Corporate franchise tax in Panama

It may be a surprise to many but Panama is not a tax haven and even companies with no income earned locally must pay an annual tax known as Tasa Unica.  The tax and surcharges are described in Article 318-A in Wikisource and translated as draft as follows:

Article 318-A. ^[2] Corporations, limited liability companies and any other legal entities, national or foreign, will pay at the time of registration and in subsequent years a single annual fee of three hundred balboas (B / .300.00) to maintain full validity. Private interest foundations will pay at the time of registration a first single annual fee of three hundred and fifty Balboas (B / .350.00). In subsequent years, the payment for that concept will be four hundred balboas (B / .400.00) to maintain the full validity of the foundation. For legal purposes, full registration will be understood as valid in the Public Registry of Panama. The obligation to pay the annual single rate is not extended to non-profit organizations, cooperatives and civil societies.

     ^[3]The first annual single fee referred to in this article shall be paid at the time of registration of the legal entity together with the respective registration rights, as if it were part of the Registration Rights. Once the first single fee has been charged, the Public Registry of Panama will remit said amount to the General Directorate of Revenue on the first business day of the week following the date of its collection and will report the name and registration number of the respective company or foundation .

     The second and following annual single rates will be paid as follows:

to.	Until July 15 of each year, by the legal person whose date of registration of the social pact or constitutive document in the Public Registry of Panama corresponds to the months from January to June, inclusive.
b.	Until January 15 of each year, by the legal person whose date of registration of the social pact or constituent document in the Public Registry of Panama corresponds to the months from July to December, inclusive.

     These payments will be made through the legal representative or the registered agent or resident of the legal person.

     At the time of payment, the legal representative or registered or resident agent must declare the date on which the articles of incorporation or constitutive document has been registered in the Public Registry. This affidavit will be made in a form that, for this purpose, will be provided by the General Directorate of Revenue ^[4]

     Payment of this out-of-term fee will cause the single surcharge of fifty balboas (B / .50.00) per year or fraction of the year. For these purposes, the provisions of articles 1 and 2 of Law 60 of 1973 shall not apply .

     Taxpayers may pay this fee in advance, in which case such payment shall be deemed final for the periods covered.

Paragraph 1. ^[3] Failure to pay the fee in the period in which it is caused will have the effect of not registering any act, document or agreement and the non-issuance of certifications related to national and foreign legal persons, except ordered by competent authority or those requested by third parties for the specific purpose of enforcing their rights, in which case the certification will be issued exclusively in a different format for these purposes, indicating that it is in default.

Paragraph 2. ^[3] For the purposes of the suspension of registrations and the non-issuance of the certifications referred to in the preceding Paragraph, the General Directorate of the Public Registry of Panama will consult in each case the information made available to the Directorate General Income, on national and foreign legal persons who are up to date in the payment of the single rate.

Paragraph 3. ^[5] Each time the taxpayer incurrs in the non-payment of the annual single rate for two consecutive or alternate periods will have, in addition to the surcharge, the application of a fine of three hundred balboas (B / .300.00) and the annotation of a marginal indicating that it is in a state of delinquency. When the taxpayer pays the delinquent fees with their respective surcharges and the amount of the referred fine, the restoration of the services of the Public Registry of Panama and the lifting of the marginal entry will take place.

Paragraph 4. ^[3] Failure to pay the single rate for ten (10) consecutive periods will have the effect of definitive withdrawal of the legal entity from the Public Registry. As a consequence, it will be considered dissolved, with all the legal effects that this entails.

The natural or legal person, national or foreign, who has received from third money for the purpose of making the payments of this rate and does not enter them in favor of these to the National Treasury will be sanctioned with a fine not less than five (5) times nor greater than ten (10) times the amount not paid.

Paragraph 5. ^[3] Dissolved the legal person for non-payment of the annual fee for an uninterrupted period of ten (10) years, which will take effect from the entry into force of Law 6 of 2005, the period will begin of dissolution of three (3) years.

During that period any director, dignitary, member of the founding council, resident agent, partner or an interested creditor may carry out their rehabilitation, paying all amounts owed as a fee plus a fine of one thousand Balboas (B / .1,000.00). The rates of the expired years during the three-year dissolution period will be included in the payment.

Once rehabilitated, the legal entity will recover its existence and may resume its activities.

After the expiration of the three (3) year period indicated above without its rehabilitation having occurred, the Public Registry, after verifying that fact, will cancel the registration of the legal entity and its name may be used by any interested party.

The General Directorate of Revenue will prepare a list of legal persons with a delinquency of ten (10) years and promote their wide dissemination and publication, for the purpose of:

1. That the Public Registry write down the marginal dissolution for non-payment of a single rate.

2. That those interested can promote their rehabilitation.

Paragraph 6. ^[3] The annual single-rate payment obligations, declared until December 31, 1990, are declared prescribed, provided there is concurrence with the following facts:

to. That they have a prescribed prescription period exceeding fifteen (15) years or more.

b. That the taxpayer has not carried out or executed any own management of recognition of the obligation.

C. That the tax administration has not issued, at the date of entry into force of this Law, any suitable administrative act of interruption of the prescription.

