Monday, April 28, 2008

Monaco With Bananas

Richard C. Morais 05.05.08, 12:00 AM ET

Who needs Liechtenstein or the isle of Jersey? We've got a lovely tax haven right in this hemisphere
In 2005 Alexandre and Aude de Beaulieu, Parisians in commodities trading and public relations, picked up stakes and flew to the Republic of Panama. For $60,000 they bought, renovated and equipped a shop in Casco Viejo, a decrepit Panama City neighborhood that was filled with squatters but so architecturally unique it is a Unesco World Heritage site. Their business: gourmet ice cream, with flavors like cinnamon and basil.
"Everyone told us we were crazy," says Alexandre. By which they meant that the entrepreneurs should set up shop closer to home. But France's thicket of taxes, regulations and restrictions on hiring and firing workers scared them away. "Panama is like California 20 years ago. Everyone I know is building something--a newspaper, a development. It's very uplifting."
The De Beaulieus' ice cream parlor, called Granclément, furnished with family heirlooms and antique scoopers, has got glowing writeups in the Financial Times and numerous local papers. When FORBES visited the shop in February, a European film crew was shooting Granclément for a travelogue to be aired on KLM flights. Down the cobblestone lane construction workers were restoring a crumbling palace as a five-star hotel, while the latest James Bond flick was being filmed in a nearby square.
Granclément is busy enough to generate maybe $150,000 a year in revenue, a good take in a country where shop clerks earn $4,000 in salary and benefits. So these 36-year-old self-starters and their four young children are on their way to becoming wealthy. This year the De Beaulieus will add supermarket distribution and a shop among the Miami-style high-rises and malls getting built in the modern banking quarter across the bay.
America's recent exit was in some ways the real birth of Panama. This lively backwater--famous mostly for flying maritime flags of convenience and hosting dodgy finance--seems to have found its voice. Democratically elected governments have clamped down (somewhat) on corruption, signed several free trade agreements (the U.S. Congress has yet to ratify a 2007 deal with Panama) and instituted tax and social reforms.
Meantime, even as the U.S. pulled up its drawbridge to many foreigners after the Sept. 11 attacks, its dollar was the standard for Panama, which (until lately, at least) has found the currency bulwark an additional attraction for some of those same itinerants.
Result: Panama's GDP has been compounding at 7% these last five years. "Something's happened," says Joseph Harari, director of Panama's Credicorp (nyse: BAP - news - people ) Bank and an executive board member at the Wharton School in Philadelphia. "We've always had very liberal tax laws. But we also use the U.S. dollar to run our economy. It all helped."

Panama's corporate tax rate is 30% and is levied on local income only. The U.S.' 35% federal corporate tax burden is, in contrast, the second highest in the world and is applied to global income. Caterpillar (nyse: CAT - news - people ), Procter & Gamble (nyse: PG - news - people ) and Hewlett-Packard (nyse: HPQ - news - people ) have all recently announced significant investments in Panama. The personal income tax, capped at 27%, is also limited; the De Beaulieus, for example, don't pay Panamanian taxes on their French investments, which face high levies at home.

