It is the offshore company that has always been central to most offshore estate plans.  Although trusts and foundations (the latter, however, cannot engage in commercial activities) can open bank accounts, own real estate and manage investment accounts, it is usually less complicated and – which may be important – less revealing to submit company by-laws, especially in the case of trust deeds.  Practically every business or contractual relationship, bar marriage, can be entered into by offshore companies which are, inter alia, used for international trading and purchasing purposes, international investment, personal services (consultancy arrangements usually), intellectual property and land ownership, licensing and franchising, as well as shipping, aviation operations and as holding companies (central control of widespread activities of subsidiary companies).  Panamanian companies have been popular since before many offshore islands, particularly in the Caribbean (such as the Cayman Islands), became offshore centres; the material features of the legislation have changed little since promulgation in 1927.  Panamanian companies do not require accounts or annual returns to be submitted to government and the directors and officers (minimum of either 3 individuals or companies which can double for both sets of duties) need not reside in Panama.  No profits earned outside Panama are taxed (taxes, since the early part of the last century, have been territorial) and companies can migrate to other jurisdictions just as foreign companies can transfer to the Panamanian Register.  The Public Registry, however, requires details of the directors, but not the shareholders, to be recorded and who are normally nominees selected by the service provider. 

Although the foundation and trust can be fundamental to an offshore plan, usually their function is concerned more with asset protection and succession planning.  In many cases a simple offshore will, specifically dealing with assets centralised in Panama, will suffice, the object being to ensure a smooth transition of control of the assets.  This is an important matter which is so often overlooked and can be an offshore structure’s Achilles heel:  the confidentiality so carefully achieved can fall asunder when the client dies and those managing the assets might have to look onshore for instructions from an executor.  But for speed and expense upon a client’s demise, probate via a will is far less advantageous than either a foundation or a trust. 

Trust legislation was originally enacted in 1925 and was based on the common law trust.  In 1984 more modern legislation was introduced in order to attract business by making the law more flexible.  Trusts in Panama can only be managed by licensed trust companies which are supervised by the Superintendent of Banking and are required to present audited accounts, provide a bond and meet other statutory requirements.   There are no restrictions on what lawful purpose the trust can be established for and execution of the trust deed can remain private except when real estate in Panama forms part of the corpus and then the existence of the trust must be recorded at the Public Registry.  A trust deed, nonetheless, must be executed by both the settlor and the trustee before a notary public.  The trust falls within the ambit of the protection given to other financial services in Panama; trustees (including their employees) are bound by strict confidentiality and breaches can mean both prison sentences and substantial fines.  Settlors, trustees and beneficiaries can be companies rather than individuals if such arrangements will be conducive to a financial plan.  Even although the trust can be administered in Panama, the law governing the trust can be that of another jurisdiction.  Trusts created under a foreign law can, conversely, adopt Panamanian law (but the formalities applicable to Panamanian trusts must first be complied with).  In all other material respects Panamanian trusts are indistinguishable from those of most jurisdictions.

One question often asked of me is this:  what is the difference between a trust and a Panamanian private foundation?  I often respond by saying that the foundation suffers from an identity crisis because it thinks like a trust but has the personality of a company.  It cannot, however, conduct commercial activities in its own name and for this reason it normally uses a company which it controls 100%.   Being a fiduciary instrument, it is very similar to a trust, having a founder (settlor), charter and regulations (trust deed), foundation council (trustee) and beneficiaries.  Like the Panamanian company and trust, its activities can be kept confidential.  Although the charter is required to be recorded at the Public Registry, the accompanying regulations (detailing information concerning beneficiaries, benefits and special powers given to either the foundation council or other parties) are not.  Once registered, the private foundation in Panama takes on the complexion of a corporate body.  The only details regarding the foundation which cannot be incorporated into the supporting private regulations, and which will appear in the Public Registry records, are the name of the foundation, its place of domicile, detail of the initial corpus (must be a minimum equivalent of US$10,000 in whatever currency chosen), names and addresses of foundation council members (either 3 individuals or one or more corporations), details of the local Registered Agent (must be either a lawyer or law firm in Panama), the objectives (including the general, but not specific, application of assets), duration (can be perpetual), how beneficiaries (but not who they are) are selected (usually a right reserved for either the client or the foundation council), confirmation that the charter can be modified and, finally, the manner in which liquidation is to be dealt with in the event of its dissolution.  By switching council members for directors and noting many of the other provisions, it is easy to see how the private foundation has a DNA similar to a company whilst at the same time being not unlike a trust.

Another concern which many clients have is protection of assets (not to mention privacy) and whilst legitimate tax savings might be a plus, taxes are not the key motive for them going offshore.   It is most important, in any event, to obtain tax advice before establishing an offshore structure so that any possible adverse consequences can be studied carefully beforehand.  The results of losing a civil suit, on the other hand, can be devastating for one’s exposed assets.

We usually only hear the horror stories about how things went badly wrong offshore, but the truth is that there are a vast number of structures which are very successful.  It is, as with most things, making sure you get advice from a reliable source that really counts. The ABC of financial services is really short for Always Be Careful as far as I am concerned and when choosing  professionals remember always this advice:


1.     Don’t deal with a firm that isn't licensed in the jurisdiction from which its head office operates. 


2.     Don’t do business with a firm that isn't audited annually, preferably by an international firm.


3.     Always consider obtaining references or find out how long the firm has been operating.


4.     Always take into account the calibre of management, particularly their qualifications and experience.


5.     Try to meet the firm's senior personnel before conducting business if at all possible.  One hour’s meeting is worth 100 e-mails.


6.     Don’t base your choice of firm on the lowest fees tariff.


7.     Be sure to take tax and legal advice when necessary.