Web3 Incorporation in Panama (A Legal Guide)

[00:00:00] Edgar: You can pretty much do the whole structure from Panama. So you can have one foundation on top and then subsidiary companies, and then you have a separate software development company.

[00:00:09] Edgar: Now we frequently work together with BVI and Cayman. It might be the case that for this specific project, hey, I want to run the company from Panama, but I want to have a Cayman Foundation. Right?

[00:00:21] Edgar: Or I want to have a Panama Foundation, but I want to do the token launch from BVI. Now, from the offshore side, they are subsidiaries, so the Foundation would hold a 100% of the shares of that token issuer or front end company.

[00:00:37] Edgar: If you want to have like an extra layer of protection or separation between them, you can have one foundation with a subsidiary company for token launch, and then a separate completely foundation with a subsidiary company for the front end, for example.

[00:00:51] Umar: Welcome to The Accountant Quits podcast, where we help accounting and finance professionals learn how to manage a business using crypto.

[00:01:00] Umar: The world of web3 is global, but when it comes to launching your project, where you incorporate matters.

[00:01:06] Umar: One jurisdiction that's rapidly rising in popularity is Panama. Panama currently has no crypto specific regulations, meaning web3 projects don't require government authorizations or licenses. While unregulated these activities, however, are fully legal and with 0% corporate tax on foreign sourced income, Panama offers a unique legal sandbox for innovation.

[00:01:32] Umar: But it's not without its trade-offs. From banking limitations to reputation risk, there's nuance behind the headlines.

[00:01:39] Umar: To guide us through it all. I'm joined by Edgar Young, Founder of Pacifica Legal, a crypto law firm that's helped over 270 Web3 entities incorporate in Panama.

[00:01:51] Umar: In this episode, we'll unpack the “Panamanian Triangle” of Token SPV, Foundation & Lab Co, tax obligations for founders across jurisdictions, DAO structures, and governance, and how Panama compares against places like the Cayman Islands and BVI.

[00:02:09] Umar: Whether you're a founder exploring international incorporation or a DAO operator considering your legal setup, this episode is your legal guide to Panama's role in web3.

[00:02:20] Umar: Lastly, if you're new to this channel, I'd really appreciate your support to help us grow by liking this video and subscribing.

[00:02:27] Umar: Now, enjoy my conversation with Edgar.

[00:02:30] Umar: Edgar. Welcome, and thanks for taking the time to be here.

[00:02:33] Edgar: Thanks for having me.

[00:02:35] Umar: To start, can you share your background, how you first became interested in blockchains and the origin story of founding Pacifica Legal?

[00:02:44] Edgar: Yeah, it's a interesting question. I think, I'm not the like the OGs that got in 2013, 2014. I have been in the space in the last, let's say 5 years. So, beginning of 2020. I'm a Panamanian lawyer, so I did my LLB there. I started my own practice and then I started to get busy.

[00:03:07] Edgar: But then I wanted to have a Masters. So an LLM. I applied to a couple of scholarships. I ended up going to Moscow. I lived there for 5 years. Ended up doing a PhD more on traditional aspects, international private law, investments, arbitration. And while I was there, I was getting into more on the crypto trading side.

[00:03:32] Edgar: And I remember telling my brother, hey, I want to buy some Bitcoin. How do I do it? And then I, I realized, hey, if you want to do it, you just might, do it yourself. So I kind of got involved into this. Along this side, I continued my own practice. A lot of it, it's incorporating corporations and foundations.

[00:03:53] Edgar: So you can pretty much do this from any place in the world and I remember when I was doing my PhD as part of the courses you need to teach classes to masters students, and one of these class was something like current issues of international private law. And I remember when I had this course, there was nothing current about it.

[00:04:15] Edgar: So when it was my time to teach, I took the flexibility and I was, you know, giving what I, I actually was interested about. So anything about DAOs, NFTs were popular at the time, crypto blockchain regulation. I remember even doing like a moot court, you know, you are a Ripple defendants in this case against the SEC tried to make some arguments about it.

[00:04:42] Edgar: I also started at being an advisor to a couple of companies. One of them was more a traditional company in aviation, but they had a startup that was related to blockchain. So they're, they were trying to do tokenization of aircraft and sales and acquisition of aircraft on the blockchain.

[00:05:01] Edgar: And at the same time, I have been getting clients interested in Panama for incorporating foundations and companies. I started getting more involved into the blockchain law aspect. So started going to, to meetups and also associations. And in one of these associations, Blockchain Lawyers Group, I met my current partner in the law firm, Teresa. Shout out to Teresa and she's also very into crypto. Also part of a bunch of different associations. And you know, the funny thing is that we actually went to the same university, but we never met, we never spoken to each other, but we found each other again in this crypto space and we decided, hey, let's partner up together and build this.

[00:05:51] Umar: Very cool story. Now, Edgar, I wanna start the episode around the regulatory landscape in Panama for web3 companies and basically what makes Panama an attractive jurisdiction today. So Panama currently has no VASP regime and it doesn't impose specific regulatory obligations on companies offering crypto services.

[00:06:12] Umar: Could you walk us through how Panama evolved then into a popular jurisdiction for web3 projects and yeah, share a bit about the historical context behind it's crypto friendliness.

[00:06:24] Edgar: Right. So, if I can give you like a quick regulatory recap on crypto regulation in Panama. So, currently, as of today, there's no VASP regime.

[00:06:35] Edgar: There's no crypto regulation or any load that covers crypto related activities. So as such, cryptocurrencies, crypto assets, tokens are not considered to be legal tender or securities or a regulated activity. So you can pretty much issue trade, sell, distribute, airdrop a token or operate, a crypto related platform, whatever that be.