Between the glass towers of HSBC and BNP Paribas, South Beach-quality apartment complexes emerge from every weed-choked lot, turning Panama City's skyline into a porcupine of cranes. New developments are granted tax holidays for 10 to 20 years. On the seaside Avenue Balboa, famed interior designer Philippe Starck is filling a 56-floor tower; Panamanian and Colombian partners have teamed up with Donald Trump to build the 68-story Trump Ocean Club International Hotel & Tower, financed by a $220 million bond offering.
According to one report 35 towers of over 20 floors are in construction. Besides the danger of overbuilding, there are stress signs of too-rapid growth: brownouts from an overtaxed electricity grid, a Third World sewage system under the First World high-rises. Filth is still pumped into the bay. The government says it is working on sewerage improvements.
Of course, the newly arriving affluent also want high culture and good health care. Frank O. Gehry is designing Panama's museum of biodiversity; Hospital Punta Pacifica is the recently opened affiliate of Johns Hopkins Medicine International.
The old Howard U.S. Air Force Base is a 20-minute drive from downtown Panama City. Dotted with ugly barracks, this 3,500-acre property is still oddly elegant, with rolling lawns and hills, reminiscent of an African savanna, interspersed with flowering rain forest. Europe's London & Regional Properties, with partners, recently won the contract for Howard.
The plan, says Dan R. Marcus, an American developer who just arrived to run the project, is to build 12 million square feet of commercial space alongside 20,000 housing units, all woven together in a "holistic way." Houses will be integrated into the lush forest; on hand, everything from fire stations to chic restaurants. A free trade zone grants Howard-based firms generous VAT to income tax breaks.
Backstopping all this glamour and hype are the canal and related ports. Some 14,000 ships a year make their way through the 50-mile link, paying a fee of up to $313,000. In 2006 Panamanians voted to build an additional set of locks, for $5.3 billion, that in 2014 will double capacity and finally allow modern and much larger container ships to pass through.
Still, Panama has juice. At the dated but busy Veneto Casino, South American men line the bar, sipping beer and watching a soccer match. Gamblers pull the slots as hookers work the house. There's a lot of money sloshing around, and there will be more of it.
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America's Loss, Panama's Gain
Richard C. Morais 05.05.08, 12:00 AM ET

Abraham Suchar is a 38-year-old Venezuelan who migrated to the U.S. and made good money in the Los Angeles construction boom of the late 1990s before hitting up against the real estate bust in Florida these last couple of years. Meanwhile, his childhood friend Roberto Molko, who married into a prominent Panamanian family, was down in Central America making a killing flipping apartments.

"Florida is now famous among Latin Americans for little fortunes. You come with a big fortune, and you leave with a little one," says Suchar.

So Suchar has joined his old friend in Panama, building office space. "With all the issues happening in the U.S., I have more of a chance to make a living here," he says. "And the quality of life is much better.

"Two maids and a driver in Panama cost you $1,000 a month," he added. His Danish wife and their daughters have yet to be convinced.

But January was Suchar's first month in Panama full time, and in that month the partners presold $17 million worth of real estate to Venezuelans fleeing Hugo Chávez socialism. Panama has low crime, says Molko; its clients are escaping the "kidnapping, robberies and assaults" routine back home.

The U.S. is losing out, too. Sandra Snyder, an American who has written the hot-selling starter's guide Living in Panama (TanToes SA, 2007), says Sept. 11 has been the excuse for the U.S. government to soak foreigners for $130 to consider a visa application. "Imagine what that means to a middle-class family, with four kids, wanting to take a shopping trip to the U.S. or visit Disney," she says.

So Latin America's arrivistes are bypassing the U.S. and heading instead to balmy Panama, where $5 and a 30-second visa form gets you waved into a country in which nearly all the top boutique brands are waiting for you in the marble-filled MultiPlaza Pacific Mall.

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Trump Tower is protected from IP litigation

Newland International Properties Corp. (BVP: NEWL) has filed a US$200,000 bond with a Panama City circuit court to prevent damages from a possible lawsuit by the Jumeirah Group - owners of the sail-shaped Burj Al-Arab hotel in Dubai. The order also bars Jumeirah from continuing to send disparaging notes to Panama city permit authorities. This protective order is allowed by Judicial Code when there is a reasonable fear of damages from an unfounded lawsuit.

