One of the most important decisions for any entrepreneur or businessman is choosing the appropriate company structure. Panama, a country in constant growth and with a favorable business environment, provides a number of business entities to meet different needs.
From the IBC (International Business Corporations) or the LLC (Limited Liability Companies), to the Private Interest Foundation or a Non-profit organization, there are a wide variety of legal options available to establish and operate a business in or from this high-potential country.
This guide presents the most relevant Panama company structures, highlighting their distinctive characteristics, advantages and important considerations to help you form an opinion based on your circumstances.
Why do Business in Panama
Panama enjoys distinct economic conditions. Its interoceanic canal gives the country an unparallel market power in Latin America. In recent years, the country has experienced sustained growth, has attracted significant foreign investment, and has become home for thousands of expats pursuing more than great weather all-year round.
For instance, Panama’s economic growth has been impressive after the pandemic. According to data from the World Bank, the economic rebound was 15.8 in 2021 and 10.8 percent in 2022.
The country’s political and economic stability has also proven to attract foreign investors, resulting in a positive cashflow injection in different business sectors.
Panama as a Strategic Business Hub
Panama’s geographical position – connecting North and South America, as well as the Atlantic and the Pacific oceans, gives the country a unique competitive advantage as a gateway to the American continent and a cornerstone for international trade.
The Panama Canal allows the efficient transit of thousands of ships yearly and facilitates access to the world’s main markets. Panama also boasts modern port facilities in its coasts, turning the country into one of the largest ship registry locations whether for commercial or personal purposes.
These efficient infrastructures facilitate logistics and the transportation of goods, encouraging trade and the establishment of business entities, whether for local or international operations. This has also resulted in modern projects in transportation, healthcare, and telecommunications, providing Panama with international recognition.
Panama offers tax and customs benefits, as well as special regimes for the protection of intellectual property and trademark registration, and it is also a recurring tourist destination for thousands of visitors from North America and Europe.
These reasons make Panama not only attractive for expats, but also for businessmen and investors looking for an alternative to traditional markets.
An overview of Panama Business Structures
Below, we share important details of the most relevant types of business entities in Panama, based on our experience while serving the expat community since 2008.
The Panama IBC Company: an international business vehicle
The Panama IBC – International Business Corporation, operates under the Panama Corporation Law. The company is formed by shareholders, and its shares can be issued either nominative or to the bearer – which gives the IBC the anonymity distinction.
This company structure is incorporated in Panama for local or international purposes, and enjoy a series of fiscal and legal advantages, making them a popular choice for international investors, entrepreneurs, business owners, or multinational companies. For instance:
- It protects the privacy and confidentiality of shareholders.
- Shareholders and directors are not required to be Panamanian residents.
- It can be incorporated with nominee directors and officers.
The role of a Panama Private Interest Foundation
A Panama Private Interest Foundation is a company structure created for a founder and for the interests of the declared beneficiaries. By law, the foundation is nonprofit, but it can hold real estate, bank accounts, or other business entities. The Foundation is preferred for various reasons:
- They are useful for asset segregation and protection.
- They allow the establishment of management and asset distribution clauses according to the wishes of the founder.
- Management is flexible and personalized, since the founder can appoint a Foundation Council, which in turn can appoint an administrator or manager to carry out the administration and decision-making tasks.
The Panama Private Interest Foundation is one of the most attractive business entities for asset protection and Estate Planning. Learn all about this Panamanian company structure and order yours today.
The Panama LLC: It must carry the S. RL. in its name
The LLC – Limited Liability Company, is another popular company structure option in Panama. This business entity requires two or more partners, who can be natural or legal persons, residents or non-residents in Panama, and whose information must be recorded in the Panama Public Registry. These partners can also be nominative.
The LLC has no minimum capital requirement for company formation, it can be used locally or abroad, and can be converted to a Panama IBC at any time.
This company structure must carry Sociedad de Responsabilidad Limitada (Limited Liability Company) or the initials S. de RL as a name suffix.
One of the partners or a designated third party can manage this business entity. This manager can be a natural or legal person, with no nationality or residency restrictions. Just like the IBC, the LLC also limits the liability of its members, protecting their personal assets from legal claims.
The Panama LLC shares many similarities with the American LLC. Both company structures offer liability protection to their members, and both can be owned by individuals or business companies, whether domestic or foreign.
Panama Partnership Company: An option for local professionals
In Panama, the Partnership Company is intended for two or more Panamanians with their proper professional license and with equal qualities. This company structure is commonly used by lawyers, architects, accountants, or doctors, and it’s an attractive option for expats with dual nationality.
