Guidelines on Panama's Substantive Law on Trusts

The first trust law in Panama was adopted in the 1940’s, based on the common law Trust. However, new provisions on trusts were enacted by means of Law No. 1 of January 5th, 1984, to complement other legal instruments and benefits provided by Panama to the international financial community. Also, new modifications were enacted by means of Law No. 21 of May 10th, 2017.

This legislation introduced modern concepts to update the former law on trusts in order to make them more flexible and convenient to foreigners who were searching for a place to execute a trust overseas.

The most important features of the Panamanian trust are:

Liberty of Bargaining: The trust can contain any lawful clause as the needs of the trustor may require. According to articles 5 and 9 of Law No. 1, the trust may be created for any purpose provided it is not contrary to the law or public policy.

The trust agreement must contain: (Modified by Law No. 21 of May 10th, 2017)

-The identification of the trustor, the fiduciary and beneficiaries, if any.

-Purpose of the Trust.

-The description of the goods to be assigned by the trustor to the trustee as part the assets of the trust.

-The express declaration of the trustor to create the trust and the indication of whether it will be revocable or not. If nothing is said in the trust agreement, it shall be considered as irrevocable.

-The rights and duties of the trustor and trustee.

-The conditions for the administration, delivery of goods, yields and liquidation of the trust.

-The appointment of a Resident Agent who must be a lawyer or law firm, who shall sign the trust agreement.

-The domicile of the trust.

-An express declaration that the trust is executed according to the Panamanian law on trust and that it is subject to the jurisdiction of Panama.

Private Document and Simple Execution: The trust is a private agreement entered into by the trustor and the trustee, with the only formality that the signature of trustor and trustee must be authenticated by a Notary Public and signed by the Resident Agent, so confidentiality is guaranteed. It is not necessary that the trust be executed in a public deed or be registered in any public register unless real property located in Panama is given in trust.

Duration: The trust is not perpetual unless so is stated by the trustor in the trust. The trust should have its duration expressly stated. Also, it may be revocable or terminated before its expiration if it is so provided by the trustor in the trust agreement.

Corporations may be used as Trustor s, Trustee and Beneficiaries: The trustor, the trustee and/or beneficiary may be a corporation. They do not need to be individuals.

Special Tax Benefits: To be consistent with the tax principles already mentioned, Law No.1 expressly states that the acts of executing, modifying and terminating a trust as well as the transfer, conveyance or encumbrance of trust funds and the income or interest produced by the assets and properties given in trust are exempt from all taxes, contributions, assessments or encumbrances, provided the trust involves the following assets:

-Properties or assets located abroad;

-Funds that are not from Panamanian source or subject to taxes in Panama;

-Shares of stocks or securities of any kind, issued by corporations whose income is not produced in Panama, even though those shares or securities may be deposited in Panama;

-Time deposits or savings accounts kept in banks located in Panama.

The previous tax limitation will not be applicable when the trust funds are invested in housing projects or the development of industrial parks in Panama, in which cases the income earned in those commercial operations will be tax free.

Separate Estate: The assets of the trust shall constitute an estate separate from the assets of the trustee. Therefore, they cannot be attached, seized or subject to any lien as a result of obligations of the trustee. The assets of the trust only answer for liabilities of the trust itself.

Assets Subject to Trust: The trust fund may consist of properties or assets of any kind, present or future. The trustor may increase or add other assets to the trust fund after the execution of the trust.

Applicability of Foreign Law and Jurisdiction: Although the trust shall be regulated by Panamanian law, the trustor and the trustee may agree that foreign law will be applicable. Also, the trust and the trust fund may be transferred to another jurisdiction or country.

Trust of other Jurisdictions: Trusts created pursuant to foreign law may be governed by Panamanian law provided they are subject to the formalities of the law on trusts.

Trustee: The trustee can be any person, either an individual or a corporation duly authorized by law. Also, the trustor may replace the trustee if so provided in the trust agreement.

Resident Agent: All trust executed according to and regulated by the Panamanian law on trust must have a Resident Agent who must be a lawyer or a law firm. The only duty of the Resident Agent by law is to sign the trust agreement in order to be effective. The Resident Agent cannot receive notices on behalf of or by the parties to the Trust Agreement, nor can he bind the Trust.

These are the most relevant features that have made the Panamanian trust one of the most secured and useful trusts in the Western Hemisphere.


Eduardo Molino

Senior Partner

Juan Pablo F√°brega Polleri

Senior Partner

Related practices