Law 15 of 1994 on Copyright does protect architectural designs. However, the law also states that the architect is the owner of the design, not the builder who is merely granted a license. Newland declared to the media that it received the plans from Upper Deck Properties. According to the original prospectus filed with the Panama Stock Exchange, Upper Deck is an affiliate of Newland. The original design was prepared by Colombian architects Arias, Serna & Saravia (an affiliate of Newland) for Upper Deck, which also has 2 members in the Newland board:

En el 2006, nosotros adquirimos el esquema arquitectónico preliminar para el proyecto del Trump Ocean Club de Upper Deck Properties, S.A. o “Upper Deck”, nuestra afiliada. Este esquema arquitectónico básico y preliminar fue originalmente preparado por Arias, Serna & Saravia, nuestra afiliada, e incluye los diseños y mercánica básicos para el proyecto y sus detalles arquitectónicos y especificaciones. (page 63) Upper Deck, una sociedad comercial incorporada de acuerdo a las leyes de Costa Rica y nuestra afiliada, contrató a Arias, Serna & Saravia, su afiliada, para el desarrollo de los planos y especificaciones del Trump Ocean Club en base a un contrato principal para diseño arquitectónico fechado al 30 de agosto de 2005. Subsecuentemente, nosotros adquirimos de Upper Deck los planos y especificaciones por el esquema básico y proyecto arquitectónico preliminar de Trump Ocean Club, en base a un contrato de compra venta de planos y especificaciones fechado al 3 de febrero de 2006.(80) Nuestra junta directiva esta integrada por 3 miembros, uno designado por Roger Khafif y dos elegidos por Upper Deck. (85)

Newland has not listed the matter as a material event in their Panama Stock Exchange NEWL listing.

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Sunday, April 27, 2008

Liechtenstein foundations become less atractive with secrecy breach

Modern private foundations (Stiftungs) are a
creation of Liechtenstein, a small Principality
nestled between two neutral countries of
Switzerland and Austria. Along with the
Establishement (Anstalt), Liechtenstein provides
structures which are used to hold assets in bank
accounts protected by legal confidentiality.

Early 2008 has shaken the confidence of the
confidentiality in Liechtenstein with the sale by
two bank officials of the names of bank account
holders to taxx authorities of Germany, Spain,
Portugal and - according to Der Spiegel - even
the U.S.,1518,537640,00.html

Former LGT-Liechtenstein Landesbank bank official
Heinrich Kieber
a DVDs to the German Financial Intellegence
agents for close to €5 million ($7.4
million). Spanish investigators were after
Kieber for a 1996 fraudulent real estate deal in
Barcelona, which had earned Kieber 600,000 Swiss
francs ($553,000). He apparently fled to
Argentina before returning to Liechtenstein,
where he began working for LGT Bank in April
2001. More than half of the investors and about
3,100 foundations and establishments on the DVDs
are from abroad. Some are part of organized crime
in the Balkans and in Russia, including both
well-known and relatively unknown companies.

Unlike in Germany, where foundations serve a
specific not-for-profit purpose , the law in
Liechtenstein and Panama allows the founders of a
foundation to benefit themselves and their
dependents. Tax rates for foundations in
Liechtenstein are also very low and are exempt
from property, earned income and profit taxes.
Only an annual capital tax needs to be paid,
which amounts to 0.1 percent of the paid capital
or 1,000 Swiss francs (620 euro/$904), whichever
is greater. For capital valued between 2 million
Swiss francs and 10 million Swiss francs, the tax
rate is 0.075 percent. Capital valued above 10
million Swiss francs is taxed at a rate of 0.05
percent. Liechtenstein foundations are
available for US$3,000, while Panama Foundations
are available for US$950 and not taxed on income
from non-Panama activities (including interest from Panama bank accounts).

German tax authorities have no problem with
interest made in Liechtenstein as long as it is
declared in tax filings. To keep the money hidden
from German financial officials , according to
the DSTG, many people start foundations using a
name that doesn't identify the founder and
entrust the foundation's management to a trustee.
According to DSTG estimates, within
Liechtenstein's 160 sq km, there are roughly
80,000 letterbox companies , many of which share
an official address with many foundations. To
hide even more tracks from the tax investigators,
the foundation's capital can be deposited in a Swiss bank account.

