International Society of Primerus Law Firms

Doing Business in Panama

Information Provided By: Marcela Virzi Martinelli

Quijano & Associates

Panama City, Rep. of Panama

Facts about Panama

  • Area: 75,517 km2
  • Population: 3,395,000
  • Currency: Dollar / Balboa
  • Business Hours: 8 am – 5 pm
  • Official Languages: Spanish

Public/National Holidays:

  • Jan. 1: New Year‘s Day
  • Jan. 9: Day of National Mourning
  • Flexible (Feb.): Mardi Gras./.Carnival
  • Flexible: Good Friday
  • May 1: Labor Day
  • Nov. 3, 5, 10, 28: National Holidays
  • Dec. 8: Mothers‘ Day
  • Dec. 25: Christmas Day

1. Why Panama

As a country, Panama is blessed with several advantages:

1. A geographical position that ensures ease of access for visitors from all over the world, whether traveling on commercial flights or by cruise ship.

2. The Panama Canal, which, since it opened in 1914, has been of enormous service to trade and cultural exchange all over the world. The current work to enlarge the canal is likely to lead to increased traffic since larger ships will be able to pass through this vital waterway.  The country also has ports endowed with technology and infrastructure to make them competitive with ports anywhere else in the world.

3. A stable economy thanks to the use of the dollar.

4. Tax incentives to encourage trade and investment.

5. The country is one of the most highly valued destinations for world-class residential tourism.

6. The use of English as a second language among Panamanians. There are a number of business incentive areas such as the Panama-Pacific area which borders the canal and is close to Panama City, where major multinational companies have established operational headquarters to benefit from the nearby Tocumen International Airport, railway and port of Balboa. Modern business facilities, apartment buildings and residential ‘gated community’ type complexes have made the country a highly desirable place in which to take up permanent or temporary residence.

2. Legal Framework

The legal system is based on the civil law system and has three branches: the executive, which consists of the President and Vice-President of the Republic; the Legislature, a body of deputies representing each province, and the Judiciary, with judges sitting in courts of various types.

3. Banking

Panama’s Banking Centre is the biggest in Latin America, with approximately one hundred (100) banks of which some 50% are licensed to provide general services, with the remainder split between banks with international licenses and representative licenses.  There are two state banks: the Banco Nacional de Panamá and the Caja de Ahorros (savings bank).  The use of the US dollar as legal tender, tax benefits and other advantages all provide incentives to encourage banks from other countries to set up offices in Panama.  The Banking Centre is one of the pillars of the Panamanian economy and is characterized by economic stability and growth, low inflation, low exchange rate risk and interest rates that are comparable with global rates.  Furthermore, Panama has first-class legislation which is continually being updated and has made strenuous efforts to combat and prevent unauthorized use of banking services for money laundering and for financing terrorist activity.  This has earned it recognition from the main International Rating Agencies and multilateral credit institutions.

4. Financial Regulatory Authority 

The Panama Bank Superintendency (Superintendencia de Bancos de Panamá) is the authority that issues licenses and authorizes banks to engage in any banking activities permitted by law.  The Superintendency is an autonomous state body whose essential functions are to ensure the robustness and efficiency of the banking system, create conditions favourable to the development of Panama as an International Financial Centre, help to strengthen public confidence in the national banking system, monitor the strength, liquidity, control systems and procedures of the banking system and the professional conduct of bankers, and punish any violation of banking law.

5. Taxation

5.1. Corporate Tax

Panamanian companies are subject to a territorially-based tax system, which means that tax is only payable on activities undertaken, or deemed to be undertaken, within the territory of the Republic of Panama. Under Panamanian Tax Law business transactions that are agreed, are executed or have effect outside Panama are treated as offshore and are not liable for tax, even where the transactions are managed or administered from an office in Panama.  Panamanian companies of the ‘sociedad anónima’ type are required to pay an annual company tax of USD 300.00.  For all companies registered between January and June, the payment deadline for the annual company tax is June 30 each year, and for companies registered between July and December, the payment deadline is December 31 each year. The registration date for this purpose is the date on which the company was registered in the public registry and is shown on a stamped seal on the last page of the Deed of Incorporation.

Non-payment of the annual company tax means a penalty of USD 50.00 for each year for which the tax remains unpaid and a fine of USD 300.00 if two or more single payments are in arrears. In addition to a Deed of Incorporation, companies are required to keep company share registers and minute books which, when created, should preferably be authenticated by a Notary.

5.2 Personal Tax Rates

In Panama the personal income tax is based on a variable scale: no tax is payable if the net annual income is less than USD 11,000; tax is charged at 15% on all income between USD 11,000.00 and USD 50,000.00; and 25% on all income above that figure. Income tax only applies to income from Panamanian sources regardless of whether the taxpayer is a Panamanian citizen or a temporary resident. Income liable for tax includes pay for fulltime employment, pay for temporary employment, the profits of any business, pensions and bonuses.

5.3. Transfer Tax

Transfer of real property are subject to tax at a rate of 2% of the greater of the value in the deed of transfer.

5.4. Social Security

Employers and employees pay contributions into the Panamanian social security system. The employer pays 12.25% of the total wage and salary amount, plus 1.5% by way of an education tax.  The employer deducts social security taxes from his income taxes. The employee pays 9.75% (the social security tax) plus 1.25% (education tax).