[00:07:01] Edgar: It can be a DEX, perpetual trading platform, borrowing and lending protocol without the need to having to be licensed or regulated. So the approach of the local regulators, and by local regulators, I mean mostly the superintendency of banks and the superintendency of Security Markets. So the Panamanian SEC is that because there is no a law in place, they cannot oversee, regulate such type of activities until there's a law in place, So you can pretty much operate in a legal yet unregulated way without having to have a license or an approval or registration.

[00:07:42] Umar: Alright. Now I mentioned in the intro that, in terms of tax obligations, so project registered in Panama would have no corporate tax on foreign-sourced income.

[00:07:52] Umar: That means. Also, of course outside of web3, but that means if your customers are not in Panama, you pay 0% corporate income tax. Also, there's no capital gain tax on disposal of crypto. But I wanna ask you if you could go through the tax implications for the company's founders. Right.

[00:08:11] Umar: So for example, CFC rules require founders to report on registered foreign companies and they may impose additional tax obligation.

[00:08:21] Umar: Or also go through then the concept of ‘Place of Effective Management’ where basically the tax residency of a company and its obligation to pay tax is based on the place of effective management, right? So I know this is jurisdiction specific as well, where the founder is based. So could you explain it maybe if the founder is tax resident, let's say in the US.

[00:08:43] Edgar: Yes. Yeah. I mean, tax is of course are really attractive topic. An interesting reason why you want to set up an entity in Panama.

[00:08:52] Edgar: But it's not an all in solution, right? And also to, let's say, finalize the point on regulation. There is, at the moment a crypto bill proposal in the Parliament right now, it's essentially like a VASP regime bill and it's not the first time that this has happened. To give you a bit of context, there has been around 12 projects of law that in some way touches crypto.

[00:09:18] Edgar: There were only one VASP regime approved around 2021, 2022. So initially there was a VASP law set up to the Parliament. It was approved, then it was first vetoed by the President at the time. Then it was sent back to the Parliament approved once again. And then it was declared inexequible, which essentially means like null and void by the Supreme Court.

[00:09:44] Edgar: So then after that we kept again without regulation. Now, this year, another project of law was presented to the parliament. I'm not a big fan of such project. I think it still needs a lot of work to be done. And first I don't think that the project is going to pass, in my opinion there, it doesn't have the industry or the government support.

[00:10:07] Edgar: So from the executive and for this type of regulations, you really have both industry and regulatory bodies merged together to present well thought project that, that is good then going to be accepted. So this is pretty much like a unilateral case of one of the deputies that presented this project.

[00:10:27] Edgar: And the second point is that even if approved and the current version of the project, Article Two, under the scope of application, it only stays that VASP regime would apply for companies offering services within the territory of Panama.

[00:10:42] Edgar: So essentially if you set up a foundation company and offer services outside of Panama, you also be carved out of the scope of application, which is 99% of the cases that our clients have.

[00:10:55] Edgar: Now back to, let's say taxation and why Panama? I think Panama has naturally been like a financial hub. I mean we have been dollarized since 1904. It used to be a big financial center, more than 100 banks at the time. I think maybe 10 years ago it was like 93. Now it can be something like 60. It's still a lot compared to the region.

[00:11:23] Edgar: You know, in Latin America, it's still one of the biggest concentration of banks and financial institutions. But it also comes to the effect that there's a large movement of mergers and acquisitions and concentration of banks. So you have a fewer but bigger players. Then there's the component of regulation or better say the lack of regulation.

[00:11:45] Edgar: So the easiness of being active and ready to operate almost immediately. As opposed to having to wait, you know, one, two years to get a license and of course it has some additional costs that is involved. A lot of these crypto web3 companies, they don't have an MVP yet, so they need to prove their use case that this actual product works.

[00:12:10] Edgar: So I think it's a good step for companies to decide, hey, let's test this product first. Once we have some funding, once we have some users, then we can get into getting regulated, for example, or just keep it as unregulated. If, if, let's say the current VASP regimes also doesn't align or it's not particularly fit to the product that you are trying to put out there.

[00:12:33] Edgar: Now to the question of taxes. Indeed, the most important principle in that regard is the territoriality principle. So any income that the entity produce outside of the territory of Panama is considered non-taxable income as long as it is produced outside. So you would not need to pay corporate income tax on that.

[00:12:58] Edgar: That is on one side and then on the other side, on capital gains, especially when it comes to crypto, there's also zero tax on capital gains and same principle whenever the sale of these crypto assets, it's done outside of Panama, then in principle it's considered to be non-taxable.

[00:13:17] Umar: And on the question related to like founders, is that though like a complicated topic to discuss because these are, it's jurisdiction specific, right? On whether they'll have additional tax obligation in their jurisdiction where they reside.

[00:13:32] Edgar: Right. It's a huge and important point and so now we are talking about minds and management of those entities. So the place of effective management of that offer entity and then the second point is what is the tax jurisdiction of those founders? It's a very important point then if that jurisdiction has very strict and high CFC rules or anti-tax avoidance rules. So we always recommend having a conversation with your local tax lawyer or accountant so that you can have a feedback on this.

[00:14:11] Edgar: And I would say yeah, because there are different type of nuances, right? So I think one of the good questions that you can ask them is, first, let's say that you have a Devco and that Devco is onshore. What is the best type of legal entity to set up that  Devco?

[00:14:32] Edgar: Then from the outside perspective, what is the tax categorization of the offshore entity, so that Panamanian foundation or corporation. That entity going to be treated for tax purposes. Then again, the question about what is your local control foreign company rules or even maybe some reporting obligations that you need to have. If you have an offshore entity, you might need to report that. If you have a bank account outside of your country as well, if you have another residency, these are all type of things that you need to ask before and, you know, going for the structure and there are different ways, let's say, to mitigate this, right?

