Panama is a prime international hub for many international business headquarters. Big or small here is how to get set up your structure in Panama.

Foreigners come to Panama every year for starting up a business in one of the most business-friendly nations in the world, although some businesses are protected and can only be done by Panamanian citizens such as retail.

For entrepreneurs, Panama offers many business opportunities and is an exceptional location to do international business from making it one of the top locations for digital nomads and large international corporate headquarters. You can also start a restaurant, bar, bed & breakfast, retail shop, hotel, or but some businesses are restricted to those that have obtained Panamanian citizenship or you have to partner with a Panamanian such as a retail shop or being a tourist-guide company. A person can also work as an independent in Panama providing "professional services" as long as it is not in a protected field.

You may be semi-retired and thinking of engaging in a part-time business or you may want to open a new full-time business. Panama is a prime location for starting international businesses and in today's interconnected world there are now many opportunities for some international businesses to be located anywhere in the world. One of the great things Panama offers is no tax on international income. With a territorial tax system, Panama does not tax any income earned outside of Panama.

Understanding Panamanian laws and how too complied with them is the first thing to do. If you are thinking about starting a business in Panama the following information will be useful.

LEGAL PANAMA BUSINESS STRUCTURE

Which type of business structure to use will be the first consideration to evaluate.

There are 3 primary business structures and several ways to legally structure them in Panama

1) Sole Proprietor: Where you operate a business as sole owners this is most common if you as an individual provide professional services.

2) A partnership where you team up with one or more persons in running and owning the business.

3) A corporation or Sociedad Anonima register with the government as a company issuing stocks, having corporate officers and a Board of Directors. This is the primary choice of businesses structured in Panama and is an easy and straight forward process in Panama

All 3 options need to be registered on some level with the government and the assistance of a Panamanian lawyer for the legal documents needed to be prepared to form the entity and registering it will help greatly and is required for most entities. The documents need to be prepared and registered correctly or they will be legally null and void causing a business legal nightmare for the members.

We will now look at the legal structures in Panama:

Corporation (Sociedad Anonima)

Panamanian Sociedad Anonima (S.A.) are formed under the Law No. 32 of 1927 of the Commercial Code (Decree-Law No. 5 of 1997, Article 5).

A Panamanian Sociedad Anonima is formed by two persons called Subscribers, or Nominees who act on behalf of absent subscribers. They execute legal documents to create the Sociedad Anonima such as the Articles of Incorporation. Those documents are filed with the Public Registry office of Panama. When the Sociedad Anonima is first started the subscribers are shareholders, but once the Sociedad Anonima is started they can transfer their shares to you and there can be only one shareholder after the corporation is formed.

Corporate shares are issued and can be created of various classes (this is usually outlined in the Articles of Incorporation or by laws of the S.A. they can have par value or be issued with no par value. The shares can be nominative share and then be officially registered or can be Bearer shares, although bearer shares must be held by an authorized custodian.

The Sociedad Anonima must have a resident Registered Agent (Panamanian lawyer) There will be an annual fee for this service.

There must be at least three Directors, who can be individual people or other legal entities. Their names must be in the Articles of Incorporation. Future changes of Directors must be filed with the Public Registry. Unless the Articles are changed or the Sociedad Anonima merges or dissolves there will be no other filing requirements.

Foreign Corporation

Foreign Corporations can do business in Panama by filing the following documents at the Public Registry Office So this can be an option If you already have a corporation in another country To accomplish this you will need:

• A notarized Spanish translation of the Articles of Incorporation.
• Copies of the most recent financial statements and bank statements.
• Board of Directors minutes authorizing the Panamanian registration.
• Transfer of capital to the Panamanian operation notification.
• A certificate from a Panamanian Consul that confirms the company is organized according to the laws of its place of incorporation.

Limited Partnership

In Panama Limited Partnerships (called Sociedad de Responsibilidad) are permitted. These also are not very common as the main point is to be passthrough for tax purposes and very little is gained with this in Panama. They are governed by Commercial Code and Law No. 24 of 1966.

There may be from a minimum of 2 and up to 20 partners there are no restrictions as to their domicile or nationalities. The Capital must be at least $2,000 and can be up to $500,000. The partners names must be registered at the Public Registry Office as well as the amount of Capital each contributed. Each partner's civil liability for the Partnership's debts is limited to the amount subscribed even if unpaid. The partnership may appoint an independent administrator, in which case his/her name must also be registered. If the Partnership has 5 members or less no meetings will be required, otherwise, at least once a year a meeting must be held. There are no requirements for the filing of any accountings or annual returns.

