Panama is emerging as a regional hotspot for commercial activity and increasing opportunities for foreign businesses. The country famously offers globally competitive conditions for company formation and tax compliance, projecting it as a leader in Central America for investment and economic growth.
It’s crucial for businesses to understand their obligations for corporate compliance in Panama. Understanding and complying with local law means being able to expand into Panama as quickly and smoothly as possible, and undertake your commercial activities with confidence.
Our Panama legal expert offers guidance on key requirements for corporate compliance in Panama.
Corporate compliance in Panama: key requirements
There are different types of legal entities that you can incorporate in Panama. In many cases, the most convenient options for foreign multinationals is a Corporation (Sociedad Anónima in Spanish) or Limited Liability Company or LLC (Sociedad de responsabilidad limitada). These types of corporations can be incorporated with just one shareholder. These entities allow 100% foreign ownership as either a natural person or a legal entity (an individual or another company).
Both an Corporation and a Limited Liability Company can be incorporated within a week.
What’s the difference between a Corporation and a Limited Liability Company?
The main difference between these two entities is that in a Limited Liability Company, the shareholder needs to be registered with the local public registry institution (Registro Público de Panamá).
For an Corporation, the shareholder’s information remains private with the owners, resident agent and with the bank (if you open a corporate bank account).
To establish a company, it is important for every foreign investor to know what the minimum requirements are in order to comply with the Panamanian laws and regulations.
Find a Legal Representative in Panama
According to Panamanian legislation, every legal entity or company must have a Legal Representative. This is the person appointed to act as the face of the company and represent it in all legal matters. The Legal Representative is therefore granted legal powers to make certain decisions on behalf of the company.
In Panama, a Legal Representative can be a foreigner, or Panamanian national, without any restrictions. Make sure that the person you appoint as your Legal Representative needs to have an in-depth understanding regarding local laws and potential penalties if the company doesn’t comply with its annual or monthly corporate obligations.
What roles and responsibilities must a company’s Legal Representative fulfill?
- Sign formal documents on behalf of the company
- Open corporate bank accounts with the permission of the shareholder or beneficiary of the company
- Sign employment, sales, and lease contracts
- Provide guidance on current and changing Panamanian regulations.
- Represent the company in application processes for local permits, or registration, such as a commercial license with the Ministry of Commerce.
Register a Fiscal Address in Panama
As soon as the company is incorporated at the public registry, it must be registered at the National Tax Authority (Dirección General de Ingresos). The company is obligated to declare its monthly/annual taxes to the National Tax Authority (depending if the company has local operations).
You’ll also need to fulfill the annual renewal payment of the company. For this registration, every legal entity must supply a fiscal address. This address is used to receive correspondence and formal notices from government authorities and financial institutions.
Monthly and annual tax declarations
Your company will need to make monthly or annual tax declarations, depending on whether your company has commercial activities inside the country. This obligation can also change if your company is located in a free trade zone, develops an incentive activity like tourism or agriculture, or has a license of a multinational company.
It’s therefore important to determine which obligations your company has with the national authorities depending on its commercial activities. Companies that are not aware of their annual obligation may end up paying more taxes than is necessary or making fraudulent tax declarations by mistake. Partnering with an experienced local accounting consultant in Panama will ensure you avoid any issues with your tax declarations.
Compliance for companies operating in or outside of Panama
Companies with operations in Panamanian territory have more corporate compliance obligations than those operating outside of the country. Companies conducting activity outside of the country need to file an annual income tax declaration by March 31 of every year. You can request to extend this period to April 30.
Note that if you operate a corporate bank account and receive any kind of incomes through the year, the company will need accounting registries. This is mandatory for offshore and onshore companies that are established in Panama.
Companies with local and commercial operations in Panama will need to report monthly tax declarations to the national tax authorities, unless the company is operating under a recognized special tax incentive. One example of this is the VAT (Valued added tax) known better in Panama as ITBMS (Impuesto sobre la transferencia de bienes corporales muebles y la prestación de servicios). According to the Panamanian fiscal code, in the article 1057-V, the VAT or ITBMS report must be filed and payed until day 15 of each month.
Companies that have operations in Panama will also need to comply with any additional corporate compliance applied by the relevant municipality (i.e. these additional compliance requirements will depend on the province your company is located in). You’ll need to pay a commercial license tax: this is 2% over the accountable capital of the company, with a minimum payment of US$100 and a maximum payment of US$60,000.
If your company has employees, you must provide a report on the employees’ salaries on the payroll before the end of each month. Employers must also make payments to the Social Security Entity for their staff.
Meet your obligations for corporate compliance in Panama with Biz Latin Hub
With an infinite amount of business opportunities available in Panama, it is not surprising that keen investors are looking towards Panama as great location to start developing their businesses.
It’s crucial to know how and when to file your monthly or annual taxes to avoid any kind of penalties with the national authorities. For this reason and more, working with a trusted local legal and accounting firm can ensure that your company remains compliant when operating in Panama.
At Biz Latin Hub, our team of local and expatriate professionals offer vital guidance and support to help companies meet their obligations for corporate compliance in Panama. Our accounting and legal experts are equipped to deliver high-quality, personalized market entry and back-office services to suit your needs.
Contact at [email protected] to see how team Biz Latin Hub can support your business in Panama and Latin America.
Learn more about our team and expert authors, and how our specialist services can guide you through the company formation process in Panama.