Investment funds in Panama according to our expert partner

We have talked a lot on this website about Panama and its excellent banking system.

Thanks to it, it is possible to count on diverse services and tools such as trusts, personal and corporate bank accounts, banking licenses, and much more; however, this time we will concentrate on investment funds.

Investment funds, as their name suggests, are a structure in which several individuals gather a certain part of their capital to invest it in different assets in order to obtain a higher profit in the future. It offers numerous advantages to its audience, but it is better to let a professional give you the details.

To talk about the panorama of this mechanism in Panama, we have communicated with one of our expert partners in financial services of this country. Don’t miss it!

Q. Welcome, we are delighted to have you here. Before we begin, could you tell our readers a little more about your experience in Panama?

A. The pleasure is all mine; the relationship with Mundo has been excellent. I have more than 20 years providing financial services for clients from all over the world, my specialty being Panamanian banking. Today, I have the license that allows me to offer the creation and administration of investment funds, as well as investment in Forex and fixed or variable income markets.

Q. And you do a great job! Let’s start with one of the points that most attracts our clients: investment funds. What are the types of funds that exist in Panamanian legislation, and how do they work?

A. I understand that you are referring to Investment Companies; if so, we can initially divide them as open or closed.

The open ones are those that offer their investors the right to periodically request the redemption of their participation fees, partially or totally, for the net value minus the fees, charges, and expenses described in the prospectus. On the other hand, the closed ones are those that do not offer their investors the right to request the redemption of their participation fees before the liquidation of the investment company.

In addition, the regulations also provide that these may be:

● Public Investment Companies, which in turn can be subdivided into: (a) Real Estate Investment Companies; (b) Venture Capital Companies.

● Private Investment Companies.

Investment companies must comply with the provisions established in the regulation to take one form or another since these types of investment companies are constituted as a corporation, a trust, or a legal contract.

(i) Public Investment Companies are those that publicly offer their participation fees to the public and are managed in or from Panama and are required to register with the Superintendence of the Securities Market.

(a) Real Estate Investment Companies are a type of Public Investment Companies, but dedicated to the investment, development, and administration of real estate in Panama, and must be registered with the Superintendence of the Securities Market.

(b) Venture Capital Companies are an investment company that invests directly or indirectly, at least 80% of its assets in shares issued by companies that at the time the investment is made are not registered with a securities regulatory body or listed in a local or foreign organized market.

(ii) Private Investment Companies may not offer their participation quotas to the general public and must only notify their activity to the Superintendence of the Securities Market, the funds may be directed to investment in other companies or shares, or may be used for almost any other purpose.

In all cases, the natural or legal person acquires the participation quotas or shares in these companies. Such contributions are invested, administered, and managed either directly or through investment managers, who will comply with certain requirements of the securities law, such as demonstrating technical, administrative, and financial capacity.

As a separate point, in Panama, funds as such are usually created by banking institutions to raise funds, and these give certificates, but do not give participation fees or shares as Investment Companies do.

Q. Do you think real estate funds have been well received in the country?

A. As we commented in the previous point, in Panama, the Real Estate Investment Companies are regulated. However, according to several sources and publications by financial institutions, we can indicate that, in the last decade, Panama’s real estate market has experienced sustained growth. The banking sector has supported in an integral way the financing of this market, with short-and long-term investments, so it is accurate to say that it has had a good response in the Panamanian society.

Q. Is it possible to structure a real estate or investment fund in Panama and have the investments or properties located abroad?

A. Yes, this is possible, as long as they are managed from the Republic of Panama, and the process is carried out with the support of expert and professional agents.

Q. Are these funds quoted on the stock exchange?

A. It depends on the type of fund. For example, Public Investment Companies can be listed on the stock exchange, while Private Investment Companies cannot be listed on the stock exchange.

Q. We know that not all services have the same possibilities. What are the limitations to which the funds would be subject in terms of investments abroad?

A. The same limitations as at the national level and, if foreign rules are applied, the regulations in Panama provide for how to proceed when there is a conflict of laws.

Q. Very well, and are there closed funds in Panama for a certain number of people, that is, not open to the public? How do they work?

A. There are closed investment companies in Panama, but, as we mentioned before, they are those in which participation fees are not redeemed until the company is liquidated or by special exceptions.

Now, as far as the Private Investment Companies are concerned, one of the legal conditions to be considered as such is not to have more than 50 shareholders or members.

Q. What are the requirements for a fund management company?

A. Whoever wants to exercise the business of investment administration in or from the Republic of Panama must request the National Securities Commission to issue the corresponding license.