In the event that a case of alleged prescription of the debt is declared or filed by mistake, it will be deemed interrupted, without prejudice to the administrative sanctions that are merited, and the period of its configuration will be restarted from the date of the alleged declaration or of your file if necessary.

Transitional Paragraph ^[3] Payments entered in official receipts are considered made by taxpayers, even if they had not been effectively entered into the National Treasury for reasons not attributable to the taxpayer, his legal representative or the resident agent. The collection of late payments and surcharges originated in the non-payment of the single rate to legal persons, whose delinquencies are attributable to the incorrect migration of data or inconsistencies in their update, and to those who verify, through receipts officers, have made the corresponding payments.

The increase in the amount of the second single rate onwards to three hundred balboas (B / .300.00) will be effective as of January 1, 2006.

Transitional Paragraph ^[6] For the purposes of the entry into force of the new single rates indicated in this article, as amended by Law 28 of 2012, corresponding to the annual renewals of private interest foundations, it will be understood that they govern from from January 1, 2013; that is, they take effect for those payments that correspond to the rates applicable to fiscal 2013 and subsequent periods.

References

1. ↑ National Assembly (Panama) (June 29, 1956) [ Law 8 of January 27, 1956 ] by which the Fiscal Code of the Republic is approved. Official Gazette (12,995) p.127
2. ↑ Article 318-A was modified by article 1 of Law 28 of 2012 , promulgated in Official Gazette 27029-C on May 8, 2012.
3. ↑ ^{Jump to:3.0 3.1 3.2 3.3 3.4 3.5 3.6} Article 318-A was modified by article 1 of Law 49 of 2009, promulgated in Official Gazette 26370-C on September 17, 2009.
4. ↑ With Law 24 of 2013 , article 34 specifies that in any legal norm, document or ongoing process in which the General Directorate of Revenue is designated or formed, it will be understood as referring to the National Public Revenue Authority.
5. ↑ As amended by article 1 of Law 28 of 2012 , promulgated in Official Gazette 27029-C on May 8, 2012.
6. ↑ As it was with Law 52 of 2012.

Anguilla provides advantages for hedge funds

Anguilla provides advantages for Hedge Funds and IBCs

In 2004, Anguilla added legislation that provided for mutual funds, captive insurance and protected cell companies. The IBC (International Business Company) Act provides all the necessary features of this entity with enhanced shareholder protections.

INCORPORATION

Anguilla has an online company formation system, ACORN, which allows for the incorporation of IBCs, and other corporate entities, as well as the filing of annual returns and all other statutory documents over the internet. Only licensed practitioners i.e. holders of a company management (registered agent), trust or offshore banking license or their approved overseas agents, are allowed access to the system. At the end of the incorporation process, the incorporator receives a digital certificate of incorporation which can be used to open bank accounts. There is no need to take any documents to the Companies Registry for stamping. These are automatically generated by the ACORN system and service providers simply have to collect the hard copy of the articles of incorporation bylaws which will all bear the Registrar's stamp, from the Registry.

Shares and share capital

Shares may be issued as registered shares or bearer shares or both and may be issued to corporations or natural persons. IBCs can be formed with any authorized share capital and in any currency approved by the Registrar. The government fees do not increase based on share capital and shares may be issued with no par value. Shares may also be issued in fractions.

Share registers

IBCs must maintain registers of shareholders and directors. However, there is no requirement to file them with the Registrar.

Registered office/registered agent

Each IBC must have a registered office and registered agent. Only licensed practitioners can provide this service.

Directors and company secretary

An IBC must have at least one director but there is no residency requirement. Directors have all powers provided for in the bylaws except those reserved to the shareholders by the Act. Directors may be corporations or natural persons. There is also no requirement for a company secretary.

Shareholders� meetings

Meetings may occur outside of Anguilla, wherever and in whatever manner determined by the shareholders. Meetings may occur by telephone or other electronic means.

In practice, all companies formed in Anguilla are ordinarily incorporated by a trust company. Because all companies are required to have a licensed registered agent, and only trust companies are so licensed, in practice they control the incorporation procedure.

Technically any person may incorporate an IBC or a CAC by subscribing and filing the Articles of Incorporation, but as all IBCs and CACs are required by law to maintain a registered agent at all times, in practice the registered agent will invariably deal with the incorporation procedure. Similarly any person may form an LLC by subscribing the Articles of Formation, but because all LLCs are required at all times to have a registered agent, this process is usually undertaken by that agent.

All IBCs must be incorporated as companies limited by shares. A CAC may be incorporated as either (1) a company limited by shares, (2) a company limited by guarantee, or (3) a company limited by shares and by guarantee.

 

The corporate constitution of an Anguillan company depends upon which statute it is incorporated under.

         For an International Business Company, they are the Articles of Incorporation and the by-laws. The Articles of Incorporation are publicly filed upon incorporation, but they are a relatively perfunctory document containing very little information beyond the name of the company, the registered office and registered agent, and particulars of the authorised share capital. The regulation of the company's affairs is primarily delegated to the by-laws which are a private document not accessible by the public which are maintained at the company's registered office.

         For a private company registered under the Companies Act, they also consist of the Articles of Incorporation and by-laws.

