On May 12, 2017 Panama’s Official Gazette published Law 21 (“The Law”) that came into effect on May 10, 2017. The Law establishes mandatory guidelines for regulating and supervising both fiduciaries and the fiduciary business.

The Law’s main objective is to both create greater controls and transparency in the fiduciary business and grant more protection and benefits to users by including measures such as that:

1. Only individuals or corporations - except for the exclusions that the Law specifically provides -who have obtained a license from Panama’s Superintendence of Banks may act as trustees. Any person who was acting as a fiduciary before the Law came into force has six months to apply for a license by fulfilling the respective requirements. The Law also establishes new requirements for fiduciaries, the minimum capital required, and the guarantee.
2. The interest paid by the debtor/taxpayer on the loan for the purchase, construction, or improvement of the debtor/taxpayer’s main home is considered a deductible expense, even if the immovable property has been granted in trust as the obligation’s guarantee. Previously, this deduction was allowed only on a mortgage.
3. The exoneration of the transfer tax on assets in trust is applied in cases wherein the property has been returned to the same person who provided it (settlor). However, transfers to third parties will generate the transfer tax.
4. In trust agreements, in which the purpose is to guarantee credit operations, the settlor has the right to choose the fiduciary with whom the settlor would like to carry out the operation. If, among the fiduciary options the bank (beneficiary) offers there occurs the same entity or a company of the same economic group, the settlor must expressly accept this entity or company.
5. No fiduciary's declaration of bankruptcy may be filed. The Law contains: 1) a chapter on voluntary liquidation and 2) another chapter that regulates the procedure for administrative and operational control, reorganization, and compulsory liquidation of a fiduciary that compares to the one established for banks.

It is important to note that the Law: 1) does not repeal Law 1 of January 5, 1984 that regulates the trust in Panama; and 2) complements Law 44 of August 10, 2012 that approves the Agreement on Applicable Law to the Trust and its recognition made at The Hague on July 1985.

For more information, please contact Julieta Rodriguez at julieta.rodriguez@dentons.com or +507 275 5457.