Just Add Water....

Now Available: Instant Online Corporations
Following Anguilla's successful example, the Republic of Panama now has an Internet website that allows you to instantly establish a Panama corporation.
Before this innovation, it could take days or even weeks to set up a Panama corporation - waiting for the human bureaucracy to process documents and issue a corporate charter. This new website saves you the waiting period, and it cuts out the need for a local lawyer or incorporation service, which usually charged around US$1,000 for incorporation.
The new website is far more successful than expected. The Ministry of Economy and Finance (MEF) in Panama predicted this new website would create about 1,500 incorporations online within a year.
This new website opened for business on July 1st, and by mid-July there were already 2,132 incorporations - for businesses ranging from beauty shops to financial services. Under the old paperwork method, 6,062 incorporations were registered from January to July 2007.
Panama's business corporations Law No. 32 of 1927, is modeled after the U.S. State of Delaware's corporation-friendly statutes. There are about 400,000 corporations registered in Panama, second only to Hong Kong's 450,000.
A Panama corporation can maintain its own corporate bank account and credit cards for world management of investments, mutual funds, precious metals, real estate, and trade. Corporate income free of Panamanian taxes can be spent for business purposes worldwide.
Also these corporations are attractive because Panama only levies taxes on a "territorial" basis. That means Panama only taxes business activity and income earned within the borders of Panama. Whether you are a Panamanian or a foreigner living in Panama, this also means your offshore business and profits are, for the most part, tax-free.
These rules apply to both residents and nonresidents, as well as to corporations, trusts or other entities registered in Panama and operating within Panama or overseas.
Thus, corporations used for offshore purposes are not liable for income tax in Panama, unless they actually generate income within Panamanian territory. And, as an added tax-free bonus, interest-bearing accounts paid by Panama banks are not taxable as income in Panama.
But a word of caution: There is a serious downside to offshore corporations when it comes to U.S. taxes. For U.S. persons who control the shares in a foreign corporation there are major limitations on U.S. tax benefits that would otherwise be available to a corporation formed in the United States.
That's because a foreign corporation is what is known as the IRS "per se" list of foreign corporations, which appears in IRS regulations, section 301.7701-2(b)(8)(i). The listed per se corporations are barred from numerous U.S. tax benefits. This means that U.S. persons cannot file an IRS Form 8832 electing to treat the corporation as a "disregarded entity" or a foreign partnership, either of which is given much more favorable tax treatment.
Under IRS rules, the foreign corporation that engages in passive investments is considered a "controlled foreign corporation," which requires the filing of IRS Form 5471 describing its operations. U.S. persons also must file IRS Form 926 reporting transfers of cash or assets to the corporation.
A U.S. person who controls a foreign financial account of any nature that has in it US$10,000 or more at any time during a calendar year must report this to the IRS on Form TD F 90-22.1. There are serious fines, penalties and even possible criminal charges if you don't file these IRS returns. As a general rule, U.S. persons can be guilty of the crime of "falsifying a federal income tax return" by failing to report offshore corporate holdings.
Any eventual capital gains an IRS-listed per se corporation may make are not taxed in the U.S. under the more favorable capital gains tax rate of 15%, but rather as ordinary income for the corporate owners, which can be a much higher tax up to 35%. There is also the possibility of double taxation if the a foreign corporation makes investments in the U.S., in which case there is a 30% U.S. withholding tax on the investment income at the U.S. source.
Under U.S. tax rules, no annual losses can be taken on corporate investments by a foreign corporation, which must be deferred by the U.S. owners until the foreign corporation is liquidated. However, compared to these IRS restrictions, there may be offsetting considerations, such as exemption from foreign (in this case, Panamanian) taxes, which may be more important in your financial planning.
Therefore, it is extremely important that U.S. persons obtain an authoritative review of the tax implications before forming a foreign corporation for any purpose, including holding title to personal or business real estate.