Hundreds of expats who have made Panama their permanent home launch their own companies each year.
Entrepreneurs will find a fertile environment in Panama. You can open a pub, restaurant, store, hotel, B&B, guide services, or other business.
Perhaps you’re contemplating going into business for yourself full-time. Maybe you’re bored during retirement and want to start a side hustle.
Whatever you decide, you must be aware of and adhere to Panamanian law. That’s why everyone reading this considering launching a company in Panama will benefit from the advice below.
COMPANY STRUCTURE UNDER THE LAW
The formation of your company should be one of your priorities.
In Panama, there are three common types of businesses:
In the case of a “Sole Proprietor,” you and your immediate family run the business without any partners.
Business arrangement in which two or more people run a company together.
A corporation is a legally recognized business entity that can issue stock, has a governing board, and employs executives.
Only a sole proprietorship between relatives doesn’t require the services of a lawyer in Panama, but a partnership or corporation does. This is because formal documentation must be prepared to incorporate a Partnership or Corporation. If they are not correctly drafted, it could be disastrous for the members’ businesses.
Let’s look at Panama’s legal system’s many forms of government.
Sole proprietorship (Sociedad Propia)
Companies can be established by the Commercial Code (Decree-Law No. 5 of 1997, Article 5) and Law No. 32 of 1927.
The Articles of Incorporation are the legal documents that establish a Panamanian business and require the execution of two Subscribers or Nominees on behalf of absent foreigners. The Public Registry of Panama is where these records are kept. Once a corporation has been constituted, it needs only one shareholder.
Different classes of shares, par values, registration statuses, and undeclared Bearer shares are all options when issuing stock for a corporation.
A Panamanian attorney must serve as the company’s Registered Agent.
The Articles of Incorporation must list at least three Directors. Directorship changes must also be reported to the Public Registry. Other than a revision to the Articles or a merger or dissolution of the corporation, no other filings are required.
Company Based Abroad
By submitting the following to the Public Registry Office, foreign corporations already existing in other countries can begin conducting business in Panama.
The Articles of Incorporation were translated into Spanish and notarized;
Documentation from the Board of Directors approving the Panamanian registration;
3. Recent financial statements in copy form;
4. A certificate issued by the Consulate of Panama attesting that the company has been formed by Panamanian law;
5. Confirmation that funds have been sent to the Panamanian subsidiary.
Collaboration in General
Panama allows general partnerships. Partners will face unlimited civil liability, as in most countries. That means that if one partner makes a mistake during the business, the other partners may be liable for the consequences.
Limited Liability Companies (Sociedad de Responsabilidad) are legal in Panama. Both the Commercial Code and Law No. 24 of 1966 apply to them.
No limits are placed on the number of partners or their number of different nationalities or places of residence. They need between $2,000 and $500,000 in capital. The names and Capital contributions of all partners must be recorded at the Public Registry Office. Each partner’s financial responsibility for Partnership debts is capped at their respective unpaid subscription. The name of any independent administrator appointed by the Partnership must likewise be recorded. If fewer than five people are in the Partnership, there is no need to hold meetings. If not annually, then at least once is required. There is no need to submit tax returns or other accounting documents every year.
An Individual Limited Proprietorship (Empresa Individual de Responsabilidad Limitada) can be formed as an alternative to a Sole Proprietorship. It’s structured similarly to a Limited Partnership but with just one member. The person gives the company all of his or her possessions. A company’s exposure to civil lawsuits is capped at the value of its assets.
Common Law Marriage
The Commercial Code and Law No. 24 of 1966 recognize the option of forming a Civil Partnership (Sociedad Civil). Partners’ liability is not limited in any way. Professionals like attorneys and accountants frequently choose this partnership structure.
Organization: Commandite
Sociedad en Commandita (Company in Command) is a business entity that combines a partnership and a corporation, and it is controlled by both the Commercial Code and Law No. 24 of 1966. There must be at least one partner with unlimited liability, whereas limited partners’ exposure is capped at their investment. This is a rare form of legal organization in Panama.
AUTHORITATIVE AUTHORIZATIONS
Before legally conducting business in Panama, you must register your company with the government, regardless of whether it is a corporation, partnership, or sole proprietorship.
To get your business registered with federal and state agencies, follow these six simple steps:
1. Register of Taxable Income
In Panamanian parlance, this is done in the “Registro Fiscal.”
On their website, you may find Spanish-language instructions on registering with the Panamanian government. Check out http://www.dgi.gob.pa, the official government site.
The Direccion General de Ingresos is the federal agency in charge of issuing tax identification numbers to businesses.
You must keep financial records, file an annual tax return (individual or business), and pay any due taxes.
Obtaining a Business Permit
To learn more about acquiring a business license in Panamanian Spanish, visit http://www.mici.gob.pa, another official government website.
The official name of this department is the Ministry of Commerce and Industry, or MINISTERIO de comercio e INDUSTRIAS.
You can also refer to this as a “Business License.” A valid company license is essential in Panama.
Local Property Taxes
Once you have obtained the necessary permissions from the government of Panama, you must register with the city to begin paying municipal taxes.
4, SSN: Social Security Number
The next step is to visit the Registro Patronal de la Caja de Seguro Social (CSS) to apply for a business and personal Social Security number.
5. Health Permit
The Ministerio de Salud’s Permisos Sanitarios must be obtained by any firm dealing with food or drink.
That’s the official Ministry of Health paperwork required to open up shop regarding cleanliness.
Any worker (including owners and management) who handles or is near food or drink preparation or service must have two types of Permits. You must get checked out by a doctor and the dentist at a public health care facility. The second type is obtained by completing a two-day health and safety training program.
