Foreign entrepreneurs can only be granted an investor visa

Incorporation of an offshore company in Panama

Country analysis: legal structures

Everything you need to know to set up an operating company with a bank account.

1. Exchange of banking information

β€’ There are no legal penalties for disclosing the customer's bank details to third parties.

β€’ Banks are largely subject to strict customer due diligence regulations (old FATF recommendation 5 / new FATF recommendation 10).

β€’ Banks are largely required to maintain sufficient records of their customer and transaction data for law enforcement (old FATF recommendation 10 / new FATF recommendation 11).

β€’ Banks and / or other covered entities are required to report large transactions in currency or other monetary instruments to designated authorities.

β€’ The national administration has sufficient powers to obtain and provide bank information on request, but with some problems.

β€’ There are no undue notifications and appeal rights against the exchange of banking information to
request without qualifications.

2. Legal forms

The Panamanian Corporation

This type of company is commonly constituted by foreign entrepreneurs in Panama. The Panamanian Corporation must designate at least 3 directors and 1 shareholder, who can be of any nationality or place of residence. In addition, the minimum initial share capital required will be only US $ 1.

Directors and shareholders are not required to register their personal data for public records. This is one of the main advantages of the Panamanian corporation, whose name in Spanish is β€œSociedad AnΓ³nima”.

Limited Liability Company (Panama LLC)

Like the Corporation, an LLC can be established with only $ 1 of capital. In addition, 3 directors and 1 shareholder of any nationality must be appointed.

However, unlike a corporation, an LLC must publicly disclose the details of its directors and shareholders.

The Panama Branch

The Panamanian is by definition a 100% foreign-owned business entity, as it is simply a local establishment of a foreign company. While the scope of this entity's business will be defined by the parent company, it will still be allowed to bill local customers, sign local sales contracts, and receive income from customers while maintaining an office or other place of business in Panama.

The Representative Office of Panama

A foreign company may seek to establish a representative office in Panama if it does not intend to conduct business in the country. Consequently, this entity will not be able to make direct sales within the country.

Said office will only engage in activities such as i) promoting the business of the parent company and ii) market research.

Remember

Nor a Director resident in Panama is required. Holding companies are available in Panama.

OFFICES

Foster Swiss helps our Clients secure offices or we provide an office address. Most emerging markets require our Clients to have a 12-month office lease before company registration is approved.

We help our Clients overcome this challenge in the following ways:

Virtual office service

DDepending on the country and city, the rates range from US $ 900 to US $ 2000 and the annual active virtual office services range from US $ 1500 to US $ 4000).

Shared office space

LThe one-time fee is US $ 850. Thereafter, our Client pays the monthly rent directly to the owner).

Permanent office space

D Depending on the country and the city, the rates range from US $ 5.000 to US $ 8.000).

TAXES

En Panama, onshore companies with annual revenues of less than US $ 1,5 million will pay corporate income tax at 25%. All other onshore companies will be taxed at 28%. Please note that only income obtained within the territorial limits of Panama will be taxed.

Offshore companies will only pay an annual tax of US $ 300.

Branches will pay an additional 10% dividend tax on their after-tax income.

All resident companies with an annual turnover of more than US $ 36.000 must pay VAT at the standard rate of 7%. Companies must submit monthly VAT returns.

Dividend payments from national income will be subject to a 10% withholding. Foreign dividend payments and export earnings suffer a reduced tax withholding of 5%.

Capital gains derived from the sale of securities will be subject to a 10% withholding tax. Note that the company making the sale must withhold 5% of the price to make an advance payment of income tax to the government.

Panama imposes a 13% withholding tax on interest and royalty payments to a non-resident.

All resident companies can carry up to 20% of their commercial losses for a maximum period of 5 years.

Resident companies must file their tax returns within 3 months after the end of the tax year. Please note that Panamanian tax law does not allow the filing of consolidated tax returns.

Businesses will also be required to pay property taxes annually at an average rate of 2% on real estate.

A transfer tax of 2% will be applied on the real value of the property in Panama.

