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Panama

Starting a business in Panama

Panama is one of the world’s most vibrant economies, with numerous business opportunities for domestic and global entrepreneurs. The consistent foreign direct investment and the flourishing import and export markets make the Latin American country desirable for business expansion.

This guide details why you should explore Panama for your business needs and how to set up a legal entity in the country.

Business opportunities in Panama

Panama is home to lots of diverse businesses catering to the vast population. Thanks to its tax system and pro-business policies, many investors are willing to explore the country. If you are also looking to invest in the country, consider the following business opportunities:

Construction equipment rental

The infrastructure sector is thriving in Panama. The country plans to enhance its outlook and invite more business opportunities from global investors. Hence, construction equipment is in high demand resulting in sky-high prices and cut-throat competition.

Hospitality services

Many tourists visit Panama to explore the ethnicity and scenic beauty of the country. On the other hand, many investors travel to and fro from the country for business matters. Therefore, hotels, restaurants, and spas generate consistently high revenue to suit the visitors’ needs.

Employment agency

Many professionals and investors enter Panama unaware of the hiring and compliance laws. Some people don’t have enough knowledge of the work culture in the country and need direction. Your employment agency can connect employers and employees per their requirements and ensure they comply with the regulations.

Real estate

Residential and business properties are in consistent demand in Panama. On the other hand, many people buy properties at a discounted price and resell them at a higher value sometime later. This is a much future-proof business opportunity prevalent in many countries, including Panama.

Benefits of Starting a Business in Panama

Starting a business in Panama reaps the following benefits:

Easier entry

The incorporation procedure in many countries is tedious and full of stringent rules that impact the business scenario. However, it will hardly take you two weeks in Panama to start a venture without the need for your physical presence in the country. Furthermore, the shareholders and directors of the company can be of any nationality and actively participate in the business.

The Panamanian population is very diverse, thanks to the accommodating visa policies and straightforward procedures. The country fosters a healthy business environment and welcomes people from around the globe to contribute to economic growth. Hence, it is easier for both professionals and investors to explore Panama. 

No taxes on overseas profits

Panama follows a territorial tax system, which means you must pay tax only on the income earned within the country. This system motivates many investors to set up global ventures in Panama to reduce the taxable amount and increase profit. Moreover, the country supports a smooth flow of capital from global sources without remittances and currency exchange control.

Supportive government policies

The Panamanian government has improved its business and visa policies, lending much-needed support and credibility to legitimate and tax-paying businesses. The country’s government is stable, pro-business, and invites investor interest. Panama is staunch in remaining the preferred destination for businesses and has taken various steps to foster a promising economic scenario.

Requirements for starting a business in Panama

You must have the following before starting a business in Panama:

Business name

You may register the business name in any language. The Law mandates adding a suffix such as Incorporated, Inc, Corporation, Corp, S.A., as necessary. The name must be unique from the existing registered businesses.

Registered office and agent

Panama’s laws require you to register an office and hire an attorney or a law firm as your Panamanian agent.

Shareholders

According to Panamanian law, a shareholder can be an individual or a company from any country. Every business entity needs at least one shareholder, who must be issued at least one share of $100.

Directors and officers

Every business entity in Panama needs at least three directors. The directors must be individuals above 18 years old with any citizenship. The Board of Directors appoints the Secretary, Treasurer, President, officers, and other directors.

Authorized capital

The Panamanian law requires businesses to divide the standard authorized capital of $10,000 into a maximum of 100 registered shares valued at $100 each. However, the company cannot issue all its shares totaling the authorized capital at any point. 

Annual fees

Companies registered in Panama must pay an annual renewal fee from their second year of registration.

