
Belgium France Lithuania Portugal USA
Brazil Germany Luxembourg Serbia Uruguay
Canada Greece Malta Singapore United Kingdom
Chile Hong Kong Monaco Slovakia Costa Rica *
Croatia Hungry Marino Spain Mexico *
Cyprus Ireland Montenegro South Africa Paraguay *

* Most recent friendly nations visa additions.

Italy: You might notice that Italy is the only Western European country not on the list. There are other EU countries missing (such as my favorite second passport option, Bulgaria), but Italy is the only major nation not on the list. This is because Italy and Panama have an unique immigration agreement that allows Italians to move to Panama without the Friendly Nations visa.

How to Get Panama Residency for Free

The typical cost for Panama residency under the Friendly Nations Visa is $8,750 for the first applicant. As I’ve said, it’s one of the easiest and least expensive foreign residency visas to get. It’s also one of the best because it’s Panama is a great place to live, work, and do business.

Now, here’s how to get residency in Panama for free…

Option 1: You can pay a fee, form a corporation and get Panama residency for $8,750 as I said above.

Option 2: You can make an investment in an approved project in Panama and get residency. Most projects are condos or other real estate costing hundreds of thousands of dollars. That’s not what I’m talking about.

There is one and only one investment you can make with a guaranteed return. One that costs only $20,000, including residency in Panama. One that doesn’t come with any carrying costs or tax obligations.

That’s an investment in teak wood….

Teak has always been a prized material. The tree that teak comes from, Tectona grandis, is native to the tropics. Since around the 7th century, it has been used to outfit and adorn the residences of the wealthy and powerful In addition to the most beautiful furniture, Teak is used in shipbuilding. It makes for an excellent ship wood due to its ability to ward off dry rot

Since the best wood furniture made from teak comes from mature trees, it can take around 25 years before a teak tree planted today is harvested for wood.

Here’s why I recommend only one teak program and why that investment is guaranteed.

The teak wood plantation I recommend has been established for years. The trees have been in the ground for 17 year already. The trees and the quality of the teak are  verifiable and proven.

This is not one of those mango or coffee “opportunities” you read about on the web. Some deal that you invest in now and hope your crop gets planted. This is teak that’s been in the ground for many years. Teak that is verifiable and guaranteed. Teak that comes with Panama residency.

As I said above, I’m a big supporter of Panama. I believe it’s where you want to have a second residency. Where you want to plan your exit strategy. Where you want to have your home base.

Combine this with the fact that you can get your Panama residency for free through an investment in teak, and I’m all in. This is truly a unique opportunity.  

I will close by telling you that I am writing about teak in this post on residency solely because I believe in it. No one has paid me to do this and I don’t make any money if you buy teak.

In fact, the opposite is true. If you hire me to negotiate your residency in Panama for $8,750, I make money. If you buy teak and get residency for free, I make nada. That should tell you how much I believe in this program. I am writing on this residency and teak program because I believe in it. Because I want to support the Panama I love and to let my readers know what’s available.

I hope you have found this post helpful. If you would like to learn more about the Panama residency program, or how to invest in teak to get your residency visa for free, please contact me at info@premieroffshore.com. I will connect you with experts on the ground who can help.

Residency in Panama from Restricted Countries

Residency in Panama from Restricted Countries

If you are a US or EU citizen, it’s very easy to get residency in Panama. I write about this all the time while singing the praises of Panama’s various visa programs.

For example, the Friendly Nations Visa will allow you to live and operate a business in Panama for about $8,500. Forget investing in overpriced real estate… just pay the fee and you’re golden.

This applies to people holding passports from the following 50 friendly nations:

  • Great Britain
  • Germany
  • Argentina
  • Australia
  • Republic of Korea
  • Austria
  • Brazil
  • Belgium
  • Canada
  • Spain
  • USA
  • France
  • Finland
  • Netherlands
  • Ireland
  • Japan
  • Norway
  • Czech Republic
  • Switzerland
  • Singapore
  • Uruguay
  • Chile
  • Sweden
  • Poland
  • Hungary
  • Greece
  • Portugal
  • Croatia
  • Estonia
  • Lithuania
  • Latvia
  • Cyprus
  • Malta
  • Serbia
  • Montenegro
  • Israel
  • Denmark
  • South Africa
  • New Zealand
  • Hong Kong
  • Luxembourg
  • Liechtenstein
  • Monaco
  • Andorra
  • San Marino
  • Taiwan
  • Costa Rica
  • Mexico
  • Paraguay

If you’re holding a passport from one of these countries, you’re golden. Pay your fee and move to Panama.

But what about the rest of the world? What if you are not on the friendly nations list? Then get ready to pay to play.  

Panama Restricted Countries:

If you are holding a passport from one of the following “restricted” countries, must prove your net worth and jump through all kinds of hoops to get into Panama.  And you must find a way in to Panama before you can apply for residency (as a tourist or with a special invitation from an attorney or large corporation).

Afghanistan, Albania, Algeria, Alto Volto, Angola, Armenia, Azerbaijan, Bahrain, Bangladesh, Belarus, Benin, Bhutan, Bosnia, Bulgaria, Burkina Faso, Burma, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Comoros, Cote d’ivoire, Cuba, Dominican Republic, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, Gambia, Georgia, Ghana, Guinea, Guinea Bissau, India, Indonesia, Iran, Iraq, Jordan, Kazakhstan, Kenya, Kiribati, Kuwait, Kyrgyzstan, Laos, Lebanon, Lesotho, Liberia, Libya, Macedonia, Madagascar, Malaysia, Malawi, Maldives, Mali, Marshall Islands, Mauritania, Mauritius, Micronesia, Moldova, Mongolia, Morocco, Mozambique, Myanmar, Namibia, Nauru, Nepal, Niger, Nigeria, North Korea, Oman, Palau, Palestine, Papua New Guinea, People’s Republic of China, Qatar, Romania, Rwanda, Saudi Arabia, Senegal, Seychelles, Sierra Leone, Slovakia, Slovenia, Solomon Islands, Somalia, South Africa, Sri Lanka, Sudan, Swaziland, Syria, Tanzania, Tajikistan, Togo, Tonga, Tunisia, Turkey, Turkmenistan, Tuvalu, Ukraine, United Arab Emirates Uzbekistan, Vanuatu, Vietnam, Yemen, Zaire, Zambia, and Zimbabwe.

As I said above, you must be in Panama as a tourist or be invited in by a lawyer or business. If you can get a tourist visa, then you can file to amend your status once you are in the country. If you can’t get a visa, then expect to pay for an invitation letter. The going rate is $5,500 per person per letter. So, a family of 4 will need 4 letters (yes, your kids will need an invitation letter).

Fyi… if you have a valid visa for Australia, any European Union country, Canada or the USA, you can usually enter Panama so long as you have a return ticket. Speak with your travel agent before traveling to Panama on a non-Panamanian visa.

  • When traveling to Panama from a restricted country, you should have a valid visa, passport, minimum of $500, bank statement, travelers check or credit card and a valid onward or return ticket.

So, if you can get into Panama as a tourist you will save some cash on the invitation letter.

Once you’re in, here’s how to gain residency in Panama from a restricted country:

  1. Form a Panama corporation, preferably owned by a Panama Foundation with you as the founder. The corporation will operate a business and the Foundation will serve as your “persona” in the country.
  2. Deposit $200,000 or more in to a personal account held as an 18 month CD. The intent here is to prove you can afford to support yourself while in the country and that you intend to “contribute to the economy of Panama.”
  3. Apply for a change in status and residency. Minimum legal and application fees: $15,250. Processing time 2 to 6 months.

If you are holding a restricted passport and would like to become a resident of Panama, please contact me for more information. Send an email to info@premieroffshore.com or call me directly at (619) 483-1708.

Bearer Share Company Hack

The Bearer Share Company Hack

Bearer share companies have gone the way of the dodo. Here’s the offshore company hack to create a bearer share company like structure to maximize privacy and protection.

First, a word on bearer share companies. Back in the day, bearer share corporations allowed for anonymous ownership of assets and bank accounts. Whoever held the shares owned the offshore company. No public record of ownership was required.

Of course, the U.S. government doesn’t like anonymity… privacy in financial dealings allows U.S. citizens to cut out Uncle when it comes tax time… and the beast must be fed.

The U.S. launched an attack on offshore banking and bearer share companies in 2003 with  the Patriot Act and has been hard at work stripping away financial freedom ever since. By 2015, all offshore banks have fallen in line and bearer share companies are no more.

Here’s the offshore company bearer share hack.

Let’s say you’re a law abiding citizen who wants to maximize the privacy and protection of your offshore company. How should you structure your affairs?

In my opinion, the best asset protection structure is the Panama Foundation and the best jurisdiction to incorporate an active business is also Panama. There are exceptions… such as an offshore IRA LLC is best formed in Nevis. But let’s stick with Panama for this post.

  • Fyi… even if your country of incorporation allows for bearer shares, no bank will open an account for your offshore company. So, bearer shares are effectively dead in every jurisdiction.