         For a limited liability company, they are the Articles of Formation and the LLC agreement. Similar to IBCs, the Articles of Formation are publicly filed upon registration, but they are a relatively perfunctory document containing very little information beyond the name of the company, the registered office and registered agent. The principal regulation of the company's affairs is primarily delegated to the LLC agreement which is a private document not accessible by the public which are maintained at the company's registered office.

 

The Articles of Incorporation (or Formation) of a company are filed with the Companies Registry but are not available for public inspection. However, the by-laws or LLC agreement are private, and not available to the public. In each case, the constitutional documents may be amended without a court application, but where the document is publicly filed, the amendment will normally need to also be publicly filed before it becomes effective.

For IBCs and CACs the Articles of incorporation and by-laws will bind the company and each member of the company as if they had been executed by them personally. There is no equivalent provision for LLCs.

In addition to raising capital from their members by way of equity, Anguillan companies may raise capital by way of debt, either in the form of loans or by issuing debt securities. Companies are not required to file financing statements in Anguilla when borrowing money.

Anguilla offers a low cost and efficient regulatory fund environment for private investment funds. 3 types of funds allowed, the two of interest to small offshore fund operators being Private and Professional Funds. A fund may be in the form of Anguillan company, Intl business company, LLC, limited partnership, partnership, unit trust or protected cell company, protected cell accounts, segregated portfolio company, or segregated portfolio accounts. This allows for the issuance of series or classes of shares with different rights, thus allowing for the creation of umbrella funds and master/feeder structures.

Private Funds

This refers to a mutual fund whose constitutional documents specify that it will have no more than 99 members. Private funds are recognised under the Act. The documents must also specify that the making of an invitation to subscribe for or purchase shares issued by the mutual fund are not offered to the public. Exemption from recognition is given to a family trust fund as defined in the Act.

There is no restriction on the amount of investment by individuals who may constitute a private fund.

Professional Funds

This refers to a mutual fund whose shares are made available only to professional investors and the initial investment in which, in respect of each of the persons constituting a majority of such investors, is not less than US$100,000 or its equivalent in any other currency. Professional funds are recognised under the Act. Professional investors are required to state in writing that they consent to being treated as a professional investor.

There is no restriction on the number of investors who may constitute a professional fund.

A mutual fund may also be recognised as a professional fund if it was carrying on business or engaged in an activity as a mutual fund on the date of the coming into force of the Act; the initial investments in respect of the majority of each of the investors in the mutual fund have been not less than US$100,000 or its equivalent in any other currency. Furthermore, the shares of the mutual fund are, after the date of the coming into force of the Act, made available only to professional investors.

Panama financial services company: legal entity or marketing gimmick?

For several years clients have been approaching us with typical Panama corporation Articles of Incorporation, accompanied with a typical Class A business license (in Spanish "Aviso de Operacion") claiming that this is a "financial services company".  Several websites also promote this product:

For people looking to set up an offshore finance company, as they are commonly referred to, a Financial Services Company in Panama has proven particularly popular. 

A “license,” known as an aviso de operacion in Spanish or “Operational Status” in English, can be obtained from the Panama Ministry of Commerce. This license allows the company to provide such offshore financial services as:

• Payment Processing
• Factoring
• Bullion Trading
• e-Currency Exchange
• Asset Management
• Financial consulting
• plus a few other activities which can be added on request.

The aforementioned list of offshore financial services would be considered “unregulated” in Panama. Simply put, these do not require the more rigorous supervisory license necessary for businesses such as offshore banking, insurance, broker-dealer, lending, fiduciary and cash transmittal services, all of which have paid-in capital requirements. If you are looking to set up an offshore financial services company for these more rigorously-licensed business types, please contact us. Below we discuss the simpler “license” in more detail.

Previously issued as the “Type A Commercial License” by the Ministry of Commerce in Panama, the license now bears a new name, but is the same registration document for a business that, among other things, will be issued with a domestic tax ID number. This means that, in order to keep it in good standing, an annual tax declaration must filed, which will disclose that all income from the company was derived from external (non-Panamanian) sources.

From Sovereign Management & Legal blog

Another website touts:

Panama Licensed Financial Services company 
A Panama bearer share company with the special financial services license specially prepared to cover whatever financial services that do not require a more onerous license and are desired to be offered (e.g. electronic payment processing, debit card marketing / issuance, bullion trading, forex, factoring, leasing). This specially designed Type A Commercial License is useful for banking purposes and other situations which require proof of a license to handle third party funds. We prepare a carefully worded English translation of the Spanish original that then has an apostille affixed for use with banks 

From LB

What sounds like a dream come true is actually an oversight in the overlapping of several Panama agencies dedicated to enforcing financial laws.  The granting of the Aviso de Operacion allows owners of said company to fool foreign banks into thinking that they are entities supervised by a government financial regulator.  

