US companies doing business in Panama
Article 4 minute read

US companies doing business in Panama

12 October 2018

Panama has emerged as one of the leading countries to do business in Central America with many opportunities, especially for the United States. Its location makes Panama one of the most connected countries in the world.

Panama, once an important maritime trading hub, is now a top international banking and professional services jurisdiction. 

Starting a business 

Companies that are looking to start a business in Panama must first choose what type of entity they would like to have, a corporation, LLC or a branch. All of these entities have the same obligations locally, like taxes. This decision is made based on the parent company’s preference or tax planning. At this point, a company must also decide if it will be an onshore or offshore company. To register an entity, no proxy is needed making it fairly easy. The process can take 3-5 business days. Opening a branch may take longer as information is needed from the parent company. Whichever type of entity is chosen, the process of registering must be done in person at a local registry. 

Once an onshore company is created, it must be set up with the tax authority and requires an operating license. That takes only one day. An offshore company needs to register with the tax authority but in a different way. 

For companies that will be operating in Panama, they will then have to go in person to request a municipality registration which can take 1-2 days and then an ID number will be issued. 

The next step is to complete the social security registration and take it to the local authority which can take around 2-3 days. There are no nationality restrictions for a person to register a company. 

Hiring a workforce 

All employees must complete a contract in Spanish and it must be submitted and accepted by the Ministry of Labour. All employees must be paid at least twice a month with some variation based on the industry. The form must also specify where the employee will physically be working.  Foreign workers must have a work visa as well as a work permit from the Ministry of Labour. There is a limit of how many people can be foreigners on a payroll of 90% Panamanians and 10% foreigners.  

Benefits and Bonuses

Employees in Panama are paid a bonus salary, also called a 13th salary which is one month’s salary divided in three and paid out in April, August, and December. 

The employer contribution to social security is 13.75% and there is a contribution of professional risk for construction company workers at 5.67%. 

When a company has five or more employees, they should create a fund as a severance and seniority premium that will be paid out quarterly to an entity authorized at a rate of 2.5% of the salaries of the employees, as accrual of the employee’s benefits.

Employees are given 30 days of vacation and can take 18 sick days per year, which can be accumulated for up to three years. 

Economic zones

There are some special economic zones in Panama that are in different strategic locations in the country. Companies can benefit from tax and other incentives of establishing in these areas. Two examples are, the Colon Free Zone which is outside of the city and the City of Knowledge is a specific area is for technology and knowledge companies. There are immigration and tax benefits for these types of entities. Sede Empresarial Multinational (SEM) is another option for multinational companies to set up headquarters in Panama where they will receive tax benefits. 

Transparency

Panama used to allow for bearer shares but the legislation recently changed to only allow nominee shares to avoid money laundering.  

It is now difficult to open a bank account in Panama with the process taking about two months. Banks request details of the Ultimate Beneficial Owners and to declare anyone with more than 10%-15% shares in the company. They also need to have FACTA or CRS designation and know the type of entity of the business.

TMF Group in Panama 

TMF Panama offers great opportunities for investors but there are many challenges to doing business in the country. TMF Group has local experts in Panama that can assist both local and international clients, providing financial, legal, HR and payroll services across the country. to help you succeed and stay compliant in all of your business ventures.

Get in touch with us today for more information, and to discuss your needs with local experts.

Written by

Lyndsey Wheeler & Nedelka Quintero

Lyndsey Wheeler is Managing Director Mid Americas, and Nedelka Quintero is Regional Head of Tax and Internal Control, TMF Panama

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