A Panama Foundation requires a founder and a foundation counsel. A Panama corporation requires three officers and three directors.

The Panama Foundation counsel is public record. Directors and Officers of a Panama corporation are also public record. Back in the day, we would work around this by appointing nominees and issuing bearer shares.

With bearer shares are out, the owner must be listed in the company or foundation documents.

The founder and counsel of a Panama Foundation may be either a person or an offshore company. That offshore company may be incorporated in any country.

Likewise, the directors and officers of a Panama corporation may be persons or corporate entities from any jurisdiction.

Now comes the hack: an LLC from Nevis may be formed with one member. The registrar in Nevis doesn’t disclose any information in the public record. Ownership of a Nevis LLC is totally private. These offshore companies make for excellent founders, council members, officers and directors.

In order to create a totally private offshore structure, much like a bearer share company of old, we form a Panama Foundation with the founder and council being Nevis LLCs. Then the Foundation incorporates a Panama corporation with Nevis LLCs as it’s officers and directors.

And you, the beneficial owner of the Nevis LLC, are in complete control of the Panama structure. You are the only signer on the bank accounts and corporate documents… none of the risk associated with turning over your assets to nominees.

And that’s the bearer share offshore company hack. For more information, please contact me at info@premeiroffshore.com for a confidential consultation. We will be happy to form your structure, open bank and brokerage accounts, and keep it in tax compliance.

International Money Lending License

International Money Lending License

The international money lending license came into its own in 2010 when the US began pushing out payday and other lenders of last resort. A number of offshore jurisdictions welcomed them with open arms and the battle with American regulators was on.

By 2012, many of these lenders moved from offshore licenses to those issued by US Indian tribes. For example, Integrity Payday Loans got in trouble with a few US states operating as a Nevis company. They became “ a tribal lending entity wholly owned by the Flandreau Santee Sioux Tribe, a federally recognized Indian tribe that operates and makes loans within the Tribe’s reservation. All loans are subject exclusively to the laws and jurisdiction of the Flandreau Santee Sioux Tribe.”

With high risk lenders fleeing for greener pastures, offshore lending, like offshore banking post FATCA, has gone mainstream. These licenses are now used by everyone from multinationals to green energy companies, such as solar loan and lease providers to fund operations and manage their worldwide tax obligations. Where payday lenders were looking to hide, the new trend is towards those looking to operate more efficiently, make use of their offshore retained earnings, bring in foreign investors, and comply with US tax reporting obligations.

Offshore Licensing Options

There are only a few ways to accomplish these goals. You can form an international bank, a captive bank, a Panama financial services company, or operate under an international money lending license.

A international money lending license is also an alternative to a fulling licensed bank. An offshore banking license is a major undertaking requiring significant capital and backend compliance. A Panama financial services company has it’s uses, but it may not offer loans. An offshore lending license is the most efficient option for a company looking to make loans within a group of companies, or to the general public (excluding residents of its issuing country), but not offer other traditional banking services (deposit taking, investments, etc.)

A money lender can be setup in a matters of weeks and at a fraction of the cost of an offshore bank. Also, corporate capital, costs of operation, and government oversight are significantly reduced.

There are several countries offering international money lending licenses. I will focus Belize below, but a proper analysis of your needs, number of investors, number and size of your loans, and your business model, should be undertaken before selecting a jurisdiction.

Belize International Money Lending License

Licenses available in Belize include:

  • International money lending license
  • Money brokering services
  • Money transmission services
  • Money exchange services
  • Mutual and hedge funds
  • International insurance services
  • Brokerage, consultancy, and advisory services
  • Foreign exchange services
  • Payment processing services
  • International safe custody services
  • International banking license
  • Captive banking license
  • General banking license

For a list of applicable legislation, see: International Financial Services Commission, Belize

A company operating under an international lending license in Belize may lend up to $5,000 per transaction and was originally written by politicians for payday lenders. Loans by an international money lender must have an initial repayment period of less than one year and shall not be secured by title to real property, a motor vehicle, tangible personal property, or any other type of collateral other than the Loan Agreement and ACH authorization agreement. Also, loans made under this license shall be made to consumers for household purposes and personal expenses only (and not for commercial purposes).

In other words, you may offer short term unsecured loans of less than $5,000 to individuals, but not businesses.

A Belize international money lending license require capital of $50,000. This amount may be increased by the IFSC depending on your business model and history. Capital reserve ratios and applicable discounts apply. The application process runs about 3 months. A complete business plan with financial projections and a proven track record in your market niche are required.

A Belize money brokering license might be a workaround to the maximum amount and term of the international money lending license.  If the money being lent is coming from shareholders / partners in the business, rather than outside investors, Belize might allow you to broker the loans from your partners to your clients.

I say “might” because there are no businesses currently operating in this manner under the money brokering license. In fact, there is only one license currently active in Belize. I suggest such an application should be from a more “traditional” business, such as solar panel loans, rather than a higher risk category like payday advances.

Another, more common use of the money brokering license is to broker loans from Belize banks to your clients, earning a commission on each.

Other Offshore Licensing Jurisdictions

Another alternative to the Belize international money lending license is the British Virgin Islands Financing and Money Services License. This allows you to conduct any size lending business with persons resident in BVI and abroad. There is no maximum loan amount in the BVI statute.

For more information, see: British Virgin Islands Financing and Money Services License

Note that any regulated lending business will need to follow strict capital reserve and ratio requirements. Audited financial statements are due annually, and some jurisdictions require quarterly reporting.

The above describes international lending licenses. I suggest that the best license for an offshore leasing company is the Panama Financial Services License, which I will cover in another post.

Raising Money for an Offshore Lending Business

If you wish to raise capital for your offshore lending business, you will need a master-feeder offshore fund or similar structure. This is because your lending license does not allow you to  take deposits from people other than partners in the business. Nor does it allow you to solicit investors.

With an offshore master-feeder fund, accredited or super accredited investors (as defined by the US SEC) may invest in your US entity and non-US persons and US tax exempt investors (IRAs, etc.) may invest in your foreign entity. Both of these feed into the master fund, which in turn invests in to your offshore lending company.

international money lending license

By linking a master-feeder fund to an international lending license, you can raise unlimited amounts of capital while minimizing compliance costs and regulatory oversight. You might find it advantageous to operate a fund in a jurisdiction separate from the lending company. For example, the fund could be in Cayman or Belize with the lender domiciled in BVI.

Raising capital through a fund allows you to earn a commission on the appreciation in the fund and from the primary lending business. Typical master-feeder funds earn 2% of the money under management and 20% of the appreciation after a hurdle rate ( LIBOR+2 or some similar published rate).


In 2015, the world of offshore licensed entities is as complex as it is diverse. Careful consideration of the available licenses and your business model must be undertaken before selecting a jurisdiction. Each country and license type is intended for a specific use and capital ratios and regulations vary widely.

Add to this FATCA, IRS reporting, tax compliance, SEC issues, and anti-money laundering statutes, and you will find that going offshore with a licensed lending company requires the support of a professional experienced in both US and international regulations.

I hope this article has beens helpful. For more information on an international money lending license, an international banking license, or an offshore master-feeder fund, please phone me at  (619) 483-1708 or email Christian Reeves at info@premieroffshore.com.

Panama Tax

Panama Tax Review

If you’re an American living, working, or investing in Panama, the Panama tax system is your friend. The Panama tax code may allow you to live tax free in Panama and, possibly, in the United States. This Panama Tax Review will explain how to reduce your worldwide tax bill.

Before getting in to specifics, it’s important to note that Panama, like all civilized nations (not the U.S.), taxes you on your local income. Only America taxes its citizens on their worldwide income.

So, if you move to Panama and open a restaurant, you pay income tax on your profits. You will also be subject to payroll and social security taxes. This is the same result you get in the United States.

However, if you move to Panama, and structure your business properly, you won’t pay Panama tax on foreign incomes. If your business is selling a product to clients in the United States, all income earned in Panama is foreign source (from the U.S.) and not taxable in Panama. If you are selling to individuals in Panama and the United States, only those sales to Panamanians are taxable.

This is the opposite result you get with a U.S.-based business. When you operate from America, and sell to people outside of the country, 100% of the income earned by your company is taxable here. Even if you move abroad Uncle wants his cut. Though, this article will help you minimize that tax bill.

This article is focused on the Panama tax rules for those living, working, or investing in Panama. If you retire to Panama, but don’t buy real estate there, then you should have no Panama tax issues.

Introduction to Panama Tax

Panama taxes its citizens and residents on income earned within its borders. You, the American citizen, become a Panama tax resident if you live in Panama for more than 183 days within a calendar year. If you don’t operate a business in Panama, or purchase real estate there, it’s unlikely their tax laws will affect you.

Panama has no wealth, inheritance or gift taxes. Therefore, it’s an excellent jurisdiction in which to form an international trust (called a Panama Foundation, but it functions under U.S. laws as a foreign or grantor trust). Such a structure will allow you to protect your savings and minimize U.S. estate taxes by facilitating transfers to heirs and moving assets out of your taxable U.S. estate.

