There are three types of immigration status in Panama: non resident temporary resident or permanent resident.

According to the Immigration Law from 2008, these categories are the following:

1. NON RESIDENT:

This type of permit is for foreigners that would like to enter the country and stay for a short period of time without wanting to reside in Panama. The following is a list of some of these types of permits:

a.       Turist

b.      Marines

c.       Passerby

d.      Short stay for business

e.       Visiting family members

f.        Medical treatment

g.       Scientist and researchers

h.       To Provide services for the banking sector

2.      PERMANENT RESIDENT:

This type of permit is given to the foreigner that wishes to stay in Panama indefinitely. Once the application for this permit is approved, the foreigner will be given a temporary residency card valid for two (2) years. Once these two years have passed an application for an indefinite residency permit shall be submitted.

Depending on the specific subcategory, the immigrant might have the right to apply for Panamanian citizenship.

A few of these type of residency permits are:

a.       Self economic solvency (acquiring a Real Estate, setting a time deposit or a mix of both)

b.      Forestall investment

c.       Married to a Panamanian citizen.

d.      Investment in a macro Enterprise.

e.       Retirees

f.        Through the Panama-Italy cooperation agreement.

3.      TEMPORARY RESIDENTS

Foreigners applying for this category are the ones with the intention to reside temporarily to work, for education and culture among others. These foreigners can stay in the country for up to six (6) or until the especial law by means of which the application took place permits a longer period of stay.

The following is a list of some of the permits of this category:

a.       Multinational enterprises, Colon Free Zone and exporting zone processing companies’ personnel.

b.       Personnel of companies operating from Panama but with effects overseas.

c.       Personnel of local companies.

d.       Students

e.       Press correspondent

f.        Investor, researcher or Students at City of Knowledge.

LEGAL CHARACTERISTICS

The Private Foundation is an institution having its own juridical personality and a patrimony composed of the assets transferred by the Founder or a third party, for nonprofit oriented purposes in favor of the Founder, its family, and third parties.

The usual objectives to be pursued by the Private Foundation are of educational, social, or scientific nature. Thus, the objective of a Foundation may be to allocate the income derived from the administration of a real asset to the education and maintenance of the children, spouse, and other relatives of the Founder. Likewise, the son wishing to ensure a dignified existence for his progenitors, may choose to establish a Private Foundation.

Although the Panamanian Private Foundation shall not be profit oriented, it may engage in commercial activities in a non-habitual manner or exercise the rights deriving from titles representing the capital of business companies held as part of a Foundation’s assets, provided that the proceeds from such activities are dedicated exclusively towards the Foundation’s objectives.

The assets of the Foundation constitute an estate separate from the Founder’s assets for all legal purposes and, therefore, may not be subject to any precautionary measures in virtue of actions prosecuted for personal obligations of the Founder or of the beneficiaries of the Foundation.

The Foundation’s patrimony shall only respond for obligations incurred or damages caused by virtue of actions taken fulfilling the objectives of the Foundation, or for legitimate rights of the beneficiaries of the Foundation.

For the purpose of ensuring the fulfillment of the wishes of the Founder, our law provides that the Panama Foundation is not applicable to the inheritance laws of the domicile of the Founder or of the beneficiaries.

Generally, the Foundations are irrevocable, nevertheless, the Foundation Charter may provide otherwise, but, when a Foundation has been created to be effective after the death of the Founder, the Founder shall have the right to revoke it at all times.

REQUIREMENTS TO CONSTITUTE A FOUNDATION:

In order to constitute a Private Foundation in Panama, we need the following information:

1. One or more names to check its availability (provided that you wish to select one).

2. The specific objectives to be included in the Foundation Charter.

3. The initial patrimony of the Foundation.

4. If the Foundation will be of revocable or irrevocable nature.

5. The names and addresses of the members of the Foundation Council or the instructions requesting us to integrate it.

6. The domicile of the Foundation, if you decide to establish a domicile other than Panama.

7. The duration of the Foundation.

8. The reservation of the right to modify the Foundation Charter.

9. Any other lawful clauses which you may wish to include in the Foundation Charter.

FORMATION AND EXISTENCE.

One or more natural or juridical persons, of any nationality or domicile, acting on their own name or on behalf of third parties, may constitute a Private Foundation permanently.

