DOING BUSINESS IN PANAMA IN 2020
For over a decade, Healy Consultants Group PLC has efficiently and effectively assisted our Clients with i) business registration ii) business licensing iii) Panama business banking solutions iv) visa options and v) staff recruitment strategies. If properly structured, Panama business registration allows global entrepreneurs to legitimately conduct international business exempt from taxation.
|Compare different Panama entities||Corporation||Shelf company||Tax exempt LLC||LLC||Free zone LLC||Representative office||Branch office|
|Also known as||S.A||S.A/SRL||Offshore company||SRL||S.A/SRL||Oficina de Representación||Sucursales|
|Best use of company?||All products and services||Close a customer deal now||International business||All products and services||Manufacturing and export trading||Marketing & research||Specific projects|
|How soon can you invoice Clients/sign sales contracts?||3 weeks||1 week||3 weeks||3 weeks||2 months||1 month||1 month|
|How soon can you hire staff?||3 weeks||1 week||3 weeks||3 weeks||2 months||1 month||1 month|
|How soon can you sign a lease agreement?||1 week||2 days||1 week||1 week||2 weeks||1 week||1 week|
|How long to supply corporate bank account numbers?||1 month||1 week||1 month||1 month||2 months||1 month||1 month|
|How long to supply company registration / tax numbers?||3 weeks||1 week||3 weeks||3 weeks||2 months||1 month||1 month|
|Corporate tax rate on annual net profits?||25%||25%||0%||25%||25%||0%||25%|
|Limited liability entity?||Yes||Yes||Yes||Yes||Yes||No||No|
|Government grants available?||Yes||Yes||No||Yes||Yes||Yes||Yes|
|Government approval required for foreign owners?||No||No||No||No||No||No||No|
|Resident director/partner/manager/ legal representative required?||No||No||No||No||No||Yes||Yes|
|Minimum paid up share capital?||US$ 1||US$ 1||US$ 1||US$ 1||US$ 1||none||none|
|Can bid for Government contracts?||Yes||Yes||No||Yes||Yes||No||Yes|
|Corporate bank account location?||Banco Nacional||Banco General||Singapore||Canal Bank||BHD||Banco Panama||Scotia Bank|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|VAT payable on sales to local customers?||7%||7%||7%||7%||7%||None||7%|
|Average total business set up engagement costs?||US$ 7,970||US$ 16,065||US$ 7,220||US$ 8,320||US$ 7,970||US$ 9,440||US$ 7,220|
|Average total engagement period?||3 months||3 months||3 months||3 months||4 months||3 months||3 months|
|Accounting and tax considerations||Corporation||Shelf company||Tax exempt LLC||LLC||Free zone LLC||Representative office||Branch office|
|Statutory corporate tax payable on local sales?||25%||25%||25%||25%||25%||0%||25%|
|Legally tax exempt if properly structured?||Yes||Yes||Yes||Yes||Yes||No||No|
|Group HQ tax incentives?||Yes||Yes||Yes||Yes||Yes||No||No|
|Must file an annual tax return?||Yes||Yes||Yes||Yes||Yes||No||Yes|
|Must file annual financial statements?||No||No||No||No||No||No||No|
|Must appoint an auditor?||No||No||No||No||No||No||No|
|Access to double taxation treaties?||Yes||Yes||No||Yes||Yes||No||Yes|
|Withholding tax on payments to foreign shareholders?||10%||10%||10%||10%||10%||None||10%|
|Company Registration||Corporation||Shelf company||Tax exempt LLC||LLC||Free zone LLC||Representative office||Branch office|
|Resident director/partner/manager/ legal representative required?||No||No||No||No||No||No||No|
|Minimum number of shareholders/partners?||1||1||1||1||1||Parent company||Parent company|
|Maximum shareholding for foreigners?||100%||100%||100%||100%||100%||100%||100%|
|Minimum statutory paid up share capital?||US$ 1||US$ 1||US$ 1||US$ 1||US$ 1||none||none|
|Security deposit to be kept with Government?||No||No||No||No||No||No||No|
|Shelf companies available?||Yes||Yes||Yes||Yes||No||No||No|
|Time to incorporate a new entity?||3 weeks||1 week||3 weeks||3 weeks||2 months||1 month||1 month|
|Can easily convert to a PLC/Corporation?||Yes||Yes||Yes||Yes||Yes||No||No|