Also, interest from bank accounts, Certification of Deposits, and most forms of investments are tax free. If you buy and then sell stock on the Panama exchange, no tax will be charged. No tax is due when you sell stock on a foreign exchange either, but the point here is that buying and selling stock within Panama, even on their exchange, does not bring you in to their tax system.

At this point, you might be wondering how Panama earns money. Well, residents pay tax on local income, corporations pay tax on gains derived from business transactions within Panama, and just about everything sold in Panama is subject to a 7% Value Added Tax (VAT). And, of course, they make buckets of money from the Panama Canal.

Taxation of Real Estate Transactions in Panama

Real estate transactions within Panama are taxed as capital gains. There is only one rate for such gains, 10%. No differentiation is made between long term and short term capital gains.

This Panama tax rate of 10% on the net profit from the sale is the general rule for real estate. You can also elect a 3% rate on the gross sale price. Here’s how it works.

Just like in the United States, you pay capital gains in Panama on net profit earned when you sell real estate. If you buy a condo for $250,000, put $25,000 of improvements in to it, and sell it for $300,000, your gain is $25,000 and your tax due is about $2,500 … simple enough.

* You will also pay a 2% transfer tax at the time of sale. This is based on the sale price or the assessed value, whichever is higher. Your transfer tax is increased by 5% for each full calendar year you hold the property.

The government ensures compliance with its tax laws by requiring the buyer to withhold 3% of the purchase price and pay that over to the tax authorities. You, the seller, file a return to claim a refund the next year. In the example above, the buyer would withhold 3% of $300,000, or $4,000, and you will file a refund for $9,000 – $2,500 = $6,600.

If this 3% on the gross sale price is lower than the 10% capital gains tax on the net profit, you may elect to not file a return. You have the choice of paying the 3% or 10% rate on the sale of real estate.

So, in the example above, if you bought the property many years ago for $20,000, didn’t make any improvements, and sold it for $300, 00, you would choose to pay the 3% tax of $9,000. The 10% tax on the net gain would result in a bill of $28,000.

VAT in Real Estate: I will conclude this section on Panama tax by noting that VAT applies to short term rental income. If you rent out your condo for a term of six months or less, you will pay 7% VAT, VAT doesn’t apply to rental contracts longer than six months.

Personal Income Tax in Panama

If you operate a business in Panama, work for a local company, have employees in the country, or draw a salary, you need to understand their personal income tax rules.

Panama’s tax code is much more efficient than that of the United States. They have only three tax brackets:

  • If you earn $0 to $11,000, you pay zero tax.
  • If you earn $11,000 to $50,000, you pay 15% on the amount owner $11,000 (that is to say, the first $11,000 is tax free).
  • If you earn over $50,000, you pay $5,850 on the first $50,000 plus 25% on the amount over $50,000. So, your Panama tax rate on a salary of $150,000 would be $5,850 + $25,000 = $30,850 less any deductions.

Each person is allowed a standard deduction of $800. Other allowed reductions include mortgage interest, charitable and political contributions, and unreimbursed medical expenses.

You’re not required to file a return if your only income is from salary (you have no capital gains, etc.) and you don’t wish to take any deductions other than the standard at $800. In that case, the employer withholds the required amount from each paycheck and no return need be filed.

If you wish to file a personal income tax return in Panama, it is due March 15. You may request an extension until May 15.

Employment Taxes in Panama

If you have employees in Panama, be ready to pay significant employment taxes. Social Security and employment taxes are a primary revenue sources for Panama and a reason they are willing to offer corporate tax deals … to increase employment and employment taxes.

* Employment taxes in Panama are about 30% higher than United States. However, the cost of labor is less than 25% of major cities in America, so the employment tax expense is relatively minimal.

As the employer, you pay employment tax of 12% on wages. Also, you must withhold 9% from the employee. Therefore, total employment tax in Panama is 21%. This compares to 15% (self-employed) to 17% (with Obamacare) in the United States.

Also, you are obligated to pay a one month bonus to each employee each year. So, when you calculate costs per employee, you will take the base salary times 13 (not 12 months) and add 21% for employment taxes.

For example, if your employee earns $1,200 per month, they’ll cost you $1,200 x 13 months = $15,600 in salary and $1,872 in employment taxes.

Corporate Tax in Panama

The Panama tax rate on corporations is 25% compared to 35% in the United States. Panama taxes only local source income. There is no Panama tax on income from outside the territory, even if that money is deposited in to a Panama corporation and account.

Most of my readers will avoid corporate tax in Panama all together. It should only apply if you are selling goods or services to Panamanians. If all of your sales are done through the internet to persons in the U.S. and Europe, you may have no Panama source income.

Also like the United States, corporate income tax usually applies to money you leave in the company … retained earnings held by the Panama Corporation. If you do have Panama source income, you may be able to eliminate corporate level tax by withdrawing your net profits as salary. You will pay personal income taxes but avoid double taxation.

However, if you operate a “large” business within Panama, and your Panama source gross income is $1.5 million or more, you may be subject to alternate minimum corporate tax.

First, I note that corporations are taxed on their net business income. You may deduct salaries, as well as all “ordinary and necessary” business expenses … just as you do in the United States.

However, if you gross more than $1.5 million in Panama source sales, you will be required to pay minimum corporate income tax of 4.5% on those gross sales.

* Another way to express Alt Min tax in Panama is that your large business pays tax on local sales minus 95.5%. If your local sales are less than $1.5 million, you are exempt from Alt Min tax in Panama.

Let’s say your Panama Corporation earns $2 million in local income. It’s your first or second year of operation and your deductible expenses are more than $2 million … so you have a tax loss for the year. Panama Alt Min tax comes in and requires you to pay 4.5% on $2 million, or about $90,000 in corporate taxes.

That means you’ll pay at least 4.5% on local sales in a large business. If 25% on net profits results in more tax being due than 4.5% on gross sales, then you pay Panama tax at the 25% rate.

In order to deter untaxed transfers between Panama corporations and any other tax shenanigans to minimize tax on local source income, Panama taxes/dividends, loans and advances. A 10% withholding tax applies to dividends between corporations on income derived from local sources. Also, a 10% tax is levied on loans or advances to corporate shareholders. If these transfers are done in a structure involving bearer shares, a 20% withholding tax (rather than 10%) applies.

If you can prove that the income being transferred is foreign source (earned in transactions outside of Panama), these taxes do not apply. In that case, there is no withholding on dividends, loans or advances.

* These corporate tax laws apply to companies operating within Panama City. Special rules apply to businesses within the Colon Free Zone, City of Knowledge, Panama Pacifico (my favorite tax free region), or any of the other free zones within the country.

* Special rates may apply to corporations with local gross sales of less than $200,000. These “small” businesses pay a lower blended personal/corporate rate.

Taxation of Americans in Panama

There is no Panama tax on bank interest, CDs, U.S. retirement distributions, or income derived from sources outside of Panama. Therefore, most of you won’t be subject to Panama tax unless you invest in local real estate.

Unfortunately, Uncle Sam wants his cut no matter where you live and/or invest. Though, you do have tools at your disposal to reduce your U.S. tax bill.

First, you can make investments in Panama through your U.S. retirement account. By forming an offshore IRA LLC, you can defer U.S. tax in a traditional IRA or eliminate it all together in a ROTH IRA.

Next, if you live in Panama, and will qualify for the Foreign Earned Income Exclusion (FEIE), you can draw a salary from your active business of about $100,000 per year ($200,000 husband and wife), retain the balance in your Panama Corporation, and pay no U.S. tax. You will find a number of articles here on the FEIE and operating through an offshore corporation to reduce or eliminate U.S. tax.

If you are living in Panama, you might bill your customers through an offshore company formed in another jurisdiction. When your sales are to persons in America and you are living in Panama, bill through a corporation in Belize. Then, draw a salary of up to the FEIE from that Belize Corporation to eliminate Panama employment taxes.

* This only works for you, the U.S. person living in Panama. Don’t try it with Panamanians or you might find yourself in trouble with the local authorities.

I hope you’ve found this Panama Tax Review helpful. If you have any questions, or would like assistance moving you or your business to Panama, please give us a call or send me an email to info@premieroffshore.com.

Panama 2015

Panama 2015 and Beyond

Panama 2015 looks to be a great investment  with continued growth of 7%.  While the tiny economy will face a number of challenges, chief among them is competition to its canal, expect solid returns to continue.

First, a brief mention of Panama’s 2015 banking sector.  Significant amounts of wealth will continue to flow in to Panama as crisis hit and Venezuelans look for investments, work, shopping, and a safe haven for their cash.  In fact, I expect wealth will continue to be transferred from a number of Latin American nations in the coming years.  Venezuela, Colombia, and Mexico all seek safety and security in Panama.

Basically these investors are wanting the stability of a U.S. dollar based economy without the risk of putting their money in the United States.  Where it was once easy for foreigners to open accounts here, FATCA has made it more risky.  While information flow has been one way (in to the United States), expect that to change as our neighbors to the south get tired of the hypocrisy.  Beware of this concern; capital will leave Miami for Panama in 2015.  Expect this to continue in 2016.

