Panamanian Banking: an Interview With our Expert Partner

Manuel Barrachina is one of them. His vast experience in investments and brokerage in the stock market allows him to provide not only quality services but the ability to create a plan designed especially for each client, both for individuals and companies. He has been an insurance advisor, supervisor of wealth management, broker, and today he is our special guest.

He specializes in services provided in Panama, so on this occasion, we interviewed him to clarify the most common concerns of our readers. Continue reading and discover more about Panama’s excellent banking system.

Q. Thank you very much for accepting this interview, Manuel. We are pleased to have you as an expert partner. Could you tell us more about your experience?

A. I’m glad to be here. Of course, I have been a financial advisor since 1998, when I was part of a brokerage house in Spain, Madrid. My specialty now, thanks to over 20 years of experience, is focused on Forex investments, investment funds, equities, and fixed income markets (such as bonds and corporate debt).

Q. We understand that, after what happened due to the Panama papers, the banks have certain reservations regarding foreigners who wish to open bank accounts in the country. Is this true? Could you explain why?

A. Despite the fact that the media did not at any time demonstrate violations of international law, the Panama papers served to establish rhetoric against Panama. The reality was distorted in such a way that, for months, misinformed people were certain that it was risky to invest in the country (nothing could be further from the truth) with the intention of getting investors from all over the world to withdraw their capital.

Although the attempts to discredit that jurisdiction continued long after the accusations, and even today, we could say that there is some mistrust, the truth is that investment in Panama decreased very little. In fact, Panama receives more than half of the foreign direct investment that is directed towards Central America.

The greatest impact of this fact is that bureaucratic institutions such as the OECD are putting more and more pressure on Panamanian banks, so they are forced to limit the advantages they offer to their beneficiaries.

For example, having a bank account in Panama is now more complicated than it was a few years ago: it is necessary to have the support of experts at the time of application.

Q. Is it necessary for people who want to have a bank account in the country to have a Panamanian residence?

A. As I mentioned before, Panamanian banks have had to give in to the standards of organizations such as the OECD, FATF, and even the European Union.

Thus, it is now necessary to have a residence permit in the country to have a bank account. In addition, it is necessary to have a place of residence, which can be rented or purchased (if acquiring a Panamanian property, the client can obtain a special residence permit such as the economic solvency visa).

Q. In case the person is doing the residency procedure, is there a possibility to open a bank account?

A. It is required to have an identity card (cédula) with confirmation of the availability of the residence. But clients should not worry. Luckily, Panama is one of the countries that offer more variety in terms of residency options, such as the well-known Friendly Nations Visa or Pensionado Visa.

Q. In addition to this document, what are the requirements for opening a bank account?

A. Since there is a lot of pressure from regulatory authorities, banks are being cautious about who they allow to have an account. Therefore, it is crucial to be honest in the application and avoid any inaccuracies or ambiguities, as this could be the reason for denying the account.

Other important documents are: copy of passport (valid), copy of ID from your country, bank reference that is addressed to the bank in question, resume explaining your work experience, certificate of income, explanatory letter to the bank (you must detail what your purpose is with the account and the additional services you will need).

Q. With regard to the legal aspect, we understand that the requirements vary according to the economic activities of each company. For a company engaged in common business activities, what would be the requirements?

A. In this case, a personal interview with the person signing the bank account is required first. The documents include commercial and personal banking references of both the signatories and the shareholders and directors (when they are not non-nominal directors).

In addition, receipt of profits, copy of passport, financial statements, letters explaining the activity of the company, resumes of members, and any support to help demonstrate the legality of the business. Of course, the initial deposit (this will change according to the bank in question).

Q. If it is a foreign company, would this vary?

A. In general, the same requirements apply. The main drawback is that, as it is a foreign company, the signatory client would be forced to move to the country to open the bank account, especially in these times when there is so much pressure on countries offering offshore banking.

However, if a client has the support of an agency such as Mundo, which has many years of experience and an excellent track record, he or she can carry out the process remotely. This requires that the authorized firm has expert lawyers in the country in question, as is the case with Mundo.

Q. Completely right. In the case of trust companies or financial companies, are there additional requirements in banking?

A. For companies that expect to engage in this type of activity, it is mandatory to have the appropriate financial licenses. In Panama, there are several types of licenses, being the most common:

• General banking license, which allows you to operate both inside and outside the territory and grants the possibility of performing any banking activity authorized by Panamanian regulations.
• International banking license, which allows to have operations outside the territory, as long as the client has an establishment within the country.

