Corporate bank account in Panama: opening and operating

Corporate bank account in Panama: opening and operating

Opening Corporate bank accounts in Panama

Last week, our post dealt with opening personal bank accounts in Panama. This week, we will look at how to open a corporate bank account. It is important to note that there is a difference between locally operating companies and offshore corporations, especially in the banking industry. Some banks in Panama will only open accounts for corporations with an “aviso de operación” – business license. That is a company that operates locally and is subject to local taxes. On the other hand, some banks will only open accounts for offshore companies. It is no longer easy to find banks that are working with both onshore and offshore business.

Among the issues that banks consider are:

  • FATCA compliance
  • Cost of Know Your Client and Due Diligence
  • Profile of the account – will the bank make money?
  • Is this type of business in the normal line of business of the bank?
  • How much money will pass through the account versus how much money will stay in the account?

Requirements: opening a corporate bank account

Many of the requirements for a corporate bank account are similar to those requested for the personal bank account. But in the case of a corporate account, the bank will want all documentation taking it back to the controlling interest or ultimate beneficial owner.

Keep it simple:

Imagine, for a moment, the following structure:

UBO, corporate structure, ultimate beneficial owner, know your client, asset protection, shareholder, directors, officers, account signatory, beneficial owner, beneficiary, controlling interest, controlling person, decision makers

While this may look really “pretty” from the perspective of asset protection or estate planning, it is a nightmare for the compliance officer at the bank. Supposing that you are opening an account for the Panama corporation under the holding company, the bank needs to receive documentation for:

  1. Your Panama corporation – each one of the three directors, the account signatories, and the copies of the corporate documents;
  2. The share register that shows who “owns” the company – a holding company. Now they need the corporate documents for the holding company, with the due diligence and know your client details for each of the directors, shareholders, and officers of this company.
  3. The shareholder of the holding company: a foundation. They need the incorporation documents of the foundation, the details of each member of the Foundation Council, the Protector and possibly even the founder.  And they still haven’t arrived back at the Ultimate Beneficial Owner.
  4. The bank ultimately wants to know:
  • who has the controlling interest?
    • which person is calling the shots?
    • who is the decision, maker?

In conclusion, for the bank: simple is always better. Your asset protection or estate planning needs can be taken into account, but you should be able to explain the structure easily to the customer services representative at the bank.

In a corporate structure with multiple shareholders, you will need to provide know your client details for any shareholder or controlling person holding over 10%. Additionally, if the shareholder or holding company is a publicly traded entity, expect to provide proof of this. Make sure you have the proper authorization for establishing the subsidiary (resolutions) and authorized persons on the account.

Basic account opening requirements:

So, ignoring the complicated structure outlined above, what does the bank require?

  1. Corporate account opening forms (the bank will supply). There may be some 6-10 pages which need to be completed.
  2. Copies of your incorporation documents: articles of incorporation, resolutions.
  3. Copy of the share register
  4. Extract from the public registry – known by many as a Certificate of Good Standing
  5. Business plan – the banks are looking for something that shows what the company will be doing. Who will be the suppliers to the company? Similarly, what customers will the company have?
  6. If the company has been in existence for more than one year: financial statements and/or accounting records.
  7. Source of funds for the initial deposit and trade projections (usually provided in the actual account opening forms)
  8. Documentation (such as that provided for the personal account) for each person associated with the corporation:
    1. directors
    2. account signatories
    3. shareholders / beneficial owners / controlling interests
  9. FATCA forms – W8Ben, W8Ben-E, W9 – depending on the situation

The documents will vary depending on the bank that you choose to open the corporate bank account, but the above list and those indicated on the personal bank account page are pretty comprehensive of what is usually expected.

Factors to consider:

Once again, when choosing the bank there are a number of factors that you should consider:

  • Language(s):
    • at the bank – your customer service representatives
    • in the call center – is there a special number for English?
    • what about their online system?
  • Online banking platform
    • Is it easy to use?
    • Does it have a good security system?
    • Do you need an App on your mobile phone, a token or how are passcodes generated?
  • What are the minimum deposit / minimum balance requirements of the bank?
    • What are your cash flow requirements?

Our office is happy to assist you with your corporate bank account needs in Panama. We are also able to offer banking options in other jurisdictions. In some cases, banks in other jurisdictions are easier to work with and offer a wider range of currencies and opportunities.  Beth Gray is experienced with local and international business companies, especially the aspects of tax compliance and reporting. Betsy Moran is experienced with compliance issues, especially the AML guidelines. Joan Villanueva can assist with any relocation inquiries that you may have. Do not hesitate to contact us for more information regarding your corporate or business needs.

Personal bank account in Panama: opening requirements

Personal bank account in Panama: opening requirements

While you don’t need a personal bank account in Panama to live here, it may lower transaction prices and make paying bills easier.