In 2014, public investment of $19 billion was made in Panama.  This is an enormous amount considering their GDP for this year will be $24 billion.  Of this amount, $5.2 billion was put in to the Panama Canal.

As a result, we’ve seen an average growth rate of 8% over the last few years.  It has brought about a new metro rail, a giant causeway (one of my favorite areas to hang out in Panama), and hundreds of new skyscrapers.

Now, here’s the bad news.  The Panama Canal has been fraught with disputes.  First, a billing problem slowed down the project by one year.  The European firms were billions of dollars over budget and Panama refused to pay for the overages.  Once this was settled, the workers went on strike.  At the time of this writing, it is expected the project will resume within the week.

Next, there has been no urban planning in Panama.  The building boom in Panama City is all about speed and graft.  As a result, traffic is out of control and no parking was allotted in many areas.  Just try going near the banking district on a workday.

Another urban planning issue is that many of the buildings have water flow problems.  When it rains, they flood.  For example, when the center piece of Trump Towers opened, rain stranded the President and those attending the grand opening festivities.

I would like to note that Panama is not a desert climate!  They have two seasons:  rainy and rainier.  So, when urban planning fails to account for the daily downpours, there’s a problem.

Panama will continue spending big on development and improvements.  For 2015, Panama will invest $3 billion and should see growth of about 7% (1% less than in previous years).

Wile I expect the economy to remain strong, I bet some real estate will lag behind.  While it’s true that many international persons are flowing in to Panama, there is also a lot of capacity coming online.  I look for appreciation of 5% to 8% depending on where you invest in Panama City.  Focus on San Francisco (a region of Panama City) and the like for the best returns.  Avoid Trump and Punta Pacifica.

I also believe the long term outlook for Panama is strong.  The primary limiting factor in business growth is a lack of educated workers and English speakers.  All of the new shiny towers need workers that speak English.  If schools begin turning out a quality work force even faster than they do today, the sky’s the limit for Panama.

In addition to the need for more workers, there are issues surrounding politics and the Canal.  The current administration, which came in to office a few months ago, is proposing price fixing for groceries.  The influx of high net-worth individuals is pushing prices beyond the reach of average Panamanians and the government is considering Venezuelan type price controls.

A longer term risk factor is the Panama Canal… the pride of this nation which was returned by President Carter and signed over by President Clinton.

The current expansion is the first in over a century.  The Canal opened August 15, 1914 and might be finished this year or in 2015.

Panama has upgraded its locks to allow ships carrying up to 13,000 containers.  Before the upgrade, size was limited to 5,000 containers.  However, the largest ships today are at 18,000 containers, and expected to reach 22,000 in the years to come.

And there is now competition to the Panama Canal.  The Suez Canal in Egypt completed its expansion (the first in 145 years) and can handle ships of all sizes.  Piling on, Nicaragua plans a $40 billion canal of its own.  This one, funded (of course) by China, could put significant pressure on Panama’s margins because it would not be limited by locks or ship size.

The Suez Canal was a more costly route because it’s a longer journey from Circe (further south), times are changing.  Significant manufacturing has moved out of China to its southern neighbors.  From these ports, the Suez Canal is either more efficient, or just as long a journey, as Panama.

Like Nicaragua, the Suez Canal is at sea level.  Therefore, no locks are required and any future expansion (widening) can be done more efficiently than in Panama.  Expect Suez to allow for any and all cargo ships while Panama is limited to those holding 13,000 or fewer containers for decades to come.

All of this is to say that the Panama Canal will need to compete on price in the years to come.  Though, I remain strong in my short term and long term outlook.  I expect education to keep pace with demand and for this to push businesses like mine and your forward.

For information on moving to or incorporating in Panama, please give us a call or send an email to info@premieroffshore.com.

Panama foundation IRA Tax

Panama Foundation IRA Tax Review

The Panama Foundation has been approved as the “owner” of a U.S. retirement account in Panama.  This means that, those who want to invest in Panama, have access to banks or brokerage services in Panama, or hold their retirement account n the most advanced asset protection and estate planning tool available, may now move their IRA to a Panama Foundation.

This article is a review of the U.S. and Panama tax laws as applicable to holding an IRA in a Panama Foundation.  I’ve included cites for those who want to delve in to the U.S. tax code or the ERISA statutes.

I begin by noting that the U.S. code sections that allow you to move your U.S. retirement account in to a domestic or foreign LLC are the same ones used to support the Panama Foundation.  The Foundation is conveyed in to a disregarded entity for U.S. tax purposes, just like an LLC, but retains its estate planning and asset protection components in Panama.

The Panama Foundation IRA structure we have created is designed around the U.S. domestic business trust IRA and the offshore IRA LLC.  In a business trust, the IRA makes an investment in to the trust by acquiring the “beneficial interest” of the trust.  Often the IRA will purchase 100% of the “beneficial interests” of the trust, much like it will acquire 100% of the “membership interest” of a limited liability company or shares of a corporation.  Essentially, the term “beneficial interest” is the title for “equity interests” in the business trust.

Using IRC § 4975 (e)(2)(G) and ERISA Reg 2510.3-101(b)(1), we have applied these rules to the Panama Foundation, which is a hybrid trust and corporate entity.  In the case of the Panama Foundation, the IRA account is the trustor or settler of the Foundation (i.e., the party who transferred assets to the Foundation) and the beneficiary (the party that holds the beneficial interest of the Panama Foundation).  Therefore, the IRA account is both the trustor/settlor and the only beneficiary of the Panama Foundation.


In a traditional asset protection structure, we don’t usually recommend the Founder be the same “person” as the beneficiary.  In the case of a Panama Foundation IRA, this is required to maintain the tax preferred status of the retirement account under U.S. law.

Also, the Panama Foundation IRA we have created may not act as both the owner of your retirement account and as an asset protection trust for your after tax (non – IRA) money.  You may not mix after tax cash with your retirement savings.

U.S. Tax Classification of a Panama Foundation IRA

When you take your retirement account offshore, the objective is to (legally) eliminate all Federal and States filing obligations.  To accomplish this, the Panama Foundation IRA must have only one member/founder and be considered a disregarded entity for U.S. tax purposes.  This is quite different than a typical trust used for estate planning purposes or a Panama Foundation used for asset protection.

Specifically, a typical U.S. trust is governed under Subchapter J of the U.S. tax code § 641.  The Panama Foundation’s tax status is determined under the “check-the-box” Treasury Regulations.

Under Treasury Reg. 301.7701-4(b), a foreign entity is treated as a business entity and classified for under Treasury Reg. 301.7701-2.  Under this section, a business entity with two or more members is classified as either a corporation or a partnership.  A corporation is then defined to mean a business entity organized under a state or international statute which refers to the entity as “incorporated” or as a “corporation.”  For example, a Panama corporation is by default a foreign corporation, and not a partnership or trust, because it is “incorporated” under the relevant Panama code sections.  Likewise, any entity ending in Inc., A.G., Corp., Ltd., or a similar designation is assured to be a corporation for U.S. tax purposes.

Now that your Panama Foundation is classified as a disregarded entity, because it has only one owner of the beneficial interests and/or submitted the form to be classified as a disregarded entity, it will not have to file federal or state income tax returns.

State tax:  For example, every corporation doing business in California is subject to the minimum franchise tax of $800.  The same goes for any LLC formed in California.  But other entities, such as trusts formed outside of the State, are not required to pay this tax.  For more information, see the California Revenue and Taxation code and related regulations (§ 23038 and CA Admin Code Title 18 § 23038(a), (b)-1 and (b)-2.  As to the disregarded entity status in California, see Rev and Tax Code § 17942(a) and (b).

Plan Asset Rule

Once your retirement account has been moved to a Panama Foundation, and you are the manager of that Foundation, you’ll be required to follow the various Plan Assest Rules as defined in the ERISA Regulations at 2510.3-101(a)(2).  As the plan manager, you become a fiduciary of the IRA and must always act in the best interest of the account and the Panama Foundation IRA.

As a fiduciary, you are prohibited from borrowing from the plan, using the funds for your personal benefit, making certain prohibited investments, and engaging in any transaction at less than fair market value.  Basically, you are to manage the Panama Foundation for the benefit of the retirement account as a professional investment advisor would.  You should act as if the funds belong to someone other than you… which, in fact, they do… cash belongs to the IRA.

I would like to point out here that these rules apply to Panama Foundations and LLCs that hold a U.S. retirement account.  They are not applicable to a Panama Foundation used to protect after tax money (personal savings).

For more information on your rights and responsibilities, as well as a discussion of what you may and may not invest in, please see my Self Directed IRA page (top right of the menu).

Documents of the Panama Foundation

Where a typical Panama Foundation consists of a Foundation Charter and a Letter of Wishes, a Panama Foundation IRA is built upon a similar Charter and an Operating Agreement.  The Charter sets forth the purpose of the Foundation in general terms and the Operating Agreement (which is a private document not filed with the government) describes the IRA structure in detail.

