Starting a Business in Panama as a Foreigner
- Last updated on . Written by Offshore Protection.
The Central American nation of Panama has become a popular location for foreigners looking to start an offshore business. Its favourable regulations and tax regime, along with its diverse entrepreneurial opportunities and bustling economy make it an ideal place to set up shop outside one’s home country.
In fact, the Panamanian government has actively promoted and incentivised foreign investment with great success through their ‘Visión 2030 Panama’ scheme.
In this article, we will explore the top reasons to consider starting a business in Panama, and discuss the practical requirements needed to do so.
Table of Contents:
- Why Start a Business in Panama?
- How to Start a Business in Panama?
- Type of Ownership
- General Requirements
Why Start a Business in Panama?
Panama offers many benefits to prospective offshore business owners. These include:
1. Tax Advantages
One of the primary reasons why many are choosing to incorporate their company in Panama is its attractive tax regime geared towards benefiting offshore businesses.
Panama uses a territorial tax system, whereby income earned outside of its borders is free of all domestic taxation. This is ideal for offshore businesses who can be legally incorporated in Panama while generating income overseas, and thus drastically reduce their tax liability.
2. Few Barriers to Entry
Corporate legislation and procedures in Panama make it extremely easy for foreigners to incorporate an offshore company in the country. It can take as little as two weeks to fully incorporate and register a company in Panama, and there are no physical presence requirements during or after incorporation.
This means you can be the owner of a successful Panama business without ever setting foot in the country. In addition, there are no ownership restrictions. Directors, members, and shareholders can be of any nationality and may be either natural or legal entities.
There are no requirements to hold physical annual meetings in Panama. Panama legislation also upholds the values of financial privacy, meaning that beneficial owners can remain anonymous and annual statements are not publicly viewable.
3. Straightforward Visa Requirements
While it is not a necessity to physically visit Panama to incorporate a company or even to spend time there afterwards, for those who would like to relocate, Panama offers a host of different visa options which are incredibly straightforward to obtain.
Panama encourages foreigners of almost all nationalities to relocate to their shores, and therefore have an easy and simple visa processing system. They offer various types of long-stay and residency visas such as their Friendly Nations visa and work visas in the hope to attract young and skilled foreigners to move there.
Panama is an extremely liveable country with a warm climate, beautiful nature, top-class services and amenities, and affordability. It also offers great tax advantages for those who become permanent residents for tax purposes.
Panama has a growing economy with many opportunities for entrepreneurs and existing business owners alike. Panama is considered an international trade hub that connects the Atlantic and Pacific via the Panama Canal.
In addition, it has an established tourism industry, agricultural exports sector, a solid real estate market, and a fast-growing financial services sector (partly fuelled by the increasing offshore finances industry). Panama’s currency is pegged to the US dollar which leads to greater stability and purchasing power.
They have a skilled workforce and a society which is similar to the United States. All of these factors combined make it an ideal choice as a base for international businesses.
5. Stable Politics
Panama has had a history of corruption and had its reputation muddied by the Panama Papers debacle. However, since those times, it has evolved into a stable and reputable jurisdiction.
The government is a stable one, and they have taken the necessary steps towards making the Panama corporate landscape more transparent and compliant.
This of course comes at the sacrifice of some level of privacy, and may inevitably result in a revision of current favourable tax laws. However, it also means that Panama is a more safe and stable nation to invest and start a business in.
Furthermore, the Panama government understands the value that offshore investors bring, and so are likely to do what they can to retain a business-friendly environment for foreign investors.
How to Start a Business in Panama?
Type of Ownership
The first step to starting a business in Panama as a foreigner is to decide what type of business you will incorporate. These can be categorised as follows:
You may opt to start a business in Panama as an individual in your own name. The two main options include a sole proprietorship and a Limited Liability Company (LLC). LLCs are usually the preferred choice as they offer limited liability protection to the owners, which means that your personal assets will not be at risk in the event that the company is sued or liable for debts.
An LLC may have one or more owners, and is relatively straightforward to incorporate in Panama. Sole proprietorships are also an option.
While they are the simplest to set up, they lack that additional layer of protection that an LLC provides and so are less recommended.
You may also decide to team up with others to start a partnership in Panama. You will all be joint owners (partners) of the partnership, but the way the partnership is managed depends on its specific type.
There are three kinds of partnerships to choose from:
A general partnership is the most common as well as the default type of partnership throughout most of the world. All partners are personally and jointly liable for the obligations of the partnership.
This means that if the partnership is sued, even if it is due to the negligent actions of only one partner, all partners may be held responsible in their personal capacity.
As well as being financially responsible for the partnership, the partners are jointly responsible for managing the day-to-day operations and decisions in the partnership. A general partnership is referred to as an “Asociacion General” in Panama.
A Panama Limited Partnership is called “Sociedad de Responsibilidad Limitada” (SRL). An SRL can consist of anywhere from 2 – 20 partners, who can be either general partners or limited partners.
A general partner has the same responsibilities and fulfils the same duties as described for a general partnership. However, the existence of limited partners allows a separate type of partner that is only liable to the amount that they have invested in the partnership.
These partners are sometimes referred to as “silent partners”, and act more like passive investors or shareholders as opposed to actively being involved in the day-to-day management. The benefit is that they are protected from personal liability. Limited partnerships must have at least one general partner.
A Civil Partnership, or “Sociedad Civil”, is a special type of partnership whereby partners are subjected to unlimited liability arising from civil court judgement.
This type of partnership is used by professionals with high risk of civil lawsuits such as doctors and lawyers.
The final type of business that a foreigner can start in Panama is a corporation. A corporation is preferred by larger businesses with many shareholders and parties involved.
It is publicly registered with the government and is required to issue corporate shares, maintain a Board of Directors, and have at least three officers. To register a corporation in Panama requires filing Articles of Incorporation with Panama’s Public Registry.
A minimum of one shareholder is needed. Corporations offer limited liability protection and favourable tax regulations, but are more complex and costly to set up. They are therefore preferred by larger businesses, often with a multi-national presence.
Once you have decided upon the type of business you wish to start in Panama, you must ensure the following additional requirements are met and considered:
- Business Name: A unique business name must be selected which adheres to the naming requirements of the type of entity you have chosen (whether partnership, LLC, corporation, etc.).
- Obtain a Panama RUC: All businesses must acquire a RUC issued by Panama’s revenue agency. This serves as a unique tax ID number for completing tax returns in Panama.
- Hiring Employees: If you plan to hire employees after starting your business, you will need to obtain a social security employer number from Panama’s Social Security Administration.
- Restrictions on Foreigners: As a foreign business owner in Panama, it is important to be aware of the restrictions on foreigners. Foreigners are not allowed to become doctors, attorneys, engineers, or architects, nor can they open a retail business in Panama. A foreigner must be a legal resident for more than 10 years to become a Panama real estate agent or insurance broker.
Panama is certainly an ideal jurisdiction to start a business as a foreigner, due to its tax and regulatory advantages, its geographical location, and the ease and affordability of incorporation.
Before beginning the process of setting up an offshore business in Panama, it is important to do thorough due diligence into what the requirements are, as well as the best type of business entity to suit your needs. Enlisting the help of a professional can help guide you as to what your options are and the best route to take for your specific situation.