The Private Foundation is constituted by a document named Foundation Charter, which must be signed by the person establishing same, countersigned by a Panamanian lawyer, and recorded in the Panamanian Public Registry.

The Panamanian Private Foundation obtains its juridical personality upon the registration of the Foundation Charter in the Panamanian Public Registry.

NAME OF THE FOUNDATION

The name of the Foundation may be stated in any language with characters of the Latin alphabet and shall include the word FOUNDATION or its translation into de subject language. To avoid confusion, said name shall no be identical or similar to that of any other Foundation existing in the Republic of Panama.

PATRIMONY OF THE FOUNDATION

The patrimony of the Foundation may be constituted by assets of any nature, present or future, and the same constitutes an estate separate from the Founder’s personal assets.

In Panama, the initial patrimony may no be less that US$10,000,00, amount which may be expressed in any currency of legal tender. Said patrimony is the only patrimony to be stated in the Foundation Charter; therefore, at the time of constituting the Foundation, it is only necessary to state that its initial patrimony is of US$10,000,00 and thus, paying the minimum registration fees. Furthermore, the initial patrimony does not need to be furnished at the time of the registration of the Foundation
.

The Foundation’s patrimony may include real estates and these may be registered under the name of a corporation, which shares shall be owned by the Foundation.

BODIES OF THE FOUNDATION

A. THE FOUNDATION COUNCIL:

Shall be responsible for carrying out the objectives of the Foundation and for administering the assets thereof, following the directions stated by the Founder.

It shall be composed of natural persons, of any nationality and domicile, in which case, at least three persons shall be required, or of one or more juridical persons or of both categories of persons.

The faculties or responsibilities of the Foundation Council shall be established in the Foundation Charter or in its Regulations and the Founder may subordinate the exercise of such powers to a supervisory entity. Also, the faculties of the Foundation Council can be delegated to a third person, according to he powers stated in the Foundation Charter or the Regulations.

Unless the Foundation Charter or its regulation provide otherwise, the Foundation Council must render account of its administration to the beneficiaries and, where applicable, to the supervisory entity, within the time specified in the Foundation Charter or in its Regulations. In the absence of such provision, rendering of accounts must be done annually.

B. THE SUPERVISORY ENTITY:

The Founder, in the Foundation Charter or in its regulations may subordinate the exercise of the powers of the Foundation Council, to the previous approval of a supervisory entity, commonly knows as ¨Protector¨, which may be constituted by natural or juridical persons, such as auditors or other alike.

DOMICILE AND CHANGE OF JURISDICTION

The Foundation may have its domicile in Panama or in any other country.

Foundations constituted in accordance with the Panamanian law, as well as the assets constituting their patrimony may become subject to he laws and jurisdiction of another country, provided that such possibility is stated in the Foundation Charter or in its Regulations. Likewise, the Foundation constituted pursuant to a foreign law, may become subject to the Panamanian Law. Notwithstanding, said transfer does not imply the extinction of the proceeding previously brought by the beneficiary against the Foundation or those brought by the Foundation.

RESIDENT AGENT

All Foundations have a resident agent in Panama, who, pursuant to the law, is a lawyer or a law firm, chose name must be stated in the Foundation Charter, the resident agent is the liaison between the Panamanian government and the Foundation.

THE FOUNDATIONS REGULATIONS

Normally, the beneficiaries of the Foundation are designated in a private document known as “the Regulations.” Their terms and conditions in which the beneficiaries shall receive the results or proceeds of the patrimony of the Foundation are also stated in this document.

Such regulations is a separate private document from the Foundation Charter which may be executed by the Founder or by the Foundation Council, provided it has been stated in this manner by the Founder.

SIMILITIES AND DIFFERENCES BETWEEN THE TRUST AND THE PRIVATE FOUNDATION.

1. We do not see the pictures of the partners or shareholders in the Trust and in the Private Foundation, but we do see that of the fideicommissaires or beneficiaries, who are the persons receiving the benefit of the Trust or the Foundation.

2. The fact that the Founder of a Trust, of a Foundation, or a third party has donated assets to the integration of the funds for the Trust or the Foundation’s patrimony, does not necessarily mean that they acquire any rights over said donations. Notwithstanding, both the Trust Law and Private Foundation Law permit to include the Founder of a Trust or the Founder of a Foundation as beneficiaries
.