Panama has signed DTAs with 10 countries, including the Netherlands, Luxembourg, Singapore, South Korea and Spain to reduce withholding tax on payments abroad. In addition, Panama has signed FTAs ​​with 11 countries, including Chile, Mexico, Singapore, Taiwan, and the United States.

In February 2020, Panama was added to the black list of tax havens of the European Union (EU) for not implementing requirements of β€œeconomic substance; in local businesses, in order to crack down on tax evasion.

LEGAL AND COMPLIANCE

Se will establish a Panamanian Corporation and an LLC with at least 3 directors and 1 shareholder. Please note that while corporate entities can act as shareholders, they cannot be appointed as directors of the company.

Panamanian law requires that the minimum initial capital stock for the incorporation of a corporation and LLC be only US $ 1. However, foreign entrepreneurs can only be granted an investor visa if they deposit an initial capital of at least US $ 160,000.

All resident companies must register with the tax agency to obtain a Tax Identification Number (RUC). In addition, it is mandatory to register with the district tax authorities for the payment of local taxes.

Foreign entrepreneurs cannot conduct retail business in Panama.

Employees can work a maximum of 8 hours a day and 48 hours a week.

Overtime must be compensated with an additional 25% of the regular hourly wage.

Resident companies are required to submit annual audited financial statements if i) initial capital exceeds $ 100.000 or ii) annual gross income exceeds $ 50.000.

All employers are required to contribute 12% of their employees' salary to the latter's social security account.

All companies will provide their employees with 30-day paid leave after 11-month continuous work.

Foreign employees cannot represent more than 10% of the company's total workforce.

Furthermore, the monthly payroll of foreign employees cannot exceed 10% of the total.

Panamanian banks can request affidavits if a Client has concluded a transaction worth US $ 10,000. This is done to disrupt potential money laundering operations.

COUNTRY PROBLEMS

LPanamanian companies require the appointment of a minimum of three directors.

A Panamanian LLC paints a bad image of a tax haven for global businesses.

In February 2020, Panama was added to the European Union (EU) black list of tax havens for failing to implement β€œeconomic substance” requirements for local businesses in order to crack down on tax evasion.

Panamanian banks are not safe to hold funds from our multinational Clients because:

  1. β€’ The country's credit rating is i) BBB + with a negative outlook (S&P) and ii) BBB with a negative outlook (Fitch).
  2. β€’ In June 2020, Fitch affirmed Banco General at BBB + with a negative outlook.
  3. β€’ The health and safety of Panama's banking sector depends on the health of the South American economies and on interbank loans with foreign banks.
  4. β€’ The reduction in economic activity and, therefore, the profits of Panamanian banks will likely affect profitability and asset quality. This, in turn, could affect the ability of banks to make loans to Panamanian companies.
  5. β€’ Banks in Panama share information on the accounts of final beneficiaries with 74 jurisdictions as part of their commitment to the Common Information Standards protocols.
  6. β€’ In 2015, Panama implemented an agreement with the US that allows the US government a transparent view of Panamanian citizens' bank accounts.

Doing business in Panama is a challenge because:

  1. β€’ Banks in Panama are i) slow to incorporate new businesses and ii) have onerous Know Your Customer due diligence processes.
  2. β€’ Clients spend a lot of time and money dealing with a corrupt and inefficient bureaucracy.
  3. β€’ The judicial system in Panama is inefficient. A favorable decision in a court hearing depends on your political connections, rather than the facts of the case.
  4. β€’ Only 8% of the local population speaks English, and the majority of the population only speaks Spanish.

Our Clients are likely to face labor problems in Panama because:

  1. β€’ Despite high unemployment, it is difficult to find qualified labor in the country.
  2. β€’ Resident companies cannot hire more than 10% of foreign employees.
  3. β€’ It is difficult to get the contracts of delinquent employees terminated under Panamanian law.
  4. β€’ Although union activity in Panama has historically been peaceful, in recent years there has been greater unrest. This is likely to intensify as unemployment rises.

