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Panama

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    PANAMA COMPANY FORMATION

    A Panama company incorporation is a suitable vehicle for people who want to do business in a nation with a favorable tax environment and a legislative structure that prioritizes corporate privacy. Since the beginning of the century, Panama has seen continuous and exponential economic expansion.

    Panama’s prosperity stems not only from its strategic location between North and South America but also from the Panama Canal, a man-made canal that connects the Pacific Ocean with the Caribbean Sea. Every year, over 14,000 ships travel through this canal, accounting for 2% of the country’s GDP. More information regarding a Panama business registration can be seen below.

    WHAT IS A PANAMA INCORPORATION?

    • A corporation is a type of corporate entity that can be registered with the Panama Public Registry after completing a set of legal requirements by Law 32 of 1927. Although the legal name for this organization type is “Sociedad Anonima” (Anonymous Society), it is sometimes known as an International Business Company (IBC).
    • It is regarded as a standard entity type in Panama and is suitable for both domestic and foreign use; hence, offshore incorporation does not have a separate entity variant. This is a rather distinctive characteristic shared by few other offshore countries.
    • It is mostly utilized for commercial trading, estate holdings, strategic tax planning on offshore repatriations, and insulating shareholders’ responsibility from high-risk company operations.

    WHAT ARE THE KEY REQUIREMENTS OF A PANAMA COMPANY FORMATION?

    No. Item Description
    1. Shareholder Mandatory
    2. Director Mandatory
    3. Company secretary Not mandatory
    4. Annual tax return Mandatory
    5. Share Capital US$1
    6. Resident agent Mandatory
    7. Purpose of incorporation Mandatory
    8. Timeline 3 weeks

    Shareholder

    In order to begin operations in this sort of organisation, only one shareholder is required.

    Director

    After the corporation is constituted, a minimum of three directors (Treasurer, Secretary, and President), who might be natural or corporate, are expected to be in place. Their names and residences must also be registered with the Public Registry.

    Company Secretary

    A company secretary is not required, if a corporation is permitted to appoint one. 

    Share capital

    The minimum amount of share capital required is U$1.

    Resident agent 

    To participate in judicial proceedings, all registered Panama corporations must appoint resident agents in the form of a lawyer or law firm based in the nation.

    Purpose of incorporation

    Most people will give the main reasons why their business was formed, but greater details may be found in the corporate bylaws.

    Incorporation timeline

    The average incorporation timeline for a Panama company is 3 weeks. Depending on the registration process, it might slightly vary from company to company.


    WHAT IS THE PROCEDURE FOR SETTING UP A PANAMA COMPANY REGISTRATION?

    No. Item Description
    1. Select a name You have the option of submitting up to three name options for your corporation, which can all be in any language as long as they contain any of the requisite corporate suffixes: a.Incorporation (Inc) b.Corporation (Corp) c.Sociedad Anónima (S.A.)
    2. Produce Signed Company Bylaws There is no legislative clause in Law 32 of 1927 that requires the incorporation procedure to include corporate by-laws. This implies that a corporate entity can exist in the absence of another. However, shareholders should nonetheless design one in addition to the Articles of Incorporation in order to lay out deeper structural and operational elements for future reference.
    3. Prepare the necessary requirements Among the key requirements that you will need to have in order to continue with the registration process are: - Three alternatives for your company's name; The name and details of the shareholders Period of operation Share capital Number of nominal shares owned by each shareholder Names and addresses of at least three dignitaries who have been nominated as directors Resident agent’s name and address
    4. Register with the Appropriate Authorities Our agents will provide you with the necessary paperwork such as Article of Association, Operation Notice, Tax Identification Number etc. You will need to fill those forms appropriately and we will handle the submissions to the relevant Panama authorities.
    If you require further assistance in the formation of your Panama corporation, do contact us at +65 8756 2027. At Relin Consultants, our agents are highly skilled and experienced. Therefore, we are always looking forward to assisting you.

    ARE THERE ANY OTHER CONSIDERATIONS THAT I SHOULD KNOW OF?

    US Citizens’ compliance with FATCA

    • The IRS is the most resilient and strong tax enforcement agency. They have a reputation for being unyielding in their approach to preserving tax nexuses with all professions and business entities in the United States.
    • All Americans (citizens or legal residents) who engage in any income-generating or non-income-generating business activity must file a 5471 form. This means that a rental property registered under a business that earns cash passively may nonetheless be subject to tax filing with the IRS, which is an unpleasant task to say the least.
    • Banks, on the other hand, are required to report to the IRS on opened account information on a yearly basis. The Financial Crimes Enforcement Network (FinCEN) is another worldwide body you must report to by filing a Report of Foreign Bank and Financial Accounts (FBAR) to clarify the amount of money and assets in your international accounts.

