Corporate Spin-Off in Panama

Article

Until recently, when our clients inquired about the steps to complete a spin-off of a Panamanian Corporation, we had to tell them that our Commercial Code and Corporate Law did not regulate the matter. Since it was unregulated, clients were very skeptical about moving forward with this process, more so because of the uncertainty of the tax and commercial implications that said operation could carry.

Since Law 85 of November 22nd, 2012 was published, that uncertainty is gone. This new law regulates corporate spin-offs, for all types of Panamanian corporate legal entities, by the division of all or part of their assets and their transfer to an existing corporation or unto a new one created just for that purpose, as long as the companies have the same shareholders.

It is worth noting that the transfer of the assets under a spin-off is not considered as a transfer of title for tax purposes, as long as the value of said transfer is equal to the book value of the assets. Additionally, the spin-off has to be notified before its execution to the local tax authorities, and once this process is complete, the spin-off may begin. As a last step, the spin-off has to be duly recorded in the Panamanian Public Registry, for it to be enforceable against third parties.

Panamanian Corporations are well known vehicles to head the corporate structure of companies that operate in several jurisdictions, so we are certain that this new regulation will prove to be a very useful tool for attorneys, when thinking about redesigning the corporate structure of the companies that they advise.