MORE CONFIGURATION SERVICES SOLUTIONS

  • Shareholders and Agents
  • Office permits
  • Protection of trademarks and copyrights. - Market study.
  • Legal support
  • Proportion of details of temporary unions or associations
  • Fusions and acquisitions.
  • Internal control.
  • Group restructuring.
  • Financial management consulting.
  • Buy a business.
  • Valuation of companies.
  • Credit recovery
  • Job solutions
  • Due diligence search on existing companies and individuals

3. Commercial register

The national business registry includes the identity information of the legal owner.

Information on legal owners is not always available online (up to 10 EUR / GBP / USD).

4. Transparency of society

All businesses require the registration of all legal owners.

All names plus countries of residence plus addresses or NITs or dates of birth, passport or personal identifications, or incorporation numbers are always registered.

Updating the information on the identity of the legal owners is not mandatory.

5. Shareholders publications

Companies available without registered information on beneficial owners.

Real property is not always available online (up to 10 EUR / GBP / USD).

6. Publication of the company account

There is no obligation to maintain accounting data.

7. Country-by-country financial reports

No country-by-country public reporting at all.

8. Corporate tax return

There is no requirement for local submission of a global country-by-country reporting file (in accordance with OECD BEPS Action 13) by large corporate groups (with a worldwide turnover of more than 750 million euros) and local subsidiaries of foreign groups.

Unilateral cross-border tax rulings (eg advance tax rulings, advance tax rulings) are available in laws or regulations, or administrative practice.

9. Identifier of legal entities

β€’ The use of an annually updated Legal Entity Identifier (LEI), developed under the guidance of the Financial Stability Board, FSB, is not mandatory.

β€’ The use of an annually updated Legal Entity Identifier (LEI), developed under the guidance of the Financial Stability Board, FSB, is not mandatory.

β€’ The use of an annually updated LEI for the identification of reporting financial institutions (in accordance with the Common Reporting Standard (CRS) is not mandatory.

10. Measures to avoid tax evasion

Dividend payment: No unilateral relief for double taxation through a tax credit system.

Interest payments: No unilateral relief for double taxation through a tax credit system.

11. Tax matters judicial secrecy

None or restricted access to both criminal and civil tax procedures.

None or restricted access to both criminal and civil tax judgments / verdicts.

12. Opaque structures

β€’ The jurisdiction does not issue or accept the circulation of large notes / cash notes of its own currency (with a value greater than 200 EUR / GBP / USD).

β€’ Unregistered bearer shares are available / outstanding or registered by a private custodian.

β€’ Series LLC / Shielded Cell Companies are not available.

β€’ Trusts with escape clauses are not prohibited.

13. Anti-money laundering legislation

Panama is on the FATF List of countries that have been identified with strategic AML deficiencies.

The last follow-up of the Mutual Evaluation Report related to the implementation of the rules against money laundering and terrorist financing in Panama was carried out in 2019. According to this Evaluation, Panama was considered Compliant on 15th and Fully compliant on 23 the 40 FATF Recommendations. It was also considered Highly Effective for 0 and Substantially Effective for 2 with respect to the 11 areas of Effectiveness of its AML / CFT Regime.

Overall Non-Compliance Score of FATF Standards in Percentage: 32,7%. (100% = all indicators rated as not met / low level of effectiveness; 0% = all indicators rated as completed or highly effective).

14. Automatic exchange of information

Signed the MCAA and committed to exchange information on or before 2019. Number of significant activated AEOI relationships (under the MCAA) published by the OECD as of October 2019: 80.

What type of private banking exists in Panama?

International Banking
Local banking

Central bank security ⭐⭐⭐

The international and digital banks They're available.

CRS: YES.

Real bank operations: 90%.

Visa type: PAB B /, US $, €.

Joint accounts.

Remote management account: To consult.

Asset management Depending on the rating of the company.

Rates: It depends on the type of account.

Credit / debit cards in local currency

Why with Foster Swiss?

Foster Swiss is an international company registered in Switzerland aimed at providing financial and compliance advice on a variety of topics related to company formation
and commercial banking internationally. We are specialized in the implementation of businesses in different jurisdictions, which means that we offer value-added services helping our clients in their expansion abroad.

Some of these services include:
Advice and consultancy,
visas, offices, nominated director / shareholder / secretary,
accommodation if necessary… to name a few.
Check with your assigned consultant for more information.

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