Panama Offshore Company Formation Services
Panama is an international trade and financial center strategically located between the Americas. It’s politically stable environment, its pro-business legislation, its attractive tax regime, and a developed and large banking sector have made Panama one of the most popular jurisdiction to establish international companies.
Panama has excellent infrastructure and communications and is one of the largest international distribution and free trade centers worldwide.
Panama levies taxation in a territorial basis, hence corporations in Panama that exclusively conducts its business outside of Panama, are exempt from all local taxes including income tax, capital gains tax, withholding taxes, and stamp duty on transfer of corporate shares, and other property. Furthermore, interest paid by local banks are tax-exempt and there are no foreign exchange controls.
Panama corporations are also exempt from local taxes on income earned from the international maritime commerce and trade by owners of vessels registered in Panama, regardless of the place where the contract is executed.
Panama corporations may also benefit from confidentiality. Shareholders and beneficial owners’ details are not disclosed in a public registry and shares may be registered in a bearer form but must be deposited with a custodian (immobilized). Confidentiality of business and banking transactions is protected by law.
Although names and addresses of directors and officers are included in the Articles of Incorporation and available to the public, the use of nominees is permitted.
Panama corporations may be incorporated for any legal purpose and activity and only require a license to conduct financial or insurance activities. They can be incorporated by a sole shareholder but at least 3 officers are required, who may be the same person and may be corporate or individual, resident or non-resident. Annual general meetings are not mandatory.
There are no initial capital requirements and shares may be issued with par value or non-par value.
Panama corporations exclusively doing business outside the country, also benefit from minimal reporting requirements as they are not required to file annual return nor tax return, neither filing any kind of statements or financial reports.The incorporation process is quick and straightforward, and the ongoing maintenance costs are low.
In addition, citizens of more than 50 countries (denominated friendly nations), may be eligible to apply for a permanent residence permit through incorporation, provided that certain conditions are met.
Panama is a compliant jurisdiction and has implemented the OECD’s automatic exchange of information for tax purposes (AEoI).
Panama corporations are commonly used for international tax structuring, international commercial transactions, banking, and merchant account access, e-commerce and internet services, trading, asset management or as a holding company.
Country code – PA
Legal basis – Civil law
Legal framework – Ley No. 32 de 1927 sobre Sociedades Anónimas, Código de comercio (Decree-Law No. 5 of 1997, Article 5).
Company form – Sociedad Anónima (S.A.) (Corporation limited by shares).
Liability – The liability of the shareholders for the company is limited to the amount of their respective shareholdings.
Share capital – The usual standard authorized capital is US$10,000, divided into 100 shares of US$100 each. Share capital may be in a non-paid up basis. It may be denominated in USD or any other currency. Bearer shares and no par value shares are allowed but must be fully paid when issued. Bearer share certificate must be kept by the registered agent in safe custody and the Registrar must be notified of these shares.
Shareholders – Corporations in Panama may be formed by one or more shareholders, who can be either natural or legal persons, residents or non-residents, without restrictions. Details of shareholders may not be available to the public.
Directors – At least three directors and officers. President, treasurer, and secretary, who may be simultaneously directors and officers. They may be natural persons or corporations. Directors’ details are available in the public registry. Nominee directors are permitted.
Secretary – A secretary is required who may be an individual or a corporation, resident or non-resident. Director may also act as company secretary.
Registered Address – Corporations must have a registered physical office address located in Panama.
General Meeting – Annual general meetings are not mandatory. However, if meetings are held, they can be anywhere in the world and they may be by proxy.
Electronic Signature – Permitted.
Re-domiciliation – Inward and outward re-domiciliation is allowed.
Compliance – Panama corporations are required to keep accounting records and underlying documentation, which must be available for 5 years. Records may be kept at the office of the resident agent in Panama, or at any other place determined by the board of directors.
There is no requirement to file accounts, annual return or tax return, provided that the corporation does not conduct business or hold assets in Panama.
The Registered Agent is required to keep a stock register record for the corporation and copy of identification of the shareholders. Panamanian corporations should maintain a minute’s book and stock register, which can be held anywhere in the world.
Tax residency – A company is tax resident in Panama if is incorporated under Panamanian law or its management and control are in Panama.