Creating an Individual Limited Proprietorship (Empressa Individual de Responsibilidad Limitada) can be an alternative to a Sole Proprietorship. Limited Partnerships are set up in the same manner except they have only one member. The individual can transfer his/her business assets to the business and business civil liability is limited to the amount of the committed assets.

General Partnership

In Panama general Partnerships are permitted although not very common. Similar to many countries, the partners will have unlimited civil liability, meaning every partner can be sued even if only one of them commits an error in the course of business.

Civil Partnership:

Civil Partnerships (Sociedad Civil) are allowed by the Commercial Code and Law No. 24 of 1966. This type of partnership is often selected by professionals such as lawyers and accountants, although the liability of the partners is unlimited.

Commandite Company:

The Commandite Company (Sociedad en Commandita) is a hybrid corporation and partnership again governed by the Commercial Code and Law No. 24 of 1966. In this structure least one partner must have unlimited liability, while limited partners liability is limited to the amount of capital subscribed. This legal structure is not often used in Panama.

GOVERNMENT PERMITS & LICENSES

After forming a Partnership, Panamanian S.A. (Corporation), or registered a Sole Proprietor you will need to register your business and get a business license with the government before the operation the business starts.

Below are the 6 steps that are required for registering your business with the local and national authorities:

• Commercial License: www.mici.gob.pa is another Panama government website in Spanish, which will provide you with information regarding getting a commercial license. This Ministry is called the MINISTERIO de COMERCIO e INDUSTRIAS, or the Ministry of Commerce & Industry. Through this ministry, you can obtain your Business License. In Panama, every business is required to have a business license.
• Tax Registry called "Registro Fiscal" with the Panamanian government. At the Panamanian government website: www.dgi.gob.pa to find information explaining what is necessary to register. the website is in Spanish. The DGI is the Panamanian government Revenue (Tax) Service where a company receives a Direccion General de Ingresosits which is the income tax id number. You will need to keep records of expenses and income to be able to file annual income tax (or corporate tax) return and pay any taxes owed.
• Municipal Taxes: After getting the Panamanian government licenses, you will also need to register with your local municipality in order to pay municipal taxes.
• Social Security Number Then you must go to the Registro Patronal de la Caja de Seguro Social (CSS) and get a Social Security number for yourself and your business.
• Sanitary Permit you will need to get Permisos Sanitarios with the Ministerio de Salud If your business deals with food or beverages. This is a Health Certificate from the Ministry of Health for permission to operate a sanitary business. Every employee (including the management and owners) who prepare or serve food or beverages, or are in the vicinity of beverage or food service or preparation, must obtain two different Permits. One is issued after attending a two-day health & safety course. The other requires a medical & dental examination at a public hospital.
• Fumigation Certificate: Every business which is open to the public must have publicly displayed a Fumigation Certificate at your business entrance. You will need to hire a private fumigation company every four months to fumigate against roaches, ants, and other bugs. The receipt from the fumigation company must then presented to obtain a Fumigation Certificate from your local municipality.

Hiring Employees

Once you have obtained all of the required government permits and licenses, you are ready to hire employees.

Panama limits a company's workforce to a maximum of 10% foreigners (non-Panamanian). Panamanian laws require that 90% of a company's employees be Panamanian citizens, foreign persons residing in Panama for at least 10 years, or married to a Panamanian. So if you are thinking of hiring your expat buddies or of bringing a lot of international talent to Panama it is worth noting that talented workers are banned from Panama.

There are exceptions:

• Required specialized or technical staff unavailable in Panama increases your quota to 15% foreigners. You can also petition the Ministry of Labor for a higher quota.
• Companies with less than 10 total employees can employ 1 foreigner.
• when the company does business abroad from Panama they can employ foreign Managers and Supervisors with prior approval by the Ministry of Labor. For every foreign worker, you must obtain a work permit from the Ministry of Labor.

Panama's Labor Laws

Panama's Labor Code of 1971 deals with Labor Relations including the duties and rights of employees and employers. In Panama labor law "Subordination" is a key concept of the law. Any relationship where one person is subordinate to another falls within the labor law of Panama. It makes no difference whether the relationship is described as "employment" or not.

There are certain basic employee rights which cover the following:

• Written Employment Contract
• Maximum Hours
• Minimum Wage
• Paid Vacation Time
• Firing Employees

Employee Contracts

Your employees must sign a written employment contract called an Inscripcion Contratos con Trabajadores.

Two copies of the contract must be filed with the Ministerio de Trabajo y Desarrollo Laboral.

Employers can easily terminate the employee during the first 3 months and it is not too difficult in the first two years. After two years, employees have great protection under the law. The law lists "just causes" for dismissal, which has to be carefully documented. Unlawful dismissals can result in very high compensation payments. Both parties can accept a "mutual agreement".

Minimum wage levels vary according to location, type of work, and the employee's seniority.

Vacations:

Employees are entitled to a 30-day vacation every year, in addition, there are 11 public holidays per year.

13th Month:

The law also requires a bonus of 30 days of paid every year, known as "the 13th month". The 13 month bonus is paid in 3 equal installments: April 15th, August 15th, and December 15th of each year. This bonus is figured as at one bonus-salary day for every 11 days of work. (vacation and holidays days count as days worked)

Unions

Panama allows unions. Unions can collectively negotiate on behalf of the employees. After a majority vote of the member employees strikes are lawful under defined circumstances. Conciliation is mandatory before a strike can occur. Fortunately, only around 11% of the private sector employees are unionized in Panama.

Business Bank Account

you should never co-mingle your personal funds with business monies, even if you are a sole proprietor. Therefore you'll need to open a bank account for the company

Corporations and Partnerships need to open separate Corporate or Business Bank Accounts.

Most banks require the following information and documentation when you open an account for a partnership, Panama corporation, or a business.

• A clear copy of each corporate Director's Passport and the passport of the Signatory who will be on the bank account (passports must include the Panama entry stamp page as wells as the photo & personal information page ).
• A second photo id (such as a national id card or driver's license).
• Two professional references for account Signatories and each Director. These references should be written on company letterhead and can be provided by the person's lawyer, accountant, employer, stockbroker, insurance broker, or real estate broker. These must include the nature and duration of their business relationship with the applicant. Only an Original letter or one that is notarized and apostilled will be accepted.
• Two bank references for account Signatories and each Director. These references must indicate that the banking relationship had been ongoing for a minimum of 2 years the satisfactory conduct of the account holder. It is best if the references also confirm the person's residential address as per the proof of address below. Many Panamanian banks require the references to be specifically addressed to that bank's branch. If you have done all of your banking with only one bank then some banks may accept only one bank reference letter.
• A "Company Profile" resume must be submitted which describes the business type the account holder will engage in. This will include the products or services you are selling, the location of the business, the origin of the funds to be deposited, the nature and expected volume of business, as well as an estimate of the annual or monthly amount of funds to be deposited and the reason for opening a bank account in Panama.
• Proof of Address: You must provide a copy of a utility bill ( water, phone, cable TV, electricity, Credit card statement, or Internet service) which shows your name and address.
• Since most banks require a personal interview, it is very difficult to open a bank account without coming to Panama. Although the personal interview can be the final step to activate the Panama bank account.

Usually, your Panamanian lawyer will accompany you to the bank in order to make sure the process goes smoothly.

All of these documents will be forwarded to the bank's Compliance Officer who reviews the entire application and approves the opening of the bank account in Panama.

If you already have a personal bank account in Panama and they already know you, then this process may have less required documents and may go smoother.

Leasing Office or Business Premises

Panama's laws regarding leasing commercial space are similar to most English speaking countries.

• It needs to be in Writing.
• It needs to properly describe the location of the premises.
• It needs to address the frequency and amount of the lease payments, length of the lease period, whether there is a Damage and/or Security deposit, who pays for electricity, gas, water, and repairs. It will also contain provisions for renewal of the lease term, late rent payments, and tenant property damage.
• It must be signed by the legally authorized representatives (property managers) or property owners and the tenants.
• All signatures should be Notarized before a Notary Public, although this is not required.

There are many more conditions and terms which should be included in a standard commercial lease which is why you should consult with a professional commercial property manager before signing one prepared by your landlord. It is best to work through a professional commercial property manager to find the perfect space for your new business.

Taxes

Once you are licensed, have a bank account, moved into your commercial space, and have hired employees you need to worry about taxes, which in Panama can be significantly less of a burden than in many other countries.

Conclusion

There are many government applications, legal documents, and laws one must comply with in order to start a business in Panama. It is best to consult with a Panamanian lawyer who is knowledgeable about Panama's Business, Tax, Labor, and Real Estate laws before setting up your legal structure in Panama.