panama offshore company start formation

How to Open an Offshore Company in Panama

Out of all the offshore tax havens, Panama is probably the highest profile due to recent media coverage relating to the Panama Papers. Subsequently, this guide will walk you through the process of How to Open an Offshore Company in Panama in 2022.

Out of all the offshore tax havens, Panama is probably the highest profile due to recent media coverage relating to the Panama Papers. However, despite the concerning leaks from Mossack Fonseca, Panama still remains a highly useful location as an offshore banking hub within the Americas. Subsequently, this guide will walk you through the process of How to Open an Offshore Company in Panama in 2022.

The basic steps to forming an offshore company in Panama are:

  1. Decide Upon the Structure (Sociedad Anonima SA or LLC)
  2. Determine the Company Name and the Business Activities
  3. Designate Your Directors and Shareholders (Nominees Available)
  4. Your Agent drafts the Memorandum and Articles of Association
  5. The Corporate Articles and Incorporation Documents are Filed with the Registry
  6. Register Your Company with the General Directorate of Income
  7. The Company Documents are Notarized
  8. You Receive Your Documents and Open Bank Accounts

For more information on the benefits and the key points, you need to know…read on!

Introduction to Panama as an Offshore Jurisdiction

How to Open an Offshore Company in Panama
Panama is a Key Offshore Financial Hub

Panama has had the reputation of being an exotic offshore tax haven for many years. In fact, their status as a hub of secrecy really goes back to the 1920s when the country started allowing ships to be registered as Panamanian under a flag of convenience. Effectively, this allowed U.S. ship owners to avoid taxes and oversight and to be treated as foreign vessels in United States waters.

However, it wasn’t really until the early 1970s that Panama really became the offshore financial hub that it is today. It was primarily during the Arab oil crisis that the nation quietly enacted corporate and banking secrecy laws which have allowed the offshore sector to flourish. This saw a significant influx of bank and trading entities and by the mid-1980s, there were over 100 international banks with a presence in Panama.

Potentially, you could point to the establishment of the Canal Trade Free Zone or the abolishment of a raft of regressive taxes, which were pivotal in the establishment of the offshore sector. However, the reality is that the government of the day took a deliberate step towards increased privacy and reduced tax burdens to attract foreign investment. Looking back…it has clearly worked as the capital city is a veritable hive of offshore finance activity today.

Despite the recent criticism levied by the Panama Papers, Panama is still a viable alternative to other tax havens. The country sports no exchange controls, open allows settlement in U.S. Dollars, has reduced, or abolished almost all regressive wealth and capital taxes, and takes a strong view of privacy.

However, there is pressure from the OECD for the country to change its ways but, at this stage, Panama retains a strong offshore global outlook.

Advantages of Panamanian Offshore Companies

Panama Companies Tax Free
Panamanian Companies Have Plenty of Tax and Privacy Benefits

Panama offshore companies provide some, relatively, unique benefits when you consider their strong privacy rules. Additionally, they provide excellent access to banking facilities within the broader Americas.

Nominee Directors Allowed

Panamanian companies require the services of three (3) directors on their board. Thankfully, nominee directors are accepted, and in fact, encouraged, and an active business of directorships is alive within the country. This allows for the privacy protections to be increased given that the nominee directors’ names are likely to appear on corporate contracts and other business instruments.

Secure Corporate Veil

Panamanian law strictly prohibits the piercing of the corporate veil, and this is something that is incredibly valuable. The litigiousness of the West has meant that many corporate veils are being pierced through long-winded, and expensive, court actions. This erosion of the limited liability protection of companies is a serious negative to doing business under a U.S. company structure. Thankfully, Panama has effectively outlawed this sort of legal action.

Largely Tax-Free

Panama operates their corporate tax system on a territorial basis which means that income derived offshore is not subject to local tax. If the underlying transactions occur outside Panama, then there will be no tax levied upon the receipts. Even re-invoicing can escape the territorial scope provisions as long as it is set up correctly. Additionally, there is no VAT of Capital Gains Tax (CGT) to be concerned with.

In the rare event that your offshore company is producing local profits then you can expect to be tax assessed at the greater rate of 25% of net profits or 1.17% of gross taxable profits.

Strong Privacy Laws

Panama possesses incredibly strong banking and privacy laws. These laws are largely enshrined within its constitution and are backed up with criminal charges for anyone considering breaching them. The recent data leaks aside, the jurisdiction has really not ever experienced major privacy breaches. Especially on the banking side, privacy is taken seriously, and account inquiries are studiously checked for validity.

