Panama Background

Panama taxes according to the territoriality principle (that is, it does not tax foreign-source income). Only income produced locally is taxable, irrespective of the citizenship of the taxpayer.
Dividends are not included as income subject to income tax.

Panama Introduction

The Republic of Panama occupies an area of 77,082 square kilometres and is situated between Costa Rica in Central America and Colombia in South America, with coastlines on both the Pacific and Atlantic Oceans. Its capital, Panama City, is on the Pacific coast at the entrance to the Panama Canal. Panama was a Spanish colony until 1821. In 1903, Panama broke an alliance with Colombia and became an independent republic. The population of Panama is approximately 2.4 million, of which 700,000 live in Panama City.

The official and spoken language is Spanish, although English is also spoken widely in urban areas and is used daily in commerce and international trade.

Panama companies are created under the General Corporation Law, Law 32 of 26 February 1927. Law 32 has been used as a model for many other jurisdictions and ensures the legal framework to conduct legitimate business activities in the international arena.

Non-resident Panama corporations enjoy 100% tax-free status on their activities outside of Panama.

Corporate Requirements

Two local persons are usually appointed to act as the organizers and subscribers for incorporation purposes.

A minimum of three directors is required. The names and addresses of these directors are part of the public record and therefore nominee directors are usually appointed at the time of incorporation and we provide this service. If the client wishes to be a director, we can provide two nominees. If the client does not wish to be a director, we provide three nominees and issue a Power of Attorney to the client. This service is provided to the client at no extra cost.

Panama offshore companies require officers for the position of President, Treasurer and Secretary. These may be natural persons, corporations or other entities. An officer may hold more than one position, but the President and Secretary should not be the same person. There is no maximum to the amount of officers appointed. The director can be an officer of the company.

Names must end with one of the following words, or their relevant abbreviations - Limited, Corporation, Incorporated, Societe Anonyme, Sociedad Anonima. Names may be expressed in any language using the Latin alphabet. The Registrar may request a Spanish or English translation.

The following names and their associated activities cannot be used: Assurance, Bank, Building Society, Savings, Loans, Insurance, Reinsurance, Fund, Royal, Trust, Chamber of Commerce, University Co-operative and Municipal.

Registered shares, bearer shares, shares of no par value, preference shares and non-voting shares are permitted.

Local Infrastructure

Due to its structure, geographical position, political stability and the characteristics of its economy, Panama has become one of the most important tax havens in the Western hemisphere. It has excellent international transportation and communication systems; the United States Dollar has been a currency of legal tender for more than ninety years.

Panama has taken several steps to modernise its economy and promote foreign investment. Most Panamanian and foreign investors choose to form Corporations. There are no exchange controls, currency restrictions or reporting requirements, and Panama imposes no limits on monetary transfers to and from the country.

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