5.5. Customs & Excise Duties

Tariff rates on foreign goods coming in to the customs area of the Republic (import tariffs) are regulated by special customs rules.

5.6. V.A.T.

From July 2010 onwards the tax on moveable property and services (Spanish abbreviation: ITBMS) is due to increase from 5.0% to 7.0%.  This is the value added tax (VAT) in other countries. The tax applies to restaurant, home telephone and other services.

5.7. Tax Incentives

Along with a tax system which is itself supportive of business start-ups and ship registrations in applying only to activities which are formally agreed, are executed or have effect on Panamanian soil, Panama has over the years offered numerous tax advantages for certain types of activity.  Some of these are: (i) the Colón tax-free zone, where imported and re-exported goods are exempt from all taxes; (ii) areas for the processing of goods for export, where companies engaging in the production and transfer of goods and services for export are exempt from tax; (iii) call centers, which are subject to a special regime in relation to business start-ups, business operations, and migratory and  hiring arrangements for employees; (iv) the special tax regime applicable to operations in the Panama Pacific Business Area, which offers tax advantages on imports of goods and on services offered by companies established in the area, including special migratory and employment arrangements; (v) foreign investment in the tourist industry, including an exemption form income tax, property tax, import tax, and other taxes depending on the amount of investment and location; (vi) investment and financing for reforestation; (vii) the exporting and production of hydrocarbons; (viii) the establishment of multi-national companies, which are exempted from tax on all services delivered outside Panama and on transfers of goods for export, and benefit from favorable migratory and employment arrangements (ix) cruise ship or homeport operators, whose income is not liable for tax.

6. Main Types of Corporate Forms

The corporation (Sociedad Anónima) and the Private Interest Foundation (Fundación de Interés Privado). Limited Liability Companies (LLC) maybe incorporate as well, however, the corporations represent most of the incorporations.

7. Company Incorporation

  • Minimum Number of Shareholders/Members: One
  • Minimum Number of directors: Three
  • Bearer shares: Yes*
  • Can Corporate Directors/Managers be appointed? Yes
  • Administrators: Yes
  • Standard authorized share capital: US$ 10,000
  • Company office/local agent: Yes
  • Must a local director be appointed?: No
  • Must directors be local?: No
  • Official meetings in the jurisdiction?: No
  • Official registration of directors: Yes
  • Official registration of shareholders/members: No

* In order to comply with international demands concerning transparency and, at the same time, continue offering the regulations required to satisfy legal entities and natural persons who choose our jurisdiction, the National Assembly of the Republic of Panama has approved Law No. 47 of the 6th of August 2013 creating a system to immovilize bearer shares in the near future, without impairing the authority to issue them.

The provisions of this law shall not be in force and effect until the 6th of August 2015. The law provides a period of three (3) additional years for all those certificates of shares issued to the bearer before that date. Therefore, it will not be until the 6th of August 2018 when such certificates will have to be deposited with an Authorized Custodian contemplated by said legislation in order to comply with the new regulations.

On the other hand, the certificates of bearer shares issued as from the 6th of August 2015 will have to comply with the provisions of the law, and be delivered to an Authorized Custodian within a period of twenty (20) days after the date of issue.  Thus, when Law comes into force, Panamanian corporations may either issue only registered shares; or Deliver the certificates representing issued bearer shares to an Authorized Custodian as the law provides.

8. Reporting & Auditing  

Panamanian Corporations are not required to present tax returns or any other reports provided that they do not earn any taxable income in the Republic of Panama, that is, if they do not engage in transactions that are formally concluded, or are executed or have effect within Panamanian territory. They may also keep their accounting records outside the Republic and are not subject to Panamanian accounting or turnover regulations.

Private Interest Foundations are statutorily prohibited from engaging in trading activities but are also not required to file reports of any kind.

Corporations have to pay an annual company tax or single annual charge of USD 300.00. Similarly, Private Interest Foundations are subject to pay an annual maintenance tax of USD 400.00. Both taxes respectively must be paid punctually in order to ensure that documents are able to be recorded in the Panama Public Registry and/or that the company or foundation is not removed from the registry.

9. Taxation Advantages of Panamanian Corporations

A we mentioned before, Panamanian corporations are under a territorial system of taxation, which means that no income arising from activities or transactions conducted or property held outside of the territory of the Republic of Panama is subject to income tax.

This “offshore” feature of Panamanian corporations has been in force and effect since 1927, as the following exemptions show:

  • There is no income tax applicable to income from sources outside of the territory of the Republic of Panama.
  • No capital gains tax applicable to capital gains through sources outside of the territory of the Republic of Panama.
  • No taxation applicable to interests derived by saving accounts or certificates of deposit within or outside of the Panamanian territory.
  • No taxation applicable to dividends received from sources outside of the territory of the Republic of Panama.
  • Exemption from any obligation to prepare or publish or submit financial statements and full freedom to carry its accounting as and where the corporation may decide when its income arises from sources outside of the territory of the Republic of Panama.
  • Any Panamanian corporation whose income arises only from sources outside of the territory of the Republic of Panama does not have to make or submit any tax return, and may conduct its accounting as and where it pleases.

For more information about Quijano & Associates, please visit www.quijano.com or the International Society of Primerus Law Firms.


The general information contained herein is intended for informational purposes only. It is not intended to be, and should not be construed as, legal advice or legal opinion on any specific facts or circumstances.

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