Financial Market Participants
Public Offerings Registration
Investment Funds

Investment Managers
Assignments and Guarantees
Prohibited Activities
Tax Incentives

Under Decree 1, dated July 8 1999, the National Securities Commission was established as an autonomous state entity and the official institution in charge of:

  • authorizing and supervising public offering of securities;

  • securities trading;

  • establishing and managing mutual funds, and
  • granting licences to the different financial market agents or participants.

Financial Market Participants

The law regulates licences for capital market participants including:

  • brokerage firms;

  • investment advisors;

  • investment managers;

  • stock exchanges;

  • clearing houses;

  • sales agents;

  • brokers;

  • stock exchange positions; and

  • mutual funds.

Brokerage firms and investment advisors
Brokerage firms are organizations dedicated to the purchase and sale of securities, in their own right or on behalf of third parties. Investment advisors advise, for a fee, on the price of securities, investments and the purchase and sale of securities. They also prepare market reports.

Brokerage firms and investment advisors must have a licence granted by the National Securities Commission. The licence for brokerage firms allows them to carry out activities as investment advisors. Both are obliged to present reports (incluing audited and internal financial statements) to the National Securities Commission. Brokerage firms are subject to net capital and liquidity requirements, as determined by the National Securities Commission. A brokerage firm's shares must be exclusively registered and the National Securities Commission must be advised of any changes in the share composition.

Securities brokerage firms may be dedicated to businesses including:

  • the management of custodian accounts;

  • investment advisory;

  • asset management for investment funds;

  • loan of securities; and

  • money loans for the acquisition of securities.

Foreign securities brokerage firms (ie, organizations constituted or domiciled abroad or with a licence to operate granted by another state) may be exempt from compliance with certain legal provisions, as determined by the commission, provided it does not harm investors. All securities brokerage firms should open investment accounts for their customers in order to manage their money and securities.

Investment advisors may manage custodian accounts, securities and monies at their discretion but they are not authorized to offer investment accounts.

Senior executives and brokers/dealers of securities brokerage firms and investment advisory companies must obtain a licence from the National Securities Commission. In order to obtain a licence, the interested party must have knowledge of:

  • the content of the securities law and its regulations;

  • the practice and customs of the securities industry and stock exchanges;

  • securities firms' rules; and

  • general accounting and financing principles.

Stock exchanges and clearinghouses
In order to exercise a stock exchange or clearinghouse business, the interested party must obtain the respective licence from the National Securities Commission. A licence is granted if the technical, administrative and financial capacity to provide the service is demonstrated. As self-regulated entities, they are obliged to:

  • protect investors' interests;

  • promote cooperation between market agents;

  • report any violations of the securities law;

  • ensure that there is no unreasonable limit or discrimination on membership;

  • ensure free competition; and

  • avoid actions that could damage market transparency.

Similarly, stock exchanges must monitor their members' compliance with internal laws and the securities law.

Stock exchanges and clearinghouses are obliged to file (i) periodical reports and (ii) audited and internal financial statements with the National Securities Commission.

Public Offerings Registration

Pursuant to the law, the following securities are subject to registration by the National Securities Commission:

  • securities that are public offerings subject to the approval of the commission;

  • shares of issuers domiciled in Panama that, on the last day of the fiscal year, have 50 or more shareholders domiciled in Panama that are the effective owners of no less than 10% of the paid-up capital; and

  • securities listed on a Panamanian stock exchange.

Applying for a securities offering
The request must be made by a lawyer on behalf of the interested party. The request for a securities offering consists of two parts. The first part contains information included in the prospectus (eg, financial information), and the second contains information on file with the National Securities Commission (eg, contracts and incorporation documents).

A separate request must be made for each securities offering. However, the National Securities Commission may authorize the offer of different types of securities from the same issuer in a prospectus if (i) this is allowed under the terms and (ii) this will not create confusion for investors.

Registered issuers are obliged to file interim reports and audited financial statements with the National Securities Commission.