Firstly, there is no special type of entity in Panama laws called the "financial services company".  The types of business entities are corporations, limited liability companies, partnerships and a few others based on their shareholder structure and liability.    All Panama business entities or individual doing business with other Panama businesses are required to have an Aviso de Operacion business license, as opposed to pure offshore companies which do no business with other Panama businesses or are engaged in legal exceptions (such as landholding of one property).  However, once the step is taken by a Panama company to have an Aviso de Operacion, immediate notice of its existence is given to taxation authorities such as the General Revenue Directorate, the Social Security Administration and the local Municipality which are able to inquire as to the nature of the activities by the Aviso holder.

Some of the other websites include several caveats about this product:

A license from the Ministry of Commerce can be obtained which can allow the company to provide such financial services as Payment Processing, Factoring, Leasing, Precious Metals Trading, Bill collecting and related services, Debit & Credit Cards, Trading in Gold, Silver, Platinum plus other activities which can be added on request. The company can further engage in any lawful enterprise, but the license is specific to the activities listed above. The most important activity for most clients is the Payment Processing. With this license, the company can demonstrate to any bank or other institutions and authorities, that the company is authorized to manage third party funds in its accounts. Many banks these days require that a company can demonstrate origin of funds and beneficial ownership. A company with third party funds in its account and no government issued license to show that demonstrates that it is authorized to hold and process such funds, will risk having its accounts frozen. This entity has proven indispensable for use in conjunction with licensed offshore bank entities.

Main Disadvantages:

Not a financial institution as such. This company should mainly be used for payment processing, usally for a financial entity registered in another jurisdiction. These licenses still do not allow the company to engage in securities (brokerage or investment fund), savings and loan (financiera) or fiduciary (trust company) services which are regulated differently and all require a different type of license with minimum capitalization (usually $500,000) and public audit requirements. The Panamanian government is very serious about this. 

From Avia

Once this financial services company has the Aviso de Operacion, immediate notice is given effective 2013 to the Municipality of Panama city.  They will levy a $50 monthly signage tax and every year thereafter there is the obligation of filing a Panama city tax return.  A municipal tax on gross income is levied under a schedule, which has a general rate of 0.08%.   The resident agent of the corporation must have received an email from their friendly Municipal tax collector reading:

Señor(a)

...

Ciudad

El Municipio de Panamá le da la bienvenida a su sistema de Atención al Contribuyente y le comunica que el negocio ... S.A, con domicilio en Edificio ...  de conformidad al Registro Unico de Contribuyente otorgado por la Dirección General de Ingresos del Ministerio de Economí­a y Finanzas, ha sido clasificado e inscrito en el Municipio de Panamá, desde el di­a 24 de abril de 2013, bajo el No. de contribuyente 02-2013-..., de conformidad al Aviso de Operación # ... otorgado por Panama Emprende del Ministerio de Comercio e Industrias y le comunicamos que será aforado con las siguientes rentas de conformidad al Acuerdo Municipal N° 40 del 19 de abril de 2011:

Orden                   Actividad    Impuesto      Forma de Pago

1                     ROTULOS Año: 2013    25.00     ANUAL

De no presentarse en el término de quince (15) dí­as, se le aforará de oficio con las rentas anteriormente descritas.

Una vez informado usted de las obligaciones que tiene con el Municipio de Panamá, debe apersonarse al Departamento de Atención al Contribuyente, en la planta baja de la Torre B del Edif. Hatillo, Alcaldía de Panamá, en un término no mayor de quince (15) dí­as, contados a partir de la fecha de recibido de esta información, para entregar los siguientes documentos: ... IMPORTANTE:

Todo Contribuyente deberá presentar una Declaración Jurada donde se verifique con especificidad, la actividad lucrativa que se ejerce (Artículo 6, Numeral 2 del acuerdo 40 del 19 de abril de 2011).

Adicionalmente el Contribuyente deberá presentar una Declaración Jurada Anual del monto de sus ventas o ingresos brutos, obtenidos producto de sus operaciones en el Distrito de Panamá y que consten debidamente en los registros contables del contribuyente (Artículo 6, Numeral 3 del acuerdo 40 del 19 de abril de 2011).

La declaración jurada anual de ingresos brutos, a la que se refiere el numeral 3 del Artí­culo 6, deberá ser presentada dentro de los primeros noventa (90) dí­as calendarios contados a partir de la terminación del perí­odo fiscal de cada contribuyente.

De no presentar la declaración jurada anual de ingresos brutos dentro del plazo establecido, será sancionado con una multa de quinientos balboas (B/.500.00) y con el cierre del establecimiento comercial hasta tanto no se presente la declaración jurada anual correspondiente y pague el monto adeudado (Artí­culo 7, del acuerdo 40 del 19 de abril de 2011).

Puede realizar sus pagos en todas las dependencias del Municipio de Panamá, ya sea en efectivo o por medio de tarjeta de crédito.

Fundamento de Derecho: Articulo 84 y 87 de la Ley 106 de 1973, modificada por la Ley 52 de 1984; Articulo 4, 6,7, 10 y 77 del Acuerdo 40 de 2011 y Artículo 1, 3 y 6 de la Ley 5 de 2007.

