Setting up and running a business in Panama can be a strategic decision due to the country’s economic and political stability, as well as its advantageous geographic location.
Whether you are considering expanding your Panama businesses or are in the initial stages of establishing your business, we will provide you with valuable information on the necessary corporate services, legal requirements, and processes to help you operate successfully.
Panama Corporate Law Overview
The field of corporate law in Panama is extensive and crucial for setting up businesses in the country. To make informed decisions, it is important to understand how to structure and run your Panamanian businesses efficiently, considering local business customs and securing proper trademark registration to protect your intangible assets.
Company Types
Understanding the different types of companies is fundamental during the business formation process. Utilizing reliable corporate services to evaluate these options will help you select the one that best fits your specific needs.
Below is a summary of the main types of companies for business in Panama:
- Panama Corporation (S.A.): One of the most popular types for investors seeking to protect shareholders’ personal liability.
- Limited Liability Company (S.R.L.): Similar to a corporation but focused on small and medium-sized businesses, limiting partners’ liability to their contributions.
- Individual Limited Liability Company (E.I.R.L.): Perfect for individual entrepreneurs looking to limit liability without needing partners.
- Branch of a Foreign Company: Foreign companies can establish a branch in Panama to operate directly, offering their business services. However, they must comply with local regulations and register the branch with the Panama Public Registry.
Establishing your Business in Panama: Corporate Services
Knowing more about the business formation process, it’s important to be aware that Panama businesses must meet specific requirements to have everything properly set from the beginning.
To achieve this, it is important to hire corporate services that ensure compliance with all legal and operational regulations from the outset.
Trademark Registration Process for Your Brand
Trademark registration is important for Panama businesses to gain legal recognition and prevent commercial conflicts with other entities.
For multinational companies, completing trademark registration in each country where a new branch is opened is necessary. This action protects intellectual property rights and guarantees exclusive use in the local market.
Requirements and Process for Business Registration
Registering Panama businesses involves meeting several legal requirements set by DIGERPI, including:
- Providing the applicant’s name, address, and nationality, and for legal entities, the place of incorporation and company registration details.
- The name and address of the legal representative for Panama businesses.
- Foreign applicants must provide an address in Panama for notifications.
- The trademark must be described by its denomination and/or design as it will be used in the market.
- Products or business services must be detailed according to the Nice Agreement, indicating the corresponding classes.
- A right of priority can be claimed under international agreements ratified by Panama.
Why You Need a Business License
Panama businesses must have an Operating Notice to operate legally. Without this document, a company cannot conduct commercial transactions or operate formally. Additionally, without a trademark registration, the business is exposed to improper use by third parties. Note that this requirement does not apply to agricultural activities, crafts, non-profit activities, and individual liberal professions.
When considering business licenses for Panama businesses, keep in mind:
- Operating Notice: All companies must obtain an Operating Notice, formerly known as a business license, indispensable for any economic activity.
- Unique Taxpayer Registry (RUC): A RUC is mandatory for invoicing and tax procedures. Without this registry, legal operation is not possible.
- Additional Permits: Depending on the business activity, additional permits may be needed, such as sanitary licenses for food businesses or environmental permits for activities impacting the environment.
- Inspections and Fines: Panamanian authorities conduct regular inspections and close businesses operating without the necessary permits. Fines and sanctions are common for non-compliance.
Corporate Bank Accounts
Opening a corporate bank account for Panama businesses enables efficient financial management, facilitates commercial transactions, and maintains compliance with local and international regulations.The time required to open a corporate bank account varies depending on the chosen bank and the residency status of the board members. Generally, the process can take between 3 business days to 3 months, with 2 to 3 weeks being the most common.
The requirements to open a corporate bank account in Panama vary by bank but typically include extensive documentation proving the personal, commercial, and financial reputation of the signatories and ultimate beneficiaries. Additionally, all board members must sign the account opening documents if applicable.
Drafting and Negotiation of Agreements
For Panama businesses, protecting the interests of all involved parties and minimizing the risk of legal disputes requires a well-drafted contract. On it, it is important to clearly define:
- Terms and Definitions
- Obligations and Rights
- Dispute Resolution Clauses
- Legal Review
Business Compliance
Compliance with local regulations and norms is necessary for Panama businesses to operate legally and avoid sanctions. This requires a thorough understanding of fiscal obligations and the required legal procedures, which we will explain below.
Corporate Taxation in Panama
The tax structure in Panama is designed to maintain a competitive and regulated environment for businesses.
- Income Tax: Panama businesses are subject to a 25% income tax on their net income.
- Transfer Tax on Movable Goods and Services (ITBMS): This is the equivalent of VAT, with a rate of 7%, one of the lowest in the region.
- Exemptions and Treaties: Panama has several double taxation treaties and offers tax exemptions for companies operating in free zones or under special regimes.
This tax structure promotes fair contributions from businesses to the country’s development, while offering targeted incentives to attract investments and foster economic growth.
Authenticating and Apostilling of Documents
For Panama businesses seeking to expand or establish international commercial relationships, it’s important that documents issued in Panama are legally recognized in other countries. The processes of apostille and authentication secure this validity. These procedures allow documents to be accepted in countries that are part of the Hague Convention, guaranteeing their legal recognition and validity abroad.
What are Mergers and Acquisitions?
Mergers and acquisitions are business practices that aim to strengthen Panama businesses’ positions in the local market by growing, diversifying, or increasing their market presence through the purchase or union with other companies.
There are three types of mergers a company can undertake:
- Horizontal Mergers: Involving the union of two rival companies in the same sector to consolidate market position and reduce competition.
- Vertical Mergers: Occur when two companies at different stages of the supply chain unite, allowing the company to improve operational efficiency and reduce costs.
- Acquisitions: Refers to one company buying another, which can be a strategy to access new markets, technologies, or resources that complement the existing business.
These strategies can help a company expand and consolidate its presence both locally and internationally.
Panama Businesses Checklist
Here’s a checklist to confirm your Panama businesses meet all basic requirements:
✓ Obtain a business license in Panama.
✓ Register your company’s trademark.
✓ Open a corporate bank account.
✓ Draft and negotiate business contracts.
✓ Comply with corporate taxes.
✓ Have documents apostilled and authenticated.
These basic requirements are general, so it’s advisable to seek advice from specialized lawyers.
Get Legal Advice for Your Panama Business
At Kraemer & Kraemer, we are committed to the success of your Panama businesses. We guide you every step of the way to establish and maintain a solid and compliant business in Panama.
Contact us or write to us at info@kraemerlaw.com, and our team will get in touch to understand your needs and provide the necessary support.
