According to article 694 of the Fiscal Code, the income earned by any person, either an individual or a corporation, from sources outside of Panama, is exempt from taxes. Our legislation expressly provides that the following transactions are not subject to income tax in Panama:

- Distributing dividends from income earned by a company when that income is produced or earned abroad.

- Directing or managing, from an office located in Panama, operations and transactions that are executed, completed or take effect abroad.

- Invoicing to a company abroad, from an office located in Panama, the sale of goods for an amount greater than that at which said goods were invoiced to the office located in Panama, provided those goods are handled exclusively abroad.

The most important features of the Panamanian trust are:

- Article 37 of Law No.1 expressly guarantees the confidentiality for the execution of the trust. It provides that the trustee and his representative or employees or any other person involved in the execution of the trust must uphold the secrecy of the operation. The violation of this provision is penalized with imprisonment of up to six (6) months and a fine of up to US$50,000.

- The trust shall be created in a private document, with the only formality that the signature of settlor and trustee must be authenticated by a Panamanian Notary, 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.

- The trust can contain any lawful clause as the needs of the settlor 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 is not perpetual unless so is stated by the settlor 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 settlor in the trust agreement.

- Both the settlor and the trustee and/or beneficiary may be a corporation. They do not need to be individuals.

- 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:

Also, the Fiscal Code exempts from income tax:
1. The interest paid by banks located in Panama to their customers for savings accounts and time deposits kept in Panama;

2. The salary or fees earned by Directors, Officers and Executives of Panamanian corporations located abroad. These benefits have made of Panama the tax haven that it is today

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