[00:15:14] Edgar: So there are different ways and levels, approaches that you can take. So I would say, let's say, let's go for the worst to the best.

[00:15:25] Edgar: So the worst case scenario is let's say if you are a tax resident founder in a jurisdiction with high CFC regulations and it does tax avoidance rule like France, Germany, US, and so on and then you just appear directly in the company, as one of the directors, for example. So this is, like publicly available information. Everyone has a access to, it's easy target to go after, right? It might be very well be the case as it, it happens that nothing happens. No, no one really, cares about this.

[00:16:00] Edgar: But if it's huge project, or at least we have a huge revenue coming from this, then you might need to think about these type of questions. And a lot of the times, whenever that happens is then they want to take everything retroactively, but it's very difficult to do it. If that, that founder is on the other side in a more tax friendly jurisdiction, then it doesn't matter really.

[00:16:24] Edgar: So you can perfectly be appointed directly 'cause there are no CFC rules about it.

[00:16:28] Edgar: Then the second layer would be, hey, I don't want my name to be out there in any of the public documents. And also just for general knowledge, the information that it's publicly available, it's that of the directors, but the shareholder is not publicly available information.

[00:16:46] Edgar: The second best option is, hey, I want to have local nominee directors. So you would need, you typically have a nomination directorship agreement with those directors. They will receive instructions from you as a client to do or not to do something, as long as that something is not illegal but you would have still control over them.

[00:17:08] Edgar: Now, this is the big question, because such type of agreement can be considered that because you have nominee directorship agreement with them, then you can be considered that have effective control over that entity and since you have control, then you would be taxed as if you were doing the business locally.

[00:17:28] Edgar: And then I would say like the ideal scenario would be, hey, let's set up these entities with local, independent professional directors. They would have their own decisions and then you can even go further after that and have like a local office, local employees, some types of local presence.

[00:17:48] Edgar: Now. To have some type of economic substance. From the Panamanian point of view, it doesn't really matter or with or care. It's more from the outside perspective. Now we need to be mindful because at the end of the day, founders are mostly outside of Panama so yeah, Panama doesn't have economic substance regulation, but most or a lot of the countries outside of Panama have such type of regulations.

[00:18:15] Edgar: So these type of questions, then it would benefit or go against your case. So if you have, let's say local independent directors, you have a presence, you have employees, for example. It's very hard to make a case against that. You are actually having some type of control over the decision making of that, company or foundation.

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[00:20:20] Umar: Now, a few weeks ago we had Jonathan Turnham from NXT Law explain company structures when launching a token, and he went through the widely used Token SPV in BVI and Foundation in the Cayman Islands. Could you go through the Panamanian legal setup when launching a token? And again, go through the Token SPV, the Foundation & the Lab Co, how it works?

[00:20:45] Edgar: Yeah, shout out to Jonathan. He's a good friend of ours. Great crypto lawyer. Yeah, so I'm quite familiar with his structure. Again, I think, a lot of these type of structure, it's a development type of case. So I think that they have evolved over time and as also regulation evolves at the same time.

[00:21:06] Edgar: So I remember at the time, maybe 2018 like Malta was popular, Gibraltar was, was popular then like Estonia, Lithuania, Liechtenstein then came you know, like UAE, yeah, like a lot of trust you would see at the time. And I think you start to build some type of industry standards and there is not really one, but if you can say at least like the very basics it would be, for example, Cayman BVI or Panama.

[00:21:39] Edgar: So there's a lot of flexibility into that. Normally you would have foundation on top. That foundation can either be a Panama or Cayman Foundation. It holds the rest of the subsidiary companies. It is typically a ownerless foundation, so it doesn't have direct owners or shareholders. It has, however, it is own legal personality, so it can sue, be sued, have rights or engage into contracts.

[00:22:07] Edgar: It also has a specific set of purpose. So any of the assets or proceeds would go into a private interest and that can be, for example, the development and advocacy of blockchain protocol X, Y, Z. It is also the entity that typically holds the protocol, manages, holds the treasury and also interacts with the DAO, if there's any.

[00:22:34] Edgar: And then you would have either one or two subsidiary companies. So let's say that you are doing, a token launch, then you wouldn't, you would have SPV for the same purpose for the token generation event. That is the token issuer/seller and that company can be either in BVI or Panama.

[00:22:54] Edgar: And it's, the purpose is to isolate that liability of token launch and all the liabilities that it entails, right? So it is the company that would sign the investment contracts like your SAFT or you know, token purchase agreements or whatnot. And then it can also be a separate subsidiary company that it's running that front end.

[00:23:19] Edgar: We can call it like a platform operator. So it is the entity responsible for the GUI front end layer. That entity is going to be in the terms of use, privacy policy of the project. It also depends on the project, right? So if you are talking about, let's say, hey, I want to run this crypto platform, but I don't have a token, then you can perfectly have one foundation with a subsidiary platform operator, right?

[00:23:47] Edgar: If you also have a additionally, a token, then you can have another subsidiary for that token issuance. If you're only interested in the token issuance, then one foundation with the subsidiary SPV for the token issuance. And so it really depends on the case by case. But for example, I would recommend having a front end company for things like a DEX, perpetual trading platforms, borrow and lending protocols and so on.

[00:24:14] Edgar: And then you will have a development company, right? So, standalone entity that it's providing services to that offshore group.

[00:24:23] Umar: Got it. Can I ask you, so when you were talking about, so you said the token SPV can be in Panama, but can also be in BVI, the foundation can be in Panama, but also can be in the Cayman Islands, but I wanna go through the, maybe the use cases where everything is being done in Panama, like the SPV, the foundation, and I want to ask you, you mentioned subsidiary. Are these companies related to one another? Do they have controlling interest in one another?

