Explored and settled by the Spanish in the 16th century, Panama broke with Spain in 1821 and joined a union of Colombia, Venezuela, and Ecuador - named the Republic of Gran Colombia. When the latter dissolved in 1830, Panama remained part of Colombia. With US backing, Panama seceded from Colombia in 1903 and promptly signed a treaty with the US allowing for the construction of a canal and US sovereignty over a strip of land on either side of the structure (the Panama Canal Zone). The Panama Canal was built by the US Army Corps of Engineers between 1904 and 1914. In 1977, an agreement was signed for the complete transfer of the Canal from the US to Panama by the end of the century. Certain portions of the Zone and increasing responsibility over the Canal were turned over in the subsequent decades.

Panama is home to thousands of financial institutions and international corporations serving primarily the markets of Central and South America. Corporations are governed by Panama's Commercial Code which is modeled on Delaware corporate law. The legal system is a civil code system similar to many European countries such as Switzerland and Liechtenstein. The national currency is the U.S. dollar. Spanish is the official language and English is widely spoken, particularly within the financial industry.

Panama is a desirable jurisdiction for operation of offshore corporations and foundations due to its established banking infrastructure and strict banking and financial secrecy laws. Panama is a well respected international trade and banking center. Privacy and confidentiality are constitutionally protected. Unlike many banking centers in the European Union, Panama does not have mutual legal assistance treaties with other countries.

One of Panama's most popular business structures is the foundation. Panama offers both a Private Interest Foundation and a Charitable Public Foundation which operates for charitable purposes only. Private foundations may be established for the benefit of individuals, a family, or a specific social purpose. The rules governing Panamanian foundations are modeled after Liechtenstein law.

The Private Interest Foundation is a hybrid between a trust and a corporation. It is a legal entity without owners, has a specific purpose, and a general group of beneficiaries. Foundations can be useful when a person wishes to control a foreign corporation but wishes to avoid ownership in order to simplify reporting requirements, such as those concerning controlled foreign corporations. Rather than owning shares individually or in bearer form, ownership may be transferred to a foundation with a predetermined purpose and anonymous beneficiaries. Foundations are also useful for establishing bank accounts and transferring and receiving funds. It is possible to donate funds to a foundation which later provides educational or other benefits to family members, thereby avoiding multiple gift taxes and onerous reporting requirements.

Panama is the second most popular jurisdiction for Class A banks (by number of licenses), with about 80 through 2006. However, it has not issued any new licenses in several months and many believe they will drastically rework their offshore banking laws. The strength of Panama is its location and privacy. Its weaknesses are the US$10,000,000 in corporate capital for a Class A or US$3,000,000 for a Class A Restricted and difficulties in newly licensed banks getting correspondent relationships. The restricted license is the most common in Panama, with only two unrestricted banks.