How and Why to Start a Business in Panama

Introduction

There are many reasons to start a business in Panama such as a stable economy, strategic location as a global logistics and financial hub, and a government incentive and last but not least the tax territorial system.

Why Start a Business in Panama?

Strategic Location: Located in the middle of the Americas, Panama offers Panama’s geographical strategic position that links North and South America. Thanks to its famous canal, connecting the Pacific and Atlantic oceans, Panama offers easy access to global trade routes.
Economic Stability: Panama has one of the fastest-growing economies in Latin America, with a US-dollar-based economy that provides stability and ease of business.
Favorable Tax Regime: The Territorial Tax System also applies to corporations, making it a significant advantage for multinational corporations that have income earned outside the country. The Colon Free Zone is the largest free-trade zone in the Americas.
Business-Friendly Environment: The government helps and promotes foreign investment, also thanks to a series of laws that protect and benefit investors and entrepreneurs.

How to Start a Business in Panama

Choose a Business Structure

Firstly you have to choose the kind of company you are willing to open, the most common are: Anonymous Corporation (Sociedad Anónima), the Limited Liability Company (Sociedad de Responsabilidad Limitada) and the Private Interest Foundation (Fundacion de Interes Privado).

Anonymous Corporation (Sociedad Anónima): In the Anonymous Corporation, the shareholders are held under complete anonymity and do not appear on the public registry of Panama, since they will appear only in the shareholder’s documents, which are private documents. For the management at least three managers in a Board of Directors are required by law, but a single person can hold the 100% shares of the company.
Limited Liability Company (Sociedad de Responsabilidad Limitada): The LLC has a minimum of two shareholders whether natural or legal and at least one administrator. The 4 Law from 9th January 2009 regulates this kind of company. No initial capital investment is needed to open the LLC.
Private Interest Foundation (Fundacion de Interes Privado): Regulated by the Panama Law 25 issued on June 12th 1995, is an essential instrument for asset holding and protection. The Private Interest Foundation has no owner, but a founder (the granter) and the beneficiary (the grantee).

Register Your Business

With the help of a professional law firm (see the list of the most remarkable law firms here) that guides you in registering your company with the Public Registry of Panama. This process involves submitting your company’s articles of incorporation and paying the associated fees.

Obtain Necessary Licenses and Permits

Depending on the type of business, you may need specific licenses or permits. The Ministry of Commerce and Industries (MICI) is a good starting point for understanding what’s required for your business.

The Resident Agent

A law firm must represent the company as a resident agent. This agent is responsible for the annual maintenance of society. The resident agent covers an annual fee and has no responsibility for the actions of society.

Open a Corporate Bank Account

Open a local or an international corporate bank account. The bank sector is huge in Panama but be prepared for a thorough due diligence process.

Register for Taxes

It is mandatory to register your business, for tax purposes, with the Dirección General de Ingresos (DGI), Panama’s tax authority. You'll receive your tax ID, known as RUC (Registro Único de Contribuyente), which is necessary also for invoicing.

Find a tax advisor/accountant

Is strongly suggested to be assisted by an expert to get proper guidance and strategic planning while meeting their tax obligations responsibly. Here a list of tax advisors and accountants

Comply with Labor Laws

It’s essential to know Panama's labor laws if you are willing to hire people, including minimum wage, working hours, and social security contributions. Registration with the Social Security Office (CSS) is mandatory for employing staff.

Consider Special Zones

Panama has several special economic areas offering additional benefits, such as the Panama Pacifico Area, the Colon Free Zone, and others. These areas offer tax and labor incentives for businesses.

Cost of Running a Business in Panama

Initial Setup Costs

Company Registration: The incorporation of a company in Panama usually costs between $1,000 and $2,000. This fee covers legal services for drafting and registering the articles of incorporation, and the initial government fees.
Legal and Accounting Services: Securing professional advice for setting up your business structure. This service might cost from $500 to $3,000, depending on the complexity of your setup.
Licenses and Permits: The cost varies significantly depending on the type of business and its specific needs. Some businesses might require only standard licenses, while others kinds of activities could need additional permits that could increase the costs substantially.
Bank account opening: Bank account opening fees with the help of a law firm could cost between $700 to $2,500, depending on the type of account e.g. International multi-currency corporate bank account, local corporate bank account, etc.

Ongoing Operational Costs

Office Rent: In prime areas of Panama City, commercial space rent can range from $15 to $30 per square meter per month. Prices decrease in the surrounding areas.
Utilities: Monthly utility costs, including electricity, water, and internet, can vary widely based on the size of your operations but expect to budget a few hundred dollars at least.
Labor Costs: The wages are a significant part of operational expenses. Panama's minimum wage varies by sector. Remember to factor in social security contributions and other mandatory benefits when calculating labor costs.
Accounting Services: Navigating into company taxes can be a hard task. Make sure to hire an accountant for tax planning, tax optimization, and compliance.
- Basic Services: For small companies with relatively straightforward accounting needs, such as bookkeeping, preparing financial statements, and tax filing, the cost can range from $200 to $600 per month.
- Accounting Firm: Professional accounting firms in Panama City may offer monthly retainer packages starting from $500 to over $2,000 for comprehensive accounting services, including bookkeeping, financial analysis, tax planning, and compliance advice.
Banking and Financial Services: Corporate bank accounts may have monthly maintenance fees, and financial transactions could have associated costs.
Insurance: Depending on your business type, insurance costs can vary. Consider necessary coverages like liability, property, and workers' compensation insurance.
Marketing and Advertising: Based on your business type and activities the budget for marketing service and advertising can vary a lot. Digital marketing can be more cost-effective for small businesses, while traditional advertising methods might require a larger investment.
Taxes: The corporate tax income in Panama is fixed at 25%. Many incentives or lower rates might apply in certain sectors or special economic zones. VAT (ITBMS in Panama) is at 7%, you can find here the article about corporate taxes.

Tips for Success

Understand the Market: Carry out extensive market research so as to know the amounts of your products and services that people in Panama need.
Learn the Language and Culture: Panama is a country that welcomes enterprises with open arms, but acquiring Spanish and getting familiarized with local business etiquette is very useful.
Seek Legal and Financial Advice: Legal and tax systems are regarded as the two most challenging things for beginner entrepreneurs. A counsel or guidance is a running demand to comply and take smart actions.
Build/Update your website: Your website is often the first point of contact between your business and potential customers. A professional, user-friendly design can make a significant difference in how your business is perceived, if you are looking for professional help, you can contact us, we are open to take on new projects at the moment.
Network: Establishing contacts with local enterprises and expatriate communities will also enable access to opportunities.

Starting a business in Panama offers significant advantages due to its strategic location. Through proper planning and abiding by due legal procedures, entrepreneurs will be in a good position to exploit the dynamic market with their businesses growing sizeably.

Sources & Foot Notes

[1] Accountants in Panama - Company Incorporation Panama
[2] Panama Corporations - Pérez & Carrera
[3] Company Types Panama - Company Incorporation Panama
[4] Business Licenses & Permits in Panama - Sucre, Arias & Reyes
[5] Corporations - RBC Attorneys at Law
[6] Panama Business Corporations - Kraemer & Kraemer