By: Miriam Amores Correa

1. Corporations as instruments to develop mercantile activities:

Panamanian corporations are suitable instruments to realize any type of commercial activities, including exports of all class of goods.

Additional information related to the organization of a Panamanian corporation, can be found in the following link: http://www.limayasociados.com/services.htm

2. Mercantile, civil, labor and fiscal Panamanian legal regime:

2.1. Mercantile regime: the Panamanian corporation has mercantile nature and it is allowed to develop any activity of legal commerce in any part of the world.

The administration of corporations corresponds to its Board of Directors (minimum three), which can be of any nationality and residence. The Board of directors can grant Powers of Attorney so that the corporation is represented and exerted anywhere of the world.

The property of a corporation falls to its shareholders, who credit their condition with the respective stock certificates, which can be issued to the bearer or in nominative form, to election of their proprietor. Names of the shareholders are never published.

As far as the responsibility of the shareholders, Panamanian law indicates that the shareholder is only responsible for debts and obligations until the unpaid amount of their shares; however, bearer shares can be issued even though it has only received partial payment.

2.2. Civil regime: the corporation is a juridical person able to acquire rights and contract obligations. The legal representation of the corporation usually corresponds to the President.

2.3. Labor regime: the corporation can contract employees for defined or undefined time, being permissible to include in work contracts a clause that establishes a trial (test) period of 3 months where the employer as well as the worker can finalize the labor relation without responsibility, except for the payment of the labor benefits to the date of completion (wage, premium of antiquity, thirteenth month and proportional vacations). The worker acquires stability after working two continuous service years to the employer, after that term is fulfilled, the worker can only be dismissed on the basis of a cause contemplated on the Panamanian Labor Code.

If a justified cause of dismissal is not accredited, the jurisdictional Authority of Labor will order the employer to restore the worker to the company or to pay an indemnity for an unjustified dismissal. It is up to the employee to decide which one of theses options will she/he take.

The employer will be able to hire foreign employees, as long as he/she obtains the previous authorization of the Ministry of Work and Labor Development.

2.4. Fiscal regime: In Panama we have a territorial regime for taxes. A juridical person pays 30% on the income tax. Earnings obtained in the bonds, shares, quotas of participation and other values or movable property established in the Fiscal Code, are taxable.

3. Migratory status in Panama:

Our migratory law contemplates, two types of Residence Permits: Temporal Visitors and Immigrants. One of the modalities of the Immigrant Residence Permit is the one of Investor, which supposes investment not smaller than USS40, 000.00.

Additional information related to migratory status in Panama, can be found in the following link: www.limayasociados.com/services3.htm

4. Labor status in Panama:

Panamanian labor law allows the work of foreigners in Panama, with a prior authorization of the Ministry of Work and Labor Development.

Additional information on different classes of work permits, can be found in the following link: www.limayasociados.com/services4.htm

5. Panamanian attractive zones for foreign investors, from the commercial and financial perspective:

5.1. Colon’s Free Zone: Established in the Province of Colon. It’s has a system of duty free taxation in imports, re-exports, manufactures and other activities; some of the advantages in investing here are the following:

· US Dollar is the currency of legal course;

· Low costs of rent in the premises and lands;

· System of Lease Back or recognition of investment;

· Protection and trusteeship of the rights of intellectual property;

· Future automated commercial operations.

The Free Zone of Colon is considered a State independent organization and it is located less than two hours of the capital city in the Atlantic part of the country. The executives of the Free Zone of Colon can acquire special migratory status. The entrance to this zone of commerce must be approved by its governing organ.

5.2. The Airport of Tocumen Free Zone. It’s located at the international airport in the capital city. The entrance to this zone of commerce is made through public bidding with the State.

5.3. Panama-Pacific Special Economic Area: Created by law on the 20 of July 2004, creating incentives for macro companies that settles down in the area. Their executives have a migratory special regime.

There are many different ways to come to Panama and invest; these are only a few examples. If you are interested in coming to Panama and you would like to know the proper way to do it, please do not hesitate to contact us.