Switzerland and especially Liechtenstein have
very strict bank secrecy . This is supposedly
part of Liechtenstein's "basic attitude and
tradition," as the country's Web site says.
Financial institutions in Liechtenstein strictly
reject all requests for account information even
from German tax investigators.

It remains to be seen how long secrecy
last. Just before the Kieber debacle, the
Liechtenstein government announced
to the foundation law to be circulated for consultations.



Gallery: Cloak and Dagger Dealings in the


World From Berlin: 'The Tax Scandal Has Reached a New Level' (02/22/2008)


Liechtenstein Affair: German Banks Suspected of
Helping Clients Evade Taxes (02/21/2008)


Mouse That Roared: Liechtenstein Furious at Germany Over Tax Probe (02/19/2008)


Tax Evasion Scandal in Germany: The Liechtenstein Connection (02/16/2008)


on Zumwinkel's Home and Office: Authorities
Investigating Deutsche Post CEO for Tax Evasion (02/14/2008)

Liechtenstein bank shares tumble as German
authorities carry out more tax raids .

Liechtenstein agrees to change Foundation law

Wednesday, April 23, 2008

Panama city taxi rates will be raised

New taxi rates will be in force once they are published in the Official Gazette. The zone
system is expanded to include neighborhoods of Clayton and those along Transisthmian and Panamerican Highway.

Panama City has around 19 thousand taxis - none of which seem to be available during a rainstorm.

Taxistas cumplen su sueño

Friday, April 18, 2008

Austria banks and Panama foundation enhance confidentiality

Austria - in the middle of Europe - provides a degree of banking secrecy which is granted by a Banking Law with the same rank as the Constitution. Unlike other financial centers - like Switzerland - which are more widely known as havens and therefore subject to higher scrutiny, Austria is known as a neutral country, headquarters to several United Nations offices. Bank accounts held by non-Austrians are not subject to Austrian taxes. Account owners can get the best of both worlds by opening Austrian bank accounts under the name of a Panama foundation, trust or corporation. Universal banks have also specialized investment staff to help with the purchase of foreign securities.
Austrian authorities have pledged their continuing support of secrecy, despite multilateral actions such as the OECD black lists and the EU Tax Savings Directive.

Austria: Bank´s Duty of Confidentiality by Michael Kutschera, Thomas Schirmer and Alexander Kramer Austrian law expressly recognises and protects a bank's duty of confidentiality (sometimes referred to as 'bank secrecy') with respect to information received by or relating to its customers. This duty is primarily governed by s 38(1) to (4) (scope and exceptions) and s 101 (criminal liability) of the Banking Act (BWG) and supplemented by several provisions of a procedural nature such as the Revenues Penal Code and the Criminal Procedure Code.
Section 38(5) of the BWG, a provision of constitutional law, affords special protection to the provisions of s 38(1) to (4) of the BWG by stipulating that an amendment of these provisions requires - similar to an amendment of a provision of constitutional law - a quorum of at least 50% and a majority of two-thirds of the deputies to the National Counsel (Nationalrat, the more powerful of Austria's two Houses of Parliament).1
Since 1 January 1994, the provisions on bank secrecy were partly amended, in particular with regard to money laundering, as Austrian law and banking practice initially permitted the opening of anonymous accounts in certain cases. In order to avoid the abuse of the Austrian banking system for the purpose of money laundering, Austrian banks in 1989 agreed on the wording of a uniform declaration, according to which each bank voluntarily undertook a number of duties to prevent such abuse.2 These duties were expanded by another declaration on additional duties of diligence in 1992, the compliance with which still was voluntary. .... The bank's duty of confidentiality Section 38(1) of the BWG reads: 'The credit institutions, their shareholders, organ members, employees, as well as persons otherwise becoming active for the credit institutions, are prohibited from disclosing or exploiting secrets which were entrusted to, or to which access was made available for, them on the basis of the business relationship with clients or on the basis of s 75 (3)5 hereof exclusively (Bank Secrecy). If, in the conduct of their official activities, organs of public authorities or of the Austrian National Bank, receive information which is subject to the Bank Secrecy, they shall maintain the Bank Secrecy as an official secret from which they may be released only in one of the cases set forth in s 38 (2). The duty of confidentiality applies without limit as to time.' Full text in