Alcaldí­a de Panamá  

Since may resellers of Panama companies abroad have scarce knowledge of Panama tax law (other that foreign source income is generally free of income tax), they rarely mention that new changes to the Tax Code may also involve paying dividend tax when an Aviso de Operación is applied for.   Under Article 733, Panama companies must withhold 5% as tax on dividends even if they are paid out to shareholders out of foreign-source earnings:

Excepto por lo dispuesto en los literales b, d, h y k del presente artículo, solamente aquellas personas jurídicas que requieran Aviso de Operación para realizar operaciones comerciales e industriales dentro del territorio nacional, conforme lo dispuesto en la Ley 5 de 2007; ... quedan obligadas a retener el Impuesto de Dividendo o cuota de participación ... del cinco por ciento (5%) cuando se trate de la distribución de utilidades provenientes de renta exenta del Impuesto sobre la Renta prevista en los literales f y l del artículo 708 del Código Fiscal, así como de rentas provenientes de fuente extranjera y/o de exportación.

.

 Issuing bearer shares involves a higher dividend tax of 20% and even if no dividend is declared a 40% tax is payable on net earnings:

No obstante lo dispuesto en este artículo, los tenedores de las acciones al portador pagarán este impuesto a la tasa del veinte por ciento (20%).

La persona jurídica que distribuya tales dividendos practicará la retención, la que tendrá carácter definitivo. En caso de que la sociedad que distribuya dividendos tenga diferentes clases de acciones, el impuesto se pagará de conformidad con las tasas aquí establecidas y según el tipo de acciones.

Cuando la distribución sea menor del cuarenta por ciento (40%) de las ganancias netas o en caso de que no haya distribución, se aplicarán las disposiciones del impuesto complementario, con independencia del tipo de acciones que haya emitido la sociedad.

Not all is darkness for the companies with Aviso de Operacion.   The entry into force of double taxation agreements (DTAs) with several OECD countries and major business partners provides an opportunity for timely transfer pricing savings when proper advice is sought.  Although the likelihood of Panama tax authorities seizing bank accounts abroad of these Panama financial service companies is very low, it is better to factor in these risks when using these companies.

Panama Executive Power shelves plan for restrictions on bearer shares

According to local daily Estrella de Panama, the Executive Power decided to freeze the bill to immobilize bearer shares, amid the publication of articles in the international press which reveals the identity of thousands of owners of bank accounts in tax havens, including Panama.

This was announced by an official of the Ministry of Economy and Finance (MEF) through an email sent to the bankers on 2 April and which was seen by a reporter of the daily.

'Following instructions from Minister De Lima, I inform you that we have reported not to go forward with the approval of the bill whereby custody regime applicable to bearer shares is adopted . We appreciate the support and time spent in pursuing this initiative. ' says the email. Three bankers who asked that their names be withheld confirmed the existence of the email.

Bill 568, whereby bearer shares are  immobilized, came to the National Assembly by the hand of the Minister of Economy and Finance, Frank De Lima, on February 27 along with three other projects: the amendments to the law prime interest, the law of the Panama Investment Fund and the creation of the National Revenue Authority. However, bill 568 only reached its first reading. The members of the Committee of Finance met only twice to hear arguments for and against the initiative. The largest association of lawyers - the Panama Bar Association - and several important law and business associations have been against the custody, while a few law firms (Mossfon and a few others already with custody licenses in BVI and elsewhere) and the banking sector have expressed their support. The last scheduled meeting for discussion of the bill was before Easter. Currently, the discussion was not on the agenda of the committee.

Last year, Australian business professor Jason Sharman made a comparative assessment of Panama’s compliance with international OECD transparency standards of corporate beneficial ownership with special reference to bearer shares. Panama’s compliance with beneficial ownership standards was judged relative to the legal standards and actual practices extant in major OECD competitors, especially the United Kingdom and the United States.  He found that Panama's compliance measures exceeded those in place in OECD countries and made unnecessary the immobilization of bearer shares.   England LLC bearer warrants and U.S. Wyoming bearer scrip continue being allowed as corporate bearer instruments.

See also Attorney discusses restrictions on bearer shares  http://mypanamalawyer.blogspot.com/2012/11/attorney-discusses-restrictions-on.html

Myths & facts about Panama corporate powers of attorney

Are powers of attorney granted by a corporation made void when its legal representative is changed?

This is irrational because then a corporation would be able to shake the obligations incurred by a previous attorney-in-fact just by switching legal representatives.

A corporation is a type of entity in Panama and as a juridical person that it is, it has to appoint an individual (or natural person) to act on its behalf.   While natural persons can act on their own behalf, Article 73 of the Civil Code specifies that juridical persons like corporations “shall be represented judicially and extra-judicially by the natural persons which the laws, or the respective by-laws, articles of association, regulations or foundation deeds determine; and upon said determination by the persons which a resolution of said community, corporation or association, appoints for said purpose”.

This provision applies also to corporations, which Corporation Law (Law 32 of 1927) specifies in Article 63:

Article 63. Directors may be removed at any time by the votes, cast to that effect by the holders of the majority of the subscribed shares with a voting right in the elections of directors. Officers, Agents, and employees may be replaced at any time by means of a resolution adopted by the majority of the Directors or in any other manner provided by the articles of incorporation or by-laws.

