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

Forming an offshore company in Panama is a great strategy to boost the growth and profitability of your organization. This will allow you to take advantage of the country’s multiple tax incentives and perform your commercial operations under the confidentiality and protection guaranteed by Panamanian regulations.

Panama has the lowest value-added tax (VAT) and income tax rate in Central America and has shown a favorable economic performance in recent years, attracting foreign executives and companies from all over the world, especially from North America and Europe.

With consistent growth in its gross domestic product (GDP), low inflation over recent years, and impressive levels of foreign direct investment (FDI), according to the American Chamber of Commerce and Industry of Panama, Panama is one of the most prosperous and fastest-growing economies in Central America. The nation also holds a strategic geographic location and benefits from the Panama Canal, which sees more than 14,000 ships transit between the Pacific Ocean and the Caribbean Sea each year.

If you are considering company incorporation in Panama, or are simply keen to harness the benefits of Panama’s offshore tax regime, read on to learn how an offshore company in Panama could benefit you.

Forming an offshore company in Panama

Group of people discussing about the advantages of forming an offshore company in Panama.
Offshore companies in Panama are not required to pay income tax

When forming an offshore company in Panama, you will formally establish a legal entity in the country, but it will not perform any commercial activities within Panamanian territory. In other words, offshore companies in Panama may carry out administrative tasks, but all of the income obtained is the result of commercial operations undertaken abroad.

Some of the main benefits of establishing an offshore organization in Panama include:

  • Tax incentives: the country’s territorial system means if a company’s income is obtained outside of Panama, there is no obligation to pay income tax
  • Asset protection: an offshore company established in Panama can act as a holding company or own assets and real estate in any country in the world, without these being affected by the commercial operations of the company
  • Guaranteed confidentiality: the Panamanian government guarantees offshore companies complete confidentiality related to their operations. In this sense, corporate goals can be kept out of the articles of incorporation and the disclosure of financial information by third parties is punishable by law
  • No exchange controls: Panama does not have restrictions 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.

How to incorporate an offshore company in Panama? 

The process of forming an offshore company in Panama is straightforward and can be completed in two weeks. It includes the following five key steps:

1. Authentication of the statutes of the company before a notary public

First, you must choose the name of your company and your main objective. Then, with the support of a trusted legal and tax advisor, you must draft and formalize the legal structure of your company in Panama to authenticate the articles of incorporation of the company.

2. Register the company before the Public Registry of Panama

By registering the company with the Public Registry of Panama, the entity is legally established in accordance to the country’s regulations. 

3. Register the company with the General Directorate of Income (Dirección General de Ingresos) 

Offshore companies only need to register their main activity and register themselves as a company without tax obligations.

Panama Canal and a cargo ship.
The Panama Canal receives 14,000 ships every year

4. Open a corporate bank account 

Opening a corporate bank account allows business owners to better comply with the statutory requirement to keep accounting records inside the country for transparency matters.

5. Request and obtain a commercial license

This process is supervised by the Ministry of Commerce and Industry (Ministerio de Comercio e Industrias) and is compulsory for every company that develops commercial activities in the country.

Once you complete all these steps, your offshore company in Panama can start to operate.

Can a company be onshore and offshore? 

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.

Form 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.

Learn more about our team and expert authors.

Biz Latin Hub's market entry and back office services
Biz Latin Hub’s market entry and back office services

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