3. The Trust instrument must only be registered in the Panamanian Public Registry in the assumption that it is constituted over real property located in the Republic of Panama. The Foundation Charter must be always registered in the Panamanian Public Registry.

4. The Trust does not have its own juridical personality, while the Private Foundation does.

5. In the Trust, the grantor transfers his assets to a third party (Trustee), who administers them pursuant to the instructions given by the grantor, while in the Private Foundations, these assets are transferred in favor of the Foundation, thus constituting a separate patrimony from the Founder’s personal assets. However, the Founder may participate in the administration of these assets, since it is permitted for him to be a part of the Foundation Council.

ACQUISITION OF THE PANAMANIAN NATIONALITY

The Political Constitution of Panama establishes that the following individuals may solicit the Panamanian nationality by naturalization:

1. The foreigners having five (5) consecutive years of residency in the territory of the Republic of Panama, if of full age, declare theri desire to be naturalized, revoke expressly their originof nationality or whatever nationality they have, and prove that they master the Spanish language and have basic knowlegde of geography, history, and panamanian political organization.

2. The foreigners having three (3)consecutive years of residency in the territory of the Republic of Panama with children born in this area and of Panamanian parents or spouse of Panamanian nationality, if they make known their desire for naturalization and present the proof mentioned in paragraph 1, above; and

3. The Nationals by birth, from Spain or a Latin American country, if they fulfill the same requirements that their place of origin demands for the naturalization of panamanians.

We call your attention in reference to the years of residency mentioned in paragraphs 1 and 2, above, with the undersatanding that the term of five (5) years or three (3) years of residency, accordingly, are only counted from the moment in wich the Migration and Naturalization Department of the Ministry of Goverment and Justice approve an Immigrant Visa in favor of the interested party.

WORK PERMITS

The Panamanian Labor Law allows foreigners to work in Panama, as long as the Ministry of Labor and Work Development authorizes the respective Work Permit, which is valid for the term of one (1) year.

There are different types of Work Permits; the choice of one or another shall depend on each particular case.

Among the classification of work permits that may be requested we list following:

1. WORK PERMIT APPLICATION FOR A FOREIGNER MARRIED TO A PANAMANIAN

If this is the case, the Ministry of Labor and Work Development grants the Work Permit as long as the aplicant is married to a Panamanian citizen.

2. WORK PERMIT APPLICATION FOR A FOREIGNER WITH TEN (10) YEARS OF RESIDENCE IN THE COUNTRY

In these cases, in order to authorize a work permit, the Ministry of Labor and Work Development estimates the lenght of time the requestor has been residing in Panama (must be ten (10) years) regardless of the time the applicant has requested his/her work permit.

The time of residence is estimated from the date the Migration Department approves the application for an Immigrant Visa.

The laborer soliciting his/her work permit based on the fact that he/she has lived ten (10) years in Panama, will obtain from the Ministry of Labor and Work Development an indefinite work permit, concluding therewith the formalities before said Ministry.

3. WORK PERMIT APPLICATION FOR APPLICATION FOR A TRUSTWORTHY EMPLOYEE

A trustworthy employee is one who works in a company or section dedicated to address from Panama, transactions to be perfected, consumed, or have desired effects abroad and whose salary is nor organated from a panamanian source. Such employees may be contracted for an indefinite period of time.

4. WORK PERMIT APPLICATION FOR TECHNICIANS OR EXPERTS

In these cases, the quality of work performed by the technicians or experts must be accredited to the Ministry of Labor and Work Development. In addition, it is necessary that the company consider a percentage to hire Panamanian as established by law.

5. WORK PERMIT APPLICATION FOR WORKERS INSIDE THE 10% OF THE ORDINARY PERSONAL

For this cases it is necessary that the Ministry of Labor and Labor Development gives the authorization to the foreign worker to work in Panama in an enterprise as “ordinary personal”, this means that he/she will be in a position withouth being a representative of the chief and will be a subordinate only.

6. WORK PERMIT APPLICATION FOR WORKERS IN AN ENTERPRISE WITH LESS THAN TEN WORKERS

There is an exception in this type of permit regarding the percentages established by law. Foreign workers can apply to small companies with less than ten workers and they can be part of the “ordinary personal” or they can be technicians and experts.

