EpiphyCorp

The Panamanian Corporations (Stock companies) are currently one of the most used risk control tools in planning and executing international businesses, since they restrict the responsibility of their shareholders, as well as protect their privacy.

However, there is another aspect that has caused the Panamanian Corporations to occupy a prevailing role in the international businesses and it is the Panamanian Tax Legislation in force, which regulates the businesses that a Panamanian Corporation fulfills in foreign countries.

It is of vital importance to understand all the benefits offered by structuring an international business through a Panamanian Corporation and to know that the Panamanian Fiscal Laws that rule the Corporations in relation to their taxable income are of territorial character.

When pointing out that the Panamanian tax laws are of territorial character, it is understood that all economic activities fulfilled by a Panamanian Corporation outside of its territory, or off its shores, from here the term OFFSHORE, according to this principle, is not subject to payment of any type of tax or appraisal within the Republic of Panama.

We see then, that the term OFFSHORE DOES NOT indicate a type of Corporation, since only exists one type of Panamanian Corporation; the term refers to the place where the commercial activity is fulfilled with a Panamanian Corporation, which when it is done outside the Panamanian territory, it is considered exempt from payment of income tax.

This principle of territoriality is found in Article 694 and subsequent Articles of the Fiscal Code of the Republic of Panama, and even though the same has suffered several modifications through the years, the principle of territoriality always has endured.

The principle of territoriality of the Panamanian Fiscal Laws, represent an advantage to the shareholders of a Corporation, because when fulfilling international businesses, or fulfilling commercial activities in a country different from Panama through the Corporation, these businesses can receive income through the Corporation, without being affected by fiscal burden, and can even receive such income in banking accounts in Panama and redistribute them to its country of origin without having to fulfill any type of tax retention.

One special consideration that anyone interested in using a Panamanian Corporation in OFFSHORE activities should take, is consulting the legislation in force in the country where the business will take place, since with regard to the identity protection of the owners of the Panamanian Corporations, some countries have restrictions to certain commercial activities in regard to what type of persons can fulfill them (excluding in some cases, the Corporations from some countries like Panama, Belize, BVI, Luxemburg and other legislations where the principle of confidentiality and territoriality rule).

Tags: corporations, fiscal, ibc, offshore, Tax