Austrian 1920 Constitution Article 10 [Federal Legislation and Execution] (1) The Federation has powers of legislation and execution in the following matters: 5. the monetary, credit, stock exchange and banking system; the weights and measures, standards, and hallmark system Article 20 [Administration] (3) All functionaries entrusted with administrative duties of Federation, States, and Counties are, except for differing regulations by law, pledged to secrecy about all facts of which they have obtained knowledge exclusively from their official activity and whose concealment is enjoined by the public interest or that of the parties concerned. Official secrecy does not exist for functionaries appointed by a popular representative body if it expressly asks for such information. Full text in

Chancellor defends Austrian banking secrecy
Chancellor Alfred Gusenbauer has defended Austrian banking secrecy before the beginning of the EU summit in Brussels on the EU's Lisbon strategy for economic growth and employment. He said that such secrecy was good for Austria as a financial location and gave the country and its people an advantage. He added that Austria was ready to cooperate with other countries on the issue of tax-evasion but that it wouldn't make sense "to sacrifice" a good arrangement like banking secrecy because of that crime, which occurred in all countries. He said that he didn't know if the summit would discuss banking secrecy, which wasn't on its agenda. March 14th, 2008

Bank secrecy is sacred in Austria
Both SPÖ Chancellor Alfred Gusenbauer and ÖVP Vice Chancellor and Finance Minister Wilhelm Molterer have said that there is no need to change the Austrian bank-secrecy system in the wake of the revelation of widespread tax-evasion in Germany through use of personal foundations in Liechtenstein. Gusenbauer and Molterer claimed that the Austrian system conformed to relevant EU regulations. Molterer added that Austrian law on foundations and taxes differed significantly from Liechtenstein law in those areas and that bank secrecy would not apply in criminal proceedings. The FPÖ and the BZÖ are also opposed to changes in the Austrian bank-secrecy system. FPÖ finance spokesman Lutz Weinzinger declared that "bank secrecy is a core value in Austria and part of the country's business culture" but hastened to add that he was "no friend" of tax-evasion. BZÖ national councillor Veit Schalle added that foreign access to information about Austrian accounts would be an unacceptable assault on Austrian sovereignty and would massively damage the country as a financial location. The Greens are the only party that supports changes. They said that they would consider a parliamentary initiative in that regard if the German scandal spilled over into Austria. Austrian banks are also opposed to any changes in the Austrian system. Austria is on the Organisation for Cooperation and Development (OECD)'s black list for its failure to implement an EU-wide requirement for registration of capital gains. The OECD, the German finance ministry and the NGO ATTAC (Association for the Taxation of Financial Transactions for the Aid of Citizens) have all called for better clarification of tax-evasion in Austria. February 21st, 2008

Thursday, April 17, 2008

Property tax exemption for 20 years #3

Law 21 of 2008 to extend the number of projects with a 20-year property tax exemption was finally enacted and is in force. The law is described in Property tax exemption for 20 years, BUT ... (reloaded).

Law 21 still does not clarify which exemption applies to homes with building permits dated between September 1, 2006 and June 30, 2009.

Wednesday, April 16, 2008

Complaints against real estate agents

Everything is sweet-talk with your real estate agent during the purchase process: endless trips all over the city or the beach, superlatives used to describe everything about the property. You sign in the dotted line, click on that "Send" button for the transfer of funds. Next thing you learn that the property has several defects, you overpaid and - worse - "your" real estate agent all this time was being paid by the buyer to close the deal no matter what. You call the agent to face the music but then he acts as his name in Spanish implies: "corredor" (runner).

