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Accounting & Tax Market Leader, TMF Group
18 April 2018
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4 minutes

What are the benefits of setting up a company in Panama?

Panama has evolved from an important maritime trading hub into a top international banking and professional services centre.

Panama has firmly established itself as one of the leading countries in the Americas in which to do business. It has served as the region’s crossroads throughout history, with a favourable geographical location making it one of the most connected countries in the world.

Panama has now evolved from an important maritime trading hub into a top international banking and professional services centre. The country boasts a strong economy, which has been pegged to the US dollar since 1904, and world-class infrastructure.

There are many advantages to setting up a company in Panama, which has a stable, democratically-elected government pushing to attract business from foreign companies. There is also a skilled local workforce, a low crime rate, and a relatively low cost of living. It has all the necessary ingredients to create a successful business.

Headed by a progressive government

The government in Panama has been actively pursuing free trade agreements and a policy of economic liberalisation in recent years.

It has created a series of laws to establish Special Economic Zones (SEZ) across the country. The SEZ are segregated areas, located in different strategic locations, where companies that set up within them benefit from a series of tax, migratory and labour incentives.

The aims of the SEZ are to increase foreign investment, provide better job opportunities for local workers, and encourage innovation as the world moves to a digital economy. The activities encouraged by the scheme include information and telecommunications, biosciences, business management and entrepreneurship, professional development and environmental protection.

The SEZ have been a major success story, driving the growth of multinational companies active in Panama and helping them to reduce operational costs and maximise their efficiency.

Underpinned by a robust banking sector

Due to its openness to foreign financial institutions, dollarisation, and low inflation, Panama is a highly attractive regional financial hub. For more than 40 years, Panama has been recognised for its sound banking system. The country’s modern banking facilities have led to nearly 90 national and international banks setting up in Panama.

Panama’s International Banking Center is seen as the most influential in the region, working transparently within international regulations and the principles of Basel. In 2017, the International Banking Center recorded profits of US$1.8bn, and it offers businesses a wide range of cutting-edge technology products and services. Panama is renowned for adapting its financial services to business needs.

The Center was established through the first banking law in Cabinet Decree 238 in 1970. This law created the National Banking Commission as a regulator, which helped to shape the banking sector’s rapid growth.

In 2008, an updated banking law strengthened the Panama Banking Authority (PBA), an institution that has complete autonomy, independence and powers to practice a strict supervision. The PBA and the Banking Association are in the analysis and discussion phase to adopt the new Capital Agreement of Basel II.

Panama has also approved a series of laws, decrees, agreements and regulations for the prevention of money laundering. Due to its strict dispositions, it serves as a model for other countries.

An advantageous tax system

Panama offers numerous tax advantages for international businesses operating in the country.

The country has a territorial system of taxation, whereby companies are only subject to corporate income tax on their locally-sourced income.

This means that, by doing business from Panama, your income isn’t taxable so long as the income is from foreign sources.

This offers myriad opportunities for businesses with international operations to reduce their tax burden and to minimise their corporate tax leakage. The country’s General Revenue Office (DGI) also looks to negotiate tax agreements with companies from countries who have signed bilateral tax agreements with Panama.

TMF Group

TMF Panama monitors changes in local rules and regulations to help you succeed and stay compliant in all of your business ventures in the country.

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

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