[00:24:56] Edgar: Right. So you can pretty much do the whole structure from Panama. So you can have one foundation on top and then subsidiary companies, and then you have a separate software development company.

[00:25:08] Edgar: And now, we frequently work together with BVI and Cayman. It might be the case that for this specific project, hey, I want to run the, the company from Panama, but I want to have a Cayman Foundation. Right? Or I want to have a Panama Foundation, but I want to do the token launch from BVI. Right? Now from the offshore side, they are subsidiaries.

[00:25:31] Edgar: So the foundation would hold a 100% of the shares of that token issuer or front end company. It also, if you want to have like an extra layer of protection or separation between them. You can have one foundation with a subsidiary company for token launch and then a separate completely foundation with a subsidiary company for the front end, for example.

[00:25:54] Edgar: And then at the Devco level that is completely separated. So at Devco level, it is no way connected by way of ownership to that offshore group. It is only connected by way of commercial agreements.

[00:26:07] Umar: Got it. Then could you walk us through how funds would typically flow from the token SPV to the Lab Co.

[00:26:15] Edgar: Right. Yeah, I mean for, these are all these type of agreements, right? So it also depends on the case by case basis. It can be, for example, a software development agreement for the creation of the token or the platform or maintenance of the platform.

[00:26:31] Edgar: It can also be a more broad type of agreement, like a MSA or providing consultant services or sometimes marketing services as well. So a more broad, not necessarily, pure Devco agreements. It can also be like an IP licensing agreement. So you can have all of these types of agreement between your onshore entity and your offshore group.

[00:26:56] Umar: Now, how fast can you set up these Panamanian entities and what's the cost involved for registration and annual maintenance?

[00:27:05] Edgar: I would say it is pretty fast. After we receive KYC documents, it would be around three, four days to incorporate the entities that for both, foundations and companies.

[00:27:17] Edgar: For, in the case of corporations in Panama, what you do is that you incorporate the company first and then you issue the shares of that entity and that would typically overall would take one week maximum. And then about the cost, it's normally around 2K for entity and then everything that you would need, it's on top on that.

[00:27:39] Edgar: So whether you would need nominee directors.

[00:27:42] Edgar: Are those directors going to be involved? How involved are you looking to have independent directors? So it, it depends on that case.

[00:27:50] Umar: Got it. Next I wanna go through what is Sociedad Anónima, right? so can you explain what Sociedad Anónima is and the difference between a private interest foundation and basically for which structure would this Sociedad Anónima be used for? Is it the Lab Co? The token SPV?

[00:28:09] Edgar: Right. Yeah. So Sociedad Anónima, anonimous society, yeah. So it's corporation versus private interest foundation. I think, to be honest, in my opinion, private foundations and particular in Panama, it's one of the best vehicles there, for asset protection, liability protection.

[00:28:30] Edgar: I mean it was, firstly introduced in around 1995. So I think in June of this year, it has been the 30th anniversary of the law and from the Panamanian side, it was actually a merge between the Liechtenstein, Luxembourg and Swiss private foundation laws at the, at that time, and they kind of merged the together and took the best out of everyone.

[00:28:57] Edgar: But, what I have to say is also that it democratized these type of legal vehicles because let's say like in Liechtenstein, you would have to have like 50K to be able to get access into these type of, products. Also, if you want to get like a Swiss bank account, you have to have a couple of million of dollars.

[00:29:14] Edgar: And in Panama, you with two 5K, you can also have access for these type of legal vehicles that are very important and useful. I mean, these type of foundations, they naturally came for estate planning asset protection, and also kind of like a substitute for inheritance.

[00:29:38] Edgar: So they came for this background and I would say it democratized and make it accessible to everyone, but they kind of were repurposed to be used in this type of web3 decentralized project, especially considered that it doesn't have any shareholders 'cause you in companies would have, fiduciary duty to the shareholders.

[00:30:00] Edgar: In a foundation, it's, a legal entity of its own, but it's set up for a specific purpose and to the benefit of the beneficiaries.

[00:30:09] Edgar: Now to your question, what are the difference? So you, the way you can think about it is that private foundation, it's a merged between a corporation and a trust.

[00:30:20] Edgar: So in Panama both foundations and corporations, they have legal personality. While trust, they don't. It's just a contract, right? And when it comes to the registration requirements, at the same time, foundations and companies needs to be raised in the public registry. While that is not mandatory for trust I would say also one of the biggest difference is whether it is a for-profit or non-profit entity.

[00:30:47] Edgar: So companies are naturally for-profit legal entities. While foundations are still non-profit vehicles. Now, it doesn't mean that they won't have money, right? So you can have like foundations and let's say like NGOs that have millions of dollars in management.

[00:31:08] Edgar: But then, at that foundation level, you would still have to to put it back into what are the purposes of that foundation, right? So that foundation can still do commercial transactions and activities, but it needs to be towards the purpose for which they, the foundation was created.

[00:31:28] Edgar: The other difference would be, for example, at the management executive level.

[00:31:33] Edgar: So in corporations you would have a board of directors, and in Panama, the minimum is three. It can be either legal entities or individuals while in the foundations the minimum is one, if it's a legal entity, or three if they are individuals. And these directors are called the Foundation council and the members the foundation council members.

[00:32:02] Edgar: What else? Which type of vehicle would be used for each of the roles? So, in my opinion, at least for token insurance would be a company to run that front end. I would also use a company, especially if, for example, the platform is generating fees, whether that's from a form of commission.

[00:32:23] Edgar: And then for the Devco, I would also, I will also use one, one company. Now that Devco can be in Panama, but that's not typically the case. We normally, recommend having that closer to the jurisdiction of the founders, or if not, then to incorporate it in a tax, neutral tax rate jurisdiction.