Double Taxation Treaties

Panama has recently signed a range of double taxation treaties which means that it is now significantly easier to navigate international taxation. The list of DTA’s is far too large to list here but please feel free to contact us if you have any questions regarding a specific jurisdiction.

Disadvantages of Panamanian Companies

Panama Offshore Ship Registry
Panama Remains a Giant in the Offshore Ship Registry Sector

There are a few disadvantages to having a Panama Offshore Company that you should be aware of. However, none of them is a game stopper and most are just common sense for legitimate business operations.

Accounting Records

At the end of 2016, Panama passed a new law requiring full accounting records to be kept by offshore companies. Law no 52 established that financial reports and supporting documents must be kept and produced upon request by the corporate regulator. This rule will mostly not affect most legitimate businesses as accounting records SHOULD be prepared regardless of your status.

Public Company Registry

Due to the OECD’s pressure, there has been a global move towards greater transparency on company ownership. Subsequently, there is now a searchable register for Panama which provides a small amount of information on the current directors. Therefore, it’s important to use a nominee director service when registering your new offshore company.

Panama Papers Reputation

There is no doubt that the jurisdiction has taken some reputational damage over the recent release of the leaked information from Mossack Fonseca. It is indisputable that most companies on that list were doing the right thing and simply using Panama for privacy purposes. However, this has meant that banking solutions, outside of Panama, have become more circumspect over dealing with the companies. Subsequently, you may find considerably more compliance and oversight than previously.

Offshore Tax Regime

panama tax haven offshore company formation
Panama Retains its Global Tax Effectiveness

This has largely already been covered but Panama operates a territorial taxation system in scope which means that if your corporate profits are derived offshore then you will be subject to no tax on the profits. Ultimately, there are almost no taxes due to be paid by Panamanian offshore companies including, CGT, Wealth Tax, Inventory Tax, Income Tax, Withholding Tax, etc.

Primary Use Cases

An offshore company can be formed for almost any lawful, and legitimate, purpose in Panama. Additionally, it can be used solely as a holding or investment company and there are no restrictions as long as it is operating externally in Panama. The primary use cases that I have seen for them revolve around Asset Protection and Professional Service Companies given the privacy and liability shields that they provide.

However, even financial services can be offered with an additional licensing regime. If you wish to set up this sort of business operation, then please message us as there are some additional factors you should consider.

Registration Requirements and How to Open an Offshore Company in Panama

As is always the case in 2022, the first thing you are going to have to do is provide appropriately certified identity documents to your company formation agent. Know Your Customer (KYC) is a painful process but is an unfortunate part of keeping our advisory business alive.

Once you have cleared KYC then you will need to provide the following information to form your Panama Offshore Company:

  1. Proposed corporation name
  2. Name and address of Your Proposed shareholders or nominee shareholders if you are using this service
  3. Your business and corporate objectives
  4. Your proposed corporate capital amount
  5. Director’s names and addresses (or nominees)
  6. Your company address and registered agent details

Normally, the initial two subscribers will be the law firm or company agent and will be listed on the incorporation documents as holding one (1) share each. This is solely for the incorporation process and will be routinely signed across, or extinguished, as part of the document handover.

At this point, all the above documentation will be filed with the Panamanian corporate registry and within around 1-week you should have your certificate of incorporation, articles of association, share certificates/registry, and company constitution returned to you. It should be noted that these official documents will be filed in Spanish.

It really is quite a seamless process and has been one of the easier locations where I have formed companies. You just need to make sure that you find the correct corporate agent or advisory to work with. Panamanian law firms are fine for legal work, but I would always advise going to a professional formation agent as they, literally, do thousands of these registrations a year.

How to Open an Offshore Company in Panama – The Cost

Despite all the benefits, Panama is a relatively cheap offshore jurisdiction to do business in. Subsequently, the average formation costs are probably not as high as you might initially think. Obviously, it comes down to the specific structure you are looking to form but the below is a fairly accurate estimate:

  • Total Fee’s When Using Your Own Directors – US $1,085
  • Total Fee’s When Using Nominee Directors – US $1,525

The above amounts typically include the basic preparation of documents and the requisite government fees as well as notarization.

Key Resources and Who to Talk To About How to Open an Offshore Company in Panama

As you can see, forming a Panamanian offshore company doesn’t have to be difficult or expensive. However, you do have to have the right team in place to get you all of the required documents and the outcome you are seeking.

If you are keen to investigate setting up a Panama Offshore Company, or LLC, then please talk to us about your needs:

OCBF offshore consulting and company formations

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