COSTA RICAN COMPANY FORMATION/CONSTITUTION

1. INCORPORATION:

1.1 Two or more persons may form a company by granting the correspondent Company’s Articles of Incorporation, also called “Pacto Social”. These persons do not necessarily have to be Costa Rican citizens / residents. The value of each share acquired must be paid in cash for at least twenty five percent in the formal act of the constitution, and also in the same act of constituency, the value for each remaining share acquired, must be satisfied totally or partially with assets different from the cash value cited above.

1.2 According to article 18 from the Costa Rican Commercial Code, the Articles of Incorporation must contain the following:

1.2.1 The name of the company:
The name of the company must be different from any other company, in order to avoid confusion; and it is owned exclusively by the company, and the name will be followed by the words: “Sociedad Anónima” or by the abbreviation “S.A.” and it may by expressed in any language.

1.2.2 The object or general objects of the company:
Mentioning the “object” or detailed objects of the company, does not exclude the company from performing any other licit activities for which it was created, regardless of any licit activity not mentioned in the Articles of Incorporation.

1.2.3 The amount of authorized capital and the number and nominal value of shares for which the capital is structured within:

The company must express the nature, nominal value, and class distinction of the stocks that represent the capital of the company. The Board of Directors is authorized for at least once or as many times as required, to increase the capital until the limit established, and accordingly to the characteristics of the stock determined to fulfill this capital increase. Without any restrictions, this capital may be represented in local or foreign currency.

1.2.4 The Shares:
They are titles which credit and represent the interest of the stock holders in the Company. Common Stock (also called Ordinary Stock) represents exact property rights over the capital, and they must be nominal for what they represent. Stocks that represent no value are forbidden. Common Stock, Preferred Stock, and any other securities issued by the Company, may be in either local or foreign currency.

Also it is authorized to issue one or more types of stock and or securities, with the designations, preferences, restrictions, limitations and any other conditions established in the Articles of Incorporation, and they may be in reference to the benefits, the patrimony, and the business, profit, voting rights or any other aspect within the Company’s Activity.

1.2.5 Number of stocks allocated for each of the incorporators in the Articles of Incorporation:
As mentioned above, a minimum of two persons must constitute the Company, and each one of them must have at least one stock representing property rights over the Company. The value of each subscribed share must be paid in cash for at least twenty five percent in the formal act of the constitution. The value for each stock must be paid partially or in full at the moment of incorporation.

1.2.6 Domicile:
For the incorporation of the Company, the company domicile must be located within the Costa Rican territory in order to receive any pertinent notifications from the local authorities.
Nonetheless, article 145 of the Costa Rican Commercial Code allows ulterior changes in the Company Domicile, for another Domicile not necessarily in the Costa Rican territory, but it has to be a real, current and exact address. Lima y Asociados can provide you with a company domicile in Costa Rica.

1.2.7 Resident Agent:
Article 18 of the Costa Rican Commercial Code, states the obligation for the Company to appoint a Resident Agent for the Company in case its representatives are not domiciled in the territory of Costa Rica. This Agent must be an attorney with an “open office” in Costa Rica, qualified to practice in Costa Rica, and legally awarded with the sufficient powers and faculties to attend administrative and judicial notifications in the name of the Company for which it is appointed and represents.

1.2.8 The Management:
The business activities of the Company must be managed and directed by a Management Counsel or Board of Directors constituted by at least by three members ( President, Secretary and Treasurer ), whom may or may not be shareholders of the Company, but will perform the above mentioned duties within the Company. It may appoint advisors to the Board of Directors or to the Management Counsel, if allowed by the Articles of Incorporation.

According to the By-Laws of the Company, the election of the Board Members will be by cumulative voting unless otherwise stated by the Costa Rican Law:

a. Each stockholder will have a minimum number of votes resulting from multiplying the number of votes that will normally have and the number of Directors’ positions.

b. Each stockholder may freely distribute or accumulate votes accordingly towards the candidates and the positions available.

c. The result of the election will be computed per person.

The Board of Directors shall not be renewed partially or gradually, if the cumulative voting is impaired.

The judicial and extrajudicial representation of the Company will be a faculty of the President of the Board of Directors, or of whom it was appointed in the Public Deed of constitution of the Company.

The position of a Board Member is personal and irrevocable, meaning it may not be delegated to a representative other than whom it was appointed by the stockholders

Unless otherwise stated, the President will direct the Board of Directors, and in case of its absence, the Board of Directors will be presided by the following order of directors appointed.