The law does not say that the changing, incapacity or death of a legal representative or director results in the powers of attorney that he granted in the past on behalf of the corporation becoming void.  Being the attorney-in-fact of a power of attorney an agent of the corporation, they are replaced by a decision of the board, not because new directors have been appointed.

Does a corporation which authorizes its Legal Representative in its charter to appoint attorneys-in-fact, also need a shareholder resolution?  The charter of said corporation states:

The Board of Directors may likewise elect other officers, agents and employees it deems convenient. Any person may be in charge of more than one office.  The Legal Representation of the corporation will be exercised indistinctly by the President, the Secretary or the Treasurer, acting individually.  The legal representative may grant General Powers of Attorney in favor other individuals or entities to exercise all powers on behalf of the corporation including, without limitation, to desist, settle, substitute and delegate.

The Panama Corporation Law specifies in Article 65 that:

The Corporation shall have a President, a Secretary and a Treasurer, who shall be elected by the Board of Directors, and it may also have all such officers, agents and representatives as determined by its Board of Directors, by-laws or articles of incorporation, same being elected in the manner established therein.

This is a case which illustrates why it is important to read the charter when determining the scope of corporate authority of a Panama corporation.  In the specific case of the question, the charter has a special clause stating that either one of the President, the Secretary or the Treasurer, acting individually (meaning without the need of a shareholder or board resolution providing authorization), may grant a General Power of Attorney in favor of other individuals or entities to exercise all powers on behalf of the corporation.   These powers include those which other articles of the Civil Code specify requires an express authorization: to desist, settle, substitute and delegate said power of attorney.

The Civil Section of the Supreme Court of Justice has stressed in an unusually candid decision that absurd decisions by public officials should not get in the way of a legal representative as long as he is acting as authorized by the letter of the corporation charter:

It does not seem adequate or correct that the judge, in the absence of direct and express provisions with regard to a specific matter, is allowed to absurdly reason and interpret legal provisions.  And that would be precisely what would happen if the legal representative of a corporation was denied, the right to act on behalf of the interests of said corporation, as long as the acts performed as comprised within the corporate purpose and are related to the own development of the corporation represented.  Remember that in private law matters anything that the law does not prohibit may be done.   If the Law nor the corporate charter of [the corporation] prohibited [the legal representative] to participate in the shareholder meeting of [another corporation] as proxy of [the corporation], the Court does not see a reason to annul the results of said meeting. (Decision of February 13, 1996, MGRevilla vs CDH, S.A.)

Is a Power of Attorney granted by a corporation to be in force from May 29, 2007, to May 28, 2008, illegal because it was granted on May 25, 2007?

Powers of Attorney are forms of mandate, which like any civil obligation may be conditioned in their scope and also their duration.   Many provisions of the Civil Code support the execution of a power of attorney for its exercise in a future date:

• Article 999 provides that in a conditional obligation the acquisition of rights, as well as their resolution or loss, depend on the event which constitutes the condition.   In the case of the question, the acquisition of rights is conditioned to the elapsing of May 29, 2007, date when the attorney-in-fact will become empowered to exercise, even if the document was granted 4 days before.
• Article 1002 provides that the condition that an event occur extinguishes an obligation from the date it elapses.   By being the power of attorney granted until May 28, 2008, the elapsing of said date terminates the powers for said attorney-in-fact.   However, some case law provides that mandates are automatically extended if their duration ends without a resignation by the attorney-in-fact or substitution by another one (Decision of August 18, 1991, quoted in Dulio Arroyo, 20 Años de Jurisprudencia de la Sala Civil, Panamá, 1982, p. 300).
• Article 1010 states that obligations which have a definitive date set for their performance, will only be demanded when said date arrives.  Therefore, the grantor may be able to demand on May 29 that the attorney-in-fact perform the accepted power of attorney.

Legal doctrine acknowledges the legality of conditional obligations and explains that dates can be used to suspend obligations or to resolve or terminate them.  In the specific case of article 1010, “this does not mention a suspension term but the existence of an initial term is given, since it is the moment when the effects of the obligation begin.  However, when the solution or performance of the obligation is delayed, the creditor may not exercise his action before the term arrives, except in the case of what has been made for its own benefit, since if nothing has been established, it is supposed to be for the benefit of both parties.” (Bonifacio Difernan, Curso de Derecho Civil Panameño, Panamá, 1981, p. 138)

When a power of attorney is granted by a corporation, additional rules of the Commercial Code are applicable:

• Article 580A was enacted in 1997 and in addition to stating that general powers of attorney do not need to be registered unless they authorize changes to title over real estate, also states that Powers of Attorney are valid from valid from the date they are granted in public deed or private document with a date confirmed by Notary Public.
• However, Article 581 states that when a power of attorney was made according to rules or instructions, these will be integral part of that one.   This means that if this case the document contained a limitation in its duration whereby the attorney-in-fact can only act as such from May 29, 2007, to May 28, 2008, even if the document was granted before Notary 4 days before.  The anticipated execution certainly does not make the power of attorney illegal.

Sample powers of attorney in English with with a future date of effectiveness are available online for Illinois and Utah.

Mandates are terminated by their revocation, resignation of the attorney-in-fact, or death, incapacity, bankruptcy or insolvency of grantor or attorney-in-fact.   This is the reason why in most civil law countries, living wills drafted under Common Law rules need to be redrafted for their enforcement in Civil Law countries.