Basis – Panama corporate income tax is levied on a territorial basis. Both resident and non-resident companies are subject to tax on their income derived from Panama. Foreign-source income is not subject to taxation, whether remitted or not.
Tax rate – Income tax is levied on local source income at the greater of 25% flat rate on net taxable income or 1.17% on gross taxable income.
Capital gains - Capital gains are taxed separately at a 10% rate. If capital gains are derived from the sale of real property and constitute the main economic activity of the taxpayer, these are subject to corporate income tax standard rate. Foreign-sourced capital gains are exempt from taxation.
Dividends - Distribution of dividends may be subject to a final withholding tax of 10% on local-source profits and 5% on foreign-source profits (income from exports).A dividend withholding tax exemption may apply for companies whose business activities are exclusively outside Panama.Dividends received from foreign entities are offshore in nature and therefore not subject to tax.
Interests - Interest income is subject to taxation at standard rates.
Royalties – Royalty income is subject to income tax to the extent that it reflects operations carried out in Panama.
Foreign-source income - Foreign-source income is usually exempt from corporate tax. Certain income derived from exports may be taxed when distributed in the form of dividends at a 5% tax rate.
Withholding taxes – As mentioned above, the distribution of dividends is subject to a final withholding tax of 10% on local-source profits and 5% on income derived from exports. If the entity’s shares are issued to a bearer, dividends may be subject to dividend tax of 20%.
A dividend withholding tax exemption may apply for companies whose business activities are exclusively outside Panama. Interests and royalties paid to non-residents are subject to a withholding tax of 12.5%.
Losses – Losses arising from taxable income may be carried forward for 5 years (maximum 20% of losses per year),but may not exceed 50% taxable income in any year. Carryback of losses is not allowed.
Inventory - Inventories are generally stated at cost and may be valued using the compound average cost method, first in first out method (FIFO), retail method, or specific identification method.
Anti-avoidance rules – Transfer pricing rules are applicable for all transactions with non-domiciled related parties.
An informative return must be filed within six months after the end of the taxable year. An additional arm's-length economic report must be kept and made available for tax authority inspection upon request.
Panama has not enacted thin capitalization rules, nor controlled foreign companies regulations.
Labor taxes – Employers and employees are required to make contributions to the Social security fund at 12.25% and 9.275% on employees’ monthly income, respectively, without a maximum limit amount. Additionally, there is an educational insurance tax at 1.50% for employers and 1.25% for employees, without a maximum limit amount.
Certain industries are subject to a professional risk tax up to 6.25% on employees’ wages, paid by the employer.
Tax credits and incentives – Companies established in Free zones may benefit from a tax exemption on import duty tariff, income tax, sales tax, export tax, and selective consumption tax.
Companies engaging in tourism activities that have signed a tourism agreement with the government may benefit from several tax benefits.
Individuals or corporations that engage in agricultural production activities may be exempted from income taxes if annual gross income is lower than USD 250,000.Companies conducting forestry plantations may be income tax-exempt until 2018, provided that the lot has been duly registered at the Forestry Registry of the Environmental National Authority.
Other tax benefits may apply for companies engaging certain activities such as call centers or real estate investment, or companies establishing their regional headquarters in Panama.
Compliance– On average, a Corporation conducting business in Panama may require 52 payments and 417 hours per year to prepare, file and pay taxes.
Personal income tax - An individual is tax resident in Panama if he or she spends more than 183 days in a year within the territory.
Panama taxes its residents’ income earned within the territory at a 15% on annual income between US$11,000 and US$50,000 and 25% on the excess. Interest on Panamanian government securities, interest on savings accounts and time deposits maintained with Panamanian banks are tax-exempt. Non-residents are subject to a withholding tax on source of 12.5% on their Panamanian income.
Capital Gains are taxed separately. Gains derived from the transfer of immovable properties and the sale of securities and negotiable instruments are subject to a 10% tax. If the transfer of immovable properties constitutes the main economic activity of the taxpayer, capital gains may be subject to corporate income tax.
Other taxes – There is a property tax between 0% and 2.10%, depending on the value of the property. The ITBMS is the Panamanian Value-added tax, and it is currently 7%.
There are no transfer, net wealth and inheritance taxes in Panama.