Panama Offshore Company Incorporation Services

The Panama International Business Corporation (IBC) is a business entity with a flexible ownership structure that offers strict privacy, tax-free benefits, and no tax reporting requirements. It is commonly utilized for various purposes, including international trade, e-commerce, holding, asset protection, and private foundations. The IBC structure is designed to provide maximum flexibility to business owners, allowing them to operate their businesses in a tax-efficient manner while maintaining strict confidentiality. With its numerous benefits, the Panama IBC is an excellent choice for entrepreneurs seeking to establish an international presence.

FORMATION AND MAINTENANCE FEE FOR THE 1ST CALENDAR YEAR

• Name check and approval
• Filling the incorporation documents with the Registrar of Companies
• A standard set of original corporate documents
• Payment of the Government fee
• Provision of registered agent and registered address for one year
• Rubber stamp

LEGAL FORM
The corporation limited by shares is the most frequently used corporate form in Panama, and is the usual choice for an offshore operation. Corporations are formed under the Law No. 32 of 1927 on Corporations (Sociedades Anónimas) and are governed by the Commercial Code (Decree-Law No. 5 of 1997, Article 5).

In addition to the corporation (sociedad anónima), Panama has several types of modern business entities:

• The limited liability company or LLC (sociedad de responsabilidad limitada)
• The limited partnership (sociedad limitada)
• The limited partnership by shares (sociedad limitada por acciones)

These entities provide flexibility and options for businesses looking to establish a presence in Panama, each governed by a legal framework designed to suit different operational needs.

COMPANY NAME
When choosing a name for a Panama company, it is important to note that the name must end in one of the following terms: Corporation, Corp., Incorporated, Inc., or commonly used S.A. It is crucial to keep in mind that certain terms such as Insurance, Re-insurance, Trust, Mutual Fund or Bank cannot be used without obtaining a special license and the consent of the Registry. By following these guidelines, corporations can ensure that their name is in compliance with the regulations set forth by the Registry.

MEMORANDUM AND ARTICLES OF ASSOCIATION
A corporation is formed by two subscribers (or nominees in the case of absent foreign subscribers) who execute the Articles of Incorporation (Statutes) before a notary and then record them at the Public Registry Office, paying a capital tax (minimum US$60.20 on the usual capital of US$10,000). There is an annual registration fee of US$350.

SHAREHOLDERS
Following incorporation minimum of one shareholder is required which may be an individual or a corporate body. The details of company beneficial owners and shareholders are not part of the public records.

What is the Liability of Shareholders in a Panama Corporation?

In a Panama offshore company, shareholders enjoy a specific limitation when it comes to financial liability. Their responsibility is confined strictly to the amount they have invested into the company’s shares. This means that shareholders are not personally liable for the company’s debts or financial obligations beyond what they have already contributed through their shareholdings.

This protective measure is designed to encourage investment by ensuring that shareholders will not risk their personal assets if the company encounters financial difficulties. By confining liability solely to their investment, shareholders can support business ventures without fear of personal financial ruin.

In summary, if you own shares in a Panama corporation, your financial risk is limited to your initial investment in the shares, safeguarding your personal assets from any liabilities the corporation may incur.

SHARE CAPITAL
There is no minimum capital, and no paying-up rules, except that no-par-value and bearer shares must be fully-paid when issued. Usual authorized capital is US$ 10,000. Shares can be of various classes, can have par value or not, may be registered or bearer. Strict regulations now apply to bearer shares: the registered agent must keep the bearer share certificate in safe custody and must notify the Registrar about such shares. A Stock Register must be kept by law. The register contains the names in alphabetical order, place of domicile and date of acquisition of shareholders, other than the holders of Bearer Shares. This register may be held anywhere in the world.

DIRECTORS
A minimum of three directors is required – SCGIBC can provide Directors if needed. The names and addresses of the directors are part of the public record and therefore nominee directors are usually appointed at incorporation. Panama offshore companies are also required to appoint a minimum of 3 officers – President, Treasurer and Secretary – who may also be the directors. Company officers can be natural persons or bodies corporate. There is no maximum to the amount of officers appointed.

