Panama, despite its small size, is an attractive jurisdiction for companies because of the many advantages it offers. These benefits vary depending on the type of legal structure chosen by the company. Panama is also an attractive destination for foreign direct investment. The country is characterized by political stability, a strong economy, and a strategic location that is ideal for trade. The Panama Canal provides access to markets in Latin America, North America, and Europe.

Panama offers a favorable tax system that does not tax income earned outside the country. This makes Panama an attractive place to do business, especially for companies that derive most of their profits from abroad. However, to take advantage of this benefit, companies must comply with certain requirements such as having a minimum of 3 directors.

Panama’s services sector is the largest sector of the country’s economy and employs more than half of the population. It makes a significant contribution to the country’s GDP, contributing about 75%. This contribution is distributed among different types of legal structures, including companies, corporations, partnerships, etc.

Panama is an attractive country for foreign investors due to its trade liberalization policy, numerous free trade agreements, and the presence of free economic zones. For example, the Colon Free Trade Zone is the second largest in the world and has an annual trade turnover of over 10 billion dollars.

All of this makes Panama one of the most open economies in the world, making it attractive to foreign investors, and an ideal country to start a business company.

Company Structure Options in Panama

The first step in the company registration process is to choose the appropriate structure for your business. In Panama, entrepreneurs are given a choice between simple and more complex business forms:

  • Individual Entrepreneur. This is the simplest form of doing business in Panama. It is available to any individual, regardless of citizenship. Only an ID card is required to register an individual entrepreneur. In this structure, the business is owned and operated by one person. This person is fully responsible for all obligations of the business, both financial and legal.
  • Legal Entity. This is a business form in which the business is owned and operated by several people. These people are called shareholders or partners. To incorporate a legal entity, legal approval is required, as well as registration in a public registry. The register must show the names of the shareholders or partners of the company and their investments. Shareholders or partners are not personally liable for the company’s obligations; their liability is limited to the amount of their investment.

Types of Companies in Panama

In Panama, there are several types of companies to register for businesses of all sizes and industries. The most common types of companies in Panama are:

Sole proprietorship
This is a business that is owned and operated by one person. A sole proprietorship is the simplest type of business, but it does not provide limited liability protection for its owners – the founder of the company is responsible for everything the business does, both financially and legally.

Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L.)
This is a popular choice for small and medium-sized businesses in Panama. A limited liability company requires two to five founders. The liability of the members is limited to the amount of capital contributed, and there is flexibility in management and profit distribution. This means that the personal assets of the members are not at risk if the company incurs debts or liabilities. The share capital can be in any currency.

Corporation (Sociedad Anonima, S.A.)
This is the equivalent of a public limited company. A joint stock company requires between three and 50 founders of any nationality and allows for the issuance of shares. The person who has invested in the company is liable only to the extent of his investment.

Closed Joint Stock Company (Sociedad Anónima Cerrada, SAC)
This is a form of organization similar to a public limited company (Sociedad Anónima, SA), but with restrictions on the transfer of shares. In a closed joint stock company, shares cannot be freely formed on the open market, and their transfer is often dependent on the consent of other shareholders or the company’s limited articles of association.

Non-profit organizations (Fundaciones sin Fines de Lucro)
These are legal entities created for charitable, religious, or educational purposes. Non-profit organizations are exempt from income tax in Panama.

International Business Companies (IBC)
These are offshore companies that are not taxed in Panama. IBCs are often used to hold assets, conduct international business, and protect financial privacy. A minimum number of shareholders and directors are required to incorporate an IBC. Shareholders can be citizens of any country and directors can be individuals or corporations. IBCs are not required to disclose their financial information to the public.

The best type of company for your business will depend on several factors, such as the size and nature of your business, your tax objectives, and the level of privacy desired.

Process for Opening a Company in Panama

  • Stage 1
  • Stage 1

Choosing a company type and name

The best type of company for your business will depend on several factors, such as the size and nature of your business, your tax objectives, and the level of privacy desired. As for the name, it should not be the same as the existing names of companies already registered in the country and should contain an abbreviation that indicates its legal form. You should check the availability of your chosen company name at the Public Registry of Panama.

  • Stage 2
  • Stage 2

Preparation of incorporation documents

For each organizational-legal form of the company, there are different requirements for the constituent documents. As a rule, the incorporation documents must contain the following information about the company:

  • title;
  • purpose of business;
  • registered address;
  • amount of authorized capital;
  • composition of founders;
  • composition of directors;
  • management structure.
  • Stage 3
  • Stage 3

Registration of the company with the Public Registry of Panama

To register your company, you need to write an application for registration, which must be signed by all founders. Along with the application, you must submit to the State Registry:

  • company documents (articles of incorporation, board of directors’ regulations, general director’s regulations, share certificate for JSCs, director’s consent to perform duties);
  • documents confirming the identity of the founders of the company;
  • documents confirming the place of residence of the founders of the company.

