For many years, Panama has been a destination of choice for entrepreneurs to establish a company for their Latin American expansion. The economy is one of the fastest growing in the region, showing an average increase in annual GDP of 5.6% between the years 2013-2017. It’s projected to remain at the top of regional growth rankings once again for 2019.
Panama offers a range of advantageous commercial conditions making it highly competitive to its neighbours, including:
- low tax and labor costs
- easy constitution process
- simple shareholder registration
- low cost on annual renewal fees.
One important way to access the Panamanian market and begin your regional expansion is through establishing a holding company.
What is a holding company?
Holding companies are parent companies that have majority control over another company through the volume of their voting stock. They exist solely to control other companies, and at times may own other assets in the subordinate company, such as real estate, trademarks and patents. Holding companies may even own 100% of another business, known as a ‘wholly owned subsidiary.’
With this influence, a holding company can oversee the policies, procedures and management decisions of this second company. However, though it owns a large share of another company’s assets, the holding company does not participate in its day-to-day activities.
Holding companies and their subsidiaries take several legal forms; they can be limited liability companies, corporations, or limited partnerships.
Straightforward company formation process
Company formation in Panama is comparatively very easy when considering this process in other Latin American countries.
Panama enables business owners to register their company without the need of a power of attorney. Additionally, the shareholder does not need to be in the country for the registration process. By partnering with a local legal expert, your Panamanian company can be registered and formally established before you arrive into the country.
Information you need to provide
Once you and your legal provider have gathered all the necessary information and documentation to establish your holding company, Panama’s authorities can process your registration in around 2 weeks or less.
For this, you’ll need to provide the following:
- Three preferred options for the name of your company, listed in order of priority. Your legal representative will confirm with local authorities which are available for use.
- Name and information of the shareholder/s, including their address, in order to issue the shareholder certificate. Shareholders don’t need to be registered in the Public Registry.
- Company purpose and planned activity
- The planned operational period of company (set deadline or indefinite)
- The share capital of the company. There’s no minimum requirement, though US$10,000 of initial share capital is suggested.
- The number of shares owned by each shareholder. Shares must be nominal, meaning that final beneficiary information is declared.
- The name and address of the directors and dignitaries. Panamanian legislation requires a company to have at least 3 directors that can occupy the 3 positions of the dignitaries as well.
The following process outlines the registration steps for company formation in Panama:
- Draft the company bylaws – this can be done with the help of your legal representative
- Notarize the company bylaws through a Public Notary
- Register the company bylaws in the public registry
- Register your company at the National Tax Authority (Dirección General de Ingresos or DGI) to obtain your national tax identification
- Open your corporate bank account.
Taxes for holding companies
Panama charge taxes territorially. This means that income tax, and other taxes like dividend and/or value-added taxes will only apply if the company registered in Panama has income from activities carried out in the country. As a holding company, most revenue will usually be exempt from taxes.
The annual cost for a holding company is US$300 plus the ‘resident agent’ fee. A resident agent is a human link between a company and the Panamanian government, and must be a Panamanian Lawyer.
According to Panamanian tax regulations, the following activities are exempt from taxes:
- Invoicing goods or services sales through your Panamanian office at a higher price than invoices to the corporation in Panama for the same goods or merchandise, as long as those products or goods stay out of Panama;
- Making transactions through your Panama company that will become effective outside of the country
- Distributing dividends and participations from Panamanian Corporations or individuals from income not generated in Panama, including doing so via the operations mentioned above.
Establishing a corporate bank account
Establishing a corporate bank account has several bureaucratic steps. Over time, the Panamanian financial system has been become stricter with this process through a more robust Know Your Client Policy.
To open a corporate bank account in Panama, you’ll need to provide the following documents:
- Copy of your company’s bylaws
- Copy of the shareholder certificate/s
- Copy of the shareholder/s passport and a second identification
- Utility bill proving the address of the shareholder
- Evidence of income of the shareholder, such as a copy of the personal income tax of the shareholder in their home country.
Other banking requirements
As a holding company, you’ll also need to share information about the assets that the company holds. For example, if your holding company in Panama holds assets of a company in the United States, you´ll need to share information about that company in United States and about the regular activities of that company.
The information that Panamanian banks consider most important is the evidence of income or information about the activities of the companies held by the Panamanian holding company. They’ll need to know that the activities involved in the business structure are completely legal and don’t pose any serious or avoidable risk.
Establish your holding company with Biz Latin Hub
Panama demonstrates consistently positive economic growth which grants stability and boost confidence for businesses.
Investing in other countries is not without its complications. At Biz Latin Hub we provide support in every step of the incorporation process to enable you to take advantage of the fiscal benefits and optimal commercial environment in Panama.
For more information on incorporating a holding company in Panama, get in touch with us at [email protected]. Our team of accounting and legal experts offer personalized assessment and back-office support to ensure your successful expansion into this market.