A 5 Step Guide to LLC Formation in Panama

If you are considering doing business in Panama, one of your best options could be to form a limited liability company (LLC). Because the process of incorporating an LLC in Panama is simpler and more flexible than that of establishing other types of legal entities in the Central American country, making it one of the most attractive options among investors.

With consistent growth in its gross domestic product (GDP) and low inflation over recent years, Panama is considered a high-income nation. It is also known for operating a business-friendly environment, which saw it score a very high 92.0 in the World Bank’s 2020 Doing Business report. The country recorded more than $6 billion (all figures in USD) of foreign direct investment (FDI) inflows in 2019 and has the lowest value-added tax (VAT) and income tax rate in Central America

Panama has an advantageous geographical location, connecting South and Central America, while being home to the famed Panama Canal, which generates an estimated 8% of the nations’ GDP thanks to roughly 14,000 cargo ships using it to transit between the Pacific Ocean and the Caribbean Sea annually. Some of the country’s main export commodities include refined petroleum, coal tar oil, newly built ships, and gold.

If you are thinking of taking advantage of business opportunities in Panama, read on to learn about five key steps to LLC formation in Panama. Or go ahead and contact us now.

LLC formation in Panama: what is an LLC company?

An LLC company, known in Spanish as a Sociedad de Responsabilidad Limitada (SRL), is a type of legal entity that allows the development of any kind of commercial activity in Panama. It is the most popular option for foreign investors expanding into the country due to its reduced complexity and short time frame for setup. Note that the liability of shareholders of an LLC varies depending on the amount of contributions each makes.

An LLC in Panama can be constituted by natural or legal persons of any nationality, and the capital contributed by the shareholders at the time of forming the company can be declared in any currency. Likewise, by forming an LLC, you will be able to do business in Panama or in any other country, while keeping your personal and LLC assets separated.

Note that unlike Public Limited Companies (PLC), the identity of all shareholders of an LLC in Panama must be public.

What are the main requirements to form an LLC?

According to Law N° 4 of 2009, the following are the main requirements for LLC formation in Panama:

• Two or more shareholders are required, who can be natural or legal persons
• All shareholders must confirm their identification and legal addresses
• The legal address of the LLC and the corporate purpose of the company must be specified
• An administrator, a legal representative, and a director must be appointed
• An attorney representing the company must be appointed

5 key steps to LLC formation in Panama

Step 1: Drafting and authentication of company bylaws

The first step is to write the LLC’s bylaws in accordance with local corporate legislation. Thus, it is strongly recommended to engage with a local provider for the required assistance in drafting the bylaws. Once this step is completed, you will need to authenticate the company bylaws before a notary public.

Step 2: Registration of bylaws at the Public Registry of Panama

The statutes of the LLC must be authenticated with the Public Registry of Panama. This public institution is in charge of checking that the statutes of the company comply with all requirements established by Panamanian legislation. If the statutes are approved, the LLC will be considered a legal entity registered in and governed by the laws of Panama.

Step 3: Request and obtain a Tax ID

To continue with the process of LLC formation in Panama, you must request and obtain a tax identification number for the company. The tax identification number in Panama is known as the ‘Single Taxpayer Registry’ (Registro Único de Contribuyente — RUC) is obtained by registering the company with the General Directorate of Income (DGI). Tax obligations will depend on the nature of the commercial activities to be developed and where they are carried out. Note that income from foreign business activities will not be taxed in Panama.

Step 4: Obtain a commercial license and register the LLC before the corresponding municipality

The commercial license must be requested from the Ministry of Commerce and Industries and the DGI. It is necessary to specify the commercial activity of the LLC and the city where it will operate. After obtaining the business license, you must also register the LLC in the corresponding municipality, based on the district where your business is located.

For companies located in the district of Panama, the company is automatically registered in the municipality after obtaining the business license. For other districts, you may need to submit business-related information in person.

Step 5: Open a bank account for your new company

To open an LLC bank account, which will be crucial to managing your business and meeting accounting requirements in Panama, the following documents must be presented:

• Copy of passport or ID of all shareholders 
• Utility bill to verify shareholder’s residence addresses
• Bank reference letter in favor of shareholders
• Proof of income or copy of income tax return, financial statements, or employment reference letter
• Annual projection of the expenses and income of the LLC in Panama

Biz Latin Hub can help you form an LLC in Panama

At Biz Latin Hub, our team of experienced company formation agents is equipped to help you enter the Panamanian market and take advantage of the country’s business opportunities. With our complete portfolio of corporate legal, accounting, and back-office services, our multilingual team is equipped to deliver excellence and ensure the success of your LLC formation process in Panama.

Get in touch with us today for personalized assistance.

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