Offshore Company Formation: A Case Study to its Benefits

David has a company in his country of residency (we will call this country C1). His company buys raw material in China (wholesale) and sells this material to clients in C1.  David has been doing this for more than 10 years.  After several negotiations he reaches a deal with a client located outside this country of residency C1. This client is located in C2 and agrees to buy $100,000.00 (US Dollars) worth of merchandise from David´s Company on a monthly basis.

David understands that his company is growing. His clients are no longer in C1 only, but he is also expanding his business globally to C2 and has plans to expand to other countries. He considers the possibility of establishing a subsidiary of this company in a country like Panama. He chooses Panama for the following reasons:

1. Strategic Geographical Positions; Panama is located in the middle of Central America and is considered as the Hub of Central America.
2. Panama has the Colon Trade Free Zone. This gives David the possibility to receive the merchandise from China into a free trade space zone located in Colon City. This way, if the merchandise is not sold inside Panama (meaning that it is not nationalized) and the only purpose of receiving the merchandise is to re-export outside Panama; David will not have to pay any importation, exportation or income taxes.
3. Panamanian Offshore Companies also known as “Sociedades Anonimas” have a very well reputation worldwide. The law that regulates them has not changed since 1927. Panamanian Offshore Companies provide a degree of protection and anonymity that few other jurisdictions do.  Bearer shares are permitted, meaning that the transferring of shares is very simple.
4. Panama has many tax and legal incentives; the company can issue invoices from Panama but it will not have to pay any capital gain taxes if the activity is carried out overseas.
5. Panama has one of the most well established Financial Centers in Latin America.  The economy is stable and reliable.

After considering all these aspects very carefully, David decides to contact a Law Firm in Panama which advises him with the best way to structure his Panamanian Offshore Company.

David contacts Delvalle & Delvalle Law Firm and flies to Panama to meet his new lawyers in person.  A lawyer is designated to David’s case, which explains in detail the legal and accurate way of structuring his Offshore Business.

The following structure is made with the specific considerations:

1. The incorporation of Panamanian Offshore Company.  Because David wants to preserve his anonymity, he chooses the option of appointing nominee directors to his company, meaning that members of Delvalle & Delvalle Law Firm will take up the positions of the board of directors. As a result, David’s name or any person related directly to him will not be disclosed in the Articles of Incorporation of the Company, which is a public document.

Powers of Attorney is granted to David in a private document so he can open bank accounts and do business on behalf of the Company.

1. David wants to preserve this anonymity and also be able to transfer the shares in a secure and uncomplicated way to his wife and children in case something happens to him. He considers the possibility of choosing bearer shares. The lawyer presents him another option; instead of choosing bearer shares, the company can issue nominative shares and appoint as the holder Panamanian Private Interest Foundation also known as PIF. This will provide David the following advantages:

• He will not be the direct owner of the Panamanian Offshore Company meaning that this will give him an extra layer of protection and make him less vulnerable to liabilities.
• Nominative shares are more secure than bearer shares because the actual name of the shareholder appears on the share certificate (This document is 100% private).
• Because David is not looking to transfer his shares to other third parties other than to his wife and children in the future, the lawyer advises him that a Panamanian Private Interest Foundation (PIF) is the best legal vehicle to do this.
• Panamanian Interest Private Foundations (PIF) regulations are based on the strictest legal principles of confidentiality and protection of patrimony.
• A document named Foundation Regulations also known as Foundation Wishes is created. This document is very similar to a will. This way David can legally state that he will be the sole beneficial owner of the Panamanian Private Interest Foundation (PIF). Under this, he can legally transfer all assets to his wife, appointing her as secondary beneficiary and to his children.

Once the structure is finalized and set up, David is taken by Delvalle & Delvalle Law Firm to one of the most prestigious Banks in Panama for an in-person interview. David was very pleased with the bank services and he is glad to establish the corporate account for his Panamanian Offshore Company through Delvalle & Delvalle Law Firm because this saves him a lot of time. He is confident that the account will be approved without any inconveniences. He can return to this home country without worry.

David flies back home the next day.  In a couple of weeks we will have everything ready to start operating with his new company.  By doing all of this he has the following benefits:

1. He now owns an Offshore Company in a country like Panama meaning that he expanded his business globally.
2. He will split his business in 2 ways; His Company from C1 will still issue invoices to his clients in C1 and the Panamanian Offshore Company will issue invoices to his clients overseas.
3. Because Panama uses the US Dollar as his official currency now he can pay to his providers in China without having to make any currency exchanges. He can also receive payments from his clients directly in US Dollars, thus saving him a lot of money.
4. All income generated outside Panama is tax exempt, regardless if the income is located in a Panama Bank and under a Panamanian Offshore Company, meaning that he will not have to pay any income taxes in Panama. Interests earned from his Bank Accounts are also exempt.
5. David will have to pay fewer taxes in C1, because the payments are made directly to his Panamanian Bank Account.
6. Because David divided his business in two; onshore and offshore, there are fewer risks and more options in terms of legal issues (possible legal actions against him or his Companies). He now has deposits in banks from different jurisdictions. As a result, he does not have all his resources tied in one place and he’s able to diversify with fewer risks.
7. According to Panamanian Bank Laws, Banks can not reveal information about the beneficiary/signatory of the account to any person or authority, unless there is a legal process already established in the beneficiary home country, and this legal process is related to money laundering, financial crime or severe tax evasion.  The country will have to establish a proceeding in Panama in order to obtain information, depending if Panama has some kind of agreement with the interested country or not.

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