Panama has an established financial sector and it offers a number of advantages to investors, among which easy and fast company formation, favorable tax policies and liberalized trade, to name only a few.
There are several types of companies in Panama that can be incorporated by investors and each has its own characteristics and advantages. Our team of Panama incorporation agents presents these business forms and can assist investors who wish to open one of these business types.
The companies set up in Panama are incorporated as per the Corporations Law and follow different types of other regulations.
Entrepreneurs can choose between simple forms of business, such as the sole proprietorships or more complex business forms, such as the corporation.
The usual forms of business in Panama are the following:
sole proprietorships: owned by a single individual who is fully liable for the business with his own assets.
partnerships: two or more people who start a business together; there are two types of partnerships, detailed below.
corporations: the most commonly used business form, the company is a separate legal entity; it is also used for Panama offshore company formation.
the commandite company: this is a hybrid that combines the characteristics of the partnership and those of the company.
Company types, described by our Panama company formation agents
Investors are advised to understand the particularities of a certain business form before they commence the incorporation procedure. This is because each business form has its own requirements and it allows for different degrees of liability.
A sole proprietorship is a basic form of business, operated by a single member, with unlimited liability on the company’s debts. His personal assets are not protected if the business cannot cover its debts.
The individual limited proprietorship (known as Empressa Individual de Responsibilidad Limitada) is a more complex form of business, where the investor has the liability limited by the assets invested in the business.
The general partnerships in Panama are forms of business registered by two or more members, with unlimited liability to the company’s debts. The profits are divided equally among the partners and if one partner cannot be a part of this arrangement, the partnership may be dissolved. The decisions are taken by all the members of the partnership.
A limited partnership (Sociedad de Responsibilidad Limitada) is formed by at least two members and maximum of twenty. It is regulated by both the Commercial Code and the Law no 24 of 1966. The partnerships major decisions are taken by the general meeting in case there are more than five members. The annual accounting and financial statements are not mandatory. The name of the members and details regarding the owned shares must be registered in the Republic of Panama Public Registry. The liability of the partners is limited to the amount of unpaid but subscribed capital. Partners who wish to do so can appoint an administrator and in this case, his name will be registered upon incorporation. When the limited partnership has few members, five or less, there is no mandatory condition to hold meetings. Larger ones are required to hold a meeting one a year. Another advantage of this partnership is that it is not required to file annual returns. One of our Panama company formation agents can provide investors with more details about these accounting requirements.
A civil partnership is formed especially by professional members with unlimited liability in the company. This business form can be used by accountants or lawyers or other professionals.
A corporation (also known as Sociedad Anonima) is formed by at least two founders and must have after registration at least one shareholder. The Articles of Association must be notarized and then registered at the Public Registry. A Notice of Operation is necessary in order to perform certain business and commercial activities. The management of this type of company is assured by at least three managers organized in a Board of Directors and with the name stipulate din the Articles of Incorporation. The capital of the corporation is divided into shares which describe the rights and the obligations of the owners. Even the right to vote is attached to the shares. It has at least three directors and must have a resident agent. This company can issue shares of various classes (with or without par value).
The limited liability company (LLC) is another popular business form along with the corporation. These two business forms are commonly used for Panama offshore company formation. The LLC has a minimum of two shareholders and at least one administrator as well as a registered agent. A foreign LLC can also function in Panama, provided that is follows the registration formalities. For this purpose, the foreign legal entity will be asked to provide the translation of its Articles of Association, the Board minute that authorizes the registration of the Panama company as well as other documents such as copies of recent financial statements. The foreign LLC will also be subject to the registration taxed and annual fees that apply to companies in Panama. Foreign companies can move their seat, or their place of management, from their original foreign jurisdiction to Panama. In this case, they will be subject to the local laws. Our Panama offshore company formation specialists can provide more details.
A commandite company is a form of business is based on the model of the organization of the partnership and corporation. At least one member must have limited liability, while another one has unlimited liability. It’s a rare form of business in Panama.
How to choose the type of company in Panama
As previously mentioned, foreign entrepreneurs prefer the corporation and the private limited company as it can be easily used for offshore activities. When choosing the business form, investors should consider the following:
- the purpose of the future business, whether it will be engaged in trade financial services or other activities.
