Choosing a Corporate Structure to Invest in Panama
Many foreign investors starting a business in Panama or merely purchasing real estate for investment purposes decide to use a corporate entity as the owner of such. This decision is a wise one.
Ownership through a corporation allows one to have flexibility in areas ranging from estate planning (if share ownership is properly structured the investor can avoid his heirs a painful and lengthy probate procedure), tax management (as an example, roles on corporate expenses are more flexible than the ones on personal ones), asset protection and representation (shareholders meetings can facilitate granting special powers of attorney or other types of authorizations for many actions thus not requiring local presence in the country).
The first question often asked by investors is whether to use (or form) a local Panama corporate entity or use one already existing and controlled by such individuals abroad. Our advice is, in most cases, the use of a local entity. Although foreign corporate entities can own land and engage in business activities in the country, registration procedures (both at the Public Register and with government entities) as well as negotiation of contracts with private parties can get complicated, delayed and/or find obstacles when they are involved.
In any event, if a foreign entity will be used, note should be taken that we normal recommend registering the foreign entity in the Panama Register as a branch or, at least, to register specific powers of attorney for such also in the Panama Register. Both cases require a special and formal procedure that may take several weeks. As mentioned before, in the great majority of cases, the use of a local corporate entity is preferred. Although, Panama commercial law contemplates many types of corporate forms, only two of them offer the investor the comfort of having structures similar to the limited liability companies to which he or she may be used to in their countries of origin. Such corporate forms are the “LLC” and the “Sociedad Anónima”. In both cases, the investors (shareholders) are only responsible for their participation on the company’s authorized capital and their own personal assets are fully protected and out of reach from any potential creditor the shareholder may have.
The S.A. has many features, of which the most important are:
- No restrictions on nationality
- No restrictions on foreign owned corporations
- No restrictions concerning ownership of sharesNo residence requirements for Directors/Officers
- No paid-in capital requirements
- No income tax is paid or reported if the corporation operate outside the jurisdiction
- No exchange controls
- No restrictions on Mergers, Acquisitions or Joint Ventures
- No requirement to hold annual General Meetings of Shareholders or Directors
- Total tax exemption on all and any business activity or transaction carried on outside the jurisdiction
- Reasonable Annual Registration Tax and Resident Agent Fees
- Articles of Incorporation may be done in any part of the world in any language
- The accounting books for the corporation could be kept in any part of the world and in any language
- The legal representatives (which could be our lawyers) holding powers of attorney to act on behalf of the company are able for any actions taken against the interest of the company and/or its shareholders
- Political stability due to constitutional elected government.
Companies or Foundations doing business in Panama must additionally register before the Tax Authorities. In the event, the company is not involved in business activities in the country for the specific fiscal year (for example, when it is solely used for holding assets), formal tax registration is not required.
The normal fiscal year for companies declaring taxes in Panama goes from January 1 to December 31 of each year; filings can usually be made until the end of March of the following year. A different fiscal year can be authorized for companies that are fully owned or related to foreign entities that have a different term in their countries of registration.
It is important to conclude that the choice of corporate structure must ideally be made at the time the investment or business project is being created. This decision will have a major impact and specific consequences on the implementation of said project and if taken wisely, it will be one of the foundations for its success.
It is not necessary that the client comes our offices for this purpose. The usual procedure is that our group, acting according to the information furnished by the client in the Incorporation Form sent by Fax or Email, will organize the corporation or foundation using standard articles of incorporation. For Panama, incorporation is completed normally within 7 days after we receive payment and all forms, all the pertinent documents will be sent by courier to the address provided by the client, unless we are instructed otherwise.
General Power of Attorney
The Board of Directors may grant a general power of attorney to any person, whether or not connected with the corporation or foundation. When said power of attorney is granted to be used abroad, it is possible not to register said power of attorney to maintain the confidentiality.
By law, every corporation or foundation must have resident or registered agent. Our fee for acting as resident agent is satisfactory. However, the first year of the resident agent’s fee is also included in the cost of incorporation. All annual fees and taxes must be paid promptly every year to maintain the company or foundation in good standing. Late payment will produce high penalties and strike off from the Register.
Annual Company Tax
Every Panamanian corporation or foundation has to pay an annual tax, imposed by law. The law requires corporations or foundations to pay said amount in order to remain in good standing. Good standing is taken to mean valid registration at the Public Registry of Panama.
All annual fees and taxes must be paid promptly every year to maintain the company or foundation in good standing. Late payment will produce high penalties and strike off from the Register.
An additional penalty caused by non-payment is that documents subject to registration will not be recorded nor will any certification of good standing or others be issued, except when requested by a competent authority.
The income tax of Panama is levied only upon net income derived from operations within the territory of the country. Income obtained from operations consummated outside Panama is not income obtained from “sources within the jurisdiction” and, therefore, is not taxable under local law. While not providing any specific legal or tax counsel, nevertheless for some individuals or companies, Panama companies or foundations may offer specific tax advantages over other jurisdictions. Any potential client seeking legal or tax advise should consult with our legal or tax advisors. We work closely with Pardini & Asociados , an international law firm based in Panama with 40 years of experience assisting foreign clients.
In the BusinessPanama Real Estate, we have licensed real estate agents, lawyers, banking experts and other professionals to assist you on all your needs.
We can help you with:
- Locating condos, homes or properties
- Forming a company or foundation
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