Reasons to set up a personal bank account

Many expats have differing views on whether or not you need to open a personal bank account. If you have an account in USD, it may make little difference in the bank charges. In other currencies, the bank charges could be high and might be reason enough to set up your account here.

Another reason for setting up a personal bank account in Panama is to apply for the friendly nations visa. One requirement is that you have a personal account with no less than a mid-four figure balance. You should deposit at least USD$5,000 in the account, then.  The friendly nations visa will provide you with permanent residency, It also provides a work permit (depending on which application you make). And it allows you to eventually naturalize as a Panamanian (if having a second passport is your goal).

Paying bills online: many of the banks will allow you to pay bills online, although this is not for all utilities companies. Some still requirement payment at their office or through an approved intermediary. You can also pay your personal taxes online through some banks (such as income tax or property taxes).

Requirements: personal bank account

The requirements vary slightly from bank to bank. Nonetheless, the general requirements are the same:

  • Complete the bank account application forms, all of them
  • Your passport (the bank will make its own copy)
  • 2nd ID – such as driver’s license
  • Professional reference letter – such as from a lawyer / accountant / company you have done work with
  • Banking reference – they are looking for proof of a banking relationship of more than 2-3 years
    • If you don’t have a “bank account” but have a credit union account, this will usually work
    • They may accept an investment account letter instead of a “bank”
  • Minimum opening deposit: $1,000.00 (some banks do require less)
  • Minimum balance:
    • checking: usually somewhere between $250.00 to $1,000.00
    • savings: usually somewhere between $500.00 to $1,000.00

The forms ask for proof of source of funds: the bank is interested in knowing how you support yourself financially and where they should expect to receive income from.

If you are applying for your friendly nations visa through our office, we would be happy to accompany you to the bank for your initial interview.

Choosing a bank:

Consider the following when choosing where to apply for your personal bank account:

  1. Where you live and branches that you have close by
  2. Online banking – which ones have their website in English
  3. What online banking services do they offer?
  4. Do you / your friend / the company you work for already have a relationship with the bank?
  5. Expat opinions regarding customer service – you will be able to find complaints against every bank, but some are worse than others
  6. What is their online security platform? Will you need a widget in order to pay bills and make transfers?
  7. Number of ATM machines available in your area of town if you like to get cash out

For more information, do not hesitate to contact our office for assistance.



Non Profit supervision in Panama: AML standards

Non Profit supervision in Panama: AML standards

Non Profit supervision: fighting money laundering

The OECD insisted, in reports on Panama’s financial center, that Panama tighten the Non Profit regulations and oversight. As a result, Executive Decree 62 (2017) regulates the creation and supervision of Non Profit organisations.  We previously dealt with setting up a Non Profit, so here I will outline the provisions regarding Non Profit supervision.

Who supervises?

The Executive Decree establishes a special deparment in the Ministry of Government. At this time,  “Department of OSFL Supervision, Follow Up & Evaluation” is part of the Legal Matters and Applications Department .  We will refer to this department as the OSFL-SFE Department.

OSFL = Organizaciones Sin Fines de Lucro = Non Profit Organizations

What are their powers?

The OSFL-SFE has 2 principal powers and objectives:

  1. Permanant risk analysis of all OSFLs legally recognised by the Ministry of Government
  2. Control mechanisms to minimise risk and follow up on the OSFL, to ensure compliance with all applicable laws

What are they supposed to do?

Consequently, the OSFL-SFE:

  • Maintains risk reports regarding OSFL’s in Panama
  • Requires reports on the funding of Non Profit entities and verify the information provided to them
  • Checks on the funding received, generated or transferred by Non Profits
  • They may report any suspicious activity to the Unidad de Analisis Financiera (the Financial Analysis Unit).

The OSFL-SFE has the following powers:

  1. Require whatever documentation they consider will allow them to supervise, follow up and evaluate OSFLs
  2. Inspect the books, records and documents of the administration, financial management and financing of the Non Profits under their supervision
  3. Request that the legal representative of any Non Profit present documents as needed for these 2 purposes

Additionally, the OSFL-SFE may visit the premises or offices of a Non Profit organization.

What should your Non Profit do?

You must keep accurate accounts, books and records of all donations received, funds raised and donations made from your Non Profit to another. At the end of each year, you report to the Tax Department 2 things:

  • Expenses: this allows the tax department to verify this information against the income tax returns of service providers and cross-check the information
  • Donations received and details of the donors – this is cross-checked against those who are claiming tax deductible donations

Consequently, your Non Profit organisation must keep update records:

  • File any change of Board of Directors at the Public Registry;
  • Update your membership records each year with any changes;
  • If your bylaws are out-dated, then you need to assign a committee to review them and bring them into compliance with new regulations and laws. Once reviewed, present the proposed changes to your General Assembly to modify your Statutes or Bylaws as appropriate. These changes must then be approved by the Ministry of Government, before they can be filed at the Public Registry.