Types of Business Structures in Panama

Before starting a venture in Panama, you must decide on a business structure that suits your company’s services. The Corporations Law of Panama legalizes the following business structures: 

Business Structure

About The Structure

Sole Proprietorship

  • A basic structure that a single member can operate
  • The owner has unlimited liability on the company’s debt
  • The owner’s personal assets are not protected if the business fails to cover its debts

General Partnership (Asociacion General)

  • Requires at least two members for registration
  • The owners have unlimited liability on the company’s debt
  • All the members contribute toward decision-making
  • The profits of the business are divided equally amongst the partners
  • If a member wants to exit the partnership, the arrangement can be dissolved

Limited Partnership (Sociedad de Responsibilidad Limitada)

  • Requires atleast two and utmost twenty shareholders
  • The shareholders can be of any nationality; however, they must register their names, personal details, and amount of capital contributed with the Public Registry
  • The partnership agreement must include: the name and addresses of the partners, company address, the purpose of the company, duration of the company, the authorized capital, and the designated resident agent (a lawyer or a firm)
  • If the number of partners is less than five, the company is not mandated to hold meetings. However, the general partners are advised to hold a meeting at least once a year
  • A capital of $2,000 – $500,000 is necessary to register the entity

Civil Partnership (Sociedad Civil)

  • A special entity where the partners have unlimited liability from civil court judgments
  • Professionals with a high risk of lawsuits, such as doctors and lawyers, participate in such entities

Corporation (Sociedad Anónima)

  • Requires only one shareholder and three directors before conducting operations
  • No rules regarding minimum capital requirement
  • The shares of this entity can be of two types: bearer or registered. There can be various classes in each type.
  • The bearer shares follow strict regulations, and the registered agents must place the bearer share certificate in safe custody
  • The company is registered after paying the capital tax (a minimum of $60) and an annual registration fee ($300)
  • All corporations in the industrial and commercial sector must have a “notice of operations”, which is equivalent to 2% of the company’s net worth

Ordinary Limited Partnership (Sociedad en Comandita Simple)

  • A hybrid between a corporation and a partnership
  • Requires at least one partner, and all the partners are liable for the debt based on their investment
  • Any income of the company earned outside Panama is not taxable

Company registration process

Once you have decided a unique name and structure for your business, follow the given steps for registration:

Draft and legalize the bylaws

The bylaws are basically the “constitution” of the company that describes its ethics and value. They also include the following information:

  1. Frequency and nature of the board/shareholder meetings
  2. Documentation of all the details of the company, that include name, address, location, company type, etc.
  3. Procedure for record-keeping
  4. Company’s business objectives or ‘objetivo social

As a part of the signing of the bylaws, you must disclose this information to the shareholders. According to Panamanian laws, a company must have two or more shareholders (individuals or business entities), and at least one must be a resident or citizen of Panama.

Register the company

To register your company in Panama, you must:

  1. Present the bylaws before a Public Notary in Panama and obtain the Public Deed. This usually takes 2 to 3 weeks.
  2. Register before the Public Registry of Panama, which takes around 2 to 3 weeks
  3. Register the society before the General Office for Taxation, the District Municipality, and the Ministry of Commerce
  4. Register with the Ministry of Labore and the Social Security Fund of Panama before hiring professionals. This step takes 20 to 30 days.

Open a bank account

Opening a Panamanian bank account requires you to follow these simple steps:

  1. Partner with a local group
  2. Match your business objectives with a suitable local bank
  3. Complete all the documentation

Are Foreigners in Panama on Certain Passes Allowed to Start a Business in Panama?

Panama does not allow foreigners to become doctors, engineers, attorneys, architects, or open a retail business in the country. Anybody willing to enter the real estate or insurance brokerage industry must be a legal resident of Panama for more than 10 years.

How Can Multiplier Help?

It is difficult to set up and operate a business in Panama without knowing the relevant laws and regulations. A slight deviation from the compliance rules can land you in major legal trouble and hefty fines. Multiplier’s EOR solutions ensure that you quickly grow your team in Panama and remain within the legal boundaries without setting up an entity.

With our services, you don’t have to wait to set up a business structure to onboard and pay your employees across the globe. Furthermore, you can manage your team’s benefits, contracts, leaves, and payroll seamlessly from our digital platform. 

Connect with us to know more.

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