REGISTERED OFFICE
For a non-resident Panama Corporation, it is imperative to have a registered office and registered agent in the Republic of Panama. Additionally, the corporation must appoint a company secretary, who can be a natural or corporate person, regardless of their nationality or residency in Panama. This person will be responsible for ensuring that the corporation complies with all relevant laws and regulations, and they will handle administrative tasks such as maintaining corporate records, organizing meetings, and filing documents with the relevant authorities. By having a competent and reliable company secretary, the Panama Corporation can operate smoothly and efficiently.

COMPLIANCE REQUIREMENTS
Panama corporations are required to maintain accounting records and underlying documentation for at least five years. These records must be kept at the office of the resident agent in Panama. Financial statements, signed by a certified public accountant, whether in Panama or overseas, need to be deposited annually at the registered office. For companies with physical operations in Panama, acquiring an Operations Notice (Aviso de Operación) is mandatory. This formal request to the government indicates the start of business operations in a specific municipality, necessitating registration with the Municipality of Panama.

MEETINGS
Annual general meetings of either shareholders or directors of the corporation are not mandated or required. However, if meetings are held, they can take place anywhere in the world by proxy—via telephone, email, or other electronic means. Any resolutions passed are valid regardless of whether they are signed on different dates or in different jurisdictions.

INCORPORATION TIME
Usually it is 6 working days, but we need up to 10 working days for legalization of the documents and delivery by courier.

RECURRING MAINTENANCE FEES AS FROM 2ND YEAR

• Provision of registered office, agent and registered address
• Payment of the government fees

TAXATION
Panama does not impose taxes on any income or dividends generated by sources outside the country, even if the operations are handled from offices established in Panama. Corporations that do not conduct business within Panama or operate solely from an office located in Panama are not obliged to file an Income Tax Return form. However, companies conducting business domestically must submit financial statements, tax returns, and pay taxes on their local-source income.

Tax Treaties involving Panama

Panama has established several tax treaties with various countries to facilitate financial cooperation and transparency. These agreements can be broadly categorized into two types: Double Taxation Conventions (DTC) and Tax Information Exchange Agreements (TIEA).

Double Taxation Conventions (DTC)

These treaties are designed to prevent the incidence of double taxation, where the same income is taxed in two countries. Panama has DTCs with the following nations:

• Qatar: Signed on September 23, 2010
• Barbados: Initiated on June 21, 2010
• Republic of Korea: Effective from October 20, 2010
• United Kingdom: Agreed upon on July 29, 2013
• Luxembourg: Formalized on October 7, 2010
• Singapore: Sealed on October 18, 2010
• Ireland: In force since November 28, 2011
• Italy: Signed on December 30, 2010
• Spain: Dated October 7, 2010
• United Arab Emirates: Concluded on October 13, 2012
• Israel: Established on November 8, 2012
• Czech Republic: Effective from July 4, 2012
• France: Finalized on June 30, 2011
• Mexico: Signed on March 24, 2010
• Netherlands: Active since October 6, 2010
• Portugal: Commenced on August 27, 2010

Tax Information Exchange Agreements (TIEA)

These agreements focus primarily on the exchange of information to combat tax evasion:

• Greenland: Signed on November 12, 2012
• Denmark: Formalized on November 16, 2012
• Canada: Agreed upon on March 17, 2013
• Sweden: Commenced on November 12, 2012
• Norway: Effective from November 12, 2012
• United States: Signed on November 30, 2010
• Iceland: In effect since November 12, 2012
• Finland: Initiated on November 12, 2012
• Faroe Islands: Finalized on November 12, 2012

These agreements highlight Panama’s commitment to fostering international financial relationships and ensuring compliance with global financial standards.

Understanding Tax Residency for Companies in Panama

In Panama, determining a company’s tax residency hinges on two main criteria:

1. Incorporation Under Panamanian Law: If a company is legally established following the regulations of Panama, it automatically qualifies as a tax resident. This means the official registration and creation process happens within the parameters set by the country.
2. Management and Control: A company can also be considered a tax resident if its key management and decision-making activities take place within Panama’s borders. This includes where the primary strategic decisions are executed and where the core managerial functions occur.