All these documents must be notarized by a public notary.

  • Stage 4
  • Stage 4

Get a tax identifier (RUT)

The Registro Único del Taxyente (RUT) is the unified registry of taxpayers in Panama. The RUT registers all natural and legal persons who are taxpayers in Panama.

This procedure is done through the website of the General Directorate of Revenue (Dirección General de Ingresos, DGI).

To register with the RUT, copies of the following documents must be submitted:

For individuals:

  • passport or other identification document;
  • birth certificate;
  • a document confirming the place of residence.

For legal entities:

  • the memorandum or articles of association;
  • certificate of incorporation of the company;
  • a document confirming the authorization of the company’s representative.
  • Stage 5
  • Stage 5

The registration period is 4-5 working days

Obtain authorization for commercial activities in Panama.

To carry out commercial activities in Panama, you must obtain a permit from the Ministry of Finance and Taxes of Panama. The permit for commercial activities is called “Licencia de Funcionamiento”.

Copies of the following documents are required to obtain a commercial activity permit:

For individuals:

  • passport or other identification document;
  • proof of residence.

For legal entities:

  • the memorandum or articles of association;
  • certificate of incorporation of the company;
  • a document confirming the authorization of the company’s representative.

A permit for commercial activities is issued for a period of 1 to 5 years. The term of validity of the permit may be extended.

The Business Activity Permit is mandatory for all individuals and legal entities conducting business activities in Panama. Failure to obtain a permit may result in penalties from the Panamanian Ministry of Finance and Taxes.

  • Stage 6
  • Stage 6

Open a corporate bank account

Panama’s banking system is one of the largest and most developed in Central America. According to a study by The Banker, the country is home to 41 of the 100 largest banks in the region. Panamanian banks are considered attractive to investors and safe to hold assets.

Many banks in Panama offer corporate bank accounts. The following factors should be considered when choosing a bank:

  • rates and commissions;
  • list of services provided;
  • location.

Industry leaders include Banco General,Bladex and Bancolombia Panama.

The list of documents and requirements for opening a corporate bank account varies from bank to bank, but most often you will need company registration documents, articles of incorporation, and documents confirming the identity and powers of the director. Some banks may require a certificate of the company’s account in another bank or a guarantee from an individual.

The time to open a corporate bank account in Panama is 1 – 2 working days.

Advantages of Company Registration in Panama

Panama’s jurisdiction is attractive to businesses because of its advantages:

Stable economy
Panama is one of the fastest-growing economies in the world. The country’s GDP is growing at 10.8% per year, well above the global average (according to current data, in 2023, Panama’s GDP is about US$76.52 billion and its GNI is US$17,358).

Easy company registration
Registering a company in Panama is an easy and quick process that takes only 4-5 days. You do not need to be physically present in the country or report to the government to incorporate a company. Board meetings can be held anywhere in the world, regardless of where the company is located.

Panama is an offshore jurisdiction that offers corporations complete privacy. It also has bearer shares that allow owners to remain anonymous. Bank secrecy laws penalize the disclosure of account information to third parties. It is important to note that Panama does not have mutual legal assistance agreements (MLATs).

Favorable tax policy (0%)
Panama offers an attractive tax system for businesses. Income earned outside of Panama is not subject to income tax. This means that multinational companies can reduce their tax liability by moving their headquarters to Panama.

Trade advantages
Panama is a country located on a narrow isthmus between North and South America. It is home to the Panama Canal, the most important transportation route connecting the Atlantic and Pacific Oceans. Panama’s strategic location makes it an important trade and financial center. It also has free trade agreements with several countries such as the United States, Canada, and the European Union.

Lack of exchange controls
Panama provides freedom of capital movement for offshore companies. This means that such companies are free to import and export funds from the country without any restrictions.

No nationality restrictions
There are no nationality or residency restrictions for directors, shareholders, and officers.

No restrictions on the amount of share capital
Offshore companies in Panama can be registered with any authorized capital, regardless of its size. They are also not obliged to contribute the full amount of the authorized capital. In addition, Panama allows the issuance of shares with non-nominal value, voting, and non-voting shares.

Communication systems
Panamanian companies can be assured of reliable telecommunications services, as the country has a low risk of natural disasters. This allows them to utilize modern technology and solutions to improve business efficiency.

Requirements for company formation in Panama

Investors can register a company in Panama in various forms, but the most common forms for offshore companies are corporations and limited liability companies.

The main requirements for registering a company in Panama are:

  • name – the company must have a unique name, which includes an abbreviation indicating the legal form of organization (Corp., Inc., SA, etc.);
  • companies must have a minimum of three directors, who can be both legal entities and individuals;
  • foreigners can own 100% of the shares of a Panamanian corporation – there are no restrictions on the nationality of the founder and no residency requirements;
  • presence at registration – the founder of the company does not have to be present at the registration of the Panamanian company;
  • minimum number of shareholders of the company – one person (individual or legal entity);
  • requirements to the authorized capital of the company – there are no requirements (the standard is about 10,000 US dollars, and there is no requirement for the actual contribution of this capital to the company’s account);
  • fees – companies are required to pay a one-time fee upon incorporation, and pay an annual fee to the government.

Government fees to register a Panamanian company

The state fees for company registration in Panama are payable to the Panamanian Ministry of Commerce and Industry (MICIP) and are:

  • US$500 for corporations;
  • US$250 for limited liability companies.

In all subsequent years of the company’s existence, it must renew its registration annually. The amount of the state fee for renewal of the company’s status is the same as for registration.

Legislative Basis in Panama

The legal framework for business in Panama is primarily governed by the following laws:

Panama Commercial Code
This code establishes the general framework for the creation, operation, and liquidation of companies in Panama. It also covers topics such as contracts, intellectual property, and bankruptcy.

Panama Civil Code
This code deals with general concepts of civil law such as property rights, contracts, and torts. It also contains provisions on family law and inheritance.

Panama Tax Code
This code describes the various taxes that apply to businesses and individuals in Panama. It also guides tax filing and compliance procedures.

Labor Code of Panama
It is the legal framework governing labor relations in the country. This code establishes the rights and obligations of both employers and employees. The code regulates the conclusion of labor contracts, the rights and obligations of the parties involved, and the terms and conditions of employment. It also establishes working hours, breaks, and overtime and determines the minimum wages that employers must pay their employees.

In addition to these basic laws, several other laws and regulations govern certain aspects of business in Panama. These include Law No. 45 on Consumer Protection (2007) and Law No. 81 on Personal Data Protection (2019).

The government of Panama has also enacted several laws and legislation to attract foreign investment and promote economic development. These include Law No. 32 on Free Trade Zones (2011).

The legal framework for business in Panama is generally considered modern and business-friendly. The government has made a concerted effort to reduce red tape and streamline the regulatory process.

Tax Obligations in Panama

Panama’s tax system is one of the most competitive in the world. This is because Panama has a territorial tax system, which means that income earned outside the country is not taxed. This applies to both individuals and companies.

Panamanian companies that do business in Panama or employ workers in Panama are required to pay income tax. The corporate income tax rate in Panama is 25%. This is a flat rate, but several exemptions and incentives can reduce the rate to 0%.

In addition to corporate income tax, Panama has several other taxes that apply to businesses and individuals. These include:

  • value Added Tax – this is a tax on goods and services that applies at a rate of 7%;
  • social tax – applied to wages and salaries at a rate of 9.75% for employers and 12.25% for employees;
  • property tax – applies to the value of real estate at a rate of 0.25%.

If a Panamanian company does business outside Panama, it is exempt from all local taxes, including income tax, capital gains tax, dividend tax, and stamp duty on transfers of corporate taxes and other property.

Reporting Obligations in Panama

Corporations incorporated in Panama must comply with several reporting obligations, including:

  • Accounting records. Entities that do not do business in Panama or are only asset holders must keep their books of account and supporting documents for at least five years. They must make this information available upon request by the competent authority.
  • Annual Tax Returns. Corporations must file annual tax returns with the Dirección General de Ingresos (DGI). These returns must disclose the company’s income, expenses, and other financial information.

Individuals earning income in Panama must also comply with reporting requirements. These requirements include:

  • Annual tax returns. Individuals earning income in Panama are required to file tax returns with the DGI each year.
  • Foreign income information. Individuals who receive income from outside Panama are required to notify the DGI of such income, including income from investments, pensions, and other sources.

Legal entities and resident agents who fail to comply with accounting and reporting obligations are subject to fines ranging from $5,000 to $1,000,000. The amount of the fine depends on the degree of culpability, the presence of recidivism, and the extent of the violation. In addition, the management rights of the legal entity may be temporarily suspended, or the legal entity itself may be compulsorily liquidated by the DGI.


How to open a company in Panama?

The process of starting a business in Panama includes choosing the type and name of the company, registering with the Panamanian Registry, obtaining a tax number, and opening a bank account. You can find out more about this from Fast Offshore Licenses’ business consultants.

How much does it cost to start a company in Panama?

The cost of starting a company in Panama can vary depending on various factors such as the type of company, agent services, office expenses, and other additional services. The government fee to register a company in Panama for corporations is $500 for corporations and $250 for limited liability companies.

How long does it take to register a company in Panama?

The whole procedure of registering a business in Panama takes about 4-5 days.

Why is company registration in Panama so popular today?

Company registration in Panama is popular due to favorable tax conditions (0% tax), political stability, and privacy laws. The simple incorporation process, flexible company structures, and strategic location for international trade make the country attractive to businesses seeking offshore opportunities.

How to open a bank account in Panama?

To open a bank account in Panama, you need to choose a bank, prepare the necessary documents, submit them to a bank employee, go through the process of identity verification and, after your application is approved, receive the details of your current account.

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