Panama's success as a tax haven is primarily based on its tax structure. According to article 694 of the Fiscal Code, the income earned by any person, either an individual or corporation, from sources outside Panama, is exempt from taxes. Legislation expressly provides that the following transactions are not subject to income tax in Panama:

- Dividends from income earned by a company when produced or earned abroad.

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

- Invoicing to a company abroad (from an office 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 confidentiality for its execution. It provides that trustee, representatives, employees or any other person involved in its execution must uphold the secrecy of the operation. Violation of this provision is penalized with imprisonment of up to six (6) months and a fine of up to US$50,000.

- Trust is created in a private document, with the only formality that signature of settlor and trustee must be authenticated by a Panamanian Notary, guaranteeing its confidentiality. 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.

- Trust can contain any lawful clause as settlor may need. According to articles 5 and 9 of Law No. 1, trust may be created for any purpose not contrary to the law or public policy.

- Trust is not perpetual unless so stated by settlor. Trust should have its duration expressly stated. It may also be revocable or terminated before its expiration if it is so provided by the settlor in the trust agreement.

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

- Tax principles: The Law 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 assets and properties given in trust are exempt from all taxes, contributions, assessments or encumbrances, provided trust involves the following assets:

1. Interest paid by banks located in Panama to their customers for savings accounts and time deposits kept in Panama;

2. Salary/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 and the reason why others from the region have tried to imitate us.