The Technical Board of Real Estate is an entity of the Ministry of Commerce which not only grants real estate agent licenses but also deals with complains against agents and those who sell real estate without a license. Complaints do not need to be filed by an attorney but they need to be in Spanish, so a translator is needed.

Accredited agents are listed online, although with some delay

A Code of Ethics was enacted in 2001 (CODIGO DE ETICA DEL CORREDOR DE BIENES RAICES. RESOLUCION Nn 092-2001. (De 28 de Julio de 2001) which deals with several restrictions on agents.

The two real estate agent associations, ACOBIR and UNACOBIN, also take complaints against their members as a reason for expulsion, which will not get any money back but serves as a moral penalty.

Final note: There is no law which says that real estate agents must get paid 5% commission. The market rules.

Debunking the myth of extraditions from Panama

Another hoax seems to be making the rounds on the Internet:

"The MLAT has no application to civil cases such as divorce, bankruptcy, civil judgments, business litigation, any sort of civil litigation, civil tax matters etc. Taxation matters of any sort are not covered by this as far as Panama is concerned. Income tax evasion is a civil (non-criminal) offense in Panama. Switzerland cooperates on income tax cases if the return is filed falsely like all income was not declared, things were omitted or so the complaining government says. Panama has no extradition treaties. Panama passes this test." (How to Compare Offshore Jurisdictions 09th November 2006)

By MLAT they refer to a 1995 Mutual Legal Assistance Treaty which allows judicial cooperation (subpoenas, extradition, seizures, or others) in cases between Panama and the US when it involves a crime punishable with imprisonment of more than 1 year in both countries. Until Panama penalized false statements in tax returns with 2 years of imprisonment, most US tax crimes were not subject to judicial cooperation.

Panama does have extradition treaties. The Panama Foreign Ministry lists several International extradition conventions as well as bilateral treaties signed with several countries.

One of the treaties is with the US. They call it "Treaty providing for the extradition of criminals. Signed at Panama May 25, 1904; entered into force May 8, 1905. 34 Stat. 2851; TS 445; 10 Bevans 673."

Those that were not hiding under a rock may have seen a little guy called Noriega being flown out of Panama in a helicopter almost 20 years ago. The 1904 extradition treaty served as legal support for the action, not that any Panama government was willing to argue the point with a larger, foreign army.

Tax cases may not be subject to extradition, but being a fugitive from an active tax case prosecution is still being a fugitive in both countries. Eddie Ray Kuhn, self-proclaimed tax protester and indicted as part of the Wesley Snipes tax case, found that the hard way in November 2006, when he was arrested by Panama authorities in an El Dorado shopping mall. Not even his Pensionado Visa helped him avoid a free flight back to "bucolic Ocala" in Florida. The legal argument for his deportation was that "false statements in his Panama pensionado application affidavit", which was a legal shortcut faster than a full extradition process under the MLAT. German George Schulze was also sent back to Germany for tax fraud.

Political momentum can have an effect, as several prosecutions of Panamanians fleeing to the US escaping Panama justice (yes, sometimes it actually exists) were being delayed by non-complaint US authorities. A report to Congress states: "The current extradition treaty between the United States and Panama was signed in 1904, and the Panamanian Constitution prohibits the extradition of Panamanian nationals. ... Despite its bar to extradition of nationals and an old treaty, Panama has continually demonstrated good faith efforts to surrender fugitives to the United States. Most of all, Panama has shown a willingness on numerous occasions to make use of legal alternatives to extradition (which are not reflected on the appended charts) in order to effect the return of non-Panamanians to the United States to face trial." The report also lists fugitives in Brazil and Costa Rica surrendered to the US for several crimes.

Lesson to the wise: Get professional advice and file truthful tax returns on time.

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