Panama Company Formation

The Republic of Panama is an independent, sovereign state situated in Central America between Colombia and Costa Rica, bordering both the Caribbean Sea and the North Pacific Ocean. Panama was formerly a province of Columbia and was ceded from Colombia in 1903 with the support of the United States of America. Panama thereafter signed a Treaty with the USA that granted the USA rights to build a canal, rights in perpetuity over land on both sides of the canal and a broad right of intervention in Panamanian affairs. The internationally renowned Panama Canal was constructed between 1904 and 1914. Full control of the canal and the area supporting the canal was transferred to Panama on 31 December 1999.

Panama is a civil law jurisdiction which is based on the Spanish Civil Code, although its company law has been taken from the corporation law of Delaware in the USA. Panamanian business types take the form of the Corporation limited by shares, (Sociedad Anonima), Foreign Corporation, general, civil and limited partnership, Trusts and the Foundation, an autonomous legal entity with no members or shareholders formed for the protection of assets. The Panamanian offshore jurisdiction has become increasingly popular because of the privacy offered by the Panama Foundation which is not permitted to involvement in any business trade activity; this is similar to the Liechtenstein Foundation.

The Panamanian Foundation is suited to the holding of assets such as shares and property. Asset protection legislation is a strong which has made Panama foundation the asset protection vehicle of choice.

Business Inc or the Registro Publico Panama Foundation can provide further information on private foundations.

Company Formation expertise
Charges
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Banking services
Legal system
Political stability
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Offshore Company Formation Formalities

In comparison to other jurisdictions there are no restrictions on offshore entities carrying on business activities in Panama, except banks with International or Representation Licences. The concept of ‘offshore’ is not recognized as such because all registered businesses are taxed only on income derived from domestic trading. Offshore entities therefore elect to register as Foreign Corporations or Corporations limited by shares, the latter is the usual choice for an offshore operation.

Panamanian corporations are incorporated under the Corporation Statute 32 of the 1927 Commercial Code.

• There are no minimum capital requirements but the standard authorized share capital is usually US$ 10,000;
• All Panamanian companies must appoint a registered agent, but do not require a local registered office. This function may be carried out by a local attorney or a firm of attorneys;
• Both registered and bearer shares can be issued but no-par-value and bearer shares must be fully paid when issued. The registered agent must keep the bearer shares certificate in safe custody and must notify the Registrar that the shares have been issued;
• There must be at least three Directors but they need not be nationals or residents of Panama. Corporations and national persons can act as Directors;
• There is no legal minimum number of shareholders or nationality requirements;
• Every corporation must have a share register and minute book. These may be kept anywhere;
• Names and addresses of Directors must be on record at the Public Registry. Shareholder details are not kept on public record;
• There is no requirement to hold Directors and Shareholders meetings and if held can take place anywhere in the world;
• The positions of President, Corporate Secretary and Treasurer can be held by one person;
• The most common endings for a company name include S.A, Corp., incorporated, Inc;
• No accounts or annual summaries have to be filed with the Government, with the exception of the annual franchise tax filed by the registered agent.
  

Panamanian Trusts (Fideicomiso) must be evidenced in writing the Settlor and Trustees Beneficiaries need not be Panamanian nationals or resident in Panama. However, a Panamanian lawyer must act as an agent for the Trust. There are no registration requirements or minimum capital requirements, or fees, and Trust documents can be in English or Spanish. Trusts are not protected by specific provisions against foreign inheritance laws, judgments or creditors. This protection is afforded to the Panama Foundation.

Tax is levied directly on the Trust and not on the Trustee.

Taxation

In Panama there is no distinction between foreign and Panamanian employees; individuals pay income tax on Panama source income only. Employers also pay social security contributions.

There are annual taxes on the value of real estate, capital gains tax on profits from the sale of real estate, and a transfer tax arising on sale and Stamp Duty levied on Instruments.

Income tax is payable on the income of a Panama or foreign corporation or other entity derived from business carried on within Panama only at a rate of 30% rising to 42%. A corporation carrying on business both inside and outside Panama will pay tax on the proportion of its income that arises within the country. Domestic companies carrying on business in Panama (not Free Zone companies or offshore companies) are also required to pay an annual Commercial Licence Tax of 1% of the net worth of the business

Dividends are not treated to income and are subject to 10% withholding tax. Capital gains are counted as income after deduction of allowances.

Panamanian Private Interest Foundations

Foundations do not have beneficial owner but beneficiaries instead. Control of the foundation is determined by a legally executed Private Protectorate Agreement. The beneficiary is determined through a private letter of wishes and is known only to the controlling party and their bankers. Thus Panamanian foundation offers an unsurpassed level of privacy and flexibility.

Banking

Panama has an established banking sector with a significant number of international Banks. All Banks must be issued with a licence of which there three types: a General Licence permitting trading both in and outside Panama, that can be issued to Panamanian or foreign banks; International (Restricted) licences that permit offshore banking to be conducted from an office in Panama; Representation licences issued to foreign banks and permit a local office but no local trading. Only banks with General Licenses will have any tax liability, in respect of Panamanian income.

