Forming an Offshore Company in Panama: What You Need To Know

Before we learn about forming an offshore company in Panama, we are doing a quick market review of the economic landscape. Panama, a small nation with a population of approximately 4.4 million, is situated on the isthmus linking the Caribbean Sea and the Pacific Ocean. It shares borders with Costa Rica to the west and Colombia to the east. The country is renowned for its iconic Canal, a remarkable feat of human engineering that connects the Atlantic and Pacific oceans, earning it the status of one of the world’s great marvels.

Forming an offshore company in Panama is a strategic move to enhance your organization’s growth and profitability. It offers the opportunity to capitalize on the country’s tax incentives while conducting your business operations with the confidentiality and protection provided by Panamanian regulations.

Panama boasts the lowest value-added tax (VAT) and income tax rates in Central America, making it an attractive destination for foreign executives and companies, particularly from North America and Europe. The country has demonstrated a favourable economic performance. This is marked by consistent GDP growth, low inflation rates, and significant foreign direct investment (FDI). The booming economy makes it the perfect time for forming an offshore company in Panama.

Renowned as one of the most prosperous and rapidly expanding economies in Central America, Panama benefits from its strategic geographical location. The Panama Canal is of real strategic significance, facilitating the transit of over 14,000 ships annually between the Pacific Ocean and the Caribbean Sea. Copper is Panama’s primary export, contributing around 3% to its overall GDP. The country is gradually recovering and approaching pre-pandemic levels of foreign direct investment (FDI), with key industries beyond logistics including tourism, construction, technology, and renewable energy. These factors additionally make Panama a good location for forming an offshore company.

If you are interested in harnessing the advantages of Panama’s offshore tax regime or contemplating forming an offshore company in Panama, continue reading the below.

Forming an offshore company in Panama

You will formally establish a legal entity in the Panama when establishing offshore operations, but it will not perform any commercial activities within Panamanian territory. All of the income acquired when forming an offshore company in Panama is the result of commercial operations carried out abroad.

Some of the main benefits of forming an offshore company in Panama include:

• Tax incentives: If a company’s income is obtained outside of Panama then there is no duty to pay income tax. This is due to Panama’s territorial situation.
• Asset protection: A Panama offshore company serves as a versatile tool. It can function as a holding company or own assets and real estate worldwide. This is independent of the company’s commercial operations. This offers effective management, protection, and autonomy for global investments.
• Guaranteed confidentiality: Offshore companies in Panama benefit from government-guaranteed confidentiality. Corporate goals are not required in the articles of incorporation. Disclosing financial information to third parties is illegal and subject to punishment.
• No exchange controls: Panama does not have limits on monetary remittances abroad and does not impose currency exchange controls on foreign organizations.

Note that offshore companies in Panama only need to pay an annual fixed tax of $300 (USD) to tax authorities to renew the validity of the legal entity, crucial information to note when considering forming an offshore company in Panama.

How to form an offshore company in Panama? 

Forming an offshore company in Panama is a straightforward process that can be completed within two weeks. It involves the following five key steps:

• 1. Notarized validation of the company’s statutes:

Commence by selecting a distinctive name and specifying the primary objective of your corporation. With the assistance of a reliable legal and tax advisor, prepare and formalize the legal framework of your Panama-based enterprise to authenticate the articles of incorporation.

• 2. Enrollment of the corporation with the Public Registry of Panama:

By enlisting your corporation with the Public Registry of Panama, you legally establish its presence in conformity with the country’s regulations.

• 3. Registration with the General Directorate of Income (Dirección General de Ingresos):

Offshore companies in Panama solely need to register their principal activity and declare themselves as tax-exempt entities.

• 4. Setting up a corporate bank account:

Initiating a corporate bank account ensures compliance with the requirement of maintaining financial records within the country, thereby promoting transparency.

• 5. Application and acquisition of a commercial license:

This obligatory process, overseen by the Ministry of Commerce and Industry (Ministerio de Comercio e Industrias), is indispensable for all companies engaging in commercial activities within the country.

Once you have successfully completed these steps, your Panama-based offshore corporation will be poised to commence its operations.

Onshore and offshore companies in Panama: The difference? 

A company is offshore if it doesn’t perform commercial activities within the country where it is established. Otherwise, it will not be considered as an offshore organization and it will have to pay five percent of the total income obtained from commercial activities carried out abroad.

Note that in Panama, this is called a company with mixed activities. If you are planning to have a company with mixed activities, it is strongly recommended to create two different legal entities, one for each purpose. This allows you to keep the offshore company free of taxes.

Consider forming an offshore company in Panama with the support of Biz Latin Hub 

At Biz Latin Hub, our team of company formation agents and legal specialists can help you form an offshore company in Panama and navigate the local market. Our multilingual team has a wealth of experience in assisting companies of all sizes to develop their operations by providing a range of customizable market entry and back-office services. 

Reach out to us now for personalized assistance.

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