The first trust law in Panama was adopted in the 1940’s and it was based on common law trust. However, in 1984, new provisions on trusts were enacted by Law No. 1 of January 5th to complement other legal instruments and benefits provided by Panama as a tax haven to the international financial community.
This legislation introduced new and modern concepts to update the former trust laws in order to make them more flexible and convenient to foreigners searching for a place to execute a trust overseas.
The important features of the Panamanian trust are:
LIBERTY OF BARGAINING: The trust can contain any lawful clause as the needs of the settlor may require. According to articles 5 and 9 of Law No. 1, the trust may be created for any purpose provided it is not contrary to the law or public policy.
SIMPLICITY IN ITS EXECUTION: The trust shall be created in a private document and the only formality is that the signature of settlor and trustee must be authenticated by a Panamanian Notary, so confidentiality is guaranteed. It is not necessary for the trust to be executed in a public deed or registered public ally unless real property located in Panama is given in trust.
DURATION: The trust is not perpetual unless it is so stated by the settlor in the trust. The trust should have its duration expressly stated, and it may be revocable or terminated before it expires if so provided by the settlor in the trust agreement.
CONFIDENTIALITY: Article 37 of Law No.1 guarantees the confidentiality for the execution of the trust. It provides that the trustee and his representative or employees or any other person involved in the execution of the trust must uphold the secrecy of the operation.
CORPORATIONS MAY BE USED: Both the settlor and the trustee and/or beneficiary may be a corporation and not individuals.
SPECIAL TAX BENEFITS: Consistent with the tax principles already mentioned, Law No.1 states the acts of executing, modifying and terminating a trust as well as transferring, conveying or encumbering trust funds and the income or interest produced by the assets and properties given in trust are exempt from all taxes, contributions, assessments or encumbrances, provided the trust involves the following assets: