Running a business with the freedom to grow internationally, without excessive tax burdens and with strong privacy measures is a reality for many companies and entrepreneurs by establishing an International Business Company (IBC) in Panama. Due to the country’s unique tax laws, offshore IBCs are only taxed on income earned within its borders, making it an attractive choice for businesses with clients around the world.
In this article, we’ll look at why Panama has become a top destination for establishing international international corporations and how its favorable regulations and tax advantages make it a practical choice for companies of all sizes. If you’re looking for a business-friendly base that helps you keep more of what you earn and adapt easily to a changing market, Panama may be the solution you’ve been searching for.
The Basics of an IBC in Panama
What is an IBC? It is a type of offshore company formed under the laws of a specific jurisdiction, often with favorable fiscal and regulatory regimes. Specifically, a Panama IBC is a legal entity designed to facilitate international business activities. Governed by the local corporation law, these entities are exempt from Panamanian income tax on earnings generated outside of the country.
LThe formation of an offshore IBC in Panama dates back to the Companies Law of 1927, one of the oldest and most distinguished legal frameworks in the offshore world. Panama’s government has encouraged the establishment of offshore companies for decades, and as a result, the country is home to over 350,000 registered businesses, of which a considerable number are offshore.
The incorporation process for an IBC in Panama is simple, fast, and affordable. Typically, an IBC can be formed within 5-7 business days, and the government imposes minimal bureaucratic requirements. The structure of an IBC in Panama requires only one shareholder and one director, who may be of any nationality, simplifying the setup even further.
Legal Framework and Key Laws for Offshore IBCs
Panama Law 32 of 1927 forms the basis of its corporate landscape and establishes that IBCs are exempt from taxation on income earned outside this territory. This Panamanian corporation law also allows offshore companies to enjoy broad operational freedom, including the ability to engage in all types of lawful activities.
In addition, in order to align with international standards and improve transparency, Panama has implemented new regulations such as Law 47 of 2013. This normative requires the custody of bearer shares, which allow ownership of a company to be transferred by simply handing over physical certificates, to be held in custody by authorized financial institutions. This provides a balance between owner privacy and regulatory compliance. This legal framework creates a solid foundation for offshore companies operating in Panama.
The Benefits of an Offshore IBC in Panama
As mentioned before, the legal framework, governed by Panamanian corporation law, guarantees that offshore IBCs in Panama can operate efficiently while enjoying certain advantages, such as those mentioned below.
A Key Feature for Offshore Companies: the Territorial Tax System
One of the main advantages of establishing an offshore IBC in Panama is its territorial tax system, which exempts income generated outside the country from local levies, allowing international trading companies to optimize their imposed tax burden by not paying fiscal obligations on foreign dividends, interest or royalties. In addition, this structure helps avoid double taxation on worldwide income, maximizing profits under Panamanian corporate law.
An Important Distinction: an LLC vs. an IBC
Although both, an LLC (Limited Liability Company) and an IBC in Panama are legal entities established under Panamanian corporation law, they serve different purposes, particularly in fiscal terms. The first one is subject to worldwide income taxation, which means that all earnings, whether generated inside or outside the country, must be declared. Additionally, it must comply with financial regulations and submit to audits if it has activities in Panama. It also has less of a focus on privacy, as members’ records are more accessible.
In contrast, the second one is designed for companies with international operations that benefit from the territorial fiscal system, which exempts foreign-source income from local taxes. An offshore IBC is exempt from filing financial reports and audits for its foreign earnings with Panamanian authorities. In addition, it offers greater privacy, with the possibility of emitting bearer shares.
For this reason, a Panama LLC is more appropriate for businesses operating within the country and an offshore IBC is the ideal alternative for businesses mainly trading outside of the territory. Panama’s offshore company advantages are further strengthened by the country’s reliable legal protections and established reputation for financial stability.
What Operations Can Be Carried Out via an IBC?
An offshore IBC is adequate for a variety of international business activities, such as:
Asset management: an IBC in Panama allows managing assets such as real estate, intellectual property, and financial portfolios. In this way, enterprises protect their wealth and take advantage of the tax benefits of the territorial fiscal system.
Holding company: An offshore IBC is often used as a holding company, which allows businesses to consolidate assets (shares of other businesses, properties, etc.).
International trade: They are able to conduct international trade, managing the import and export of goods, products, and services worldwide.
E-commerce: An offshore IBC can also engage in e-commerce, allowing businesses to manage online sales platforms around the world.
Investment management: They can be used to administer investments in different countries, whether in stocks, bonds or other financial instruments.
Opening and managing bank accounts: Businesses can use an offshore IBC to open bank accounts in other jurisdictions, such as Panama, allowing for asset handling and international transactions.
These activities, supported by the Panamanian legal framework, make the Panama IBC a versatile and effective tool for offshore companies.
How Panama Compares to Other Popular Offshore Locations
While many jurisdictions offer territorial tax systems and efficient registration processes, Panama distinguishes itself with exceptional privacy, lower maintenance costs, and other unique offshore company advantages, setting it apart in the competitive landscape of offshore options.
Panama offers a higher level of privacy for offshore companies than Hong Kong. While an offshore IBC in Panama can keep the names of their directors and shareholders confidential, Hong Kong requires public disclosure of this information in its corporate records
As well as the British Virgin Islands (BVI), which due to regulatory updates to comply with international standards, have seen privacy reduced by making certain owners’ information more accessible to foreign authorities.
In terms of annual maintenance costs, Panama offers an important benefit over the Cayman Islands. While in Panama the annual governmental expenses of an offshore IBC are around 300 USD, in the Cayman Islands these costs can exceed 1,000 USD
In summary, setting up an offshore IBC in Panama offers numerous advantages, such as tax benefits, privacy protection and solid assets management options. The country’s fiscal system allows corporations to avoid taxation of worldwide income. Panamanian corporation law provides a favorable commercial environment where businesses can operate safely and efficiently.
For those looking to scale internationally, Panama is an excellent choice for offshore companies, as it offers a legally sound and fiscally favorable solution.
Do You Need Assistance with Forming an IBC?
If you are planning to form an offshore IBC in Panama, you should understand the legal requirements and the different tax benefits available that we highlight in this article. Additionally, to begin the incorporation process, you will need to provide basic documentation, including the notice of operations, the names of the nominee executives and a registered agent. The latter ones are designated to further protect the identity of the true owners and their assets.
By working with Kraemer & Kraemer, you’ll benefit from the knowledge and experience of professionals who are well-versed in the Panama international business company formation process.This way, you are guaranteed that your offshore IBC incorporation will run successfully and safely. Contact us today to resolve any questions or begin the process.