The Foundation Charter is public record and filed in Panama.  The Operating Agreement is essentially a contract between you and the U.S. custodian detailing each party’s rights and obligations with regards to the IRA Foundation.  Collectively, these are referred to as the Foundation documents.

The Foundation documents work together to set forth the purpose of the Foundation, which is to make appropriate investments and manage the IRA funds it controls.  As such, these documents give the manager (you) the authority to open bank and brokerage accounts, purchase property, and spend money to improve or add to that property.

It is the Foundation Charter that gives the Founder the ability to enter in to the Operating Agreement with the retirement account administrator.  Then it is these documents together that allow you, the beneficial owner of the retirement account, to be appointed as the manager.

As the manager of the Panama Foundation IRA, you have the right to make investment decisions, as well as any changes to the Foundation Charter and Operating Agreement.  As such, you are taking the right and responsibility to make decisions away from the U.S. administrator.

The administrator agrees to transfer this authority to you, and you agree to indemnify him from any actions you take as the manager of the Panama Foundation.  In other words, the Operating Agreements says you must follow all applicable rules (such as the plan asset rule), and can make any permitted investment you like.  If you lose money, or break a rule and the IRA is penalized by the IRS, that’s on you… the administrator has no liability.  His job is to 1) invest the IRA in to the Panama Foundation and 2) file annual forms with the IRS.  For this, he will charge a few hundred dollars a year.  He doesn’t get to charge a fee or make a commission on any of your investments and has no liability if you make a bad deal.

As such, you will be the only signatory on the bank accounts.  The U.S. administrator will have no right to force the assets of the Panama Foundation be returned to the United States.  If you come under attack (litigation), then you decide how to handle those offshore accounts.

Finally, you are not required to seek the administrator’s permission for any investment.  You have total control over the check book of the Panama Foundation… and that’s how the administrator wants it.

Active Business in a Panama Foundation IRA

The Panama Foundation, as defined in Law No 25, Private Interest Foundations, issued on June 25, 1995, may not operate an active business.  So, while it is legal for a U.S. IRA to operate a business, it is not possible to do so if you move the retirement account in to a Panama Foundation.

However, I don’t see this as much of a drawback… an offshore IRA should not be operating a business anyway.  Any business owned and operated by a retirement account will generate Unrelated Business Income in the United States, which will be taxed at 35%.  That’s right, active business income earned in a retirement account is taxable.

To eliminate this tax, an offshore IRA structure may form a UBIT blocker corporation to hold the business.  Then, the corporation passes interest and dividends up to the Foundation/IRA.  This converts the UBI in to traditional investment income and avoids the UBIT.

For more information on UBIT and blocker structures, please see my various posts on this topic.  Suffice it to say, any active business owned by the Panama Foundation IRA should be in a Panama corporation.

I hope you have found this review of the Panama Foundation IRA structure helpful.  For more information, please call us or send an email to info@permieroffshore.com.  We will be happy to work with you and answer any questions you may have.

Note that we are the creators of the Panama Foundation IRA structure.  As such, we are uniquely qualified to help you move your retirement account to Panama.

IRA to Panama

Move Your IRA to Panama

We have been working for months with lawyers, banks, and government agencies in Panama and are finally ready to announce some great news for those seeking asset protection.  You may now move your IRA or other retirement account to Panama and in to the best protection and estate planning tool available… the Panama Private Interest Foundation.

This represents the culmination of a great deal of negotiation and a titanic shift in the offshore IRA industry.  While you were previously required to form an offshore LLC, you may now utilize a U.S. compliant Panama Foundation to hold your retirement account.  This means you have access to all of the investment service providers, banks, and investment opportunities in Panama without being required to add a Panama corporation to your offshore LLC or getting your LLC licensed to do business in Panama… which is a major hassle costing thousands of dollars to complete.

This also means your IRA is in a Category III entity, which is much more advantageous for larger accounts and gives you access to a wider range of jurisdictions.

Let me explain.  Before we created the Panama Foundation IRA, you were required to place your IRA in to an offshore LLC.  This is because you needed to move it in to a disregarded entity for U.S. tax purposes to maintain the tax benefits of being a U.S. compliant retirement account.  If you wanted to invest in a country that doesn’t have an LLC statute, you needed to create a subsidiary corporation under your offshore LLC.  This increased the formation costs and maintenance, as well as the U.S. compliance required to move your IRA offshore.  Most notably, the offshore corporation is required to file a U.S. tax return, IRS Form 5471, which creates too many headaches to list here.

* The only countries offering compatible offshore LLCs are Anguilla, Nevis, Belize, and the Cook Islands.  Obviously, this limits your investment options unless you form an offshore corporation owned by the LLC.

Being what is referred to as a Category III entity, the Panama Foundation may open accounts and make investments in Panama (obviously) and other countries that have agreements with Panama.  This includes Hong Kong and Cayman Islands.  Cayman is universally regarded as the most advanced offshore banking jurisdictions for larger investors, but has no LLC statute.  Structures from Anguilla, Belize, Nevis and Cook Islands are (basically) prohibited from opening accounts in Cayman, but a Panama Foundation has the same legal standing as a domestic entity… which is a major advantage.

* For more on Cayman, please see my article on this topic.

Also, when designing an offshore IRA structure, you want to ensure you are not required to file any U.S. tax forms.  Eliminating filing requirements will save you thousands in compliance costs and greatly reduce the probability of being audited.

Moving your IRA in to the Panama Foundation structure we have created eliminates all U.S. filing obligations.  Both an offshore LLC and our Panama Foundation structure are classified as disregarded entities for U.S. tax purposes and therefore not required to file a return… again, unless you add a corporation to the structure.

* There are times when a corporation and filing Form 5471 can be a major advantage.  See my articles on UBIT blockers for more information.

I also note that the Foreign Bank Account Report (FBAR) is not required for a bank or brokerage account owned by a retirement account.

The above description covers just the basics of moving your retirement account in to a Panama Foundation.  I will be releasing a detailed analysis of the structure and its legal basis in the U.S. in the next few days.

Please understand that the Panama Foundation IRA has a different objective than our typical asset protection structure.  As this Foundation must meet all U.S. requirements for a retirement account, and we wish to prevent the need to file U.S. returns, it uses a different legal system than a Panama Foundation for protecting after tax income.  That is to say, not all my comments and articles on the Panama Foundation apply to a Foundation which holds an IRA.

Basically, what we have done is take those aspects of the Panama Foundation that maximize asset protection and estate planning for U.S. persons, and convert them in to a structure that can support your retirement account.  Once the account is inside the Panama Foundation, you are the manager and have complete control over the investments and the checkbook of the Foundation.

As the manager of the Foundation, and the fiduciary of the retirement account, it’s your job to manage the assets of the Foundation for the benefit of the retirement account, and not for your own gain.  I will address this in more detail in my next post.

Our design also incorporates legal components from the U.S. business trust (which is quite different from a U.S. grantor trust) and the offshore LLC structures we have offered for the last several years.

The Panama Foundation IRA may hold any investment permitted under the U.S. IRA statutes.  This includes physical gold, bank and brokerage accounts, and real estate.  In fact, the Panama Foundation may hold land or other property to be improved by the Foundation, or a rental where the Foundation is to collect rents and pay expenses.

So, moving your IRA in to a Panama Foundation rather than an offshore LLC, will allow you to invest in and open accounts in Panama without a corporation or other expensive maneuvers.  If Panama is where you would like to keep your investments, or you need access to other advanced markets (such as Cayman), you should consider forming a Panama Foundation IRA.

Please send an email to info@premieroffshore.com for additional information.  We will be happy to review this unique structure with you.

Stay tuned for my tax and legal analysis of the Panama Foundation IRA…

Panama Foundation Scam

The Panama Foundation Scam

Just about every week someone calls asking about using a Panama Foundation as a charity.  This is known in tax circles as the Panama Foundation scam and the internet is filled with it.  Avoid the Panama Foundation scam at all costs.  It will lead you down a very bad path with the IRS.

Here’s how the call goes:  “Hey there, I’ve been reading on the internet and came across your site.  What I’d like to do is…”

By this time I already know what’s coming, but let them proceed anyway.  Just about any call which is prefaced by, “I was reading on the internet” is leading nowhere good.  There are very few sites that provide both asset protection or formation services and U.S. tax compliance.  If a company is based offshore, they can tell you whatever they want to make a sale.  If they are in the U.S. and have U.S. licensed professionals, then they follow the law first and look to make the sale second.

Ok, enough pontificating.  Back to the Panama Foundation scam.

“I want to form a Panama Foundation and operate it like a charity.  I want to make donations to this charity and deduct them on my U.S. taxes…” or something like that.

Here’s the bottom line on the Panama Foundation scam:  The Panama Foundation is not a charitable entity and can’t be turned in to a charity.  All of the websites and marketing brochures talking about this are scammers… or, worse, they believe the cr*p they are selling and are tax protestors.