|Public register of shareholders and directors?||No||No||No||Yes||No||Yes||Yes|
|Can have preference shareholders?||Yes||Yes||Yes||Yes||Yes||No||No|
|Business Considerations||Corporation||Shelf company||Tax exempt LLC||LLC||Free zone LLC||Representative office||Branch office|
|Good entity for trademark registration?||Yes||Yes||Yes||Yes||Yes||No||No|
|Can secure an import and export license?||Yes||Yes||No||Yes||Yes||No||Yes|
|Sponsorship by a local citizen required?||No|
|Our Client needs to travel to Panama for business set up?||No|
|Temporary physical office solutions available?||Yes|
|You need a local resident as bank signatory?||No|
|Can be wholly foreign owned?||Yes|
|The entity will likely be regulated by?||Ministry of Commerce|
|Minimum number of directors/managers?||3|
|Monthly VAT reporting to the Government?||Yes|
|Must sign an office lease agreement during incorporation?||No|
|Shareholders & directors documents to be attested/translated?||Yes|
|Each foreign director needs a personal income tax number?||No|
|Foreign director needs a residence visa?||No|
|Maximum number of staff allowed?||No maximum number for any entity|
|Expatriate to local staff ratio?||None|
|Can secure residence visa for business owner?||Yes|
|Other useful information|
|What will be included in my customer sales invoice?||Click link|
|This country has signed free trade agreements?||Yes|
|This country is a member of WIPO/TRIPS?||Yes|
|This country is a member of the ICSID?||Yes|
|Average custom duties suffered?||between 3% and 40%|
|Government foreign investment approval required?||No|
|Average monthly office rental? (US$ per sq m)||25|
|Minimum statutory monthly salary?||US$345|
|Average monthly US$ salary for local skilled employees?||2768|
|US$ deposit interest rate? (1 year average)||2.5%|
|Overseas remittance currency controls?||None|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Good|
|Crowd funding available in this country?||Yes|
Panama business setup summary
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Advantages and disadvantages
Advantages of Panama company registration
- Setting up a company in Panama is easy because:
- 100% foreign ownership of Panama companies is allowed;
- A company can be registered in two weeks;
- Only one shareholder is required, who can be of any nationality;
- Multinational Clients do not need to travel to set up a Panama company;
- The minimum paid up share capital is just US$1;
- There is no public register of shareholders and directors;
- Foreign entrepreneurs can hold their company’s capital in US dollars.
- A Panamanian LLC is tax-efficient because:
- Overseas income is exempt from Panama corporation tax;
- Tax-resident companies can write off 10% of accounts receivable at the end of the year as bad debt under local accounting standards;
- Panama has access to Free Trade Agreements with 17 countries and Double Taxation Agreements with 10 countries to reduce withholding taxes on foreign payments;
- Panama’s Colon Free Trade Zone (FTZ) is the world’s second-largest FTZ after Hong Kong. Companies in Colon FTZ enjoy 100% exemption from all taxes.
- There are no foreign exchange controls in Panama. The Panamanian currency (Balboa) is pegged to the US dollar and so is protected from currency volatility.
- Panamanian companies enjoy certain business incentives. These include:
- Tourism companies investing US$50,000 receive benefits including i) 20-year exemption from import taxes payable on materials, equipment, and vehicles ii) 20-year exemption from all real estate taxes and iii) annual accelerated depreciation of 10% for all real estate;
- Real estate companies enjoy i) 10-year corporate tax exemption on income from sale/rental of property ii) 100% deduction of renovation costs from income tax and iii) 100% exemption from import duties to be paid on renovation material.
- Panama is a good geographical location for export-focused companies trading with North America, South America and the Caribbean.