During its meetings, for the legitimated and legal function of the Board of Directors, at least a half of the total of the Board Members must be present, and its decisions will be valid and operational when decided by the majority of those members present. In case of a tied voting decision, the member presiding the Board will have a double vote for the purposes of deciding. The Public Deed of constitution and the By Laws of the Company will include the formalities for convening, organizing, writing the minutes of the meetings (agenda, discussions, decisions etc..) and other details regarding the board meetings.

The Board of Directors will be appointed according to the fixed time and extent contained in the Public Deed of constitution. Also this Document may include the formalities for the appointment of temporary or permanent Directors in case there is a vacancy in the Board. Otherwise, an immediate General Assembly of Stockholders must be called upon.

After finishing the time for which they where appointed, the Board Members will continue their duties until the new Board Members will be legally permitted to occupy their new positions within the Board.

1.2.9 Time:
The time of validity and life of a Company, may be of ninety nine years, extendable by decision of the Stock Holder Assembly.

1.2.10 Other considerations:
The Articles of Incorporation may include other considerations responding to the decisions of the interested parties such as restrictions to the transfer of stocks, preferred rights of repurchase own stock, or priority in new issuance etc.

1.3 When the Articles of Incorporation are constituted in Costa Rica, it has to be formalized in a Public Deed of constitution given by a Public Notary responding to Registry formalities, and when it is constituted outside Costa Rica, it has to be as well granted by a document given by a Costa Rican Public Notary.

1.4 In all cases, the Articles of Incorporation must be submitted to the Commercial Registry of Costa Rica, and the Company will not legally exist to third parties, until its proper registration.

1.5 The Articles of Incorporation may be in any language, but it must be translated to Spanish by an authorized Official Translator.

2. CONSTITUTION OF THE COMPANY.

People interested in forming a Company do not necessarily need to travel to Costa Rica. The normal procedure allows two or more people, residents or non residents of Costa Rica to constitute a Company by establishing freely and according to the Costa Rican legislation, their Articles of Incorporation, in the presence of a Costa Rican Public Notary, and according to the formalities described above. Each incorporator will be entitled to stock representing interest in the newly formed Company.

Once the Corporation’s Articles of Incorporation are registered in the Costa Rican Public Registry, the “incorporators” will assign their shares to the final owners.

3. OTHER IMPORTANT INFORMATION:

3.1 Vigilance
The vigilance of the Company will be in charge of one or more supervisors appointed for those effects that may or may not be stock holders of the Company.

Stocks and Stock Certificates:
The stocks and stock certificates must have the following information:

a. Denomination, domicile and time frame of existance from the Company.
b. Date of the Public Deed of constitution, name of the Public Notary who authorized such document, and the details of the registration in the Public Registry.
c. Name of the stockholder.
d. The amount of authorized or paid capital, the total amount and nominal value of the stocks acquired.
e. Series, number and class of stock or certificate including the number of stock which represents; and
f. The signature of the appointed Board Members who according to the Public Deed of constitution, are entitled to issue the stock or certificate of stock.

3.3 The period required for constituting a Company is of ten days approximately after receiving the final instructions of the interested parties intending to formalize this constitution.

MARITIME MATTERS

We offer our services in Vessel Registration under Panamanian Flag (procurement of navigation patents and radio licenses), change of address, proprietor and name, obtaining of certificates of Good Standing and cancellation of the Panamanian registry.  The Panama Ship Registry is distinguished by its simplicity and rapidity; every request can be completed in Panama or through the Panamanian maritime consulates around the world.

The Statutory Navigation Patent is valid for four years for commercial vessels and two years for pleasure boats, whereas the term of duration of the Permanent Ship Radio License is of four years.  Upon expiration of these periods, the respective extensions must be requested.  We also make available our services on matters related to the inscription of naval mortgages in the Panamanian Public Registry and its cancellations.

REPRESENTATION BEFORE PANAMANIAN MARITIME COURTS.

Our Maritime Courts have competence to know conflicts of international character.  At the same time, we have a Maritime Procedural Law that allows the prompt solution of Maritime processes.Some characteristics that distinguish our maritime process are as follows:

1.  Oral:  in the maritime process the evidences are received by the Judge in a hearing, in which the immediacy of the judge is obtained with the corresponding evidence.

