Panama is one of the oldest and most well-known tax havens in the world. This small central American country, famous for its canal that links the Atlantic and Pacific oceans, offers many opportunities to maximise offshore tax savings.
In this article we’re going to be looking at Panama as a tax haven, including the tax haven benefits in Panama.
A little history
Back in 1919, the nation of Panama was a mere 16 years old. American oil giant Standard Oil was looking for a way to minimise their US tax burden by registering their ships in Panama. These were also the Prohibition days, so to allow them to serve alcohol to their guests, cruise ships soon followed suit. Some shipping companies registered their vessels in Panama to get around stricter regulations. These often required higher wages and better working conditions. By 1927, under the guidance of some US bankers, Panama relaxed its tax laws. This allowed individuals to open no-questions-asked, tax-free companies.
During the 1970s the country sealed its status as a tax haven by introducing strict confidentiality laws. During the same period the global oil price increased dramatically, increasing Panama’s popularity as a tax haven. By the 1980s, Panama was firmly established as a tax haven, going as far as working with drug kingpin Pablo Escobar’s Medellín cartel. However, this was put to an end when the country’s military dictator, Manuel Noriega, was ousted by the US.
In January 2018 the European Union removed Panama from its blacklist of ‘bad’ tax havens. They cited the country’s commitment to tax transparency, as well as increased anti-money laundering efforts.
What makes Panama so attractive
Panama has one of the widest offerings as far as minimising taxes are concerned. Their financial services system is well established and offers things like offshore banking, and formation of trusts and foundations. It also supports the incorporation of offshore companies. The latter is one of the most attractive for small businesses and individuals. This is because no taxes are levied on offshore companies that solely do business outside the country.
These companies and their owners don’t have to pay any income tax, corporate tax, capital gains tax, inheritance tax, estate taxes, gift taxes, withholding taxes, or even local taxes.
Big on privacy
One of the key features of a tax haven is the financial privacy. Panama’s privacy laws are of the strictest in the world and provides protection for offshore corporations, as well as trusts. The country takes this privacy very seriously, and violations carry severe penalties.
These laws prevent banks from sharing information about account holders or offshore accounts. The only exception is in criminal investigations. Thes include terrorism or drug trafficking cases, where a court can order the bank to reveal details of the accounts and their holders. What’s more, companies don’t need to register the names of their shareholders publicly. Panama also has no exchange controls, and only a few tax treaties with other countries.
Making things easy
There are additional factors that make it easy for foreign companies to operate in Panama. These include no reporting requirements for foreign companies, companies are not required to keep books, directors and shareholders can be of any nationality, and can stay anywhere in the world. In fact, even shareholder meetings don’t have to be held in Panama and can be held in any country. What makes it even easier, is that you don’t even have to be in Panama to register a company there.
So what’s next?
While Panama’s tax laws are very relaxed, knowing how to take advantage of it can be as difficult as navigating the Panama Canal with a large oil tanker. There are many laws to consider to make sure everything remains above-board and legal. Because of this it is best to consult an expert in foreign tax laws, especially those in a country such as Panama.
Wealth Safe has helped countless companies and individuals save on taxes and reduce their financial burden. Our experts guide you to help find the best offshore location for your particular tax needs, ensuring absolutely everything is 100% legal and ATO compliant. You won’t have to worry about the government taking more of your money than they need!
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