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Tax considerations

In Panama, the income tax levies only the income that is generated from operations carried out within the territory of the Republic of Panama or that are generated from an internal source.

The income obtained from operations perfected or executed abroad is not considered as a Panamanian source of income and, therefore, it is not subject to taxes under Panamanian law. In one of the latest tax reforms, carried out through Law 49 of 2009, and Laws 8 and 33 of 2010, the principle of foreign source of revenue was confirmed, while at the same time was restricted to the companies that do not hold a Notice of Operations (“Aviso de Operaciones”) and do not carry out any type of commercial transactions or business activities within Panamanian territory.

Panamanian corporations carrying out commercial activities both inside and outside of Panama, will pay the income tax which corresponds only to the portion of its income that arises from the businesses carried out within Panama. Therefore, commercial activities carried out outside of Panama are exempt from the income tax.

According to the tax reforms carried out by Law 49 of 2009, in cases were a Panamanian corporation is engaged in trade, both inside and outside the Republic of Panama, and has obtained a Notice of Operations in Panama, the payment of its dividends will be taxed depending on their source, that is if it is foreign or Panamanian. For dividends generated from a Panamanian-source activity, a tax rate of ten percent (10%) on registered shares will be applied. On the other hand, in cases were the dividends are generated from a foreign source a tax rate of five percent (5%) will be applied.

Companies that only have a foreign source income are not required to prepare or publish financial statements, nor they will be required to pay any tax or file any type of tax declaration in Panama.

Other considerations

There are no controls or restrictions to foreign currency exchange in Panama; the US dollar circulates freely.

Bank accounts and banking transactions are legally protected based on the principle of confidentiality.

No taxes are paid on interest accrued through bank deposits.

Meetings of shareholders and directors may be held at the most convenient location, either in the Republic of Panama or abroad, and without prior notice, provided that all shareholders or directors are present.

Panamanian law allows participants who have been directly in communication by telephone, fax or other electronic means of communication to be deemed as present in the meetings of the board of directors or shareholders’ meetings. In this case, the record of the meeting should reflect the way in which the participants were deemed “present”.

The accounting records of transactions consummated abroad do not need to be maintained in Panama.

The duration of the company can be perpetual. Nonetheless, a company may also have a fixed term of existence, and it may be dissolved at any time notwithstanding if its duration is perpetual or fixed.

A general or special power of attorney, granted by means of a public deed or by means of a private document, with a certain date, shall have effect in respect to third parties from the date of its granting and may be registered in the Public Registry of Panama.