Q. As for back to back loans, are they used in Panama? Do they have any tax implications?

A. Back to back loans, commonly called cash collateral loans, are directed in Panama to those investors who need to make use of their capital, but without using their investments (by giving a term certificate of deposit as collateral). It is a way of obtaining liquidity practically right away, that’s why it tends to have high-rate interests.

Q. Are there any commercial activities forbidden to banks when opening accounts?

A. No person or business involved in money laundering or terrorist activities will be able to open a bank account in Panama; in fact, no international bank will risk its status to do so.

In this country, there are also certain restrictions for foreign companies: retail, medical, and legal businesses (related to exercise of Law).

Q. And is it possible to have an account for Forex companies, online casinos, or crypto-currency transactions?

A. Yes, as long as the necessary financial licenses are processed. In Panama, it is possible to apply for a license for e-money, gambling, and even investment. This is a service that clients should do with the support of experts since the slightest mistake can mean committing a legal infraction and even losing your business.

Q. Another point that interests our readers is the tax issue, how does this work in the opening of accounts? What is the tax system like?

A. This is one of the great advantages of choosing Panama since, in this country, only territorial taxes are applied. Any company or individual that has its tax residency in the territory will not have to pay any tax on transactions generated abroad.

This means that a client can establish the tax residency of its business in Panama, open a corporate account, and receive payment from international clients, but without having to pay high amounts of money in taxes.

Q. How does Panama handle the FATCA issue regarding foreign accounts?

A. Since 2016, an intergovernmental agreement was approved between Panama and the United States to exercise FATCA (as I mentioned before, this type of organization puts more and more pressure on international banking). Due to this, accounts of US citizens (birth or naturalization), tax residents, and companies incorporated in the territory or when 10% of the company is considered North-American will be reported to the United States.

Q. Is there any other exchange of information at the banking level?

A. The Common Reporting Standard (CRS) also applies to Panama. This is a regime that focuses on the intergovernmental exchange of tax information of beneficiaries.

But this should not worry readers, as it does not mean that Panama has lost its stability or security. It remains one of the most prestigious banking systems in the world, competing even with banks like Switzerland’s.

Furthermore, thanks to the territorial tax system, you can obtain a Panamanian tax residency and, therefore, your bank only has to report to the country of tax residence.

Q. Does the DGI have access to banking information automatically?

A. Not really, it works with specific requests issued by jurisdictions that have tax cooperation agreements. Information may be requested from a taxpayer if he or she is being investigated in another territory.

Q. We understand that many of the Panamanian banks also have part of their group abroad, how does this help?

A. It is very useful, since it facilitates the protection of the clients’ assets because it allows the bank to remain much more stable since it is less exposed to social and political changes. Besides, this allows clients to establish business with other prestigious international markets and diversify their capital.

Q. At the banking level, what are the products that move most in the country?

A. One of the most requested is the brokerage account; since, thanks to it, it is possible to avoid most of the main risks of insolvency or bank collapse. Even if the banks collapse, with an account of this type, it is possible to transfer the securities to other custodians without having to touch the funds. This is a great advantage: customers do not lose the securities.

You could say that the money in your account belongs to the bank, but the securities do not, since the bank would be providing a custodian service for the customers.

Q. And is there a bank trust? How is it handled in terms of costs?

A. Of course, and it's one of the most sought-after in the world. They are irrevocable, members are not required to be Panamanian nationals (or residents), and it must have a contract that dictates the conditions and activities to be carried out. In terms of amounts, it is important to note that there are no minimum capital requirements.

This is a much-used tool since taxes would be levied directly on the trust and not on the trustee.

Q. We know that Panama is a very safe country, but are there safety deposit boxes?

A. As you say, Panama is one of the most peaceful, safe, and stable nations in Latin America. However, this option is available to all customers who wish to obtain extra protection for their valuables. In Panama, these can be used to store a large number of items such as gold, silver, important documents, bond or stock certificates, passwords, collectibles, precious gems, and (of course) cash.

Thank you very much for your time, Manuel. Without a doubt, Panama continues to be the leading jurisdiction in Latin America in terms of its banking system.

Do you have any other questions? Contact us and request our first hour of consultation, totally free. Experts like Manuel will be available to help you and advise you on what you need. Remember that our partners are professionals who have more than 20 years of experience in the field, just what you need to make the right decision.

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