Do General Powers of Attorney granted by a corporation need to be registered?

No.  A prevalent practice among Panama banks (Caja de Ahorros and others) is to demand that General Powers of Attorney be registered in the Public Registry.  This seems to be a remnant of what was a legal requirement Articles 57 (Section 7) of the Commercial Code and 1776 (Section 7) of the Civil Code for 90 years until Law Decree 5 of 1997 revoked said requirement.   Said Law Decree enacted a Article 580A to the Code of Commerce stating that general or special powers of attorney ("mandato") are valid from the date they are granted in public deed or private document with a date confirmed by Notary Public and may be optionally registered in the Public Registry.

If the choice is made to register a power of attorney, revocation of the registered power of attorney must also be registered unless it is not required from the text of the original document. However, Article 1776 (8) of the Civil Code still requires registering a power of attorney for the sale or encumbrance of real estate located in Panama.

Since corporations are commercial entities the Commercial Code is applicable, so another merchant such as a bank may require under its Article 592 that the written power of attorney be shown.    However, this still does not make compulsory under Panama Law the registration of a general power of attorney.

The First Superior Tribunal of Justice decided an appeal by stating that a deed containing a power of attorney granted between individuals to manage a property (excluding its sale or encumbrance) did not need to be registered because 

“said power limits its representation to matters and acts related with [a specific property in one building] and not to all matters of the grantor, and as consequence of which we can conclude that its registration in the Public Registry is not a requirement for its validity, since it is not a general power of attorney in the terms of the Law”  (Decision of August 30, 1991, IHMojica v JOvadia et al, quoted in Jaime Jovane, Jurisprudencia Civil al Dia, Panama, 1993, 419-420)

In the end, an attorney qualified in the jurisdiction of the corporation and another where the power of attorney will be used must examine all corporate and attorney documents to make a determination on how to proceed.

For more information see:

Legispan law database  http://www.asambl ea.gob.pa/main/LegispanMenu/Legispan.aspx

Infojuridica law database http://infojuridica.proc uraduria-admon.gob.pa

Judiciary database http://www.organojudicial.gob.pa

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Lombardi Aguilar Attorney Discusses Restrictions on Bearer Shares

Business Law Attorney Alvaro Aguilar’s Radio Interview Addresses Concerns and Impact of Impending Legal Action on the Financial Center

FOR IMMEDIATE RELEASE

Panama City

PRLog (Press Release) - Nov. 15, 2012 - Attorney Alvaro Aguilar, partner at Lombardi Aguilar Group, said that Panama incorporators have in place know-your-customer laws which do not exist in the U.S. and European countries which deem the Isthmus as an “uncooperative” jurisdiction. Aguilar was recently interviewed on Omega Stereo www.omegastereo.com about a recent study by Australian university professor Jason Sharman comparing Panama's due diligence system for incorporations with those of Organization of Economic Cooperation and Development (OECD) member states.

“Since the 1930s Panama has stood out as an international financial and logistical center, in the face of larger centers such as London and New York”, said Aguilar, who specializes in formation of corporations, trusts and foundations for business purposes. “The contradiction that more than half of the OECD members are allowed to have bearer shares, some with immobilization, has no other motive than to slowly erode the competitiveness of a financial center which has always been independent.”

Aguilar reminded listeners the circumstances under which the Panama corporate system originated in the 1930s. When totalitarian countries threatened Europe, Ships owned by Panama companies were leased by the then neutral US to assist the United Kingdom in its war effort. Other companies owned Panama-flag ships used to take Jewish refugees to the territory of Palestine. "Bearer shares of said companies were an element in choosing Panama for said operations" said Aguilar.  He mentioned several cases in Eastern Europe and Latin America of businessmen in currently using Panama companies with bearer shares to shelter from authoritarian regimes the personal assets they have earned.

According to the Sharman study, "available evidence strongly suggests that Panama is significantly more compliant with international beneficial ownership standards than many OECD countries, especially the United States". 20 out of 34 OECD countries allow bearer shares, and have not immobilised them, including important financial centers like the UK.   Panama is not a member of the OECD.  Aguilar also pointed out that the England and the U.S. state of Wyoming have business entities authorized by law to issue bearer scrip and bearer share warrants without being surrendered for immobilization.

A plan for immobilization of bearer shares of Panama companies has been opposed by the University of Panama School of Law and several local practitioners.

Mr. Aguilar is a graduate of Universidad Santa Maria la Antigua (LLB) and Washington College of Law at The American University (LLM) International Trade & Banking program. Previously he has been selected by the Central American business weekly CAPITAL FINANCIERO as one of the "40 under 40" acknowledging to his achievements as a young legal professional. He specializes in corporation law and trust & estates matters.

About Lombardi Aguilar Group

Lombardi Aguilar Group is a partnership of consultants created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the Alliance Francaise, the German and the American Chambers of Commerce (AMCHAM) of Panama, and the Association of Chinese-Panamanian Professionals (APROCHIPA).

The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, Environmental and Immigration Law as well as related litigation.