6. Documentation of Fumigation
Fumigation is required for all publicly accessible establishments. Every four months, you’ll need a professional fumigation service to kill the ants, roaches, and other pests.
The Fumigation Certificate can then be obtained from the local government by presenting the receipt from the fumigation business. Put this in a prominent location, like your storefront.
Staffing Needs
You can legally begin hiring staff once you have secured the necessary permits and licenses from the relevant authorities.
Panamanian law restricts companies from employing more than 10% non-Panamanian citizens as workers. The majority of a company’s workforce must either be Panamanian nationals, foreign nationals who have been permanent residents of Panama for at least ten years, or Panamanians who are married to Panamanian citizens.
However, there are always outliers:
If you need highly skilled technicians or specialists who can’t be found in Panama, you can enhance your foreign worker quota to 15%. A more significant allocation might be requested from the Ministry of Labor.
Second, businesses with fewer than ten workers can hire a single overseas worker.
Third, with the Ministry of Labor’s permission, businesses can use foreign managers and supervisors while conducting international operations from Panama.
Every non-citizen employee requires a work visa issued by the Ministry of Labor.
Labor Laws in Panama
Employment and labor law are covered under the Labor Code of 1971, which lays out employers’ and employees’ responsibilities and protections. The principle of “subordination” is central to the law. The law applies to every situation in which one person has authority over another. Whether or not the relationship is classified as “employment” is irrelevant.
All employees are entitled to the following minimum standards of treatment:
1. Formal Employment Agreement
Two Dollars Per Hour
3. Time Limits
Time off with pay: No. 4
5. Dismissing Workers
Employment Agreements
An Inscripcion Contratos con Trabajadores is a legally binding employment contract that all employees must sign.
The Ministry of Labor and Social Development requires two copies of the contract to be filed.
During the first two years of employment, employers have a lot of leeway in terminating workers. After that time, the law will provide more safeguards for workers. “Just causes” for termination are enumerated in the statute. Payouts for wrongful termination are often small. “Fixed terms” can be agreed upon by both parties.
The base salary varies from person to employee based on their experience level.
There are 11 official holidays to enjoy during the year. In addition, each employee receives 30 paid days off per year.
Thirty extra days of pay are awarded annually in what is known as “the 13th month” due to legal requirements. For every 11 days worked, this bonus equals one day’s salary. Each year, on April 15, August 15, and December 15, the thirteen-month dividend is distributed in three equal payments.
Panama recognizes the right to free association. Unions give workers the ability to bargain collectively. A 75% vote of the member workforce is required for a strike to be legal. Before a strike may happen, conciliation must take place. But only around 11 percent of private-sector workers are unionized.
Renting a Commercial Building or Office Space
Regarding business leases, Panama follows the same pattern as other English-speaking countries.
1. There must be a written document.
Second, the pre-premises location must be accurately described.
Third, the lease should detail who is responsible for paying for utilities like gas, water, and electricity, as well as any repairs that may be necessary throughout the lease’s duration. The lease will include clauses covering late payments, tenant property damage, and lease renewal.
Owners (or their authorized agents) and tenants must sign the document.
Fifth, a Notary Public must witness every signature.
Before signing a business lease drafted by your landlord in Panama, you should check with a Panamanian attorney, as any additional terms and conditions should be included in a conventional commercial lease.
Commercial Checking Account
No business owner, even a solo entrepreneur, should mix business and personal funds. Because of this, you need to set up your company with a bank account.
Separate Business or Corporate Bank Accounts is a need for any Partnership or Corporation.
The following items and documentation are often required when opening a business account at a bank:
1. Banks typically require a personal interview, though some may accept a phone interview instead.
2. A legible copy of the passport (with photo and personal information pages and Panama entrance stamp page) of the account signatory and each corporate director.
Third, a legible copy of an additional picture identification document (passport, driver’s license, etc.).
Two separate banking references must back all Directors and Account Signatories. References should attest to the account holder’s good character and the continuity of their banking relationship for at least two years. References that attest to the applicant’s place of residence would be preferable. Many Panamanian financial institutions insist on personalized references sent directly to their branches. If you’ve only ever dealt with one bank for your financial needs, that institution may only accept a single letter of recommendation as proof of your creditworthiness.
Two Director and Account Signatory references are required. A person’s accountant, lawyer, stockbroker, insurance agent, real estate agent, or employer are all potential sources for these references. They need to be typed up on official letterhead. The length and nature of their professional contact with the applicant are required details. Please note that we can only accept the original letter.
You must supply a copy of a recent bill for a service that lists your name and address as the billing contact, such as a phone, water, electric, cable, or Internet bill.
The seventh need is a “Company Profile” letter that briefly explains the nature of the account holder’s firm. To register a bank account in Panama, you’ll need to provide details about your company’s location, the goods or services you sell, the projected volume of business, the source of the funds to be placed, a rough estimate of the monthly or annual amount of funds to be deposited, and the purpose of opening the account.
If you want things to go smoothly at the bank, having your Panamanian attorney, there will only help.
The bank’s Compliance Officer will examine the application after receiving all the above materials to ensure no illegal activities, such as money laundering, are being planned.
If you already have a personal bank account in Panama, you can skip some steps and possibly reduce the number of documents you need by starting there.
Taxes
It would be best to consider taxes now that you have a business license, a commercial space, staff, and a bank account.
Conclusion
Starting a business in Panama requires the completion of numerous legal forms, applications, contracts, and adherence to multiple regulations. Because of this, before starting a business in Panama, you should speak with a lawyer who is well-versed in the country’s Business, Labor, Tax, and Real Estate regulations.
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