Legal Entity Formation Panama: Onshore vs Offshore Company

Legal Entity Formation Panama: Onshore vs Offshore Company

Panama has been characterized worldwide for offering a high quality of corporate and financial services. Furthermore, the well-documented tax advantages provided by the Panamanian government combined with a favourable economic performance in recent years have boosted the interest of many entrepreneurs, especially North Americans and Europeans. The simple fact is that Panama maintains the lowest VAT and income tax rate in the Central American region. This brings with it the constant interest of investors, who have determined the Panamanian jurisdiction as an ideal country for foreign investment.

In the following article, we will discuss some essential characteristics and advantages of different types of companies formed in Panama and the requirements for setting them up.

Offshore Company Formation in Panama

Due to the fact that Panama is one of the most important offshore jurisdictions worldwide, many foreign companies decide to start their own offshore business in the country. Below we will identify some key characteristics of an offshore company in Panama:

  • Shareholder confidentiality.

    Legal Entity Formation Panama: Onshore vs Offshore Company
    Offshore companies don’t pay income taxes on income made outside of Panama.
  • Tax exemptions.
  • No obligations to declare offshore activities.
  • An offshore company in Panama can have a single shareholder.
  • Directors meetings can be virtual or out of the country.

The incorporation of this legal entity in Panama is maintained at the arrowhead of the interest of multinationals and transnationals. A considerable mention in Panamanian tax legislation is that all capital earned as a result of operations carried out and perfected abroad will be exempt from income tax, as long as the established branch or corporation in Panama does not execute commercial operations within the country.

To be safe, it is best to employ an experienced lawyer who will assist and guide you through the incorporation process.

Why Panama is a Great Jurisdiction for Offshore Companies

The so-called Offshore Panamanian International Business Company (IBC) is one of the most advantageous IBC’s in the world, mostly because Panama is considered as one of the greatest tax havens. In order to illustrate this, we will outline some major advantages of establishing an offshore company in Panama:

  • Through the set up of an IBC, the company avoids all income taxes on income gained outside of Panama.
  • Panama is a multicultural transit country.
  • English and Spanish have been adopted as commercial languages.
  • Panama has professionally developed its financial service industry and infrastructure.
  • No limitation on foreign exchange.
  • Shareholders enjoy a great amount of privacy.
  • With the help of good advisors, the incorporation of an IBC is relatively quick.

New Company Registration – Onshore Company Formation in Panama

Onshore companies are subject to several of the same characteristics and advantages as offshore IBCs are. See below some of the main characteristics of a Panamanian onshore company:

  • Shareholders enjoy a large amount of confidentiality.
  • It must declare all commercial activities developed within the country, except for companies that are established in duty-free zones.
  • It is necessary for the company to have its own accounting registries.
  • Onshore companies in Panama can have a single shareholder.
  • The directors or shareholders of the company can be from any country.
  • Directors meetings can be virtual.

The increased number of incorporations of onshore companies in Panama has been caused by the relatively low tax rates in comparison with other countries. This provides a good basis for segmenting large commercial schemes that are beneficial for their operations.

Legal Entity Formation Panama: Onshore vs Offshore Company
More and more Investors enter the business environment of Panama City.

Panama offers a great opportunity to foreign investors who want to establish operations in Panama, with the possibility of being incorporated into duty-free zones that have a series of tax exemption benefits. Only legal representatives that comply with the required profile of executing permitted activities and investments to be developed within these duty-free zones will be able to establish themselves in these duty-free zones. In addition, the stable jurisdiction’s economy provides all the necessary and sufficient elements to establish a commercial base point. Of equal importance are the locally strong financial and banking service platforms that help onshore companies to reach transactional facilitations with customers and suppliers.

Process for Incorporating Offshore and Onshore Companies in the Panamanian Jurisdiction

Having depicted the major advantages and characteristics of offshore and onshore companies in Panama, we want to clarify the major requirements for their establishment.

First of all, a Social Pact needs to be drafted, which must contain the following information:

  • Name and address of each of the subscribers of the articles of incorporation.
  • Name of the company (it must not be the same as or similar to another pre-existing one).
  • Objectives of the company.
  • Legal Entity Formation Panama: Onshore vs Offshore Company
    A newly established Company needs to be Registered as a Unique Taxpayer.

    The amount of the share capital and the number and nominal value of the shares in which it is divided.

  • The appointment of the Board of Directors must be made and the designation of the positions that each one will carry out.
  • The designations, preferences, privileges, voting rights, restrictions and any other stipulation that the actions entail must be stipulated by resolution.
  • The number of shares that each subscriber agrees to take must be stipulated.
  • The address of the company, name and address of your resident agent (must be a suitable Panamanian lawyer).
  • The duration of the Company must be established.

Once the corporate agreement is duly managed and registered by the legal proxy, the company will acquire its legal personality. For the commercial opening of the company, the Commercial License of the Company must be issued and an RUC number must be issued in order to declare taxes. Municipal taxes must be paid according to the location of the company’s tax domicile.

Need More Information on Doing Business & Forming Companies in Panama?

Offshore strategies can have a great impact on a company, taking into account that offshore structures are very well alive. However, with the repressive measures and the global offensive towards fiscal transparency, it is increasingly important for you to include onshore structures in your expansion plan.

The adoption of the onshore-offshore or “midshore” strategy is the way forward today. The Biz Latin Hub Group is a specialized legal, accounting and back office firm that can provide you with tailored advice about the best business expansion plan in Panama and/or Latin America.

Contact us now for personalized support.

Unsure about how to apply for an investor’s Visa in Panama? Check out this informative video to learn more.

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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Legal Team Panama

Legal Team Panama

Legal Team Panama is the Biz Latin Hub leading experts on doing business in Panama The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Panama via our "contact us page".

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