Inheritance Tax in Panama

Information on inheritance rights and tax, inheritance law and PPIFs...

Inheritance laws apply to citizens and non-citizens alike, provided their permanent residence is in Panama. Inheritance is not taxed, and the testator is free to distribute their estate as they see fit. If no will exists, the estate is divided amongst spouse, children and parents as per Panamanian law.

Many people in Panama choose to set up a Panama Private Interest Foundation (PPIF) as a method of asset protection. This is largely used for estate planning. The foundation will essentially take possession of the person's assets, such as property, stocks, bonds and companies, but cannot engage in any business activity.

The foundation has a founder, protector, beneficiary and council members, but cannot have an owner. The PPIF is basically a civil law version of a trust (which is generally common law). This would be in addition to a will and would protect the testator's assets both in life and death. A "Letter of Wishes" may be written by the founder of the foundation to detail how the property should be distributed or handled after the death of the founder. This is similar to, but does not replace, a will.

Benefits of a PPIF

There are several benefits to having a PPIF:

  • As PPIFs have no owners, the assets cannot be claimed by any of its managers; founder, council members, protector or beneficiaries
  • The assets in a PPIF are non-freezable - there may be exceptions if the PPIF is younger than three years old, but after three years this is absolute
  • Foundations can help family members, according to the protector's guidelines. There are no forced heirship rules
  • It can collect royalties. No taxes will be accrued on foreign earned income (outside of Panama)
  • PPIFs are exempt from local bank interest taxes.
Information supplied by Law Offices Rainelda Mata-Kelly At: Suite 406-407, Tower B, Torres de las Americas, Punta Pacifica, City of Panama Postal Address: P.O. Box 0818-00534, Panama City, Republic of Panama Tel: (+507) 216 9299