Panama is a popular jurisdiction for opening a company formation because of its favorable business climate, the fact that maintains a large Free Zone and its developed infrastructure. All of these features have helped the region gain its status as one of the main banking centers in the works. investor confidentiality is protected in this location and the country maintains banking secrecy laws that can be attractive for some entrepreneurs.
The following guide on offshore company formation in Panama presents the main issues that investors need to pay attention to before commencing the actual incorporation procedure as well as the main requirements that apply for the most widely used business forms.
Investors who wish to open a company in Panama
can reach out to our team of incorporation experts for detailed answers to their questions as well as more information than the one currently included in this short guide.
What is the most widely used business form in Panama?
The Panama Corporation or Sociedad Anomima is the most widely used business form because of the fact that it is easily incorporated and can be fully foreign-owned. Its equivalent would be the International Business Company in other offshore jurisdictions. It is a non-resident company used by many of the investors interested in Panama offshore company formation.
Other types of companies
include the limited partnership, the limited liability company or the foundation. One of our agents can provide you with complete details on all of the available business forms.
What are the general uses of a Panama offshore company?
An offshore company in Panama is a legal entity that offers many advantages, as already seen above. Out of these, tax neutrality is often the most important one for investors. Nevertheless, the flexibility of this business form, referring to the S.A. in general, is another important advantage. Foreign investors are also interested in Panama company formation because they can use the structure for a variety of reasons. We list some of these below:
Trading company: the Panama offshore company can act as a trading intermediary, meaning that it will be involved in import and export activities and, for some companies, in shipping activities; when goods are sold from one country to another and they pass through the Panamanian company as an intermediary, the price difference can be accumulated in this tax-free regime,
Service company: individuals who wish to provide services to international clients can benefit from Panama’s taxation regime; they can structure their business consulting company as a Panamanian S.A. and provide services to clients worldwide.
Investment company: using a Panama S.A. as an investment company offers a high degree of confidentiality and tax benefits; the legal structure can be used to poll private funds.
Holding company: the S.A. can be used to hold stocks in other corporations, to own real estate, to own patents or trademarks, copyright.
Please keep in mind that an offshore legal entity may be used for various purposes, however, the offshore strategy should be implemented accordingly and so as to not avoid any anti-money laundering laws that may be in place between Panama and other countries. Transparency and compliance agreements are in place and it is recommended to reach out to our team of Panama company formation agents for complete information about tax minimization possibilities as well as the accounting and reporting requirements.
What is the general incorporation procedure?
The steps can be summarized as follows:
• Prepare the documents: the company founders are required to draw up the company’s Articles of Association and Memorandum.
• Confirm name: the name of the company needs to be a unique one and its availability is to be confirmed before the incorporation starts.
• Notary deed: the company documents, once drafted in their final form, are signed in front of a notary public.
• Registration: the final stage is the actual registration of the Panama corporation with the Companies Registry.
The incorporation process is a fast one and the actual registration of the new business takes place in a single working day. Foreign investors can facilitate this process by sending in the required documents in advance so that our team of Panama company formation agents
can prepare the documents as efficiently as possible. It is advisable to schedule additional time for visiting a notary public office. We can provide more details as needed.
What are the mandatory requirements for Panama company formation?
Companies in Panama are subject to a beneficial business regime, however there are certain licensing requirements that apply to selected business fields like banking, insurance, and reinsurance, funs management and investment funds or trusts. One of our specialists can provide investors with information as required.
What are the applicable restrictions?
The Panama Corporation cannot engage in a number of activities: banking and insurance, trustee services and management, insurance and reinsurance, collective investment schemes, fund management, investment fund administration, fiduciary activities and other activities that generally fall into the banking or insurance sector.
Other business forms like the limited liability company can be used for this purpose, subject to licensing as mentioned above. One of our agents who specialize in Panama incorporation can provide investors with detailed information.
Taxation requirements in Panama
A Panama Corporation is not subject to taxes on foreign income, only on the income sourced from Panama. There are no applicable double tax treaties and there is no requirement for annual auditing, or annual account reporting for foreign income (please note that these are required if the income is of Panamanian source).
Other requirements for Panama companies include having at least one shareholder and three company directors as well as company officers, such as secretaries. However, there are no nationality restrictions for the secretary and the person appointed for this position does not need to be a resident. The three appointed directors can also serve as the company officers (the president, secretary, and treasurer).
Companies are required to pay an annual government fee.
Panama company management
Investors who are interested in Panama offshore company formation have two options for the management of the company: direct management by the beneficial owner or management through an appointed director, the nominee.
When managing the company directly, the main advantage is that the beneficial owner is permanently involved in the activities of the business. In addition to this, he does not incur the annual nominee service costs and the company structure remains a simple one. Nevertheless, investors can choose to raise the level of anonymity by using this service when confidentiality is important for their business activities.
When using a nominee director service, the management of the company will take place through the nominee, as per the instructions of the beneficial owner. Their relationship is a fiduciary one.
Foreign investments in Panama
Panama is an important investment destination in Latin America and many multinational companies have established their headquarters here. Since 2007, more than 140 such companies have invested in the country.
The key business sectors in Panama are the following:
- Manufacturing: from industrial manufacturing companies to agricultural companies and those that engage in the processing of raw materials, this business sector offers many opportunities and attracts important foreign direct investments. Tourism: Panama is an exceptionally beautiful tourist destination and investments in this sector is one of the most important, producing with annual revenues of approximately 300 million $.
- Logistics: Panama can serve as the headquarters for transport and logistics companies because of its good connectivity as well as a strategic location.
- Others: wholesale and retail trade, financial and insurance activities, transport, information, and communication as well as real estate are sectors that attract high percentages of foreign direct investments.
Companies in Panama can also benefit from certain investment aid or incentives. For example, companies in certain industries can use the Industrial Development Certificate (authorized by the Ministry of Economy and Finance) to pay national taxes, contributions, and tariffs. With this document, companies are subject to 3% import tax (in addition to other taxes) and they can reimburse up to 40% their investment or reinvestment benefits (along with others). This is just one of the examples of available benefits. For more information, we invite interested investors to reach out to our Panama incorporation agents.
The Panama Public Registry provides us with the following data regarding company formation:
- the total number of limited liability companies registered in 2019: 100.
- the number of foreign companies registered this year: 56.
- private foundations registered in 2019: 1,213.