Panama Business and Investing

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Foreign investment is something the Panamanian government has always encouraged. Foreign investment in Panama is easier now than it has ever been. There is a new free trade agreement with the U.S., and a new domestic policy, Law 41 (2007), is designed specifically to reward multinational corporations, both large and small, for establishing regional headquarters here. Now is a great time to consider the opportunities in Panama.

Many foreign investors starting a business in Panama or purchasing real estate decide to use a corporate entity as an ownership vehicle. The specific corporate form is defined during the due diligence phase, and the corporation should be established in conjunction with the project and not as a separate consideration. The corporate ownership vehicle offers privacy and allows flexibility in estate planning, tax management, asset protection, and representation.

Should an investor use (or form) a local Panama corporate entity, or use an existing foreign corporation? The answer is “it depends,” but in most cases, the use of a local entity creates more benefits. If you use a foreign entity, make sure to register it in the Public Registery. Although Law 41 has streamlined the procedures for registration of foreign entities, it could still take several weeks to complete the process.

Panamanian commercial law allows many corporate forms. Two important forms that offer the investor structures similar to the familiar limited liability company are the “Sociedad de Responsabilidad Limitada” and the “Sociedad Anónima.” Determining which of the many forms is the correct choice is part of your due diligence efforts, but these are the two most prevalent forms with the S.A. as the preferred vehicle.

The S.A. has many features which offer privacy. Some of the more important features are: no requirements to disclose ownership; no restrictions on owning investments outside of Panama; no restrictions concerning ownership of shares; no residence requirements for Directors/Officers; no requirements to file annual Financial Statements; no requirement to hold annual General Meetings of Shareholders or Directors. This feature is very important – the accounting books for the corporation can be kept in any part of the world and in any language.

Entities doing business within Panama must register with the Tax Authority. Formal tax registration is not needed if the corporation simply holds real estate, or does not generate taxable income within the territory of Panama. “Within” means any transaction that is from a location in Panama to another location in Panama. Anything that crosses a border is a non-taxable transaction. Directing transactions in other countries from Panama is non-taxable.

Every corporation must reside in Panama or have a local registered agent. There is an annual registration fee paid to maintain a valid registration at the Public Registry of Panama. The fees and taxes are quite reasonable, but must be paid promptly. Late payment can produce penalties or cause the company to be stricken from the Register.

A corporation may adopt by-laws for the regulation of its internal affairs and procedures, but adoption is not mandatory. If by-laws are adopted, they can be registered at the discretion of the directors of the corporation. Registration of by-laws is not mandatory, but if the directors decide to register the by-laws, any amendments to the by-laws must be registered as well.