    REQUIREMENTS FOR ECONOMIC SUBSTANCES

    • As a response to worldwide legislative encroachment on financial transparency, important offshore jurisdictions adopted a slew of new economic substance (ES) requirements at the start of 2019.
    • It has two compliance pillars: –
      • Commercial firms established inside any ES-enacted jurisdictions
      • Jurisdictions themselves as governing figures.
    • Panama is one of the most recent additions to the list of offshore countries that have complied with ES standards, thereby increasing the openness of its business environment.

    WHAT ARE THE ANNUAL COMPLIANCES FOR A PANAMA CORPORATION?

    • Depending on whether your organization performs economic activity within the country, you may need to file tax declarations on an annual basis.
    • This responsibility may also vary if your firm is located in a free trade zone, develops an incentive activity such as tourism or agriculture, or holds a multinational company license.
    • As a result, it is critical to understand the duties your firm has with national authorities based on its economic activity. Companies that are unaware of their annual obligations may wind up paying more taxes than necessary or submitting fake tax reports.

    PROS AND CONS OF PANAMA INCORPORATION

    PROS

    Taxation incentives Panama Company

    Taxation incentives

    • Tax efficiency is a must-have feature in every offshore jurisdiction, including Panama. The government takes a territorial approach to taxes, which means that only domestic-sourced revenue will be taxed (at a set rate of 25% post-tax deduction), regardless of whether the company has Panama residence or not. It should be noted that the domiciliation status of a business organisation is only significant when determining its eligibility for withholding tax.
    • Businesses operating within a free zone, such as the Panama Pacific (Pacifico) Special Economic Area (PSEA) or the Colon Free Zone (CFZ), can benefit from a variety of tax breaks. Each zone has its unique method to fostering commerce, and as a result, each zone deploys a different set of tax incentives to accomplish this.
    Asset & Confidentiality Protection

     Asset & Confidentiality Protection

    • There is a notion known as the “corporate veil,” which is a safeguard that the corporation can provide for its shareholders. Because the company is a different legal body with the same power to take on obligations and rights, the personal assets of shareholders are protected from any litigation and government confiscation.
    • A PIF (Private Interest Foundation) is a non-income generating counterpart to the entity type that is an equally popular choice for those looking for increased asset protection and estate planning with the additional benefit of legal circumvention of their home country’s CFC (Controlled Foreign Corporations) law.
    Strong fiscal position Panama Company

    Strong fiscal position

    • Because Panama has a decentralised financial system, there are no exchange restrictions, which means there is no limit on monetary flows outside, including dividends, interests, branch earnings, and royalties.
    • The ‘balboa’ is the state’s official currency, tied at 1:1 to the US dollar, further ensuring the state’s economic stability in the face of any worldwide financial crisis and keeping inflation as low as possible.
    System of Communication

    System of Communication

    Because of Panama’s minimal risk of natural disasters, the telecom industry can provide businesses with a dependable communication infrastructure as well as access to the greatest high-bandwidth and fibre optic networks.

    CONS

    Mastering the local taxation system Panama Company

    Mastering the local taxation system

    • Panama employs a territorial taxation system. This implies that the country exclusively taxes money earned within its boundaries. This means that foreign income is solely taxed in the other nation for firms and investors headquartered in Panama. If a company creates an administrative office in Panama to bill international clients for products and/or services rendered outside the national borders, the money is tax-free under the territorial taxation system.
    • Another approach to profit from tax breaks in Panama is to start a firm in one of the country’s economic free zones. The Colon Free Zone of Panama Pácifico is one of them.
    Panama's business bureaucracy processes

    Panama’s business bureaucracy processes

    • Many processes in Panama need the physical intervention of investors or their representatives to governmental entities.
    • To address this problem, spend time in the nation before forming a firm to establish commercial contacts. You can also acquire the services from our agents at Relin Consultants, where we will guide and give you all the help that you will need.

    FAQs

    In Panama, can a foreigner open a business?

    Yes. Panama allows foreigners to establish corporations and conduct business there. Additionally, directors, owners, or officials of a Panama business may be citizens of any nation.

    What are the requirements for forming a business in Panama?

    For a Panama corporation to be registered, there must be at least three directors, one shareholder, and a resident agent.

    How should a Panama corporation be named?

    The name of a Panama Corporation must contain words identifying it as a corporation, such as “Corporation”, “Incorporated”, “Sociedad Anonima” or their abbreviations, and it must not be the same as the names of already existing companies. The terms “Limited” or “Ltd.” are unacceptable. Any language can be used to express the name.

    What is a Panama Company's authorized capital?

    The capital that will appear in the Articles of Incorporation as authorized capital must be at least US$10,000.00. A certain sum of money or paid-in capital is not necessary for a company to operate.

    Can the shareholders be of any nationality?

    Yes. The stockholders may be individuals—natural or legal—of any nationality.

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