What Was Panama Thinking?
“Why did Panama do it?” was the question on everybody’s mind throughout our Emergency Offshore Summit in Panama City last week.
Here’s the background:
On Nov. 30, Panama and the United States signed a U.S. Tax Information Exchange Agreement (TIEA), granting the IRS the power to request information related to the accounts of any U.S. citizen who has taken advantage of the bank secrecy laws in place until now and deposited money in a bank in this country.
What does this mean?
If you have a bank account in Panama but have been compliant…no worries. If you have declared your account and filed the necessary related forms with the IRS, you should be fine.
If you’ve been considering opening a bank account in Panama as part of an offshore privacy strategy, you may want to reconsider. Banking privacy is not what it once was down here in the Hub of the Americas.
If you’ve been planning to open a bank account in Panama because you intend to live, invest, or do business here, you should proceed. If you need a local operating account, you need a local operating account, the fact that the U.S. IRS can now, in theory, ask the bank about its existence notwithstanding.
Which brings us to an important point. Bank secrecy is one issue. An important one, maybe a critical one for you. But one issue.
A reader wrote last week, the day after the exchange-of-information treaty had been signed, to say, “This treaty, in effect, eliminates Panama as a safe haven. The country gave in to the Marxist IRS and to the socialist U.S government. Now what, Kathleen? Time to move to Andorra?”
I’m as disappointed as the next girl by Panama’s decision to sign this agreement. But we’ve got to keep things in perspective. Panama is no longer a place to seek banking privacy. But it’s still got a lot going for it. More on this in a minute.
First, what was Panama thinking? What’s the benefit for them of signing this agreement?
Two benefits are being floated. First, now that Panama has cooperated with U.S. demands and signed away bank secrecy, chances are good that the U.S. Senate will approve the 2007 U.S.-Panama Free Trade Agreement, a deal very much longed for by Panama business interests.
Second, Panama is now one step closer to having its name moved off the notorious OECD “gray list.”
As the Patriot Act and other laws have abolished any notion of financial privacy in the United States, many Americans have since looked to Panama, especially, as a safe haven, not for tax evasion, but, simply, for a little privacy.
As I’ve said, those days are over.
But should you, as the reader I quote above suggests, write Panama off entirely and move on…say to Andorra?
No. That’d be throwing the retirement haven out with the information treaty.
The fact that Panama’s banks are no longer able to tell the IRS to go jump in the Canal when they inquire about account-holders’ details doesn’t affect the country’s status as a tax haven (this is 100% in-tact). It has no affect on the advantages of starting and running an international business here (Panama remains our #1 doing-business haven).
And it has nothing to do with the experience of living in this country, as a retiree or otherwise.
First World health care, developed infrastructure, services, and amenities in the capital city, an affordable (even dramatically so, depending where in the country you decide to settle) cost of living, eternal summer, the world’s best program of special benefits for retirees, established expat communities, user-friendly options for establishing foreign residency, political stability…
Plus a great diversity of lifestyle options, from cosmopolitan Panama City, with its five-star restaurants, nightclubs, and high-end shopping malls, to cooler climes in Boquete and any kind of beachfront you could be in the market for, from Caribbean to Pacific, island to mainland, developed to untouched.
Panama is a melting pot of cultures and populations, meaning life here is diverse not only geographically but culturally, as well.
And always improving. This little country is making tremendous investments in its future, and the mega public works projects currently under way are keeping the economy buoyant and expanding.
The current president, millionaire businessman Ricardo Martinelli can seemingly do no wrong. He took office in July 2009, and the latest November poll shows him with a combined approval rating 73.1%, a support level for which Barack Obama could only pray.
Bottom line, the sun is still shining, the future still bright.
Come, see for yourself.