Under the protection of the law, foreign issuers may register their securities and their public offering does not imply the performance of business in Panama. Foreign issuers are obliged to have a lawyer in Panama to represent them before the Panamanian authorities, including judicial authorities and the National Securities Commission.

Under the law, an offer made to persons domiciled in Panama, regardless of whether it was carried out in Panama or abroad, is considered as executed in Panama unless the National Securities Commission determines otherwise.

The following, among others, are exempt from registration:

  • the offer and sale of exempt securities (eg, bonds issued or guaranteed by the state or by international organizations where the state or any securities exempt by the National Securities Commission participates);

  • private placements (ie, offers made to no more than 25 persons that jointly result in the sale of securities to no more than 10 persons, within one year);

  • offers and sales made to institutional investors;

  • offers, sales, distributions, transfer and exchange of securities between the issuer and the issuer's securities holders in order to increase the issuer's capital or due to the issuer's restructuring, dissolution, liquidation or merger;

  • the offer and sale of securities exclusively to the issuer's employees, directors, and officers or to employees, directors, and officers of affiliated companies; and
  • any other offers or sales or transactions in securities that are exempt by the National Securities Commission.

The application
Before obtaining approval from the National Securities Commission the issuer may not negotiate the securities subject to the offer. As from the filing date of the securities registry application, the issuer may offer securities to sales agents. The sales agent, the issuer and the existing subscribers may request purchase orders, provided that these do not constitute an obligation to purchase or sell securities. After the public offering is authorized, securities offers may be made in any manner, provided that they are accompanied by the prospectus authorized by the National Securities Commission.

Title VIII of Decree 1 provides that the National Securities Commission must be notified of any tender offer for more than 25% of the issued and outstanding capital or for more than 50% of the issuer's issued and outstanding capital. Notice must also be given to the issuer and the stock exchanges in Panama where the shares subject to the offer are listed.

Public offerings of shares shall be made for no less than 30 days and all potential purchases must be treated equally. Nevertheless, offers may be revoked. The contents of the notice of the offer are determined by the National Securities Commission.

Investment Funds

The law governs open and closed investment funds. It empowers the National Securities Commission to establish investment fund categories based on the type of risk, portfolio and assets, level of indebtedness or liquidity, and other guidelines deemed relevant.

The law also governs foreign investment funds (ie, those constituted pursuant to the laws of a foreign state or those whose investment manager has his main domicile outside Panama and manages the goods or assets of the investment fund outside Panama). Likewise, the law authorizes the registration of:

  • investment funds with only one kind of participation quota and one investment portfolio (simple version);

  • umbrella funds;

  • investment funds of different classes; and

  • funds of funds.

Investment funds that publicly offer their participation in Panama must register with the National Securities Commission. An investment fund is deemed managed in or from Panama if any of the following circumstances apply:

  • an investment manager is appointed in Panama;

  • its main domicile is Panama or the prospectus or other advertising material indicates that the fund is located in Panama;

  • a custodian is appointed in Panama; or
  • the number of directors necessary to pass a board resolution are domiciled in Panama.

An investment fund is not deemed managed in or from Panama if one of the following circumstances apply:

  • it is constituted pursuant to the laws of Panama;

  • it is domiciled in Panama, but Panama is not its main domicile and the prospectus or advertising material does not infer otherwise;

  • one or more of its directors, officers, attorneys or employees are domiciled in Panama, provided that the number is not the number necessary for investment fund decisions to be adopted; or

  • the investment fund's administrative services (eg, accounting and secretarial services) are provided in or from Panama.

The company prospectus must contain a detailed description of:

  • the objectives and investment policies;

  • the level of debt;

  • the mechanism for subscription or redemption of shares;

  • the manner in which the net value per share, commissions and charges are estimated;

  • the dividend and distribution policy;

  • the investment and custodian manager; and

  • any other information required by the National Securities Commission.