[00:32:45] Umar: Got it. So that Sociedad Anónima is not really used for like Web3 companies.

[00:32:50] Edgar: Sorry?

[00:32:51] Umar: The Sociedad Anónima is not really used for Web3 companies, if I understood correctly?

[00:32:57] Edgar: No, Sociedad Anónima, it's corporation.

[00:33:00] Edgar: Yeah, the thing is that if you translate it like literally, it just, it's called like anonymous society. So it's just a weird form. But yeah, we normally call it a corporation.

[00:33:10] Edgar: Whenever you are talking about a corporation, or company, it's normally technically speaking as Sociedad Anónima.

[00:33:18] Umar: Got it. Okay. That's clear. Now I wanna go through another topic, which is around bearer shares. So just a quick, to give some quick context for the listener.

[00:33:29] Umar: So bearer shares as opposed to registered share, they are when ownership is not registered to a name, instead the person physically holding the share certificate is considered the owner. Bearer shares are quite restricted and banned in most countries due to, yeah, their misuse on money laundering or tax evasion.

[00:33:50] Umar: But Panama still allows bearer shares, but they must be immobilized with a registered custodian. I'm gonna ask you, yeah. how does Panama treat bearer share today compared to registered shares? The process for the custodian to hold that certificate typically in escrow, and then what would happen when you sell all, you transfer your shares.

[00:34:12] Edgar: Got it. I mean, in my opinion, bearer assures in Panama, it's a thing of the past. It's not really used today, it's still possible to use them. But I would say from the large majority of companies in Panama, it is a very little set of companies more, old companies that used to have them and they continue to have them.

[00:34:34] Edgar: But nowadays, most of the companies have nominal shares as opposed to, bearer shares. If you decide to have bearer shares, you do need a custodian. That custodian would still need to have KYC on you. Identify the UBO and if there is any change of ownership, then you will need to notify that custodian.

[00:34:55] Edgar: So I think practically speaking, it's not really a that suitable of an instrument as it used to be. I think, after, and it's been a long time since then, I would say. I think it was the law 47 of 2013. So after 2013, 2014, 2015, it, they were completely like almost eliminated, I would say. And also, practically speaking, if you have nominal shares, it's also not a requirement to be registered, so you can have nominal shares under your name.

[00:35:29] Edgar: Those shares are not going to be register in the public registry. It will still be kept as a private document. Yeah, so I, I would still go for nominal shares. I think this like a more of a standard now.

[00:35:42] Umar: Now when preparing the episode, I researched what DAOs have set up a Foundation in Panama and I came across a famous example of SushiSwap. So back in 2022, Sushi DAO passed a proposal to use one Cayman entity and two Panamanian entities. The Cayman Foundation is responsible for Sushi DAOs activities related to on-chain governance and off-chain activities. These include administering their treasury and grants.

[00:36:09] Umar: And for the Panamanian entities, there's a foundation responsible to administer the Sushi protocol, including all the smart contracts. And then there's the corporation that manages the front end development of the protocol like the Lab Co. So you've already explained yeah, the Panamanian Foundation, but for listeners navigating a DAO Foundation setup, maybe could you walk us through what's different to what you have already explained when setting up a DAO in Panama?

[00:36:39] Edgar: Yeah. I think, it's a great example. I think even after Sushi, it was, I think 2022, Panama started to get more crack and it has been increasingly an attractive jurisdiction since then. Yeah, so I think, every law firm and every lawyer has its own opinion on how to set up and structure things.

[00:37:00] Edgar: And I think at that time they were still kind of exploring what's the role of each of the entity. I would still concur that, let's say a Cayman Foundation for governance of the protocol is a good idea and that front end would be run through a Panamanian company, for example. That's perfectly fine.

[00:37:19] Edgar: Now, when it comes to the protocol itself, there's a big debate on how and where to deploy it and so on. It also depends on the jurisdiction, right? So in some jurisdictions, the deployment of that, protocol, especially if it's something related to, let's say, like a perpetual trading platform, derivative or a borrow and lending protocol, might be considered a regulated activity.

[00:37:44] Edgar: So I think in these type of cases, it's useful to have a separate subsidiary entity that it's only responsible for that protocol. Now that, whether that it's a foundation or a company, I would say I would go for a company in this case. But again, you as a lawyer, as a crypto lawyer especially, you will still want to be very flexible and to try to things, you know, to discuss things out.

[00:38:09] Edgar: And what is the best type of structure to propose to your clients?

[00:38:14] Umar: Now, what are the implications if the DAO makes distributions to their token holders, like in Panama?

[00:38:23] Edgar: Well I think that is one of the specialties and difference of why doing it through corporation or a foundation. As I said before, you would only have in a corporation, especially like based on case law, that the duty of that company and the directors running that company, it is to the shareholders.

[00:38:45] Edgar: But what about DAOs? Not necessarily, the shareholders of a company, right? But you can also still have some type of rights or votes over the decision making of that specific project or protocol. So I think in that sense, having a foundation in place, it's very beneficial to kind of unilateral unilaterally provide a specific set of reward, for example, for a token holder as opposed to a company.

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[00:40:53] Umar: My next question is probably something you get asked a lot and I'm sure the listeners would also love to know, is the difference between then a Cayman Foundation and a Panama Foundation. So we talked a bit about the Panama Foundation, but the Cayman Foundation is used quite a lot. And could you walk us, like, if you had to summarize like the differences between a Panama Foundation and Cayman Foundation, what would those be?

[00:41:18] Edgar: Right, so it's a good question. I mean, I'm not a Cayman lawyer, but from my experience, first it's the type of entity. So in Cayman you would have. Cayman Foundation Company. So it's, it is a accepted company by guarantee normally where you have members and then that those members would resign effectively becoming an ownerless foundation.