2. Procedural economy:  the Panamanian maritime process contains a wide range of regulations that allows developing the process with speed and promptness.

3.  Outstanding notification mechanisms:  frequently, the defendant in a maritime process is domiciled outside of the Court’s jurisdiction.  In order to facilitate the notification of the maritime action to the corresponding person, our procedural law includes an outstanding system of notification.  Thus, for example, the defendant domiciled outside, to which possessions within the Panamanian jurisdiction have not been confiscated, can be notified through a lawyer domiciled in the same place of the defendant or its proxy.

THE PANAMANIAN CORPORATION

Panama is a commercial and trading center, and the Panamanian corporations have been frequently used since 1927 for types of activities. Panamanian corporations are used for the opening of bank accounts, as well as the registration of ownership of real estates, vessels, aircraft and diverse properties, either in Panama or abroad.

The laws concerning activities such as insurance and reinsurance, banking, trust, Private Foundations, the registration of vessels under a Panamanian flag, and the fact that U.S. currency circulates freely in the country, strengthen the Panamanian corporations regime. At the same time, mentioned elements contribute to the fulfillment of the goals and objectives traced by the investors.

Among some of the regulations governing corporations are the Executive Decree 204 of 16 July 1992, related to the designation of the Resident Agent, his resignation and replacement; Decree Law 5 of 2 July 1997, that allows a General or Special Power of Attorney be or not be recorded in the Public Registry; the option of inscribing the Financial Statements of the corporation in the Public Registry; that the Directors and/or shareholders attend meeting via phones, faxes, or any other electronic means of communications.

In order to organize a corporation in Panama, you need to do the following:

1. Suggest two or more names for the corporation (provided you wish to make the selection).
2. State any special objective of the corporation that you wish to include in the articles of incorporation.
3. Indicate the share capital and its composition.
4. Express the names and addresses of the Directors, in the event that you wish to appoint your own Directors. A minimum of three natural persons or one juridical is needed to act as members of the Board of Directors.
5. State the names and addresses of the persons designated as President, Secretary, and Treasurer if you prefer to appoint said officers.
6. Submit information about the beneficial owner of the corporation such as complete name, physical and mailing address, phone numbers, occupation, business activities, and purposes of the corporation.

LIMA Y ASOCIADOS can organize Panamanian corporations within five (5) working days. We maintain on-shelf corporations for your immediate use, and we can also provide mail forwarding, telephone, and fax services. Under a special agreement, banks, fiduciary companies, and lawyers can request the establishment of a group of corporations for future sales.

A. THE INCORPORATORS.

Any two persons, natural or juridical, can organize a corporation. However, the minutes of the Articles of Incorporation must be countersigned by a Panamanian lawyer, who, usually, provides the incorporators. Each incorporator agrees to subscribe one share. However, this right to acquire one share of the corporation in conveyed to the beneficiary of the corporation, once it is recorded in the Panamanian Public Registry.

B. THE NAME OF THE CORPORATION

Due to the large number of Panamanian corporations, it is preferable that you consider two or three alternate names for your corporation, so that their availability can be investigated. Once we investigate that the name is available, and upon your, request, the Public Registry can reserve it for thirty (30) days. A fee of US$30.00 is required by the Public Registry for pertinent reservation. Naturally, we suggest its immediate use. The name of your corporation cannot be similar or equal to any other name inscribed in the Public Registry.

When selecting the name of the corporation, it is advisable to keep in mind that law restricts the use of the following terms: bank, reinsurance, insurance, trust, fiduciary, and/or their derivatives. Any corporation using one of these terms must have a license granted in Panama to operate as such.

The Panamanian Law requires that all corporations have a word or an abbreviation in its name, indicating that it is a corporation. The word could be: Sociedad Anonima, Corporation or Incorporated, and the abbreviations could be: S.A., Corp., or Inc.

We suggest avoiding the use of the abbreviation “Co.”, because said abbreviation in a name does not clearly identify your company as a corporation.

