Panama is located at a strategic point in Central America situated on the Isthmus connecting South and North America. It is bordered by Costa Rica and Columbia with the Caribbean Sea to the north and the Pacific Ocean to the south. A former Spanish Colony, Spanish is the official language of the country but English is widely spoken in urban areas and is used in international business and commerce.
The economy of Panama is the fourth largest in Central America with the fastest growing economy and largest per capita consumer. Panama has a democratic government since 1990, which has produced a strong and stable government with little risk of reverting back to military rule due to the intervention and continuing support of the USA.
Panama offers some of the worlds most flexible and favourable incorporation laws in the world. There are approximately half a million corporations and foundations in Panama making it the second most popular offshore jurisdiction in which to incorporate a company, coming second to Hong Kong. Panama also has the second largest international distribution and free trade centre in the world, again second to Hong Kong and there are over 150 international banks located in Panama, behind only Switzerland.
With an economy so dependent on services and particularly centered on the financial sector the need for strong governance is essential. In the 2004 World Bank Report on the Observance of Standards and Codes (ROSC) it was stated that Panama had made impressive progress since the late 1990’s with new security, banking laws and high quality reporting that has come in line with international best practices. However despite new legislation aimed at increasing compliancy and legitimacy Panama still retains a high degree of privacy which is vigorously imposed and protected by constitutional law. Revealing confidential information to a third party is a crime punishable by imprisonment.
Panama IBC’s benefits are renowned for offering excellent tax benefits, asset protection and high confidentiality.
Some of the benefits are listed below:
- Panama has a territorial tax system which means that income is only taxed if it derives from Panama therefore no tax is payable when income is obtained from a source outside Panama.
- The incorporation process is quick and the ongoing maintenance costs are minimal.
- Minimal reporting requirements, no audit is necessary.
- Corporate assets or capital of a Panama company can be kept outside Panama.
- There are no residency requirements or restrictions with regards to Owners, Directors or Shareholders.
- Shareholders and Directors meetings may be held and the Directors may attend personally or by proxy.
- No restrictions on shares. Shares may be held in registered or bearer form.
- No paid up capital requirement.
- No inheritance tax.
- No currency exchange controls.
- Legal protection provided for confidentiality of business and banking transactions.
- Excellent infrastructure and communications.
Tax and Accounting Regulations
A coherent offshore planning strategy is essential to maximise the effectiveness of offshore companies. Service Pro can assist by structuring the most tax efficient strategy to satisfy your requirements. Service Pro will guide you as to which jurisdictions offer the best tax structure by identifying the types of tax payable as well as the most favourable, tax efficient jurisdiction in which to incorporate.
Panama has increased its compliancy in recent years. In 2009 Panama converted to using International Financial Reporting Standards (IFRS) utilising accounting principles that complied with the International Accounting Standards Committee (IASC). This, along with other measures taken, has done much to improve the general perception of Panama as an offshore jurisdiction.
Panama employs a strictly territorial tax system. Due to this the only income earned from Panama is taxed, income derived from outside Panama is not subject to taxation. Below is an overview of the tax and accounting regulations for Panama:
Non-resident companies in Panama are exempt from paying the following:
- Income tax.
- Capital gains tax.
- Interest income tax.
- Sales tax.
- Dividends tax.
Annual franchise tax:
- This is the only tax payable by non-resident offshore companies and is payable on the anniversary of the date of the original incorporation of the company.
- The annual franchise tax is approximately US$300. If the payment is not made before the deadline then a late delivery charge will be made.
International aspects of taxation:
- Panama has concluded mutual legal assistance treaties with the US, Costa Rica, Columbia and a number of other South American countries. These treaties cover serious crime but do not cover fiscal crime. The Panama government does not submit to requests on fiscal matters.
- Panama has agreed to launch negotiations regarding an agreement towards a double tax avoidance agreement with Japan, Singapore and France. These have yet to be concluded.
- A number of anti-money laundering decrees have been agreed and implemented.
Annual reporting requirements:
- There are no statutory accounting and audition requirements for a Panama IBC.
Procedure of company registration
Panama adheres to common law based on the English system. Panamanian IBC’s are incorporated under Law No.32 of the 1927 Commercial Code which was amended in 1997.
Procedure of incorporation:
The procedure for the formation of a Panama offshore company is fast and efficient. The general process is as follows:
- An application form is completed with details of preferred name and details of Beneficial Directors and Shareholders (nationality, country of residence, address, profession etc).
- A scanned copy of the passport of the beneficial directors and shareholders is required.
- An original proof of residence showing the name and address of the individual. This can be in the form of a utility bill or bank statement and must not be older than 3 months.
- Two original letters of introduction. The letter can be from a bank, lawyer, accountant or similar profession.
- At this point Service Pro will issue an invoice for a Panama Company Formation. Upon receipt of money we start the incorporation process.
- The Memorandum and Articles of Association are prepared and sent to the Registrar.
- When the Memorandum of Association is accepted The Registrar of Companies will provide the company with a certificate of incorporation.
Company administration guidelines
Shares and capital requirements:
- There is no minimum capital requirement.
- The usual authorised share capital is US$1,000 divided into 100 common voting shares of US$10 each. The capital may be expressed in any convertable currency.
- The minimum issued capital is either one share of no par value or one share of par value.
Directors and Officers:
- Three Directors and three Officers are required for a Panama Company; a President, Secretary (see below) and a Treasurer. Directors can also act as Officers.
- Directors and Officers can be any nationality and do not need to reside in Panama.
- Directors and Officers can be either corporations or natural persons. If corporations are used however all corporate documents are public information therefore it is preferable to use nominees.
Restrictions on name & activity:
- Companies cannot use or end with the following; Limited, LTD, Finance, Trust, Foundations, Insurance, Bank, Trust or Insurance.
- A registered office is not required however all Panama corporations must be registered by Agents holding offices in Panama.
- A Company Secretary is obligatory and can be be either a natural or corporate person, of any nationality and is not required to be a resident of Panama.
- Company documents are filed with the Mercantile Registry however a high degree of confidentiality is ensured with nominees permitted.
- Incorporation will take approximately 3-4 working days however the post incorporation procedures take approximately 10 days to complete.
- Shelf Companies are available.