Doing business in Panama
- How quickly can I set up a business?
- What is the minimum investment needed?
- How can I raise finance?
- What are the legal requirements for setting up my business?
- What structure should I consider?
- What advice can you give me in regards to payroll and taxation requirements?
- Is there anything else that I should know?
How quickly can I set up a business?
- When creating a company in any sector of Panama, a series of legal requirements must be met that are quite simple and fast. There are free zones whose requirements are different from those of a common company, with a series of competitive advantages.
- To establish a joint company, the most recommended option is the Stock Company. The S.A. They are the system by which 90% of Panamanian businesses are managed. Establishing this type of company once the requirements are met in Panama takes 5 to 7 business days. Within its composition, a board of directors is established made up of a minimum of three people and a maximum of seven people. They don’t have to be shareholders.
What is the minimum investment needed?
For corporations in Panama, the minimum share capital to establish a company is USD 10,000. However, this capital must not be fully paid or released. Currently the shares must be registered.
How can I raise finance?
By having your own resources, financing (loans from credit institutions) or with a capitalist partner. Any lawful means that allows them to earn income.
What are the legal requirements for setting up my business?
- Create a Public Limited Company (S.A.)
- Give a location to the business
- Obtain the Advice of Operations (This requirement is, to start the activity, the only authorization that the government requires)
- To notarize the document that gives legal life to the company and register it in the Public Registry · Opening a bank account
- Contract Public and Private Services (public services (water, electricity, telephone, etc.) and private (Internet, cable, etc.)
- Register the contracted personnel (employment contract must be registered with the Ministry of Labor and their affiliation with Social Security or CSS).
There are two options for Companies:
- Option No. 1 – Legal Companies
- Option No. 2 – Free Zone Companies (some requirements change)
What structure should I consider?
The structure will depend on the type of business, whether it is Agricultural, Industrial or Service.
What advice can you give me in regards to payroll and taxation requirements?
Payroll and Human Resources:
Social Security Office: Regulatory office for reporting of payroll. All personnel working in the company must be created in the system (SIPE), in which the employer has the responsibility of reporting the wages earned by workers or employees, to make payments of fees, contributions and income taxes both employer and employee.
Some benefits of this Institution:
- Public hospital care, medicines, pension, affiliation to the Insured, affiliation of Dependents, subsidy for Common Illness.
- A special bonus is mandatory as an additional right called Thirteenth Month and consists of one day’s salary for every twelve (12) days a fraction of working days.
- In Panama, the right of workers with an indefinite contract to the seniority premium is established, it consists of the payment of one week’s salary, for each year of services rendered by the worker.
- Annually the company must present a report called form 03, where all the salaries registered for that year are reported. TAXES Most common taxes in Panama are:
- Income Tax (ISR): It is mandatory to present the income tax return every year.
- Fixed rate of 25%.
- Companies with revenues greater than US $ 1.5 million must pay the higher of the following two: or 25% of net taxable income or Alternative calculation of income tax (CAIR) or 4.67% of gross taxable income.
- Tax on Transfer of Movable Property and Provision of Services (ITBMS) 7% – Alcoholic beverages and hotels are taxed at 10%. – Tobacco and tobacco products are taxed at 15%.
Is there anything else that I should know?
Panama is undoubtedly a center of attraction for foreign investment. Its extremely convenient location combined with its favorable laws towards investment in all its forms will continue to keep Panama at the forefront of Latin American economies attracting investors from around the world.
When the Advice of Operations of the commercial premises is obtained, the commercial activity can be started, and invoicing begins.
If the board members are foreign, all the onboarding steps and procedures will be a bit more complicated and take longer to complete. In contrast, having local directors makes future management procedures, amendments, modifications, or additional arrangements easier and faster to process since they are within the country to sign and take care of the necessary documentation.
Having a resident agent is a requirement to establish a legal company in Panama. The resident agent must be a Panamanian lawyer domiciled in Panama, whose purpose is to serve as an advisor and carry out the necessary legal procedures in the respective authorities.
Panama offers a wide range of laws with benefits aimed at tax, labor, immigration, and customs sectors, as is the case of companies established in a Free Zone that, according to Law 32 of Free Zones in Panama, enjoy incentives that They promote foreign direct investment (FDI) in the region, including the Colon Free Zone, Panama Pacifico, and the City of Knowledge, among others.
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Herbert M. Chain and Guillermo Narvaez explore global cryptocurrency accounting and tax standards in a recent article in Bloomberg Tax.
Kreston BSG is hosting a webinar on U.S. Market expansion for Latino entrepreneurs with guest speaker Veronica Quintana, Leader of the Latin-Owned Business Practice at CBIZ MHM. The webinar will be held in Spanish.