The term “tax haven” commonly refers to countries whose laws allow for anonymous ownership of legal entities like corporations, private foundations and trusts, as well as limited taxation on specific types of corporations. Tax haven also refers to countries with bank secrecy laws which protect customer’s accounts from being spied on by outsiders. Panama has been referred to as a tax haven country due to its strong bank secrecy laws and anonymous legal entities, including Panama corporations and Panama foundations. However, Panamanian banks are now obligated to provide banking information in certain cases due to the information exchange agreements that are now in place with several countries.
The best tax haven countries are those that have both high banking secrecy and anonymous legal entities. Anonymous ownership of an “offshore” corporation (offshore because it is outside the owner’s home country) can be achieved in several ways. Some tax haven countries allow what are known as “nominee” board of director’s members and corporate officers such as the President, Treasurer, and Secretary. The term “nominee” means that a person is nominated by the corporation to serve in that capacity rather than naming the true owner as a board member or officer for the corporation. Usually an attorney or law firm residing in the “tax haven”, which formed the corporation, supplies three of its employees to serve as the nominees. Some owners may worry that these tax haven nominees could control the corporation. This can be avoided by the corporation’s bylaws dictating their limited role and the power resting with the majority shareholders. Some tax haven law firms even provide the owner with pre-signed, undated letters of resignations from all of the nominees. This allows the owner to be able to replace the nominees at any time. This is in fact what we do for our clients.
Another method used by a few tax haven countries is the usage of “Bearer” stock certificates where the actual stock certificate simply says “bearer” rather than an actual person’s name. This means the bearer of the majority of shares is the true owner of the tax haven corporation. Panama is one of the few remaining bearer shares countries. Hand the bearer shares to a third person and now that person is the owner of the Panama tax haven corporation. Panama recently changed the law requiring that all bearer shares certificates must be held in custody by the corporation’s resident agent.
Panama Tax Benefits
Tax havens are called that because they normally do not impose any type of income or corporation tax on their offshore corporations, private foundations, or trusts. A true tax haven effectively levies a 0% tax rate on offshore corporations. Some tax havens will not tax any income made outside of the country but will tax income derived from the sale of products or services to people or companies residing within the country. This is usually known as “territorial” income subject to taxation. Panama is a territorial income tax country. Other tax havens do not have any taxes on their offshore corporations, foundations, or trusts no matter where their source of income is from.
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