[00:41:41] Edgar: So in, in Panama that it's not the case. So the type of entity is technically called a private interest foundation. So it's an actual foundation as opposed to a company. And that would also maybe affect some aspects in terms of taxes and how these entities are treated on jurisdictions. You know, if you're looking at, let's say a company, then some you need to ask about CFC and tax and the tax avoidance rule.

[00:42:09] Edgar: Then if you are looking at, let's say, being a beneficiary of a foundation, you can possibly look at inheritance concerns or taxes as well. So I mean, it depends jurisdiction by jurisdiction, but it would also be related to, not necessarily legal, but tax questions. The other difference it would be, for example, the directors.

[00:42:31] Edgar: So as I said before, in Panama, the minimum of director is three. Legal entities are individuals and I think in Cayman it's only one. The other difference would be maybe the filing process. So in Cayman, normally it's the secretary that is responsible for the filing of the entity. While in Panama it's more of a responsibility of the resident agents. So us law firm.

[00:42:54] Edgar: Then the big important difference would be economic substance. So you would find economic substance regime in both Cayman and BVI. While Panama still doesn't have an economic substance regime, they only have something along those lines for a multinational regime company. So multinational asset wants to establish in, in, in Panama, they still have some type of regulation or a couple of provisions along those lines.

[00:43:22] Edgar: But in general terms, there is no economic substance in Panama. And so I think if you look at the law and what it's accomplished in terms of legal protections and so on, it's pretty much similar, in my opinion at least. I think the differences are more of practical implications. So I would say one of the thing would be, let's say reputation or familiarity, especially with investors.

[00:43:52] Edgar: So like Cayman Islands has been naturally jurisdictions for investment funds. While Panama doesn't really have that reputation, right? The other would be kind of the services providers. So the level of, let's say sophistication and complexity of the providers in Cayman, it's very high.

[00:44:13] Edgar: Like I know a lot of providers, whether those are accountants, law firms, and so on from Cayman Island, and it's very high as well as the regulators. And I think in Panama it's still a bit hard to find a good provider that really knows what they're talking about. And I would say we're one of the most, if not the most, like active, actual active law firm in this niche in Panama.

[00:44:38] Edgar: I think it's also a matter of how developed and mature the market is. So you would have a lot of these specialized providers, let's say Cayman & BVI, because it has been a popular destination jurisdiction for already, a couple of years, five, six, seven years, while I think Panama is, has been getting more popular recently.

[00:45:03] Edgar: So I think also providers are trying to catch up into what is the best way and really understanding this type of products and clients.

[00:45:12] Umar: Now, I'm not the expert on this. Obviously you are, I'm trying to figure everything out as you're speaking Edgar, but the main value prop of that Cayman Foundation is that it offers this ownerless foundation and, probably that's why the Sushi DAO, like everything related to their on chain governance is done through the Cayman Foundation.

[00:45:31] Umar: Does that mean like, yeah, the DAO setup would not, like Panama, would not then be a popular place for the DAO setup, because it cannot be an ownerless foundation?

[00:45:42] Edgar: So this is not the case. You would still have a lot of foundations used to either wrap or interact with DAOs from Panama Foundations.

[00:45:50] Edgar: And also, it is still ownerless memberless foundation. So in a Panama Foundation, you would have three main, let's say personal elements. You would have a founder, which is the person that you makes the unilateral declaration to create that foundation. Then you would have the executive body, which is the foundation council members.

[00:46:12] Edgar: So kind of the board of directors of that entity. And then you'll have the beneficiaries. Now the beneficiaries and aside of that, there are two main documents in terms of the legal constitutional documents. So you have the Foundational Act, which is kind of the charter and constitutional document, and then you would have what's called reglamento, which is translated like a, your bylaws.

[00:46:33] Edgar: So it's kind of a more detailed but private document where you can state, for example, what are the assets that hold the foundation, how are they going to be managed, distribute, etc. And within that, you either have two options. You can expressly state who are the beneficiaries of that foundation, or you can keep it up open-ended and only state the way in which beneficiaries are to be appointed.

[00:46:57] Edgar: So yeah, to answer your question, you can still use Panama Foundations for DAOs and it would still be ownerless Foundations with no direct shareholders or owners.

[00:47:08] Umar: Got it. Thanks for clarifying that. Now, as of 2025, so Panama remains on the EU’s list of non-cooperative tax jurisdictions, although it was recently removed from EU’s AML “high-risk” third country list in June, 2025 and the FATF Grey List in late 2023.

[00:47:30] Umar: So reputation concerns still exists, but it's clear that Panama has made a lot of progress on transparency and compliance. So I want to ask you, in practice, do these reputation risk affect web3 projects incorporated in web3 maybe when it comes to attracting VCs or banking or yeah transacting with other parties in more like regulated jurisdictions?

[00:47:56] Edgar: Right. I think a better question to ask is. Why isn't the biggest money launderers in the world aren't in that list? I mean, maybe it's like a personal opinion, but I think that's the biggest question to ask. And if you really think about it, then it can give you a bit more context. Right.

[00:48:19] Edgar: So I mean, I think, to be honest, a lot of these leads have been used to apply pressure to countries and it's kind of a cartel, right? If you control a route and then you have a competitor that is also using this route, you might want to eliminate it or at least cripple them. So I think it's a good analogy to put into Panama.

[00:48:39] Edgar: So it's not like, I mean, of course there are something money laundering rules, but in my personal opinion, it's more about attracting more capital into their financial centers, more than anything in reality and in terms of reputation yeah. So Panama has received a huge amount of pressure, I would say after 2015.