The U.S. tax code is very clear.  Only donations to a U.S. licensed charity may be deducted on your personal income tax return.  That is to say, only donations to a charitable organization licensed under 501 (c) (3) of the U.S. Tax Code are deductible.  Your Panama Foundation won’t get a 501 (c) (3) license, so you can’t deduct transfers to it.  If you were to spend the time, money and effort to get a license, there would be no reason to use a Panama structure… you would incorporate in the U.S.

Even if you wanted to donate to a church or legitimate charity in Panama or elsewhere, such a donation is only deductible if that entity is licensed in the U.S.  Of course, you are free to give to anyone or any organization you like.  You just don’t get to deduct that payment on tax returns.

For example, the Red Cross is incorporated in Switzerland, as are most of the major charities.  These organizations then form corporations in the United States and apply for charitable status before taking donations.

Sometimes the Panama Foundation scam relies on the private interest foundation tax rules rather than the charity code section.  A private foundation in the U.S. allows you to donate property (usually appreciated assets) to your personal foundation.  You get to deduct the fair market value of the donation in the year given (which is why appreciated property is recommended) and then transfer a small percentage of that property to a licensed charity over a number of years.  This allows you to maintain control over the property, manage it for the benefit of a charity, and give up only a portion over time.

So, the Panama Foundation scam often takes verbiage and rules from the private interest foundation sections and applies them to the Panama Foundation.  Unfortunately, there is nothing legitimate to this analysis.  The Panama Foundation is not a private interest foundation as defined in the U.S. code and this is just a scam to sell Panamanian entities to those looking for a tax loophole.

Just last week I came across someone who took the Panama Foundation scam to a new level.  He would form the Foundation and file the charitable tax return in the United States for that entity.  This was done with the intent of confusing the U.S. IRS computers into thinking it was a legitimate charity.

He would then sell this “licensed” foundation for many thousands of dollars to someone who fell for the scam and thought they were getting a charity or private interest foundation.  Of course, the sham will be discovered some day and all the donations will be reversed.  This will mean big time tax, interest and penalties will be assessed against the buyer… and criminal charges brought against the scammer… if he can be found on the day of reckoning.

Don’t fall for the Panama Foundation scam.  The Panama Foundation is not a charitable organization as defined by any section of the U.S. tax code.  This is one of the many reasons you should only form offshore structures with a firm that provides U.S. tax compliance.

Panama Foundation

The Panama Foundation for Asset Protection

The Panama Foundation provides the best asset protection and estate planning available… hands down, no questions asked.  Here’s why the Panama Foundation is the ticket for those wanting to move assets out of the United States and eliminate the U.S. estate tax.

First, let me take a moment to summarize the Panama Foundation as an asset protection tool.  The Foundation, as defined in the Panama law in 1995, and as updated and improved over the years, is now a separate and distinct entity from its owners.  As a result, the Panama Foundation is now recognized, not only by Panama, but by the United States and other countries as one of the most efficient tools out there.

For example, the Panama Foundation is one of the very few foreign structures approved in the Cayman Islands, and is a recommended vehicle for holding investments there.  The very conservative country of Cayman (regardless of what you see in the movies, Cayman is extremely conservative) has approved the Panama Foundation to open accounts in its banks and funds without any extra due diligence required.  Try to open an account under a Belize corporation and you will be shown the door or told to form a local company.

* Being recognized around the world gives you better access to foreign banks, currencies and investments.  It also means you can move quickly out of Panama if sued there.

I also note that the Panama Foundation does not require members or shareholders.  All that is needed is the Founder (settlor), the Foundation council, and a beneficiary.  You may act as both the Founder and the beneficiary, and may appoint any three people or any one company as the counsel.  It is usually this counsel that manages the assets should you become unable or unwilling to do so (such as if you are in litigation or your assets are otherwise under attack).

This is the basic structure.  I usually recommend that larger Panama Foundations 1) don’t list the settlor as the beneficiary and 2) appoint an asset manager as the protector or foundation counsel.  While it is not required, if the primary purpose of the Foundation is asset protection, taking these steps early can save you in the long urn.  Of course, you can add the protector or investment manager later if an attack on your assets is not imminent.

Benefits of a Panama Foundation

There are many benefits of a Panama Foundation for asset protection and I will take many of them in turn here.  The first is that the Foundation won’t be taxed in Panama… and no local accounting or audit will be required.  I never recommend a jurisdiction for asset protection that requires audited financials, the filing of tax forms, or any other compliance.  For example, Hong Kong has a number of these rules so I avoid that jurisdiction.

*So long as the income is from outside of Panama, it will be tax free.  Of course, if you open a business (such as a bar) in Panama, you will pay Panama tax on the profits.

Next, the Panama Foundation is a hybrid entity in between a trust and a corporation.  Therefore, it may act as an offshore trust, but it is far more cost effective to form and operate than many international trust arrangements.

For example, the Panama Foundation is about 1/3 the cost of a Cook Island Trust and you need not pay for a Protector or asset manager unless you elect to have one.  Most trusts require one of these two persons and charge a few percentage points on the assets of the trust (assets under management) to provide them.  I’ve seen a CI trust that cost $6,000+ to maintain per year move to Panama and cut these costs down to about $950.

Of course, if you desire advanced fund management services, they are available to you in Panama, Cayman Islands, or elsewhere.  All of the major financial service providers are in Panama and we can make introductions to banks and brokerages at all account sizes.

Next, the Panama Foundation is a separate entity and, as such, may enter in to contracts and agreements on behalf of its Founder (you) and as the manager of its underlying assets.  The ability to contract and operate as a company separate and distinct from its owner, is why we call the Panama Foundation a hybrid structure.  While a trust is one with its settlor, a Panama Foundation is a legal entity like a corporation or LLC (which is why I refer to it as a company).

The only limitation is that a Panama Foundation may not own an active business.  If you want to hold a business in a Panama structure, your Foundation may incorporate a Panama corporation, but may not own the business directly.

I note that real estate is usually not an active business… unless you own many units or buy land, divide it, and sell parcels.  Your Panama Foundation may own a rental, or you may decide to purchase the condo in a corporation for maximum local asset protection… if something happens to the condo, liability in Panama won’t reach the assets of the Foundation.

A Panama Foundation may be established for the benefit of any third party, or the Founder/settlor may be the beneficiary.  As stated above, I don’t recommend the Founder be the beneficiary, but it is possible.  You may also list anyone or any company as the beneficiary.  If you want to leave your estate to the Red Cross, no problem.

*Beneficiaries may be any person or company.  They are not public information.

In fact, your estate plan may be as simple or complex as you like.  You might decide to work with the U.S. gift tax exclusion, or the Foreign Earned Income Exclusion for a business in Panama, create a charitable remainder structure, a generation skipping Foundation, or any variation thereof.

The bottom line is that you may control the disposition of assets by lodging a simple or complex list of instructions with the Foundation council.  This “letter of wishes” will tell the banks, brokerages, and property managers what to do with your assets upon your passing and may be changed or updated as often as you like… usually at no cost.

Also, the Panama Foundation requires no annual meeting or formalities.  With a U.S. structure, if you fail to keep up appearances, creditors may pierce the corporate veil and get to your assets.  In Panama, no such laws apply and your assets are secure.  As stated above, no audit, accounting, or tax filing will be required.

Structure of the Panama Foundation

A Panama Foundation may use any name available.  You’re not required to use your last name, as is the custom with a trust.  Though, you do need to include the name “Foundation” in the name.  So, The Reeves Private Interest Foundation, Reeves Foundation, or Great Panama Foundation would all be acceptable names.

A Panama Foundation must have a local address and local agent for service of process.  Just as when you form an out of state company or LLC, you need to have a local representative to receive legal correspondence.  We provide this for you at no cost.

The Founder of a Panama Foundation may be any person or entity (a foreign or domestic corporation, trust, LLC, etc.).  In fact, it can be your U.S. retirement account.

* We are currently working on a U.S. compliant IRA Panama Foundation structure, to be released in the next few months.

The most common uses of a Panama Foundation are:

–  To hold shares, patents, collect royalties, manage trademarks and other passive activities;

–   Offshore asset protection for those who want to diversify out of the U.S.;

–   Offshore estate planning for those with more than $5 million in assets (assuming the estate tax amount doesn’t go down, as it has in decades past… then, anyone at risk of qualifying for the U.S. estate tax);

–   Investment management and private asset management by firms or outside of the United States, especially where the provider is unwilling to do business with a U.S. person directly.

Panama Foundation Council

As I’ve said, your Panama Foundation may be as simple (cost effective) or complex as necessary.  One of the reasons for this flexibility is the Foundation Council, which is unique to Panama.  It is this council that allows you to maximize asset protection and, should you come under duress, allows you to separate yourself from the structure and the assets.

* You may manage the Panama Foundation directly until or unless you have an issue (come under attack by a creditor).

You may elect to retain a professional trust company or lawyer to act as your trustee/protector.  This person would be appointed by your foundation council and act at your direction.

