Panama company formation is a simple process that can take from 3 to 5 business days. Simply hire a Panama lawyer or law firm to legally create a new company in Panama. There are a few different types of Panama companies, however the most common Panama company is called an “S.A.” or “Sociedad Anonima” (translation: Anonymous Society), similar to what is common in most Latin American countries. A Panama company formation can be used for purposes of international business outside of Panama, or the Panama company can be formed for doing business in Panama, or both.
If the Panama company is formed for the purposes of doing business in Panama, then it requires a Panama business operations permit, and in that case, annual tax filings must be made in Panama, and net income taxes must be paid in Panama. The current corporate income tax rate in Panama is 25% of net income, after tax deductible expenses.
Panama has a territorial tax system, so there is no income tax for Panama corporations on the income generated from outside of the territory of Panama – in other words, the company must not sell products or services inside the country of Panama. If the Panama company is formed for the purposes of exclusively doing business outside of Panama, then no Panama business operations permit is required in Panama, and no annual tax filings are required in Panama, however, please note that most of the local banks in Panama will require a business operations permit in order to open a corporate bank account in Panama. Therefore, if you need a Panama bank account for your Panama company, then you may need to have a business operations permit and file a tax return in Panama.
Please note that if a Panama company has a business operations permit, and its income is either partly or exclusively derived from sources outside of Panama, then the company will have to declare both local and non-local income separately on an annual tax filing in Panama, and the company will pay tax on local net income, but there will be no income taxes due in Panama on the income generated from sources outside of the territory of Panama. However, in this scenario, any dividends paid to shareholders will be taxed at a rate of 10% (dividend withholding tax) on dividends from local income, and a withholding tax rate of 5% on dividends from non-local income.
Panama company formation can also be used for asset protection needs. By using a Panama company to hold your assets, you can protect your assets from civil lawsuits, and in the process, obtain a higher level of privacy in your business affairs, than doing business in your personal name.
You can also open bank accounts in the name of the Panama company, anywhere in the world.
Forming a Panama Corporation is not expensive. Most countries in the Caribbean, Europe or Asia tend to charge at least twice as much for a company formation than Panama. Our law firm only charges $1,000 USD for forming a corporation while the Panama government only charges a flat tax of $300 per year to keep it in good standing.