What you should know about starting a business in Panama

It is very common to hear how easy is to open a company in Panama, but the process of turning an idea into an operating company can take from days to months, depending on the activity being carried out. Each process is different from one to another, so I strongly recommend discussing the initial idea with a lawyer, who might offer the legal perspective of all the administrative procedures that you have to complete before running the business.

First, the lawyer has to create the corporation (S.A.) or a limited liability company (S.de R.L), depending on the corporate structure that the client required within four to six working days. After this, the company has to be registered in the Tax Office (Dirección General de Ingresos in Spanish) to obtain the tax identification number (RUC in Spanish), which is granted to each taxpayer for the purpose of establishing a better tax justice and a more effective monitoring of compliance taxation of natural persons and legal entities (2-3 working days). Next, the legal representative of the company must notify the beginning of commercial operations to the Ministry of Commerce and Industry through the “Aviso de Operación”; by which you report all data of the new company and its commercial activity, because there are some restrictions as special authorization or activities exclusively reserved for Panamanians (1-2 days). Also, the registration of the company in the Municipality has to be done to obtain the good standing certificate to operate within the city and the legal representative of the company must enrol employees at the social security office (1-2 days)

Completed these five initial operations, the company is ready to open corporate bank accounts, subscribe new contracts with clients and suppliers, register the business name and business logos under its ownership and to assume duties as a corporate entity now.

Property Tax Exonerations

If you are interested in buying Real Estate in Panama, you should like to know if they are tax exempted.

For years, the Panamanian Tax Code allowed exemption from property taxes for a period of twenty years without any differentiation in primary or secondary home like in other countries, which was a real attraction for real estate activity. However, Law No. 6 of 2005 sets new calculations for the implementation of property tax, which exempts only:

1. Properties registered at a value of 30,000 USD or less including improvements to the land, i.e. construction

2. Land used exclusively for farming and registered with the Ministry of Agriculture and Development at less than 150,000 USD.

However, the government tried to diminish the effects of this new law with another modification, the Law No. 21 of 2008 which establishes an extension to the real Estate Tax exemptions regulated by Law No. 6 of 2005. Builders have up to July 1, 2009 to obtain a building permit, and until December 31, 2011 to acquire an occupancy permit to qualify for the tax exemption. The period of mentioned exemption is for twenty years, start counting from the time the constructions is registered or the corresponding authorities issue the occupation permit or whatever happens first.

After this, the residential properties will be exonerated as follows:

• 15 years - properties up to USD 100,000.00
• 10 years - properties of USD 100,000.00 to USD 250,000.00
• 5 years - properties up to USD 250,000.00

Panama as an International Financial Centre

One question that consistently foreigners ask is what are the factors that have made Panama one of the fastest growing countries in the Central America. Undoubtedly, Panama has a number of logistical, economical and legal advantages that place it as one of the best investment destination in Central America. The competition among countries has been challenging however there is economic and political stability in Panama. The ability to own titled property, Panama's long history of financial transactions as well as our estimated geographical position has contribute to the present state of economic growth.

Among the most important legal mechanisms for generating business in Panama, is the policy of open registry ships, created by law 63 of 1917, which allows the owner of any vessel, whether natural or legal person, and regardless of their nationality or domicile, can register their vessels under the Panamanian flag. In addition, the “ship mortgage” has large acceptances that are processed rather quickly within international banking institutions, because of its rapid and effective execution as a means of guarantee.

On the other hand, Panama also has a law of corporations which provides an incredible facilitation of international transactions, optimal protection to assets and investments and allows the operation of any lawful business in or outside the country. Other figures that make up the Panamanian Corporate Law are limited liability companies, trusts, and private interest foundations.

Furthermore, the tax system is a strong pillar of the national economy, characterized by the principle of territoriality that allows the exclusively imposition of taxes on national commercial activities. Consequently, gains from foreign sources are exempt from taxes, regardless of the nationality of the taxpayer or the radius of their business operations. Similarly, Panama operates on the US dollar without a central bank to issue currency and keep a control on capital movements.

Panama offers a conservative and reliable banking system enabled the country to resist one of the most severe economic crisis and therefore some might described as the best in Central America, comprising more than 80 banks. Moreover, the Colon Free Zone is an area of constants and new business opportunities for domestic and foreign, besides representing an 8% contribution to GDP of the national economy. Panama is moving along to the events of the time, making important steps to use modern technology and recognize the importance of international law as a legal platform for our international expansion. Accordingly, Panama has signed several treaties, agreements and international commitments including social, economic, legal, humanitarian issues, and has made important steps to facilitate tax information exchange.

Panama has become a metropolis of real estate projects, roads, ports, airports, shopping centers and places of entertainment, a vibrant place to live and invest. While there are still issues to resolve, Panama has the tools to ensure the growth of investment in an atmosphere of political calm and certainty.