We provide your foundation council at no additional charge.  You may then add an investment manager or lawyer as you see fit.  Alternatively, you can manage your Panama Foundation and then seek additional council if you come under duress or litigation becomes likely.

Your Panama Foundation Council may consist of three or more persons or one legal entity (a corporation or LLC).  These people or company may be from any country… they need not be Panamanians.  Though, I would not use U.S. persons or a U.S. company, as this would eliminate the asset protection benefits of the Panama Foundation.  U.S. persons would be subject to the control of or whims of a U.S. court.

So, if you want to create an advanced structure, we can provide a Panama attorney, or an offshore LLC to act as the Foundation Council… maybe a limited liability company from Belize, for example, so as to maximize privacy.

Taxation of a Panama Foundation

As I said above, foreign source and passive income are not taxable to a Panama Foundation owned by a U.S. person.  So long as the foundation is not operating a business in Panama, you will pay no local tax.

Of course, if you do operate a business, or sell local real estate, you will pay tax to Panama.  The Foundation does not affect local transactions.

If you are living in the United States you (the Founder) are the beneficial owner of those assets for U.S. tax purposes.  In other words, the Founder is the owner of the assets which are held by the Foundation and any income generated there from will be taxable in the U.S.

As you know, the U.S. taxes its citizens on their world wide income.  The fact that you are using a Panama Foundation for asset protection purposes does not change the tax rule.  The U.S. will want its cut of passive income so long as you hold a blue passport and its share of business income so long as you are living in the U.S.

There are a number of tax planning options with a Panama Foundation that are outside of the scope of this article.  For example, you might hold an active business in a Panama corporation owned by the Foundation, qualify for the Foreign Earned Income Exclusion, and draw a salary from that corporation of up to $99,200 each (husband and wife) free of U.S. income tax.  Then, you may retain earnings over this amount and defer U.S. tax for as long as you like.

You might also decide to create sub-Foundations and transfer portions of the assets in your primary Panama Foundation to your heirs over time using the gift tax exclusions.  This may reduce your U.S. tax and have other estate planning benefits.

You may decide to purchase precious metal or physical gold within your Panama Foundation.  This can be done in Panama by leasing a local vault and we can introduce you to reputable sources for bouillon if you like.

Finally, you might invest in an offshore life insurance policy through your Panama Foundation.  These investments usually of $2 million or more and assuming they are U.S. compliant, may allow you to avoid U.S. tax on passive income and then obtain a step-up in basis upon transfer to the beneficiaries of the Panama Foundation.

For more information on offshore life insurance, the Foreign Earned Income Exclusion, or how to acquire gold in a Panama Foundation, please see my various articles.  These are complex topics and I have just touched on them here.

If you would like to form a Panama Foundation, please give us a call or send an email to info@premieroffshore.com.  We will be happy to work with you to structure your affairs in a tax efficient and compliant manner.

Panama Foundation Scam

Is Panama the Next Singapore?

Panama vs. Singapore by By Christian Reeves and Lief Simon (www.offshorelivingletter.com)

“Panama is the next Singapore,” declared a friend over lunch the other day. He wasn’t the first I’ve heard make the prediction.

Since finding its legs after the U.S. military handed over the canal, Panama’s economy has been on an uninterrupted upward trend. Even throughout the global recession of the past several years, Panama has racked up positive, albeit slower, growth.

Like Singapore, Panama is a shipping, banking, and corporate headquarter hub. Both countries are also tax havens. Where they diverge is gross domestic product (GDP) per capita and cost of real estate. Singapore’s GDP is about four times that of Panama, depending on the statistics you look at. The population of Singapore is about 50% greater than that of Panama, making this GDP figure even more stunning.

The average price per square meter for apartments in Singapore is eight times the current average cost in Panama City. (And we’ve been complaining about property values in Panama City!)

The point is that both of these statistics are being used as predictors for Panama’s potential. The consensus is that Panama is looking at at least another decade of continued tremendous growth rates.

I agree.

Panama has 100 times more land area than Singapore. As a result, there are different markets at work in this country. While real estate prices will continue to increase in Panama City as the country continues to mature and will, sooner or later, I believe, reach levels to qualify as “expensive” in a global context, prices in the interior of this country and in most of the beach areas will remain more affordable than those in comparable options in the United States. That will allow Panama to continue to attract retirees from North America and Europe.

Banking, shipping, business, tax benefits, and retirees: That is a dynamic combination for the Panamanian economy, which has grown at a rate of at least 7.2% per year every year since 2004, with the exception of 2009 (the “slow year”), when it grew at a rate of 3.9%. Unemployment is low, at 4.2%. In fact, the country is growing so quickly that it can’t educate and train its own citizens fast enough to keep up with the ever-expanding job market. The new “Specific Countries” residency visa, which comes with the possibility of a work permit for citizens of 47 countries, is one attempt to ease the strain the country is experiencing trying to find qualified workers for all the international companies relocating here, not to mention the local businesses and banks.

Global Banking Haven?

Historically, Panama has been generally acknowledged as a “banking haven.” No question, this is an international banking center; there are currently 78 banks licensed in this country. However, there is no longer any pretext of banking privacy or secrecy; not since November 2011 when Panama signed an exchange-of-information agreement with the United States.

Still, there are a lot of banks here and a lot of banking options. Like most offshore banking destinations, Panama offers two kinds of banking—local and international. Of the 78 banks licensed in Panama, 2 are state owned, 28 are international banks, and 48 are general licensed banks. International banks can only take clients from outside Panama, while general licensed banks can have both local clients and clients outside the country. The main difference from a practical point of view is that international banks don’t offer day-to-day banking services such as checking accounts or mortgage lending. These are places to keep investment, not operating, accounts.

You can see the full list of banks in Panama here. LINK TO http://www.superbancos.gob.pa/en/igee-general-information

The problem with most of the 48 general licensed banks in Panama is that, while they can take foreign (that is, non-resident) clients, in the current climate, they tend to not want to. That said, a colleague walked into Balboa Bank and was able to open an account as a non-resident foreigner with remarkably little hassle. He had his bank reference letter and his passport, which is all you need in theory. However, when it comes to banking overseas, the theory can be one thing, while the reality is something else.

While I’ve given up on identifying a local bank in Panama that will consistently open accounts for foreigners, ones to try in addition to Balboa Bank (which recently merged with Banco Trasatlantico and seems to be interested in growing its client base)include Banco General (one of the biggest banks in Panama in terms of number of branches), and Global Bank (where some I know have recently reported having good luck opening accounts).

All banks in Panama offer some level of internet banking, but check the details of this before investing the time in getting an account open to make sure you can initiate wire transfers online if that’s something you’ll need to do. Balboa Bank offers that service online, as well as an English-language version of their interface. This is notable, as many banks in this country don’t have English versions of their websites.

Many of the general licensed banks offer consumer as well as private or investment banking. If you’re a private banking client (meaning you’ve deposited US$250,000 or more), then you’ll generally have an easier time opening an operating or consumer account with one of those banks.

Again, the international banks operating in Panama deal only with foreign clients. Further, the minimum account balance required to open an account with one of these banks is US$1 million or more.

One exception is Banca Privada d’Andorra (BPA), which has a branch with an international license in Panama. BPA will open an account for you with a minimum account balance of US$100,000 (although they prefer US$250,000). Their online banking interface is in Spanish, French, Catalan, and English. You can contact Yariela Montenegro at y.montenegro@bpa.ad for more information about BPA’s services.

With the growing cost of the compliance required of any bank with American clients, many of the world’s international licensed banks are simply opting out of dealing with U.S. citizens, even those with the funds to open an account with US$1 million. Meantime, with everything going on in the global banking industry, banks are changing their policies and rules regularly. One bank that will open an account for a foreigner today may not next week and vice versa. We’ve watched this in Panama. Last year, for example, the executive committee of Unibank, a bank we’ve been recommending to readers since it opened in December 2010, decided that they would no longer take non-resident foreigners as clients except in their private banking division (US$250,000 minimum deposit). In December, they reversed that decision, but implemented a US$300 application fee for any foreigner wishing to open an account. Probably the back and forth and the new application fee are a reaction to the escalating cost of compliance when dealing with foreign clients.

Panama banks are generally solid, as the country’s Superintendent of Banking strictly monitors all bank activity. Currently, one bank is in “forced liquidation.” I’m not sure what that means, but banks don’t fail in Panama. When a problem does arise, the Superintendent takes action.

One specific occurrence a few years ago had to do with Stanford Bank in Antigua (the island, not the town in Guatemala). Stanford went bust because of malfeasance of the founder, and all related banks in different countries were affected. The Panama subsidiary of Stanford was closed, its assets frozen. The U.S. entities handling the case against Allen Stanford tried to seize the Panama assets, but the Panama Banking Superintendent wouldn’t allow that. After about 18 months, Stanford in Panama was sold to a group that reopened as Balboa Bank (still in operation today). All the Stanford Panama clients received the return of their funds.