It’s important to note that Panama uses a territorial taxation system. This means that both companies classified as residents and those that are non-residents only pay taxes on income earned from sources within Panama. Therefore, any income generated from outside the country remains untaxed by Panamanian authorities.

Understanding these elements is crucial for companies evaluating their tax obligations in Panama.

Understanding Withholding Tax Rates in Panama

When navigating the financial landscape in Panama, it’s crucial to comprehend the implications of withholding taxes, particularly concerning dividends, interests, and royalties. Here’s a breakdown:

Dividends

• Local-source Profits: A final withholding tax of 10% applies to the distribution of dividends originating from local profits.
• Foreign-source Profits: For income from exports, dividends are subject to a 5% withholding tax.
• Exemptions: Companies solely operating outside of Panama and lacking an “Operations’ Notice” are exempt from this tax.

Note, if dividends are paid out for bearer shares, they could incur a higher withholding tax rate of 20%.

Interests and Royalties

• Both interest and royalty payments made to individuals or entities outside Panama face a withholding tax of 12.5%.
• Similar to dividends, companies that conduct all business activities outside Panama and without an “Operations’ Notice” may be eligible for an exemption from these taxes.

By understanding these rates and rules, businesses can better navigate their financial obligations and optimize their tax strategies in Panama.

What Other Taxes Are Applicable in Panama?

When considering taxation in Panama, it’s important to note a few key taxes that may affect individuals and businesses:

• Property Tax: This is a sliding scale tax ranging from 0% to 2.10%, based on the assessed value of the property. The rate can vary significantly, so property owners should be aware of their specific liability depending on their property’s valuation.
• Value-Added Tax (VAT): Known locally as the Impuesto a la Transferencia de Bienes Corporales Muebles y la Prestación de Servicios (ITBMS), Panama’s VAT is set at 7%. This tax is applied to most goods and services, impacting both consumers and businesses.

In addition to these, Panama boasts a favorable tax environment with no taxes on property transfers, net wealth, or inheritance. This absence of such taxes can be particularly appealing for investors and expatriates considering Panama for residency or business operations.

Understanding Foreign-Source Income in Panama

When determining what qualifies as foreign-source income in Panama, it’s important to break down the categories that are exempt from Panamanian taxes:

1. Sales of Goods:
   • Income from the sale of goods or commodities that are bought and sold entirely outside Panama is considered foreign-sourced. This applies even if contracts or transactions are finalized within Panama or managed by a local office.
2. Service Fees:
   • Service fees are deemed foreign-source income if the services are executed outside Panama and for non-Panamanian customers. Even if services are provided from a Panamanian office to clients abroad, these fees can stay tax-free, provided they don’t pertain to generating income within Panama for the foreign client.
3. Dividends and Capital Gains:
   • Earnings from dividends and profits from selling securities are treated as foreign-source income, as long as the income of the company being invested in doesn’t originate from Panama. This holds true whether the company is incorporated in Panama or elsewhere.

In summary, the central criterion for income to be considered foreign-source in Panama is that it must not involve economic activity within the country’s borders. This framework is designed to encourage foreign investment and make Panama a competitive choice for international business operations.

How is Personal Income Tax Structured in Panama?

Residency and General Taxation

In Panama, the determination of whether an individual is a tax resident hinges on their physical presence. Specifically, if someone spends more than 183 days in the country over a year, they are considered a tax resident. This status subjects them to certain income tax requirements.

Income Tax Rates

For Panamanian residents, only income generated within the nation’s borders is taxable. The structure is progressive:

• 15% Tax Rate: Applies to annual earnings ranging from $11,000 to $50,000.
• 25% Tax Rate: Applies to any income exceeding $50,000.

Certain types of income enjoy exemptions, such as interest earned on government bonds and savings in Panamanian financial institutions.

Non-Resident Taxation

Non-residents face a different system. Their income derived from Panamanian sources is subject to a withholding tax at a rate of 12.5%.

Capital Gains

Capital gains in Panama are treated separately from other types of income. When selling assets like real estate or securities, a 10% tax is levied on gains. If selling real estate is a primary business activity, these gains may fall under corporate tax regulations instead.

