What Is Required for an International Business Company Formation in Panama?

Panama has steadily grown as one of the top destinations for international business company formation, attracting a growing number of individuals and businesses worldwide looking for flexible legal structures like corporations. This is due to its legal system that favors the creation and operation of foreign enterprises. Panama’s tax regime, recognized for its competitiveness, offers relevant incentives to corporations, while strong legal protections guarantee the privacy and confidentiality of shareholders.

In this article, we will cover all the principal aspects involved in the formation of international business companies in Panama, such as legal requirements, types of company, the establishment process and essential post-incorporation factors.

Before continuing it is important to keep in mind what an IBC is: It is a corporation that is established in an offshore jurisdiction for the purpose of optimizing fiscal liabilities on overseas taxable income and broadening commercial opportunities internationally. The formation of international business corporations is a common practice among companies engaged in trading, asset management, consulting and other areas of abroad trade activity.

The Legal Framework Governing IBC Formation in Panama

Law 32 of 1927 serves as the primary regulation governing corporations in Panama, known locally as Sociedades Anónimas (S.A.), and commonly referred to as IBCs (International Business Companies) in global contexts. This legislation outlines the basic specifications for forming and maintaining a corporation, such as the prerequisites for shareholders, directors and the appointment of a resident agent. This legal system is known for its convenient company structure.

Panama’s legal system is highly attractive due to its territorial fiscal structure, whereby only profits generated within the country are subject to corporate income tax. This means that taxable income derived from foreign sources is exempt from local obligations. This has made Panama one of the most popular jurisdictions in the world for international business company formation.

Additionally, this legal framework also supports the privacy of executives by allowing for nominee services, which help protect the identities of beneficial holders. These consist of appointing a third party, usually a trust firm or an attorney, as a registered shareholder or director of a corporation, in order to preserve the confidentiality of the true owners.

Under Panamanian law, corporations are required to have a management structure that includes a minimum of three directors, who can be of any nationality. These directors do not have to be residents of Panama and may be individuals or corporations, which provides foreign investors with greater control and administration in the formation of their international business corporation.

Pre-Formation: Understanding the Types of Companies

One of the first steps in the company formation process is to decide on the appropriate organization for your business needs. In Panama, there are several types of companies that can be established, each with its own set of benefits and requirements.

Here are some of the most common types of companies in Panama. These entities feature simplified corporate structures and enjoy tax benefits under the Panamanian regime, particularly regarding the exemption of foreign income:

Corporations (Sociedades Anónimas):

• This is the most popular type of company for international business formation in Panama. It offers asset protection and shareholder privacy.
• They are ideal for international businesses that require a legal identity to manage investments, real estate and banking assets globally.
• Although the identity of shareholders is not public, Panamanian banks may need additional information to comply with international regulations.

Limited Liability Companies (LLC):

• LLCs are entities that allow the separation of the personal assets of the partners from those of the company.
• The information of its members is public, which follows the current requirements to operate in many countries.
• They can be converted into Corporations, which makes them versatile for long-term business growth.

Private Interest Foundations:

• Private Interest Foundations are legal tools for asset protection and estate planning.
• They cannot engage in direct business activities, but can hold investments, real estate and bank accounts.
• This company structure offers strong asset protection from potential creditors and guarantees the transmission of wealth to future generations.

Selecting the right type of company is crucial, as it significantly impacts fiscal obligations, management structure, and overall operational efficiency. This decision is a critical step in international business corporation formation, as it lays the foundation for how it will be managed, legally protected and how it will handle taxable income.

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How the Incorporation Process Works

The process of incorporating a company in Panama has been designed to be agile and accessible. The foundation of an international business corporation can be completed in a relatively short period of time, provided all legal requirements are met. The main steps in IBC formation include the preparation of the documents and the formal registration in the Panamanian commercial registry.

Forming an IBC in Panama

The structure of an IBC in Panama offers multiple advantages for international businesses, such as the ability to retain profits generated outside the country without paying corporate income tax.

What Documents Are Required?

In order to form an international business corporation in Panama, the following constitution documents are required:

• Articles of Incorporation: They are fundamental for the company formation process, they must be drafted and executed correctly, since they will be submitted to the Public Registry.
  • Name of the corporation (it must be unique and conclude with a legal suffix such as Inc., S.A., or Corp.)
  • Commercial purpose.
  • Classes of shares and their nominal value.
  • Names and addresses of the incorporators.
  • Domicile of the corporation.
  • Duration of the corporation (usually perpetual).
  • Methods of appointment of directors and officers, and processes for distribution of profits.
• Proof of appointment of resident agent: For international business company formation, Panamanian law requires all corporations to appoint a resident agent, who is usually a registered Panamanian attorney. This agent acts as the company’s official legal representative in Panama.
• Director Information: Panama demands all corporations to have at least three directors. The next information of the directors must be included in the incorporation documents:
  • Submit a certified copy of passport or citizenship card.
  • Proof of domicile with a recent utility bill.
  • Attach certificate of incorporation and certificate of legal representation, for corporate entities.

Registering the Company with the Panamanian Public Registry

Once the constitution documents are prepared , the next step in the international business company formation is to submit them to the Public Registry. The registry will review the application and, if everything is in order, the Panamanian government will issue a Certificate of Incorporation. This formality officially establishes the corporation and allows it to operate legally as an IBC.

How Long Does It Take?

The process of international business company formation in Panama is known for its efficiency. On average, it takes between five and seven business days after filing the documentation. However, factors such as the accuracy of the incorporation documents, the specific type of company and any additional Panamanian government requirements can affect the timeline. Many investors find that working with a local agent helps guarantee that incorporation proceeds without setbacks.

Post-Formation Steps and Obligations

Once the international business company formation is completed, it is mandatory to comply with certain post incorporation responsibilities to keep the enterprise in good standing with the Panama’s authorities:

1. Annual Franchise Tax: All international business companies formed in Panama must pay an annual franchise tax of USD 300 to the Panamanian government to maintain their legal status.
2. Registered Agent and Office: An IBC must hire a resident agent and maintain a registered office address in Panama.
3. Accounting Records: Although offshore companies are exempt from corporate fiscal obligations on taxable income abroad, they must maintain financial records and provide them upon request if necessary.
4. Board of Directors: For corporations, Panamanian law demands a minimum of three directors who oversee the management structure and decision-making processes.

Why People Choose Panama to Open IBCs

Panama’s perception as a preferred jurisdiction for international business company formation is based on a number of advantages, such as:

1. Favorable tax environment: As we have mentioned, thanks to Panama’s territorial fiscal system, earnings generated outside the country are not subject to local obligations. This benefits corporations doing business internationally, as they can optimize the payment of fiscal burden on their foreign taxable income.
2. Corporate privacy: Panama offers high levels of confidentiality for both directors and shareholders. Their information can be kept private through the use of nominee services, which are fully protected by Panamanian law.
3. Strategic location: Panama, located between North and South America, is ideally positioned. The Panama Canal is a high-value commercial waterway for world trade. With nearly 80 kilometers, it connects 170 countries and 1,920 ports, and transports 3% of global commerce.
4. Legal protections: Panama’s legal framework is designed to support foreign investment and protect the privacy and interests of entrepreneurs. The Panamanian government has established an efficient system that allows corporations to operate with minimal administrative burdens.

In conclusion, forming an international business company in Panama offers a viable and beneficial option for corporation owners and investors. By being clear on how this type of company suits your needs, preparing the necessary incorporation documents, and complying with current obligations, you can adequately benefit from the advantages of Panama’s territorial tax system.

The Best Way to Open a Company in Panama

Although the process of Panama company constitution is easy, it is recommended to work with a professional experienced in IBC formation. Having access to trained professionals not only reduces the chances of delays, but also helps guarantee that the business complies with the legal standards set by the Panamanian government.

At Kraemer & Kraemer we have experts with extensive legal and corporate knowledge necessary for international business company formation in Panama. If you are considering establishing a Panamanian corporation, contact us to receive personalized advice and take full advantage of the benefits that an offshore IBC offers.