It’s difficult to try to make a direct comparison of banking in Panama with that in Singapore. There are more banks and financial institutions in Singapore, which also offers more types of licenses. The number of banks in Panama has been relatively stable over the last 10 years, with new banks opening as other banks merge. Meantime, the volume of banking in Panama has increased, and I expect the number of banks to continue to increase as more international banks decide to open branches in this country.

Business And Taxation

One of the biggest advantages to Panama as a jurisdiction right now is that it is the best place in the world to run a business. Not a local business. I’d say that running a local business here in Panama would come with all the same challenges of running a local retail business anywhere in the world. In addition, though, the important thing to note about local trade in Panama is that much of it is restricted to foreigners. Most professions – doctors, lawyers, accountants, etc. – are restricted to Panamanian citizens, as are retail businesses. Most foreigners who want to be in business in the country focus on tourism-related opportunities or other service-related businesses…or restaurants.

If you’re looking for a place to launch or relocate an international business, however, you won’t find a better locale…

Except, perhaps, Singapore. I’d say these two countries are the top choices worldwide for where to base an Internet, consulting, or other laptop-based business. And, given the choice between Panama and Singapore, I’d choose Panama (as I did five years ago when my wife and I decided to relocate from Paris to Panama City to launch the Live and Invest Overseas business). Singapore is a far more expensive place to live and to do business. It’s also halfway around the world and many time zones away from your customer base if your customer base is based in North America.

One important reason Panama is as appealing as a doing-business choice as it is, is because it is a jurisdictional-based tax regime. That means any person or entity is taxed in Panama only if his, her, or its income is earned in Panama. Further, Panama doesn’t impose tax on interest income from deposits in Panamanian banks. Therefore, it’s possible, if you organize your life appropriately, for an individual to live in Panama free of any Panama income tax liability. Don’t earn any money in Panama, and you owe no tax in Panama. It’s as simple as that.

The easiest strategy for setting yourself up to be in Panama and in business without earning any income in Panama is to start a consulting or internet business based outside Panama. Create a non-Panamanian entity to house your non-Panamanian business, earn your income outside Panama (by consulting for a client in Costa Rica, for example), and have your clients pay your non-Panamanian company.

What you can’t do is set up a physical business in Panama with a non-Panamanian business providing the goods, and then have the non-Panamanian entity charge enough to the Panama company to keep it from showing any profit in Panama.

Panama has two rules that void that practice. One is simply an implied income tax on the gross revenue of a company if the company continually shows no profit. It’s essentially a minimum income tax charged at 1.168% of gross income for companies with gross revenue of US$1.5 million or more if the calculated tax on net income is less.

The other rule has to do with transfer pricing between affiliated companies. Panama passed a law last year specifically addressing this. A company with a Panama operation and a foreign subsidiary that provides products or services for local sales cannot charge above market prices for those products and services to the Panama entity in order to reduce the taxable income in Panama.

If you want to start a business in Panama for local trade, the tax rate is a flat 25% tax on net income. However, again, Panama places many restrictions on foreigners doing business locally.

To avoid this 25% tax on local business profits, you could consider basing your local business in either the free-trade zone in Colon or the Panama Pacifico “city” being developed at the former Howard Air Base outside Panama City. The free-trade zone in Colon is essentially a place to warehouse and modify goods to be shipped out of Panama. You can import and export goods to and from this zone with no tax implications, including no income tax. Any goods brought into Panama from this zone, however, are subject to import duties.

Panama Pacifico has been designated a tax-free zone for companies that qualify. The 13 categories of businesses that can operate here tax-exempt are:

 Distribution centers of multinational companies
 Back office operations
 Call centers
 Multimodal and logistics services
 High-tech product and process manufacturing
 Maintenance, repair, and overhauling of aircraft
 Sale of goods and services to the aviation industry
 Offshore services
 Film industry
 Data transmission, radio, TV, audio, and video
 Stock transfer between on-site companies
 Sale of goods and services to ships and their passengers
 Corporate headquarters

Another benefit of basing your business in Panama Pacifico is the opportunity that creates for you, as the business-owner/employer to be able to obtain work permits for foreign employees beyond the usual 90/10 rule. The 90/10 rule, which applies to all businesses operating in Panama outside Panama Pacifico, means that the business must employ nine Panamanians for every one non-Panamanian.

In recent history, again, the exception to this requirement that 90% of the employees for any business be Panamanian, has been to base yourself in Panama Pacifico. However, the new “Specific Country” residency permit means that this Panama Pacifico benefit isn’t as big a deal as it used to be. Now, any foreigner from any of the 47 countries included on the Specific Country visa list can obtain residency and a work permit, creating a chance for businesses to hire non-Panamanian labor without restriction. I believe this window of opportunity will continue only until President Martinelli is out of office. Martinelli created the new visa program through special Executive Order. The guy who follows him in office likely will repeal the order.

Unless the guy who follows Martinelli in office isn’t a guy at all but Mrs. Martinelli, as is lately being discussed.


Another important benefit of Panama as a jurisdiction includes the offshore services available here. In this way, too, Panama is very similar to Singapore. While Singapore has taken the offshore structures game to a next level, as it has been at this for much longer, Panama is working hard to catch up.

Panama offers corporations, trusts, and foundations. Again, Panama corporations pay no income tax in Panama if they don’t earn any money in Panama, making a Panama corporation a very appealing option for structuring business operations in other locations.

You can also use a Panama corporation to hold real estate in Panama or outside the country. Historically, this strategy provided important benefits to do with property and capital gains taxes. However, the rules for these things have changed recently, making this less of a no-brainer option. It can still make sense to hold Panama real estate in a Panama corporation, but not always.

Here’s how this used to work:

Once the Panama property was put into a Panama corporation, the “value” was locked into the public property registry. When the owner decided to sell, he sold not the property but the corporation holding the property. Ownership of the property didn’t change, and, therefore, the public registry value of the property didn’t change. As a result, the amount of property tax charged for the property didn’t change either. In other words, property values could increase, but property taxes (which are figured on property values) could be held constant this way.

Additionally, it used to be that, while Panama did charge capital gains tax on the transfer of property, it did not charge capital gains tax on the transfer of company shares, saving the seller 10% of the appreciation.

This changed in 2006. Now, sellers pay capital gains tax on both the transfer of property and the transfer of company shares.

Finally, Panama charges a 2% transfer fee on real estate. Selling the corporation rather than the property avoided that tax, as well.

Bottom line, today, with capital gains tax charged on the sale of shares and property values being reevaluated for the purposes of property tax, as I said, holding Panama real estate in a Panama corporation isn’t the no-brainer decision it was years ago. The cost of setting up a corporation runs from about US$1,000 to US$1,500, depending on the attorney. Maintaining the corporation runs US$530 a year without nominee directors, which should cost around another US$250.

On the other hand, using a Panama corporation to hold non-Panama real estate can be an excellent strategy, with estate planning and asset protection benefits. American readers should note, though, that a Panama corporation cannot be treated as a disregarded entity for tax purposes; they are treated like corporations. An American considering options for holding real estate in different countries should consider an LLC, a trust, or a foundation, which can be better choices depending on your circumstances overall.

Few people think of Panama as a trust jurisdiction; most look to the Cook Islands or perhaps Belize for this kind of structure. However, Panama does offer trusts (an odd thing for a civil law country).

Panama also offers foundations which is the civil law equivalent.

Foundations work very much like trusts and can be a good alternative to a trust depending on your needs. On the U.S. side, for tax purposes, a foundation can be treated like either a corporation or a trust. You want to make sure you set everything up so your foundation is treated like a trust. If you’re an American, have your Panama attorney work with a U.S. attorney who knows something about Panamanian foundations to be sure that the wording of the foundation documents is such that the entity will be treated as a trust by the IRS. Otherwise, you risk negative U.S. tax implications.

One other thing to keep in mind with a Panamanian foundation is that, while the name may suggest that it is a charitable organization, it is not. A Panamanian foundation is a tax-paying entity and can be liable for tax, both in Panama (if the foundation has any Panama based income) and in the United States (if the foundation has any income at all).

Pushing For First World Status

Panama’s President Martinelli has set an ambitious agenda. He has declared that he’s pushing Panama toward First World status. To that end, he’s taking all the revenues being thrown off by the Panama Canal (and then some) and investing them in infrastructure improvement projects across the country. You can’t drive more than a few blocks in any direction in Panama City without encountering some kind of construction—road expansion or repaving, digging for the new city metro, new building construction or old building renovation, electric and phone cables being moved underground, tunnels, bypasses, etc. Every main thoroughfare in the city is being improved in some way. The latest extension of the Cinta Costera, the new highway and pedestrian area that runs along the Bay of Panama, will take motorists around Casco Viejo and to the Bridge of the Americas, allowing drivers to avoid the current log jam trying to exit the city.

Around the country, roads are likewise being improved, expanded, and dug anew. Plus, new airports, new hospitals (including a big one in Santiago), new schools, and new shopping malls. The landscape of this country is being remade before our eyes.

The investment opportunities that all of this translates into are tremendous. Someday, people could be saying that Singapore is like Panama City.