The Investment Manager License application will contain the following information:

1. Applicant’s business name.

2. Commercial name in case it differs from the name or business name.

3. Data of the constitution of the company.

4. The legal address of the applicant.

5. The exact address of the establishment where it will carry out its operations and those of its branches if any.

6. Authorized shared capital and total paid-in assets of the company.

7. Identification of the person or persons to be appointed as principal executive (minimum one person), who must have the corresponding Chief Executive Investment Manager License. In the event that the person appointed as chief executive of the applicant’s investment manager is not the holder of the corresponding license for such position, his or her appointment will be admissible only if at the date of submission of the application for the Investment Manager License he or she has already passed the knowledge test required for the same. In such case, the application for the Chief Executive Officer Investment Manager License may be made at the same time as the application for the Investment Manager License, but the granting of the license shall be conditional upon the granting of the latter.

8. Identification of the person to be appointed as Compliance Officer, who shall hold a Chief Executive License. In the event that the person appointed as the applicant’s compliance officer is not the holder of the appropriate compliance officer license, his or her appointment shall be admissible only if, at the date of application for the Investment Manager’s license, he or she has already passed the knowledge test required for such appointment. In such case, the procedure corresponding to the Chief Executive License may be carried out at the same time as that of the Investment Administrator License, but its granting shall be conditional upon the granting of the latter.

9. The date on which it intends to commence operations, subject to the provisions of article 71 of this agreement.

10. Names of the beneficial owners who have control of the investment manager.

11. In the case of a company that is or will be a subsidiary or affiliate within an economic group, identification of its position within the economic group and of the company under which it consolidates.

Q. What are the limitations for a fund manager?

A. Fund administrators or investment companies cannot limit their liability or that of others involved through clauses in their contracts, and therefore cannot exonerate such persons from liability in the event of gross negligence, willful misconduct, or fraud.

Q. Regarding the tax issue, of great importance to our clients, how do they tax these funds in Panama?

A. Investment companies are taxed in the same way as a normal company in Panama, except for the exception provided for in the Fiscal Code regarding real estate investment companies and their subsidiaries, which are registered with the Superintendence of the Securities Market.

Where these companies will be exempt from Income Tax which will be taxed on the owners of the participation quotas.

Likewise, these corporations are exempt from estimated income tax, Supplementary Tax and Dividends, nor do the rules of gain on disposal of real estate or the rules of gain on disposal of securities apply.

Regarding income tax, the Real Estate Investment Company is obliged to withhold 5 % of the amount distributed as an advance tax payment. This withholding may be considered as a definitive amount to be paid on the distribution. The withholding must be remitted to the tax authorities within 10 days from the date of the distribution.

It is important to note that Real Estate Investment Companies are subject to the payment of any other tax applicable in Panama.

Q. Let’s move on to another topic of great interest to our readers, financial structures. Does this format include any type of “organization” that brings about the fulfillment of long-term obligations, such as asset securitization?

A. A financial structure is normally understood as the different types of financing a company uses to be able to develop its operation, so a financial structure carries short-term obligations (e.g., trade credits) and long-term obligations (e.g., loans), the latter could also include asset securitization.

Q. In the case of asset securitization, does Panama have had any before?

A. Yes, for example, we have the case of ICA Panama – Corredor Sur Bonds.

Q. What is the Panamanian government’s position on this type of structure?

A. It is known that it is a tool that brings many advantages for both lenders and investors (risk reduction, for example), so in Panama, it is encouraged and is a completely legal activity, although it also requires expert support.

At the global level, proposals have been established to “improve” and solidify the securitization process. Certain regulations that have been required for years by organizations such as the International Monetary Fund are stricter standards and higher mandatory levels of capitalization.

Q. What is the most convenient investment channel for you in terms of asset securitization?

A. Without a doubt, the mortgage sector. It is a fixed-income asset with homogeneity, which allows it to attract investors.

Q. Is there a public works trust in the country?

A. Yes, for example, the Madden – Colón Administration, Guarantee, and Investment Trust Agreement of January 18, 2007.

Q. Regarding the securitization of assets, is it possible to do so in assets located outside the country?

A. Yes, securitization can be applied to any type of asset that represents a relevant volume in the number of operations. In this way, there will be regular cash flow, sufficient for the company to securitize it. To avoid problems with assets outside of Panama, it is always advisable to work with experts.

Q. Finally, how are investments in securitized assets taxed? Is it worth opting for this tool?

A. These investments will be taxed on the profits produced. I consider that securitizing assets is widely favorable, especially because they represent a great source of liquidity and, in addition, they increase the rotation of assets.

At Mundo, we are at your disposal to clarify any doubt. As well as our expert in Panama, our team is made up of professionals who will also be ready for you whenever you need reliable financial advice.

Contact us and request a first-hour consultation.

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