C. THE SHARECAPITAL

The capital of the corporation can be constituted by shares of par value, of no-par value, or a combination of both. There are no limitations on the amount of the share capital. This capital can be expressed in the legal currency of the Republic of Panama (the U.S. Dollar is legal currency in Panama) and also, in any other legal tender. However, the share capital stated in the Articles of Incorporation does not have to be paid when the corporation is registered in the Public Registry. If nominative shares are issued, they do not have to be fully paid. However, bearer shares must be fully paid before they are issued. The Directors of the corporation should receive a declaration to this effect before authorizing the issuance of the respective share capital. The issuance in part or of the entire authorized capital of the corporation is approved by the Board of Directors and the respective minutes are prepared accordingly. The names of the owners of the nominative shares are stated in the Share Register. The issuance of bearer shares is also registered; notwithstanding, this act is not subject to registration in the Public Registry Office.

D. THE PROTECTION OF MINORITY SHAREHOLDERS

The shareholders assembly is the supreme power of the corporation. However, the majority of the shareholders cannot deprive the minority shareholders of their acquired rights, or pass a resolution against the Law, the Articles of Incorporation, and/or the By-Laws of the corporation. The minority shareholders affected by a resolution adopted by the majority, against the Law, the Articles of Incorporation, and/or the By-Laws may request its annulment before a competent court, within the term of thirty (30) days. The respective court may suspend the execution of the resolution until the suit is settled. This suspension is not granted if the shareholder selects ordinary proceedings at the time of filing the suit.

E. THE DIRECTORSHIP

According to Panamanian Law, corporations require three naturals or one juridical person in order to form the Board of Directors. The Directors don’t need to be shareholders, and there are no established formalities for the acceptance of its mandates. A Director continues as such until his/her successor has been elected. Every change in the composition of the Board of Directors should be inscribed in the Public Registry. The Directors usually manage the administration of the company. However, they can elect managers and/or other officers, and their faculties can be restricted in the Articles of Incorporation. The Board of Directors can sell, lease, exchange or dispose of all or part of the properties of the corporation in order to guarantee debts to third parties, without the consent of a shareholders assembly. This is possible if said faculties are started in the Articles of Incorporation.

F. THE OFFICERS

We recommend that the corporation be composed of three officers: a President, a Secretary and a Treasurer. Usually, they are members of the Board of Directors at the same time; however, one person can occupy more that one office. The corporation can have other officers in addition to the president, the secretary, and the treasurer; e.g., a Vice-president, an assistant secretary, etc. Regarding the resignation of an officer, the rule applied to the directors is also in force.

G. THE RESIDENT AGENT.

All Panamanians corporations must have a resident agent who, according to the Panamanian law, must be a lawyer or a low firm. He/she must know the identity of his/her client (Decree Law 468 o 19 September 1994. The name of the resident agent appears in the public deed of constitution and he/she is the liaison between the Panamanian Government and the corporation. Normally, the resident agent appears before a notary Public to protocolize the articles of incorporation and its amendments, and is empowered to obtain the inscription of the Public Deed in those cases that are necessary The client maintains communication with the corporation through the resident agent, who will advise him/her of the corresponding payment of the annual franchise tax and, if applicable, the payment of the directors fee. Apart from handling the legal matters that may arise for the corporation, the resident agent can provide additional services when requested, such as postal box, fax, mail forwarding, as well as administrative services.

H. TAXATION

If the Panamanian corporation does not conduct businesses within the Panamanian territory, neither the corporation nor the shareholders have to pay income tax in Panama, with the exception of the annual franchise tax which was established in 1977 as a vehicle to maintain the corporation in good standing.

The registration fee is paid according to the authorized capital of the corporation. It is prepaid by the resident agent when entering the public deed of constitution of the corporation in the public registry office.

For the purpose of payment of the registration fee, no par value shares are deemed to have a value of US$20,00 each.
If the corporation increases its share capital, the registration right is paid according to the increase.

I. THE REGISTRATION FEE

The registration fee is paid according to the authorized capital on the corporation. It is prepaid by the Resident Agent when entering the Public Deed of Constitution of the corporation at the Public Registry Office.

According to the lastest tax reforms, from 1st July 2010 the following changes will come into effect:

1. The cost of the notarial paper will increase from USD4.00 to USD8.00, per page.

2. The ITBMS (Tax) on legal fees will increase from 5% to 7%, as well as on some banking services.

These amounts will be reflected in the statements of accounts and invoices from 1st July 2010. If you have any questions or comments, please do not hesitate to contact us.

The Trust in Panama is governed by Law No. 1 of 1984 and Law Decree No. 16 of the same year. It has similar characteristics to the Common Law Trust.

