The Challenge of Protecting Assets in the Face of a Global Crisis
Facing a global economic crisis is a challenge, but above all it is a challenge to protect our investment at any cost. The COVID-19 virus took many people who did not have their assets organised by surprise.
It is of utmost importance to know the necessary facts to make an enlightened decision and to decide how to deal with the current situation. A Panamanian Private Interest Foundation (PIF), better known as a Panamanian Foundation, can protect your assets from legal disputes, and ensure that after your death your assets pass to your chosen beneficiaries without undue complications.
ESTATE AND PROBATE PLANNING
For legal purposes, the foundation's assets constitute a separate estate from the assets of the founder and the beneficiaries, and are not subject to claims of obliga-tions acquired personally by the beneficiaries or the founder, which allows control of the risk on such assets. Just as in a will, the private by-laws, which is the document that governs the conditions of the PIF and the nominated beneficiaries, can establish how profits and interests will be distributed, that is, who will take control over the administration of the Foundation's assets. In case of illness, mental incapacity or accident of the Founder, it can be established who will remain as administrator of the assets and thus maintain the purposes of the PIF.
PRIVACY AND CONFIDENTIALITY
The PIF Law prohibits the disclosure of information about the foundation's business. Likewise, the recently created regulatory framework, Law 129 of March 17, 2020 appoints an authority obliged to keep the identity of the final beneficiary protected, called the Private and Unique System of Registration of Final Beneficiar-ies of Corporate Bodies, created for the prevention of money laundering, financing of terrorism and proliferation of weapons of mass destruction, which are also crimes under the Law of Panama.
In the PIF, parents may designate a fund for their children's education (designated as beneficiaries of the PIF) with special clauses that regulates their entitlements, for example: "children may not rent limousines to go to school; they may only spend a certain sum of XY for holidays", among others.
TRANSFER OF GLOBAL ASSETS
By keeping real estate in another jurisdictions, its management is expedited without legal restrictions both inside and outside Panama. The Founder can be ap-pointed as administrator and maintain control over all assets and properties of the PIF.
PIFs do not pay taxes in Panama on income generated abroad. The PIF can own assets abroad and not pay taxes in Panama, because of the "territorial" tax system that Panama has. This option may be attractive for entrepreneurs who are not tied to any certain place, since they are only taxed on income obtained within the country. It means that a foreign resident in Panama can earn his money in other countries, and the income generated abroad will be tax-exempt in Panama. Under the condition that Panama exchanges financial and tax-related information with other countries worldwide in order to maintain control over the origin of the income and prevent money laundering, financing of terrorism and proliferation of weapons of mass destruction.
CERTIFICATES OF DEPOSIT (OFFSHORE CD)
As for the basic organisation of banking services in Panama, they are divided into Personal, Commercial and Private (Investment) Banking and these are sub-classified into: Checking and Savings Accounts, Certificates of Deposit (Time Deposits). There are banks in Panama that offer interest rates of 0.250% for a 30-day certificate of deposit, or up to 4% to 5% for a deposit term of minimum three (3) years. The interests generated do not pay taxes in Panama (recent reforms to Panama's tax code).
In order to open any bank account in Panama for non-resident foreigners, the following documents are generally requested: 1. Bank reference letter (letter from the foreigner’s bank in the country of origin or permanent residence certifying a stable business relationship and its duration; 2. Proof of income and evidence of origin of funds; 3. Passport and second identity card document (driver’s license or personal identity card), 4. Proof of domicile, among others.
ELECTRONIC FORMATION OF INTERNATIONAL BUSINESS COMPANIES (IBC) AND PRIVATE INTEREST FOUNDATIONS (PIF)
With the new Home Office tendencies, originated by COVID-19, Panama offers the possibility for lawyers to register IBCs and PIFs by means of electronic registration. The online registration process reduces the processing time and gives the client the opportunity to create IBCs and PIFs without the necessity to appear personally before a notary public.
When creating a PIF it is not required that the Founder be a resident in Panama. Therefore he/she can be a national or foreign natural person or corporate body, acting on their own behalf or by means of a third party.
PANAMA - OPTIMAL INVESTMENT FOR A PLAN B
Housing trends will change after COVID-19. For many the current situation has shown the need for a backup plan. When investing in real estate, purchasing a retirement or second home consumers will want to regain their own space, using the comforts of their home, and not depend on what happens in an apartment complex.
The current experience of the COVID-19 crisis could lead people away from city centres, in search of unique spaces, but meeting basic needs such as access to fresh water, electricity and reliable internet connection. Although Panama City is a vibrant and modern city, much of the interior of Panama remains quiet and remote. The isthmus of Panama offers mountains and beaches, and allows you to wake up in the Caribbean and have lunch overlooking the Pacific. Many foreign investors are unaware of beautiful places like El Valle, Pedasi, Rio Mar, Santa Catalina, Boca Chica, Boquete (where by the way one of the most expensive coffees in the world is produced - the Geisha Coffee variety) or the Pearl Islands of Panama.
Additionally, Panama is a favourable place for investment in (organic) agriculture, due to the fact that the soil is particularly fertile and the climate is favourable for growth. Since it is a developing country, and the government of Panama aims to make the country attractive for investment, various tax incentives are available to foreign investors.
But it is not only the location criteria that will change the tendencies when investing abroad. The second important consideration is legal residence. In order to spend a significant amount of time in a country or move to a second domicile abroad, a residence permit is required. When countries began to close their borders due to COVID-19, tourists were the first group to be blocked. But in the case of Panama, foreign residents were still allowed to enter. The Panama "Friendly Nations" Visa is a popular way to obtain permanent residence status combined with a Panamanian identification card (E-card) and personal tax number. It is open to citizens of the United States, Canada and most of the European countries. Additionally, Panama's “Jubilado Pensionado” migration program offers special benefits and discounts for foreign retirees, and the opportunity to obtain permanent residence with a Panamanian E-card.
Foreign investors will find that Panama has special regulations that favour real estate investments. Unlike other offshore destinations, foreigners and nationals can buy almost any type of property, own property through corporate shares or PIF. In Panama, when buying/selling real estate, the seller only pays two percent (2%) real estate transfer tax and three percent (3%) capital gains tax. In addition to this, there are property tax exemptions that apply to all new construction.
Panama is a fully dollarized American economy, with the US dollar being the legal currency, which allows for investment diversification out of the Euro zone. In addition, the country offers a favourable one-season climate, and a unique connectivity in the region that allows you to arrive in a four-hour and twenty-minute flight from New Jersey - non-stop. The Tocumen International Airport, as regional centre of operations, makes it easy to fly to Panama from almost anywhere in the world.
Overall, Panama will continue to improve its position as the “Hub of the Americas” and is on track to become the richest country in Latin America in terms of per capita purchasing power by 2021.
Opportunities arise from crises. Panama is considered a "safe haven" for investors and businesses in the dollar region. The current COVID-19 crisis will reinforce this effect. Despite the immediate economic contraction, the outlook for recovery according to Moody's is positive (BAA1). Real estate investors are well advised to follow developments in the coming months, as the new pricing environment coupled with the right strategy creates room for promising opportunities. EG