When I first began spending time and money in Panama some 18 years ago, I remember the local attorneys talking to me about the need to put any piece of real estate purchased in Panama into a Panama corporation.
As a rule, that’s how Panamanians hold property in this country. They do it for purposes of asset protection, to keep property ownership details private.
That’s how everyone does it, so that must be the way to do it, right?
At least that’s the thinking among Panamanian attorneys.
So, as explained to me when I began paying attention nearly two decades ago, that’s the advice Panamanian attorneys give to property buyers, including foreign property buyers.
Put your Panama property into a Panama corporation, they tell us… that’s the way it’s done.
Not so fast, dear Panamanian attorney…
Holding a piece of real estate that generates passive income (a rental property, for example) in a Panama corporation creates a tax headache for Americans.
Most Panama attorneys don’t understand that reality, and some I’ve come to know over the years who do understand don’t care. They make money when they sell Panama corporations.
Read my lips: You do not need to hold your Panama property in a Panama corporation. And, if you’re an American, you shouldn’t hold your income-generating Panama property in a Panama corporation.
Those two statements are simple facts.
However, today I’d like to make a further statement… one that I expect to generate considerable backlash.
Today I’d like to go so far as to recommend against a Panama corporation in general. You have better structure options. More on this in a minute.
First, the caveat to this position.
A Panama corporation still makes sense for one agenda. You can use a Panama corporation to establish residency in this country under the Friendly Nations program. This is an efficient program, and forming a Panama corp is an efficient way to qualify.
So go ahead and open a Panama company. Then, as soon as you receive your permanent residency status, ditch the Panama corporation. Keeping it means carrying costs… and, after you’ve qualified for residency, you no longer need it.
The simplest way to close a corporation is to stop paying the annual registration fees. Eventually the government will strike the corporation from the record.
Attorneys understand this as well as I do, but some attorneys in Panama have decided to make shutting down a corporation an additional revenue stream.
A reader sent me a recent exchange with a Panama attorney who had broken down the process of closing a Panama corp into five steps… and then had assigned a charge in each case. A charge for this and a charge for that added up in this case to more than US$3,000.
To terminate a corporation.
That’s more than two times what it should cost to set up a corporation. (For your reference, the total cost of forming a Panama corporation should be less than US$1,500.)
The cost of shutting it down? Again, that should be zero. Just wait it out, and the entity will go away on its own. No effort required… and no cost… certainly nothing like a few thousand dollars.
Attorneys have to make a living like the rest of us, but they shouldn’t be gauging unsuspecting foreigners with unnecessary and invented fees.
That alone, though, isn’t reason not to form a Panama company.
You shouldn’t believe any attorney who tells you that you must hold your Panama real estate in a Panama company. It’s just not true.
It’s not true… but is it a good idea?
No. As I mentioned above, you have better options.
Panama companies have grown more expensive and the requirements associated with owning one more onerous.
All Panama corporations, even those with no activity in Panama, now must file financial statements with their registered agents annually. This new requirement is intended to help increase transparency in the wake of the Panama Papers scandal.
For Panama attorneys, it’s another revenue stream.
Before you start paying your attorney big fees for complying with the new rules, do some comparison shopping. You could always change your registered agent from your current attorney to a new one.
If you don’t have a Panama corporation yet, this new financial filing requirement should have you thinking about other options. The added administration and cost associated now with a Panama corporation make it less attractive.
I’d recommend instead considering Nevis or Belize.
None of this is to say that Panama is no longer an attractive and appealing investment market or offshore jurisdiction. It is both.
I’m all in on Panama. I’m just tired of hearing from readers being over-charged by Panama attorneys.
Lief Simon
