October 31, 2015
Buying within a Sociedad Anonima shields the party from legal suit.
What this can mean is that the person that the innocent party was negotiating with, the one they met, got to know, and shook hands with, is never seen after the document is signed. That person is was quickly replaced by a powerful Panamanian lawyer, who is the agent or officier for that corporation.
This can be fine, as long as everything goes smoothly. However, if there are some disagreements down the road, or if the intent from the start was to defraud, the innocent expat will discover that he/she is at a tremendous disadvantage, as an individual when facing off against a Panamanian corporation.
Our advice to expats is simply this: Don’t ever sign any documents for purchase or for sale with an anonymous corporation, or with a buyer or seller who has plans to transfer documents to a corporation before all payments have been made, received, and signed that individual.
You do not ever (never, ever) want to find yourself in court, as an individual, facing charges, or trying to seek damages against a corporation.
The person you thought you were doing business with may disappear completely, or they may claim that they have never met you, don’t know what you are talking about, and that everything you are saying is untrue. That person could even sue you for slander for accusing them of something that is absolutely true. Then you’d be involved in two separate lawsuits.
Meanwhile, the seller, or his corporation, may be represented by one of the wealthiest, best-connected lawyers in Panama. A lawyer who may be working overtime to cheat you out of every cent you have invested in Panama. This is not a pleasant prospect.
Never sign a contract with a Panamanian corporation. This is a risk that you do not have to take. Instead, do the following: If there is a property that you are interested in, and it is being held by a Panamanian corporation, have the owner sell it to himself first. Then he can sell it to you.
At least this way you are both being completely transparent, and you face the same risks. This “leveling of the playing field” will keep your business dealings much friendlier. If the seller, or buyer, is unwilling to transfer the property to himself first, he probably wasn’t someone that you should be doing business with. You are better off. Let someone else take the risk.
Many expats are encouraged to establish their own corporations in Panama, even if only to create an umbrella agency for managing their home, their car, any investment properties, etc. The notion is that this is the best way to safeguard oneself, and one's family, from legal repercussions in the event of some unseen “event” in which they might be found legally at fault, and be sued in court. I think that this notion is promoted primarily by Panamanian lawyers, who are always looking for another way to charge expats a couple of grand. Our family does own a couple of corporations in Panama. But we do not see them as the absolute safeguard that others may.
The notion of running one’s entire life in Panama as if you are actually just a mere shareholder in a corporation, instead of an individual, has been touted as the best way to stay out of trouble. This is certainly the idea behind corporations in the US. We all know stories of friends or acquaintances in the US who have lost their shirts investing with an LLC that declared bankruptcy. Meanwhile, the actual people involved in the corporation didn’t lose a penny of their own assets.
Here in Panama, the formation of private corporations has been taken one step further. Unscrupulous US citizens, drug dealers, and smugglers have historically been able to hide the movement of their assets behind a “front” of their various corporations, in an attempt to defraud the Internal Revenue Service.
I cannot say how effective this has been for all investors who follow this practice. However, since Panama is such a small country, and since news travels so quickly here by word of mouth, as well as by internet, it is really quite easy to see which expats are managing their real estate portfolios, in particular, under the name of one or more corporations. There is one investor in our town who has each of his numerous properties registered as a separate corporation. I seriously doubt if this will decrease his tax liability in the US. In fact, I wouldn’t be surprised if any his attempt of his to do so, landed him in jail.
It is no secret that the IRS has recently increased its scrutiny of US expats living in Panama and in other nations considered to be “tax havens”. It is just a matter of time before tax evaders are found out, and brought to justice in the US. In fact, there have been reports of unscrupulous Panamanian lawyers actually turning in their own clients to the IRS for a hefty reward. If part of your interest in investing in Panama is to evade paying your US tax bill, our opinion is that this is a very risky proposition.
For more information on related topics, check out these posts:
