Open Company Panama

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.

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:

1. 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.
2. 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.

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.

After incorporation, Panamanian corporations pay an annual franchise tax (Tasa Única) of USD 300, due on 15 July or 15 January depending on the date of 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 security contributions – 13.25% of salaries paid by the employer (rising to 14.25% from 1 March 2027 and 15.25% from 1 March 2029) and 9.75% withheld from the employee;
• property tax – applies annually at progressive rates of 0% to 1% of the cadastral value, depending on the value and use of the property.

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.