Doing business in Panama

Panama is located in Central America and has a surface area of 78,200 square kilometres. Panama is bordered to the North with the Caribbean Sea, to the East by the Republic of Colombia, to the South by the Pacific Ocean, and to the West with the Republic of Costa Rica. The capital is Panama City and Panama has an estimated population of 3,725,000 inhabitants. Spanish is the official language. Panama’s currency is the balboa (PAB) and the United States Dollar (USD) has legal free circulation (PAB 1 = USD 1).

Panama functions as a presidential representative democratic republic. The President of Panama is both head of state and head of government. Executive power is exercised by the government. Legislative power is vested in both the government and the National Assembly. The judiciary is independent of the executive and the legislature.

Panama is a tropical country with a climate like a perpetual summer. Panama has two seasons: the dry season tends to run between late December and early May while the rainy season runs between late May and early December. Temperatures in both summer and winter vary between 21 and 30 degrees Celsius (between 70 and 86 degrees Fahrenheit). The average humidity amounts to 70%.

Panama is a member of the Central American Integration System (Sistema de la Integración Centroamericana, SICA) and the Association of Caribbean States. It is also a member of the GAAT, the World Trade Organization, the Organization of American States and the United Nations. Panama has been granted preferential treatment by the United States (Trade Promotion Agreement, sometimes called a Free Trade Agreement).

With an annual growth of 10.6% in 2011 and an estimated annual growth of 10.7% in 2012, Panama is doing extremely well! Panama is a great country to live in, to invest in, and to do business in. There are opportunities stemming from the Panama Canal expansion, the expansion of various ports and airports, the construction of a metro system and the enactment of special regimes for certain types of businesses and industries.

Company types

The following types of business entities can be incorporated for the operation of any type of commercial business in Panama:

  • general partnership (sociedad colectiva);
  •  joint-stock company (sociedad anónima);
  • simple limited partnership (sociedad en comandita);
  • cooperatives;
  • individual enterprise (empresa individual); and
  • limited liability company (sociedad colectiva de responsabilidad limitada).

In practice, most businesses operate as corporations, partnerships or sole proprietor. A Panamanian business can be operated by a single owner.

Joint-stock companies are incorporated by two or more persons of legal age (Panamanian or foreign individuals, as well as legal entities). Each incorporator should subscribe at least one share from the authorized social capital of the new entity. The authorized social capital of a Panamanian joint-stock company must not be necessarily subscribed and paid entirely.

Tax system

Panama has a territorial system of taxation: companies are only subject to corporate income tax on their Panamanian-source income. In other words, foreign-source income is not subject to corporate income tax. For example, an entity or an individual which derives income outside Panama will not pay income tax on its foreign source income. This offers opportunities for businesspeople with international operations looking to lower their tax burden and to minimise their corporate tax leakage.

Corporate tax rate

Corporate income tax is levied at the general rate of 25% on the net taxable income.

Withholding tax

Dividends, royalties and interest payments are subject to withholding tax in Panama.

Foreign investment incentives

All types of companies and legal entities in Panama can be owned and managed by foreigners.

There are no levies or controls on the transfer of funds. In general, there are no restrictions on the payment of dividends, profit distributions or remittances abroad.

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