I. GENERAL CHARACTERISTICS:

1. Panamanian law is very broad regarding the content of a Trust Deed establishing only that it shall have lawful purposes.
2. The Trust Deed is a private document and is not subject to registration unless it has real property located in Panama given in trust.
3. To execute the Trust Deed, the signatures of the Settlor and the Trustee need to be certified before a Notary Public.  If the Settlor is not in Panama, the signature may be authenticated by a Panamanian Consulate abroad.
4. The Trust is irrevocable, unless the Trust Deed establishes it to be revocable.
5. A Beneficiary can be replaced or added if the Trust is revocable.
6. The settlor can be a beneficiary of the trust but is not entitled to administer any of its a assets.
7. The Settlor and the Trustee cannot be the same person.
8. The Settlor and the Beneficiary can be a corporation.
9. The assets of the Trust shall be considered separate from the assets of the Trustee. Therefore, they cannot be attached, seized or subject to any lien for obligations of the Trustee.
10. The Panamanian Trust can hold investment portfolios, life insurance policies and any other types of assets, including shares.
11. Even if the shares of a corporation are in the name of a Trust, the Settlor can have signing authority on an account held by the corporation.
12. A Panamanian Trust or its assets can migrate to another jurisdiction.  Although the Trust shall be governed by Panamanian law, the Settlor and the Trustee may choose to apply foreign law in its execution.
13. The Trust is not subject to Annual Franchise Tax.
14. The Panamanian trust law does not establish any rules regarding the Protector and its powers, but a settlor may include appropriate provisions in the Trust Deed.  Therefore, the Protector does not need to be in Panama, his name would appear in the Trust Deed (which is a private document) and his competences of decision are established by the Settlor.
15. The costs to set up a trust are related with the risks, operativity and types of assets the trust will have.  For further assesment, would would need to have more information as to how many clients would be in this position (to determine volume) and the liquid value of the assets in the structure.  For example, a structure with assets of US$1 million would imply different risks than a structure with assets of US$50 million.
16. Additionally, in order to set up a trust, a thorough due dilligence is performed.  Considering the Trustee is a regulated entity, they need to comply with due dilligence regulations (as would a bank).  Therefore, we would need to have information as to the identity of the beneficial owner, settlor, protector, origin of the funds/assets.
17. The Trust will not pay any taxes in Panama on:
    1. assets located abroad
    2. deposits or accounts kept in banks located in Panama
    3. shares or securities, issued by offshore corporations with foreign income or non-taxable income in Panama, even when they are deposited in Panama.

II. THE TRUSTEE:

1.  It is mandatory that the Trustee be registered and licensed as such in the Republic of Panama.

2.  The  Trustee must have an inventory of the assets of the Trust.

3.  The Trustee has to send periodical reports to the Settlor and/or the Beneficiaries regarding the assets held in trust, as established in the Trust Deed.

III. CONTENTS OF THE TRUST DEED:

1. Identity of the Settlor, Trustee and Beneficiary or Beneficiaries (present or future).
2. Whether the Trust is revocable or irrevocable.
3. The rules by which the Trustees or Beneficiaries can be replaced.
4. Detailed description of the assets that are transfered to the Trust.
5. Express declaration from the Settlor to establish the Trust.
6. Detailed description of the Trustee’s obligations including its limitations.
7. Rules of distributing the assets of the Trust to the beneficiaries.
8. Designation of a Resident Agent in the Republic of Panama, who must be an attorney or law firm, to countersign the trust deed.
9. The Panamanian domicile, date and place of signature of the Trust Deed.

The Republic of Panama enacted Law Nº45 of 5 August 2009, which offers a moratorium or tax holiday until 31 December 2009 for all taxes due by 30 June 2009 to the National Treasury.  The moratorium includes the Annual Franchise Tax for Panamanian corporations and private interest foundations.

As of January 1, 2006, penalties for late payment of the Annual Franchise Tax are as follows:

-        Surcharge of US$50.00 for late payment

-        Penalty of US$300.00 for more than two years of non payment, plus the normal surcharges.

-        Deletion of the corporation or private interest foundation due to the non-payment of the annual franchise tax for ten (10) consecutive periods.

The enactment of Law Nº 45 of 2009 grants all corporations and private interest foundations the opportunity to cancel all amounts due to the National Treasury avoiding late payment surcharges and penalties.

If you need any additional information, please contact us at: limaco@limayasociados.com