- Our multi-national Clients can secure a Panama permanent residence visa by:
- Applying for a fast track Friendly Nations Visa, which offers a path to permanent residence;
- Applying for a Self Economic Solvency Visa, valid for two years, which requires investment in Panama of at least US$300,000; or
- Applying for a Panama Business Investor Visa by investing in a Panama business with at least $160,000 in capital stock. After two years, the visa holder can apply for PR.
- Panama is one of the world’s top retirement havens because of:
- low cost of living;
- low healthcare costs;
- low levels of street crime;
- low or no taxes.
Disadvantages of Panama company registration
- Panama companies require a minimum of three directors to be appointed. Usually, our multi-national Clients ask Healy Consultants Group PLC to supply professional passive nominee directors.
- A Panamanian LLC portrays a poor tax haven image for global business. In February 2020, Panama was added to the European Union’s (EU) tax havens blacklist for its failure to implement ‘economic substance’ requirements on local companies, in order to crack down on tax evasion.
- Panamanian banks are not secure to hold our multi-national Clients’ funds because:
- The country’s credit rating is i) BBB+ with a negative outlook (S&P) and ii) BBB with a negative outlook (Fitch);
- In June 2020, Fitch affirmed Banco General at BBB+ rating with a negative outlook.
- The health and security of Panama’s banking sector is dependent on the health of South American economies and inter-bank lending with overseas banks;
- Reduced economic activity, and therefore earnings, of Panama banks will likely weigh on profitability and asset quality. This, in turn, could affect the ability of banks to lend to Panamanian companies;
- Banks in Panama share information on beneficial owners’ accounts with 74 jurisdictions as part of its commitment to Common Reporting Standards protocols.
- In 2015, Panama implemented an agreement with the US allowing the US Government a transparent view of the Panamanian bank accounts of US citizens.
- Doing business in Panama is challenging because:
- Panama banks are i) slow in onboarding new businesses and ii) have onerous Know Your Customer due diligence processes;
- Clients spend a lot of time and money dealing with corrupt and inefficient bureaucracy;
- The judicial system in Panama is inefficient. A favourable decision in a court hearing depends on your political connections, rather than case facts;
- Only 8% of the local population speaks English, with the majority of the population speaking only Spanish.
- Our Clients are likely to face labour issues in Panama because:
- Despite high unemployment, it is hard to find qualified labour in the country;
- Resident companies cannot hire more than 10% foreign employees;
- It is difficult to get terminate the contracts of non-performing employees under Panamanian law;
- Although union activity in Panama has historically been peaceful, in recent years there is greater unrest. This is likely to intensify as unemployment soars.
- Setting up a company in Panama is easy because:
Best uses for a Panama company
- Panama is an excellent distribution base to the Americas because:
- Panama’s location in Central America offers resident businesses to access both North American and South American countries at ease;
- Panama’s Colon Free Trade Zone is the 2nd largest FTZ in the world, after Hong Kong. Also, companies working here will enjoy 100% exemption from all taxes. This will optimize business costs for our Clients;
- The country boasts excellent airport and sea port infrastructure by virtue of the Panama Canal, thus offering cheap connectivity with the rest the Americas;
- Panama has an abundance of unskilled labour who are available for work at a monthly salary of US$345.
- Panama is an excellent distribution base to the Americas because:
- Time to incorporate: Two weeks
- Cost to set up: US$8,320
- Minimum capital: US$1
- Physical office required: No
- Shareholders: 1
- Directors: 3
- Company secretary: No
- Resident director: No
- Corporate tax rate: 25%
- Corporate tax base: Territorial
- Shelf companies: No
- Main company type: SA
Healy Consultants’ video on Panama business setup
Contact the presenter: Apurv Trivedi, Client Engagements Officer, Healy Consultants Group
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Useful links for Panama
Government and public authority websites:
- Panama Company Registrar
- Central Bank of Panama
- Panama Stock Exchange
- Agency for Investment Attraction and Export Promotion of Panama
- American Chamber of Commerce in Panama
- Visiting Panama