No less than 20% of the directors (or persons with similar powers) may be independent from the investment fund. The following are not deemed as independent persons:

  • the investment manager;

  • the investment advisor;

  • the custodian and the offeror that distributes shares quotas;

  • the investment corporation's external auditors;

  • any person that directly or indirectly owns more than 10% of the issued shares;

  • directors, officers, employees, stock exchange brokers and analysts of any of the aforementioned persons; and

  • any person who is related to any of the aforementioned persons.

Investment funds must follow the National Securities Commission's standards and practices for accounts. Their books must be available for inspection by the commission and they must submit reports and financial statements (interim and audited).

For a private investment fund to be managed in or from Panama but whose shares are not offered in Panama, the fund's constitution document must have one the following limitations: (i) a 50-person limit on share owners and a mandate that the offers of their shares be communicated privately, or (ii) a provision that establishes that quotas may only be offered to qualified investors in minimum initial investment amounts of $100,000. A 'qualified investor' is an investor whose business includes the trading of securities or that has a patrimony of no less than $1million. These investment funds must appoint a representative in Panama who should have sufficient powers to represent the fund before the National Securities Commission and to receive administrative and judicial notices.

The appointed representative is responsibile for compiling the following documentation relating to the investment fund before the fund begins operating:

  • the prospectus;

  • documents stating his appointment as representative;

  • a certificate relating to the establishment of the fund; and

  • the names and addresses of the investment manager, the offeror, executive and the custodian.

Investment Managers

An investment manager must be licensed. Similarly, companies managing public employees' savings and pension funds must be licensed. The outsourcing of investment management services is permitted.

Foreign investment managers must have a licence granted by a foreign jurisdiction. Foreign managers are those who manage, administer, invest and perform their obligations outside Panama. The commission is authorized to exempt foreign investment managers from certain legal requirements.

Investment managers are obliged to file reports and financial statements to the National Securities Commission and to the investors whose funds they manage.

Assignments and Guarantees

The law authorizes credit for the acquisition or maintenance of registered portfolio securities. Likewise, securities brokerage firms may acquire debts by using their property as collateral. The law empowers the National Securities Commission to regulate the operation of options, futures and other derivatives, as well as securitization transactions. The law also allows the assignment of credits and other incorporeal rights in order to assign title. The securities registry system does not affect real guarantees (eg, pledges).

Prohibited Activities

The law prohibits insider trading, as well as any fraudulent or deceitful act or market manipulation that may affect the purchase of securities. The commission is empowered to impose administrative fines.


The law establishes a complete regime for the intervention, reorganization, dissolution and liquidation of registered entities and market agents.

Tax Incentives

Income tax and tax on dividends are imposed. Also profits resulting from the sale of securities issued or guaranteed by the state are taxed; losses are not deductible. The same treatment applies to loss and profit from the transfer of securities issued or traded by persons registered with the National Securities Commission, provided that the negotiation occurs:

  • through a stock exchange or organized market;

  • as a result of the acceptance of a public offering for the purchase of securities; or

  • as a the result of a corporate merger, consolidation or restructuring.

Interest on securities or bonds registered with the National Securities Commission incur income tax at the rate of 5%. This income is not deemed to be part of the taxpayer's gross income. Interest from securities registered with the commission and placed on a stock exchange or an organized market are exempt from the payment of this tax. Underwriting does not affect these tax benefits.

Securities registered with the commission, and any act, contract, agreement or document pertaining to these securities or their issue, sale, subscription, payment, transfer, exchange or redemption are exempt from stamp taxes.

Under Law 24/1992, profits from bonds, shares and securities of companies dedicated to reforestation and related activities, and profit obtained in the alienation of these securities, shall be exempt from income tax.

Law 25/1992 establishes that income in the form of dividends or interests generated by shares, bonds and other securities on the national or international market by companies established in export processing zones are tax free.

For further information on this topic please contact Francisco PĂ©rez Ferreira at Patton, Moreno & Asvat by telephone (+507 264 8044) or by fax (+507 263 7887) or by e-mail ([email protected]).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.