[00:49:06] Edgar: Not even when we were included in the list, but before that, with Panama Papers and all of that. Yeah, we were included in the FATF list, then we were removed from it. We also get recently removed from the AML European list, while still remain the high risk jurisdictions. But how really it affects crypto?

[00:49:29] Edgar: Not really. So a lot of these companies, they don't really have, bank accounts for example, or they do it in some type of way. So, it depends on how the projects it's planning to run. So some of these clients, they decide, Hey, we want to have everything on chain, and that's it. But, even in that aspect, you still have quite a few options that people don't know.

[00:49:55] Edgar: So, Panama is actually quite crypto friendly. I would say both the people on site and also the government. So it's kind of, they have maintained, neutrality and also kind of a less fair approach. You have in terms of bankings a few options in Panama and also outside of Panama that work with Panamanian entities. And in terms of investment, I think it would, it used to be a more of a thing in the past and I think since it has been getting some popularity investors are feeling more comfortable allocating money into Panamanian entities because there's already a track record of it. So it has been increasingly in, in popularity, but still have some reputation issues yes.

[00:50:42] Umar: That's why I wanted to have you, Edgar, to debunk all these myths around Panama because you're the guy who sees everything in practice.

[00:50:49] Edgar: Yeah. I can tell everything about Panama, the good, bad, and the ugly.

[00:50:55] Umar: Yeah. And so you mentioned banking. Are there examples of that you could share around some crypto friendly banks in Panama?

[00:51:04] Edgar: Right. So in terms of banking, there are two local banks that are "crypto friendly". One called it's Tower Bank, and the other one it's called Canal Bank. Tower Bank was kind of the pioneer. They were really the ones that started this process from the banking perspective in Panama. Very crypto friendly.

[00:51:23] Edgar: Well to one extent, but at least if you're opening, let's say an individual account, you. Hey, I want to set up a, an account in Panama with Tower Bank. Can I do it abroad? Yes. Can I, change Bitcoin to USD? Yeah, so you can actually, A. Receive crypto related funds and B. do the off-ramp directly through the bank.

[00:51:47] Edgar: And so this is like a good option. And then kind of the competitor right now and more inclined to companies and institutional side, it's Canal bank and recently there's, there was also the announcement, the mayor of Panama was in Bitcoin 2025 in Las Vegas this year. And he made the announcement that the second largest state bank, it's called Caja de Ahorros.

[00:52:11] Edgar: It's also going to be accepting Bitcoin. Now that is, that's not completely true. I would have to say. What it's given is the ability for people to deposit Bitcoin for example, and for that Bitcoin to be a change into US dollars in your account. So the bank is not actually holding like a Bitcoin wallet but you are able to deposit Bitcoin and then convert it into USD.

[00:52:38] Edgar: There was also the recent announcement of this same measure that you're able kind of to do the same thing for paying taxes in Panama in the district of Panama. So you're able to pay your taxes in Bitcoin thinking also in stable coins, and I'm not sure if also like in Ethereum. So that, that's option number one.

[00:52:59] Edgar: I will have to say it's still very painful. So it takes a lot of time dealing with local Panamanian banks. The compliance process, it's huge. Like I really, people talk about reputation in Panama, but if you really talk about like, how practical things are doing it, like to set up an entity, you need to have you know, passport, second ID, taxpayer certificate or tax declaration, bank commercial reference, proof of utility bill or address.

[00:53:32] Edgar: You can set up a company Delaware today or, and without like even having to present a passport, you know, and same with the banking. Like it, they really take their time to go through compliance and it's not really, I would say only about the local banking sector, but it's also because of the pressure that they receive from correspondent banks.

[00:53:57] Edgar: And where are the correspondent banks from Panamanian Banks, they are all in the US. So this is why it's not necessarily the case that banks don't want to go ahead full crypto. It's just the risk that represents coming from the correspondent banks that are going to affect your business.

[00:54:15] Edgar: Now, so this first option, second option, it's working with banks outside of Panama that work with Panamanian entities.

[00:54:24] Edgar: And there's a bunch of them. You have a couple of one in the US, you have in Puerto Rico. You have in a couple of ones in Nevis, UK, Switzerland. And you would, you can also open corporate accounts with EMI, MSBs, which are not necessarily bank accounts, but for practical terms you would have a corporate account.

[00:54:46] Edgar: You have a lot of the times the option to do off-ramp. For off-ramp, you also have a couple of different options. One of the sponsors, I think it's one of them Request, which we use every day. So they offer, also offer, crypto off-ramp. It also works for Panama. You would have things like OneSafe, Cypher Wallet and so on.

[00:55:08] Edgar: And there are different options to do in the conversion between Crypto and Fiat.

[00:55:14] Umar: Yeah, those are good examples. So you said OneSafe, Cypher and Request Finance. So given that banking is a challenge, I want to ask you, do you even then recommend Token SPV, Foundation to have a bank account? Can they be fully bankless given that all these tools now that allow you to do off ramping?

[00:55:32] Umar: So if you have to pay a vendor. You just use the crypto in your treasury and it just off ramps like the tool takes care of the off ramping and the beneficiary just receives fiat. So do you even need a bank at the end of the day?

[00:55:46] Edgar: So it really depends on the project and also the ability to get the bank account would also , depend more on the project.

[00:55:53] Edgar: So it's not necessarily the case, on whether or not they accept Panamanian companies. It's less about the jurisdiction, it's more about the business use case. So really understand what is the business, are they generating revenue and the financial profile. The, you here you're talking about minimum deposits.

[00:56:12] Edgar: What is the volume of transactions and so on. I would say it would rely and depend more on that than the fact that it's a Panamanian company and also of course, you know, what are your compliance measures? So what type of AML you know, measures and controls do you have in place?