The Partnership Company is simple to establish, and it is legally independent from the partners. However, the partners are legally responsible for the actions of the company.
The Partnership Company can own assets, bank accounts and be part of legal claims. This company formation requires no minimum capital, and it can be opened with at least 2 members.
Learn all the details of the Partnership Company and contact us for more information.
Why use a Panama Non-Profit Organization
A Panama non-profit organization – NPO, is a company structure for charitable purposes. These organizations are not allowed to distribute earnings among founders, members or directors, but they can hire staff to perform specific tasks to meet its obligations and objectives.
NPOs are allowed to operate charitable activities in Panama or abroad, to receive tax-exempt donations, to obtain public funds for projects, and to transfer funds outside of Panama to fulfill its mission. All these activities must be reported back to the government within the first three months of the next calendar year.
Social, environmental, and governance transparency help the NPO strengthen relationships with stakeholders such as investors, governments, customers, and other organizations.
Find out more about Panama non-profit organizations and contact us with your questions.
An Innovative structure: the Panama Private Investment Fund
The Panama Private Investment Fund is an innovative company structure designed to manage specific investment ventures on behalf of its shareholder base. These funds are not allowed to solicit capital from retail investors or the market at large, with exceptions according to local securities legislation.
There are two types of Private Investment Funds depending on the max number of permitted investors: PIF-20 (Twenty Investors) and PIF-50 (Fifty Investors). Under certain circumstances, the PIF-20 is not required to register with the Panama Securities Superintendence. Also, participants of a PIF-50 need to be qualified investors.
Either company structure allows its participants, whether individual or institutional, to access different investment opportunities in Panama and abroad, according to the objectives for which the fund is established.
Learn all the details of the Panama Private Investment Fund, and how Kraemer & Kraemer can help you in opening and representing it.
Considerations to Select the Right Panama Company Structure
Selecting the appropriate company structure in Panama includes compliance with all incorporation and fiscal regulations. This is where Kraemer & Kraemer becomes your ally.
Determining whether it is more convenient to establish an IBC, a LLC, a Panama Private Interest Foundation, or another company structure, depends on factors such as the objective of the entity, the nature and location of the activities to carry out, and the profile of the entity’s participants.
Ensuring you have adequate legal advice guarantees the correct constitution and operation of the entity, avoiding future problems with the authorities and minimizing legal risks.
A correct choice of the business entity could also be reflected in tax benefits. Certain company structures can facilitate access to loans and financing, which must be carefully evaluated to optimize your resources.
The chosen company structure can influence not only operations but also the ability to expand into international markets. For example, IBCs or LLCs could access double tax treaties or free trade agreements, which simplify expansions and reduce their costs.
In a nutshell, a simple evaluation list should include:
- Location: is the entity meant to operate in Panama, outside of Panama, or both? Consider the tax obligations of different markets.
- Liability: Is it important for the entity to offer protection to its participants?
- Maintenance: recurring yearly maintenance fees need to be considered, not only for the legal entity but also for its individual participants.
- Activities: the nature and cost of operations may influence the choice of one entity over the other.
- Size: Is it important for the company structure to adapt in size and allow scalability according to the projections of its participants?
- Internationalization: Do you plan to operate in different markets? Are copyrights and trademarks an important factor?
Work hand in hand with our corporate legal experts to evaluate your situation, objectives and resources, and identify the company structure that meets your needs.
Should you consider a Panamanian business entity?
Thousands of entrepreneurs and business owners choose to work and incorporate a business in Panama for reasons such as:
- Privileged geographical location: Panama is strategically located in the heart of the Americas, which gives it a privileged position as a logistics and commercial center.
- Economic and political stability: The country has maintained strong economic and political stability for decades, providing confidence to investors and businessmen. In addition, it uses the US dollar as the official currency, which avoids exchange risks and facilitates international business.
- Tax and financial incentives: The Panamanian government has implemented a series of tax incentives and benefits over the years to promote foreign investment and business growth. The country has legislation that promotes confidentiality and asset protection.
- Access to international markets: Panama has a wide network of free trade agreements and bilateral agreements with various countries, which provides preferential access to international markets.
- Human talent and qualified workforce: The workforce is young, educated and multilingual, which facilitates the hiring of highly qualified personnel. In addition, training and continuing education programs are offered locally to strengthen the skills and competencies of workers.
Learn how these benefits can offer you a competitive advantage. Contact us today.
Get the right legal advice
Each situation is unique. Our team of legal experts in Panama corporation services can provide you with the advice and support necessary to identify the right company structure, follow through on local requirements and procedure, and successfully register a company in Panama. Contact us today.