LIMA Y ASOCIADOS

Phones +507 269.3552 / +507 264.3312

Mailing Address: P.O. Box 0819-06591, Panama, Rep. of Panama

limaco@limayasociados.com

By: Miriam Amores Correa

The main differences between these two jurisdictions are the following:

1.  Panamanian Corporations’ law was enacted in 1927 and amended in 1997 to allow corporations to adopt modern practices, such as, the possibility of holding Board meetings using telecommunications’ media.  BVI enacted its IBC (International Business Company) ordinance in 1984 which was abolished and, now, all BVI companies are regulated by the BVI BC ordinance since 2007.

2.  Panamanian corporations can issue bearer shares, and the stockholders can have their custody.

Companies organized from 1st January 2005 in the British Virgin Islands can issue bearer shares; nonetheless, shareholders cannot keep said certificates since they must be delivered to custodians authorized by the British Virgin Islands authorities.  Shareholders of companies organized before 2005 can maintain their bearer shares but must deposit them with a custodian not later than 31 December 2010.

3.  The annual franchise tax of Panamanian corporations with bearer or nominative shares is of US$250.00 for the first year and US$300.00 for subsequent years.

BVI corporations organized from 1st January 2005 with bearer shares must pay an annual franchise tax of US$1,100.00, and corporations with nominative or bearer shares organized before 2005, as well as corporations with nominative shares organized from 1st January 2005, pay an annual franchise tax of US$350.00.

4.  Panamanian corporations must have three natural persons or one or more corporations acting as Directors and their names must be recorded in the Public Registry.

BVI corporations can have one Director only and the recording of the name of the Director is optional.

5.  The Law on Panamanian corporations allows the recording of general powers of attorney in the Public Registry; however, said registration is not mandatory.

Companies’ law of the British Virgin Islands does not accept the recording of general powers of attorney in the Tortola Registry.

6.  Panama has no tax treaties with any country, while BVI has tax treaties with the European Union and the United States of America.

7.  Dissolution of a Panamanian Corporation does not require prior liquidation, while BVI corporations require liquidation before dissolution.

It is advisable to verify that Panamanian Corporations or BVI companies are not subject to a taxable penalty under the jurisdiction where they are going to be used.

8. Registration of a Panamanian corporation and a Certificate of Good Standing (necessary for opening bank accounts) both sealed with the Apostille takes one week.

Registration of a BVI company and certificate of Good Standing with the Apostille takes more than two weeks.

If you bought Real Estate in Panama or are planning to do it, it might be tax exempted.

Law No. 21 of 15 April 2008 establishes an extension to the Real Estate Tax exemptions regulated by Law No. 6 of 2005 that we will comment bellow. These exemptions are applied to all edifications with a construction permit obtained before 1 July 2009. The period of mentioned exemption is for twenty years.

This exemption will be applied if the construction is recorded at the Public Registry before 31 December 2011.

These twenty years start counting from the time the constructions are registered or the corresponding authorities issue the occupation permit, or whatever happens first.

This law enacted in April 2008 was declared as a public interest law with retroactive effect.

Law 6 of 2005 established a twenty year Real Estate Tax exemption for new constructions with construction permits dated before 1st September 2006 and occupation permits before 31st August 2007.

Furthermore, mentioned law established that Real Estates with occupation permits dated after 31st August 2007 would be exonerated as follows:

• 15 years for residential property with a value of up to USD100,000.00

• 10 years for residential property with a value of more than USD100,000.00 and less than USD250,000.00

• 5 years for residential property with a value of more than USD250,000.00

Law 21 of 15 April 2008 was published at the Digital Official Gazette No. 26020 of 15 April 2008.

Having both a Panamanian Foundation, and a Corporation, have very different characteristics i.e.:

1. While the paid-in capital is defined as the amount paid for the shares of a corporation, the authorized capital is the minimum value that can be given to the shares of the company and that is authorized by the Public deed of Constitution of the company itself.
2. While the paid-in capital corresponds to the funds paid by the shareholders (owners of the corporation) as evidence of their property, the authorized capital can be fully paid after the constitution of the corporation.(And not before it)
3. The paid in capital is also known as established capital or as subscribed capital whilst the authorized capital is also known as nominal capital. The Panamanian Corporations Law uses the term “Social Capital”, “Authorized Capital” and “Capital” indistinctevly.
4. The paid-in capital can as well be greater or smaller than the authorized capital, whereas the authorized capital previously is established in the Public deed of Constitution and can only be changed by an amendment of the Public deed of Constitution.
5. The paid-in capital is the one that the shareholders indeed have paid and has entered into the corporation. A corporation does not have to cover the total sum of its authorized capital.
6. It is necessary to establish the authorized capital in the Public deed of Constitution but not the paid-in capital.
7. In Panama, the Registry fees are paid according to the amount of the authorized capital and not the paid-in capital.