- the size of the business.
- the number of founders and the capital.
Apart from the considerations regarding the type of company, once they choose a particular business form investors are also advised to check any other additional requirements that may exist for the business field in which the company will activate, for example, special requirements for tourism or financial businesses. For example, banks, trust companies and other financial businesses are under the supervision of the Superintendency of Banks
Panama company formation
As seen below, investors can choose between several business forms, however, for the purpose of offshore company formation, the corporation, as well as the limited liability company, are preferred business forms. Below, our team describes the main requirements for those who open a company in Panama.
• The name: the company will have a unique business name that does not infringe other existing ones and it will include an abbreviation indicating the business form.
• Directors: both companies must have directors, with the corporation having at least three directors; they can be legal o natural persons.
• Resident agent: this is mandatory for incorporation and local services can be used for this purpose.
• Fee: companies are required to pay an annual fee to the Government; this applies for the purpose of maintaining an active company.
Please remember that these requirements for Panama incorporation apply to the corporation or the limited liability company. They are only general ones and do not refer to specific issues that can be different between these two business forms, such as the share capital.
One of our agents can help investors who wish to open a company in Panama. We can provide complete incorporation assistance, from drawing up the Articles of Association to making the necessary submissions for registration.
Panama offshore company advantages
Investors who open an offshore company in Panama, whether in the form of a corporation or a limited liability company have a series of advantages. We mention the following:
- Easy and fast procedure: the company incorporation process is a simple one that can be accomplished in three days when all of the documents are in order.
- No restrictions: the company shareholders and directors have no restrictions in terms of nationality.
- Easy transfer: the company’s shares are easily transferable.
- Confidentiality: companies in Panama are subject to a high degree of confidentiality.
The Panama offshore business sector includes but it not limited to the well-developed shipping and maritime operations the country is involved in. Foreign investors also have options for entering the financial sector, one that has good connections with North and South America.
The banking sector is well developed and there are several types of banking licenses (with tax liabilities only for banks that operate under the general license that allows them to trade both within and outside of Panama). Insurance companies are regulated by the same Superintendcy as banks and are subject to annual fees, however, the profits derived from external insurance activities are not taxed in Panama, as per the offshore tax regime.
Apart from the financial sector, investors in Panama can also explore the opportunities in the offshore trading and distribution sectors as well as maritime operations. Panama is also attractive to investors who are interested in marketing and distribution operations in both North and South America. The country is also a suitable location for an offshore e-commerce company, engaged in the sale of various types of goods. Since companies are not taxed on their foreign-sourced income, offshore company formation in Panama is advantageous for an e-commerce business.
The Panama Public Register provides the following data on registered legal entities in 2019:
- 8,465 registered corporations.
- 100 registered limited liability companies.
- 56 registered foreign companies.
The tax treatment of companies in Panama
The taxation regime is one of the most attractive features for foreign entrepreneurs who are interested in Panama offshore company formation. As a general rule, income derived from outside of the jurisdiction is not subject to taxation in Panama. According to the Fiscal Code, the following types of profits are excluded from taxation:
- profits for reinvoicing external goods or services;
- profits for operations that are managed from Panama but are performed outside of the jurisdiction;
- dividend distributions derived from external income.
Companies that derive income both from Panama and an outside source will be subject to taxation only on the Panama income according to the domestic corporate taxation principles. The taxable income includes all types of income derived from business activities in Panama. For this, the rate is 25% on the next taxable income or 1,17% on the gross taxable income (taxpayers can request may request this regime not to be applied when there are net operating losses or when this alternative tax is higher than the 25%).
Several incentives allow for the reduction of the tax applicable to the Panama-derived income. Such incentives can apply under the Panama-Pacific Special Economic Area with tax exemptions for income generated through activities such as the sale of goods or services to transiting visitors, for call center services, the import, export, and re-export of goods as well as logistics services, among others. companies that activate in the call center, logistics, and multimodal services can be exempt from the income tax. Likewise, office administration services may be subject to a 5% tax rate, provided that the company complies with certain criteria.
Investors should note that these principles of taxation apply to the income derived by all of the types of business entities described in this article.
Investors who are interested in Panama offshore company formation
can contact us
for complete services related to company incorporation.