For more information, contact +507 6638-8707   +507 396-5080 , e-mail info (at) laglex.com, or see: Lombardi Aguilar Group http://www.laglawyers.com/

Photo:
http://www.prlog.org/12024151/1

http://www.prlog.org/12024151-lombardi-aguilar-attorney-discusses-restrictions-on-bearer-shares.html

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Attorney Discusses Restrictions on Bearer Shares

Lombardi Aguilar Attorney Discusses Restrictions on Bearer Shares

Attorney Alvaro Aguilar, partner at Lombardi Aguilar Group, said that Panama incorporators have in place know-your-customer laws which do not exist in the U.S. and European countries which deem the Isthmus as an “uncooperative” jurisdiction. Aguilar was recently interviewed on Omega Stereo www.omegastereo.com about a recent study by Australian university professor Jason Sharman comparing Panama's due diligence system for incorporations with those of Organization of Economic Co-operation and Development (OECD) member states.

“Since the 1930s Panama has stood out as an international financial and logistical center, in the face of larger centers such as London and New York”, said Aguilar, who specializes in formation of corporations, trusts and foundations for business purposes. “The contradiction that more than half of the OECD members are allowed to have bearer shares, some with immobilization, has no other motive than to slowly erode the competitiveness of a financial center which has always been independent.”

Aguilar reminded listeners the circumstances under which the Panama corporate system originated in the 1930s. When totalitarian countries threatened Europe, Ships owned by Panama companies were leased by the then neutral US to assist the United Kingdom in its war effort. Other companies owned Panama-flag ships used to take Jewish refugees to the territory of Palestine. "Bearer shares of said companies were an element in choosing Panama for said operations" said Aguilar.  He mentioned several cases in Eastern Europe and Latin America of businessmen in currently using Panama companies with bearer shares to shelter from authoritarian regimes the personal assets they have earned.

According to the Sharman study, "available evidence strongly suggests that Panama is significantly more compliant with international beneficial ownership standards than many OECD countries, especially the United States". 20 out of 34 OECD countries allow bearer shares, and have not immobilised them, including important financial centers like the UK.   Panama is not a member of the OECD.  Aguilar also pointed out that the England and the U.S. state of Wyoming have business entities authorized by law to issue bearer scrip and bearer share warrants without being surrendered for immobilization.

A plan for immobilization of bearer shares of Panama companies has been opposed by the University of Panama School of Law and several local practitioners.

Mr. Aguilar is a graduate of Universidad Santa Maria la Antigua (LLB) and Washington College of Law at The American University (LLM) International Trade & Banking program. Previously he has been selected by the Central American business weekly CAPITAL FINANCIERO as one of the "40 under 40" acknowledging to his achievements as a young legal professional. He specializes in corporation law and trust & estates matters.

About Lombardi Aguilar Group  

Lombardi Aguilar Group is a partnership of consultants created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the Alliance Francaise, the German and the American Chambers of Commerce (AMCHAM) of Panama, and the Association of Chinese-Panamanian Professionals (APROCHIPA).  
The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, Environmental and Immigration Law as well as related litigation.
For more information, contact +507 6638-8707   +507 396-5080, e-mail info (at) laglex.com, or see: Lombardi Aguilar Group http://www.laglawyers.com/

Changes to Panama foundation taxes

The Panamanian government has increased the government tax for Panama Companies and Private Interest Foundations.

Effective May 9, 2012, all new companies must pay US$300 at the moment of incorporation instead of the usual US$250; the annual government tax after the first year remains unchanged at US$300. The first annual tax for Panama Private Interest Foundations increases $100 to US$350 at the moment of incorporation and every year thereafter will increase to US$400 yearly.

All companies that do not pay its annual maintenance fee for two consecutive years will incur on a penalty of US$300.00 in addition to the current penalty of US$50 for each year of non-payment.

Non-profit associations, Unlimited Liability Companies and unregistered Trusts will continue to be exempt from the flat tax. All entities will continue to be exempt of Panama income tax on transactions sourced outside of Panama and interest earned from bank accounts.

These changes do not affect our rates for Resident Agents and Independent Directors. Other options can also be provided from Belize and other jurisdictions at competitive rates.

For further information regarding these changes please contact us or download here a free brochure with additional information.

About Lombardi Aguilar Group

Lombardi Aguilar Group was created as an alternative for clients worldwide who seek fast, innovative and effective solutions to their legal problems. The firm currently provides services to individual and corporate clients in Panama as well in the Americas, Europe and Asia. Its partners maintain a commitment with professional ethics and social responsibility by participating in the board of directors of groups such as the Panama Bar Association, the German Chamber of Commerce, the American Chamber of Commerce (AMCHAM) of Panama and the Association of Chinese-Panamanian Professionals.

The firm centers its law practice in private client services and asset protection (Private Interest Foundations, Trusts), business structures (Offshore Corporations), tax planning, real estate and e-commerce. It also advices in areas of Law such as Corporate, Commercial, Intellectual Property, Maritime, Tax, and Immigration Law as well as related litigation.

For more information, contact +507 340-6444, e-mail aaguilar (at) laglex.com, or visit: Lombardi Aguilar Group http://www.laglex.com/

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