Although it is published in Spanish, the full regulation on Non Profit supervision and organisations can be found in Gazette #28249-A.

For more information and assistance in establishing or managing your Non Profit organization please contact Betsy Moran.

Property taxes – Panama Real Estate

Property taxes – Panama Real Estate

Property Taxes: Types

When you are thinking about retiring, the last thing you want to deal with are the details. But the devil is in the details, and one of the details you need to clearly understand is property taxes in Panama.  There are a number of property taxes in Panama, but the principal ones that you need to be aware of are:

  • Annual property tax
    • land tax
    • improvements tax – or tax exemptions
  • Transfer Tax (2%)
  • Capital Gains Tax

Annual Property Taxes – Land Tax & Improvements

Whether you own an apartment or a house, you need to know what taxes are going to be charged by the Panamanian DGI (Dirección General de Ingresos) each year. We recommend that before you buy, you ask the sellers for the tax statements so that you can see the history of what they have paid each year. You should also ask what is tax exempt and when the tax exemption runs out. As I said above, the annual property tax has two parts:

  1. land tax
  2. improvements tax or tax exemption

The land tax

There is a difference between owning a condo and owning a house. The property taxes are the following:

  • Condominium: you will pay 1% of your proportional value of the land under the building.  Say the land is worth $1,000,000 and there are 84 apartments in the building: you are responsible for $11,904.76 in land value. Your 1% per annum is: $119.05.  Whatever the value of your assigned piece of the land, your tax rate will always be 1%.
  • House – land taxes: This is a little more complicated! The first $30,000.00 in value is exempt from taxes. Then the following rates apply:
    • 1.75% = $30,000 < and up to $50,000.00
    • 1,95% = $50,000 < and up to $75,000.00
    • 2.1% anything over $75,000.00
    • So, if the land value of your property is $85,000.00 you will pay: $0.00 on the value between $0.00 to $30,000.00; 1.75% on $20,000.00; 1.95% on $25,000 and 2.1% on $10,000.00. Which is about $1,050.00 per annum in property taxes.

What you need to look out for is cases, which I have seen, where the previous owner, in order to get a reduction in 2005 or so on their capital gains tax, did a property appraisal and pushed the value of the land up over $250,000.00, and at these rates, the property taxes each year are about $4,500.00! This means that you will pay in April, August & December about $1,500.00 in property taxes.

Improvements Tax or Tax Exemptions

The other part of the equation in calculating your property taxes is the tax on the improvements. There are many properties that have a 20-year tax exemption on the improvements, and so for now you only have to pay the land taxes. But the questions to consider are:

  • Are the improvements exempt?
  • If so, when the tax exemption expire?
  • What is the tax rate after the exemption expires?

So, if you purchased an apartment in a building that was built in 1996, the 20-year tax exemption would already have ended and you would need to pay property taxes on the land and the apartment itself. That is why you find so many people prefer the new buildings, even though the older buildings are much more spacious and possibly better construction (depending on the building and the year of construction).

Sale of a Property: taxes due

When you go to sell a property, there are 2 taxes which need to be paid:

  1. Land transfer tax
  2. Capital Gainst tax

Land Transfer Tax:

The land transfer tax is based on 2% of the higher of the two values:

  • the tax basis value in the DGI system
  • the sale price value

The Tax Department always wins – they will collect on the higher value!

Capital Gains Tax:

The 2nd tax payable at the time of the sale is the Capital Gains Tax:  10% of the value of the gain.

BUT… and as everyone says, when you see the word “but” just ignore everything you heard before the word: the tax department requires you to prepay an estimated 3% tax on the value of the sale to cover your capital gains tax.

  • Your purchase price: $270,000.00
  • Your sale price: $320,000.00
  • Your gain: $50,000.00
  • 10% of the gain: $5,000.00
  • 3% value of the sale: $9,600.00

At the time of the sale, you will pay the tax department $9,600.00 in Capital Gains Tax.  As you look at this, you might think “that’s unfair!”, but your only option is to ensure that your lawyer does the paperwork right and requests a refund of the overpayment of the capital gains tax! This process is some 3-4 years long – and some clients simply walk away.  The Tax Department pockets the difference.

On the other hand, if you made a large gain, there is a box that you can tick, stating that this is your “final return” on the transaction, and that is the complete amount of capital gains tax that you owe. You should review these numbers carefully with your realtor or the lawyer that is handling the closing for you.

For more information regarding your property purchase or sale in Panama, please contact Joan Villanueva in our office.

Other Property Tax issues:

There are more issues to consider regarding property taxes, such as filing your Declaration of Improvements (if you just finished building a house on a lot), presenting a request for a tax exemption (if the builder did not request the exemption from the tax department), and other similar issues, but we will deal with them in another article.