Confidentiality is guaranteed with disclosure of investors and beneficial ownership only in cases of established criminal wrongdoing.

Employment Law

The rights of the employee and employer are enshrined in the Labour Code of 1971. Under the terms of the Code any relationship in which one party is subordinated to the other will fall within the terms of the Code, whether or not it is described as a contract of employment.

A contract is enforceable even if it is not evidenced in writing but an employer can only terminate employment during the first two years thereafter the employee is protected by the Code which defines 'just causes' for the termination of employment. In the event of an unlawful dismissal the employee is entitled to compensation. Unions are permitted but only a small percentage of the employed population is unionized.

There are minimum wage levels which vary according to the seniority of the employee. There are 11 public holidays per year, and the statutory paid vacation is 30 days.

The employment market is tightly regulated and maximum percentages for the employment of foreigners in a business are set according to the sector.

Geography, People and Culture

Panama is approximately 78,200 sq. km. (30,193 sq. mi.) and mountainous in its terrain. There are two seasons: the dry season lasts from January to mid-April and the rainy season from mid-April to December. Rainfall is heavier on the Caribbean side of the highlands. Temperatures are typically hot in the lowlands (between 21°C and 32°C/70°F and 90°F) and cool in the mountains (between 10 and 18°C/50 and 64°F). These vary little throughout the year.

The culture, customs, and language of Panama are predominantly Caribbean Spanish. The majority of the 3.1 million population is ethnically mestizo (mixed Amerindian and white) 70%, (West Indian) 14%, white 10%, Amerindian 6%. The dominant religion is Roman Catholicism. Spanish is the official and dominant language; English is a common second language spoken by the West Indians and by many business people and professionals. More than half the population lives in the capital Panama City; the other principle cities are Colon and David.

The most sought after attraction in Panama is the canal which stretches 80km (50mi) from Panama City on the Pacific coast to Colon on the Atlantic side and provides passage for nearly 14,000 ocean-going vessels per year.

Immigration and Residency

Foreigners entering the country are classified as Tourists, Temporary Visitors, Special Temporary Visitors, Tourist-Pensioners, Immigrants and Investors. UK, German and Swiss and many other nationalities need only a passport to enter Panama, while citizens from Australia, Japan, New Zealand, USA and Venezuela require a tourist visa or tourist card.

Short-stay visas are issued freely; the Tourist-Pensioner visa is given to those who can demonstrate a monthly income of not less than $750 from interest on time-deposits in a Panamanian bank; the Investor's visa is for those who invest their own capital into local business activity. Immigrant visas cover long-stay working residents.

Legal and Political system

Panama is a constitutional democracy with three branches of government: Executive and Legislative branches elected by direct vote for five year terms, and an independently appointed judiciary. The Executive branch includes a President and two Vice Presidents. The Legislative branch consists of a 72-member unicameral Legislative Assembly. The Judicial branch is organized under a nine-member Supreme Court and includes all tribunals and municipal courts. An autonomous Electoral Tribunal supervises voter registration, the election process, and the activities of political parties. All citizens over the age of 18 are required to vote.

There two main political parties; the Arnulfista Party (PA) which in coalition with smaller parties from 1999 held a slim majority in the Legislative Assembly and the Democratic Revolutionary Party (PRD). Following national elections in May 2004 the PRD won the presidency and a legislative majority in the Assembly and took power on 1 September 2004.

Economy

The official currency is the Balboa, (PAB) which is at par with the United States dollar and is freely convertible. The US Dollar is also legal tender, and because there is no Panamanian paper currency it circulates freely.

The major industries are Banking, construction, petroleum refining, brewing, cement and other construction materials, sugar milling, shipping and agriculture. The services sector accounts for 75% of GDP. Services include operating the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism.

Table of Statutes

Cabinet Decree 238 of 1970 (Banking Law)
Cabinet Decree 413 of 1970 (Investment Incentives)
Capital Laundering Law No. 41 of 2000
Decree-Law No 5 of 1997 (Corporations)
Decree-Law No 9 of 1998 (Banking Superintendency)
Financial Intelligence Unit Decree No. 136 of 2000
Fiscal Code
Law No 32 of 1927 (Corporations)
Law No 18 of 1948 (Colon Free Zone)
Law No 24 of 1966 (Partnerships)
Law No 3 of 1986 (Foreign Investment)
Law No 25 of 1992 (Export Processing)
Law No 28 of 1995 (Investment Incentives)
Law No 28 of 1996 (Export Processing)
Measures for the Prevention of the Crime of Capital Laundering, Law No. 42 of 2000
Panama Private Foundation Law 1995
Resolution 065 of 2003 (On-Line Gambling)
Trust Law No 1 of 1984