[00:56:33] Edgar: Do you have a an AML policy? Do you do KYC? Have you done KYC for your investors or not? Do you do it for you, your users? So it really depends on a case by case basis. If it's more, let's say, I would say like a centralized, a more traditional business use case, it would be easier to get an account if you have a token you have, it's more a decentralized project, it would be more hard to get an account for you.

[00:57:01] Umar: Yeah. Perfect. Alright, so we've spoken a lot then about incorporation in Panama, and I think now it's time to speak about Pacifica Legal. So in light of everything we've discussed, Edgar, could you provide an overview of the services that you provide?

[00:57:17] Edgar: Right. Awesome. Yeah. So we are, I'm a partner at Pacifica Legal.

[00:57:23] Edgar: It is a Panamanian based law firm, and we are one of the most active law firms in crypto in Panama. We have incorporated, I think by now more than 300 crypto related entities and our clients are, you know, different and they vary a lot. So anything from Layer1s, Layer2s centralized changes, decentralized changes, borrow and lending protocols, perpetual derivative products, crypto wallets, meme coins, NFTs, like really, you name it.

[00:57:56] Edgar: And we do a lot of corporate structuring for, so all of these companies and foundations. Then any type of token launch, so your SAFTs, SAFE plus token warrants, any of the legal work that you would need. So terms of use, privacy policy and intercompany agreements, as well as general legal advisory.

[00:58:17] Umar: Perfect. And in terms of like onboarding, how would that typically work? Yeah, do you recommend like founders just before coming to you to do some homework first?

[00:58:26] Edgar: Yeah, I can even send you like a guide on foundations that I have. I think that's really useful for people to understand it and what are their requirements, how are they used and so on.

[00:58:35] Edgar: In terms of onboarding, it's quite easy. We're quite responsive, I think also for crypto law firms and I think that. You need to be more quick and flexible. So we use a lot of telegram, Signal, WhatsApp. I think that you also develop a more closer relation with your clients and yeah, you would still need to have some KYC in place, but as long as your KYC it's okay, and your screen is, it's right, then you're pretty much ready to set up your your company on foundation.

[00:59:09] Umar: Perfect. Edgar, we've spoken quite a bit. I have a last question, which is around compliance requirements, like for these web3 companies in Panama? Yeah. What would be some of their annual filing requirements? Taxes, financials? Is an audit also required?

[00:59:27] Edgar: Right, so it's a good question. In principle audit, it's not required in terms of filing.

[00:59:32] Edgar: It would depend whether that company has activities in Panama or not. In the majority of cases for crypto web3 projects, we typically recommend having these entities of offshore entity, meaning that they won't offer their services of products to Panama. But from Panama outside, we even actually recommend geoblocking the country in some of these cases so that there's no argument that you're actually promoting or offering the services locally.

[01:00:02] Edgar: So it's a completely offshore entity. If the income it's produced outside of Panama, it's non-taxable income, so you don't need to file a tax return for that, but you still need to have your accounting records. So this also of the additional compliance requirements that was introduced.

[01:00:23] Edgar: So every entity needs to have accounting records in place that would normally come in the form of a balance sheet and profit and loss statement (P&L) and for crypto we also recommend you know, putting all of the crypto matters into that balance sheet or statement. And in terms of the accountant, that can be an accountant outside of Panama or it can be also a Panamanian CPA and there's no requirement for it to be a Panamanian and that's pretty much it, that obligation. It's every year. So you would have until April of each year to present to us as resident agents a copy of those accounting records. So it is not that registration, it's just that. You need to present them to the resident agent, and if required, then the resident agent needs to provide it to the authorities.

[01:01:15] Umar: Perfect. Edgar, I'm seeing we're a little bit above the one hour mark. I think we can wrap up the episode for today. As closing thoughts, yeah has there been anything that you didn't, that we didn't go through that you wanna share with the listeners? Or how would you summarize the episode of today and any advice for founders, DAO operators looking at Panama, but, not sure.

[01:01:42] Edgar: Awesome. I think, something like keep it flexible and up to date. So for a lot of us, you have to have a flexible and creative mindset. So not all of the projects or products are the same. You really need to go deep and understand what is the product, who are the user base, how are they getting funded to really understand and give the best strategic, legal or tax solution for each of the cases.

[01:02:14] Edgar: And also keep up to date with the events and the development of the industry. I mean, there's always, like, technology always will move faster than regulation, right? So, but even on the regulatory side, things are moving quite fast. So yeah, keep your eyes on what are the new trends in both the technology and also the regulatory aspects.

[01:02:38] Umar: Perfect. Thanks for sharing. There's a last question that I usually ask to my guests before they leave. It's like a tradition, Edgar. It's do you have like a favorite quote or like a maxim that you live by? Not necessarily live by, but yeah, you maybe repeat it yourself every now and then.

[01:02:55] Edgar: Oh man. I'm not a quote guy, but yeah we can do it like, as I said, keep it flexible and up to date.

[01:03:03] Umar: Perfect. Thank you. And if people want to reach out to you, Edgar, or they want to learn more about Pacifica Legal, where should they go? Where should they reach out to you on socials?

[01:03:13] Edgar: Yeah, so you can reach out to us in our website. It's called Pacifica.Legal or you can reach out to me in Telegram as well.

[01:03:22] Edgar: I'm not sure if I should put my telegram out there, but, yeah, you can reach out to, I think, best through our website.

[01:03:30] Umar: Perfect or LinkedIn maybe.

[01:03:31] Edgar: Yeah, LinkedIn is okay also. It's Edgar Young.

[01:03:35] Umar: Perfect. Alright, so thanks a lot Edgar, and we'll be in touch.

[01:03:39] Edgar: Alright, awesome. Cheers.