This overview provides a snapshot of how Panama’s personal income tax is structured, addressing key elements that differentiate it from other systems.

AUDIT AND FINANCIAL RETURNS
There is no requirement to prepare, maintain, or file financial statements or annual returns. If the directors decide to maintain such accounts, they may be done anywhere in the world. Additionally, all companies are obligated to pay a flat franchise tax of USD 300, ensuring compliance with Panama’s corporate tax structure.

OUR SERVICES FOR THE COMPANY FORMATION IN PANAMA INCLUDE:

• Name check and approval
• Filling the incorporation documents with the Registrar of Companies
• A standard set of original corporate documents
• Payment of the Government fee
• Provision of registered agent and registered address for one year
• Rubber stamp

DOCUMENTS REQUIRED FOR THE COMPANY FORMATION
Please provide the following documents for all Directors, Shareholders, Beneficial Owners, Authorized Signatories:

• Notarized copy of valid passport.
• Original or Certified copy of utility bill / bank statement (as verification of residential address, dated within 3 months).
• Original or certified copy of Lawyer’s/Banker’s/Accountant’s reference letter (dated within 3 months).
• In cases where shareholders and/or directors are corporate bodies, full apostilled set of corporate documents and Certificate of Good
• Standing (for companies registered more than 1 year).

Key Details about Panama

Panama is a vibrant country located at the crossroads of Central and South America. It is geographically unique, as it sits on the isthmus that connects these two continents. To the north, it borders the Caribbean Sea, while the Pacific Ocean lies to the south. Its eastern boundary meets Colombia, and Costa Rica lies to the west.

Geography and Population

The terrain of Panama is mostly mountainous, except for the famous Panama Canal that slices through the countryside. This canal plays a crucial role in global trade, serving as a major hub for transportation and logistics. Panama’s population exceeds 4 million, with a significant portion residing in the bustling Panama City metropolitan area. The country’s official language is Spanish, and it uses both the US Dollar and the Balboa as its currencies, with the latter pegged to the Dollar at a 1:1 ratio.

Governance and Economy

Panama operates as a presidential representative democratic republic, where the President fulfills both roles of head of state and head of government. Known for having one of the most dependable economies in Latin America, Panama thrives on key sectors like finance, tourism, and logistics.

• Finance: The financial sector is highly developed, featuring one of the most advanced banking systems on the continent, with stringent financial laws.
• Tourism: Attracting over 2 million tourists annually, Panama is a hotspot for business travelers, beach-goers, and shoppers. Visitors frequently hail from the US, Canada, Europe, and neighboring regions.
• Logistics: The Panama Canal positions the country as a linchpin in international shipping, complemented by major container ports, free trade zones, and the largest passenger air hub in Latin America.

Agriculture and Exports

While more minor, agriculture still supports the economy, with exports primarily directed outside the country. Noteworthy products include sugar cane, bananas, rice, maize, coffee, and tomatoes, alongside valuable timber such as mahogany.

In summary, Panama’s strategic location, robust economy, and rich cultural diversity make it an influential player in both regional and global arenas. This blend of natural and economic strengths continues to drive the country’s importance on the world stage.

How to Apply for Permanent Residence in Panama Through Incorporation

Citizens from over 50 countries, known as “friendly nations,” have the opportunity to gain permanent residence in Panama. Here’s how you can embark on this process:

1. Eligibility Check: Ensure your country is listed as one of Panama’s “friendly nations.” This is crucial as it determines your eligibility for this residency route.
2. Establish a Business: To proceed, you must incorporate a company in Panama. This step involves setting up a legal business entity, which is a key condition for this residency pathway.
3. Meet Specific Conditions: Beyond incorporation, certain conditions must be fulfilled. These may include financial requirements, investment criteria, or the demonstration of economic ties to Panama.
4. Legal Process: Engage with the necessary documentation and legal processes. It’s often beneficial to consult with a Panamanian attorney to navigate the specific legal requirements effectively.
5. Submit Your Application: Once everything is in place, you can submit your application for permanent residence to the appropriate Panamanian authorities.

This pathway offers a streamlined opportunity for many international citizens to make Panama their permanent home, provided they meet all stipulations and legal conditions.