SOME DETAILS OF THE PANAMANIAN CORPORATIONS WITH RESPECT TO THE CAPITAL ARE:

The Panamanian law does not require for the authorized capital to be paid, subscribed or paid out. It also does not require a minimum or maximum amount for the authorized capital or the paid-in capital, nor a period in which they must be paid.

The paid-in capital and the authorized capital should both be differenced from the operating capital which consists on the present assets (like cash, inventory and accounts receivable) minus the present liabilities.

The authorized capital of a Panamanian corporation can be constituted of the following way:

1. Stocks with nominal value.
2. Stocks without nominal value.

Thess can be issued to the name of the stockholder (nominative stocks) or to the “bearer”.

It is not necessary that the amount of the authorized capital be deposited in a bank at the time of issuing the registered stocks. However for the stocks that are issued in bearer form, it is understood that this stocks have been paid-in, this means that at the moment of the issuance of these stocks there has to be an amount paid for them.

This is established by article No. 28 of the Panamanian Corporations Law:
“Stocks in bearer form will not be issued if they have not been fully paid and released”

The responsibility of the stock holders is limited to the sum of the capital that they have to contributed.
The sums paid in excess to the authorized capital constitute the “paid-in capital in excess” and although this is part of the work capital, it is not considered as part of the authorized capital.

We can find a clear difference between “patrimony” and “share capital” in a December 12, 2003, sentence dictated by the court that reads: “… the patrimony of a corporation is not the share capital, it is constituted by all the present and future assets that the corporation owns”

Having both a Panamanian Foundation, and a Corporation, have very different characteristics i.e.:

1. A Panamanian Corporation is allowed to pursue any commercial activity while a Panamanian Foundation is not established for that purpose.
2. When the client is of third age, who wants to organize its inheritance, a foundation is a way to do it, without loosing control of the assets during his/her live time.  The “regulation” is the instrument by means of which the founder expresses his/her will, in case that he/she dies.  The corporation is not an instrument that can be use to organize the inheritance of a person.
3. A Panamanian Corporation issues shares, meaning that the owner of such is the ones that have control over the corporation. A Foundation does not issue shares, meaning that the Foundation does not have owners that control it but it has beneficiaries.
4. A corporation has a foundation council while a corporation has directors and officers.
5. We would recommend a foundation when the only purpose of creating it is to protect the patrimony of its founder and in case of his/her dead, this patrimony will not be a part of an inheritance process. In conclusion, the patrimony of the founder and the patrimony of the foundation are totally separated from each other.
6. Regulations of a foundation can be given the same character as a will; the names of the beneficiaries of a foundation are never public since they do not appear in the Public Registry.

If you are interested in learning more on Panamanian Corporations please go to the following link: http://www.limayasociados.com/services.htm

If on the other hand you want to learn more on Panamanian Private Foundation please go to the following link: http://www.limayasociados.com/services2.htm

As of January 1st, 2010, the Memorandum of Association of every BVI company will be deemed to prohibit bearer shares.
To comply with the new BVI Business Companies Act, the following actions must be taken:

• Exchange bearer shares for registered shares, OR
• Immobilize bearer shares.

Those companies that wish to continue its existence in BVI and maintain bearer shares or the possibility of issuing them in the future will have to take the following steps:
1. Express your intention before 31 December, 2009, and
2. Immobilize all existing bearer shares with a licensed custodian. The custodian shall have the complete names of beneficial owners and their general information.
An alternative to bearer shares are to issue registered shares.

• Non-bearer share companies will pay minimum BVI license fees
• The shares may be registered under a corporation, foundation or trust. If these options are not suitable, you may consider transferring the domicile of the corporation, thus, maintaining its existence, to a jurisdiction that allows the issuance of bearer shares.

Please note that if the above mentioned steps are not taken before 31 December 2009, the existing bearer shares will be disabled.

We highly recommend you to inform us on your decision prior to 15 October 2009.

If you have questions regarding these changes, please do not hesitate to contact us.