Sociedad Anónima (Corporation limited by shares)
Panama has established itself as a significant hub for international business, trade, and finance, benefiting from its geographic position between North and South America. Its legal and regulatory framework, supportive of commercial activities, and a territorial taxation model contribute to its appeal as a jurisdiction for establishing international business structures.
Panama corporations, commonly referred to as Sociedades Anónimas, are structured as companies limited by shares. These entities can be used for a broad range of lawful activities, including international trade, asset holding, investment, and service provision.
The legal foundation for Panamanian corporations is primarily based on Law 32 of 1927. A corporation can be formed by one or more shareholders, and there are no nationality or residency restrictions on ownership. The incorporation process typically involves the drafting and filing of Articles of Incorporation with the Public Registry.
Each corporation must appoint a minimum of three directors, whose names are publicly accessible. In addition, corporations must designate three officers—President, Secretary, and Treasurer—though the same individual may hold multiple roles, and nominees are permitted.
Corporations must have a minimum share capital of USD 10,000, which does not need to be paid up. Companies may issue shares with or without par value. Different classes of shares may be established, allowing varied rights related to voting, dividends, and liquidation preferences.
Panama offers a degree of confidentiality for corporate ownership. The identities of shareholders and ultimate beneficial owners are not disclosed in the public registry. While bearer shares are still permitted, they must be immobilized with an authorized custodian and are subject to regulatory oversight.
Although director information is public, the use of nominee directors and officers remains a common practice to preserve individual privacy. The law also provides protections for the confidentiality of business and banking information.
One of the key features of Panama’s tax system is its territorial basis of taxation. Only income that arises from sources within Panama is subject to local taxation. As a result, corporations engaged exclusively in business activities outside Panama are not subject to:
- Corporate income tax
- Capital gains tax
- Withholding taxes
- Stamp duties on share transfers
- Local VAT or sales tax
Interest earned from Panamanian banks and dividends derived from foreign-sourced income are also exempt from tax. Additionally, income from international maritime trade through Panamanian-registered vessels is not taxable, regardless of where the transactions occur.
The distinction between offshore and onshore corporations in Panama hinges on the location of business operations and the source of income.
Offshore Corporations
An offshore Panamanian corporation does not carry out commercial activities within Panama, has no physical presence (e.g., offices or employees) in the country, and earns income exclusively from foreign sources.
These corporations are:
- Exempt from corporate income tax
- Not required to file tax returns
- Not subject to local licensing or municipal regulations
However, since 2022, all Panamanian companies must retain a copy of their annual financial statements at their registered office. These must be signed by a Certified Public Accountant (CPA), although the statements are not submitted to the tax authority unless requested.
Onshore Corporations
Corporations operating physically in Panama or generating local-source income are classified as onshore and must adhere to local regulations. Before initiating business activities, these entities must obtain an Operations Notice (Aviso de Operación), which formally registers the business with the relevant municipal authorities.
Onshore companies are required to:
- File annual tax returns
- Pay income tax on Panama-sourced earnings at a flat rate of 25%
- Submit municipal tax returns and pay local business taxes
Dividend distributions to foreign shareholders from onshore corporations may also be subject to withholding tax, typically 10%, although a reduced rate of 5% may apply under certain conditions.
The categorization of income as either local or foreign source is essential in determining tax liability:
- Goods and Commodities: Income from trading goods that do not enter Panama is considered foreign-source, even if contracts are signed or managed from within Panama.
- Services: Revenue from services rendered entirely outside Panama to non-Panamanian clients is treated as foreign-source. However, services performed in Panama, or services rendered to Panamanian clients—even if from abroad—may be classified as local-source.
- Dividends and Capital Gains: Returns from securities are treated as foreign-source provided the underlying income of the issuing entity is not Panamanian-sourced.
- Interest and Royalties: Interest from non-resident borrowers and royalties for intellectual property not used in Panama are not taxable in Panama.
While offshore corporations face minimal reporting obligations, they must maintain basic accounting records and annual financial statements on file in the registered office. These should be accessible in case of regulatory inquiry. There is no requirement to submit financials to the government unless the company is classified as onshore or engages in regulated financial activities.
Panama has no formal economic substance laws applicable to companies. There is no mandate to employ staff or maintain physical premises locally, though international regulatory developments may influence future practice.
Panama corporations are commonly used in a variety of international contexts, including:
- Holding and managing global assets
- Facilitating cross-border trade and services
- E-commerce and internet-based businesses
- Estate planning and succession structuring
- Operating as investment or holding entities
In some cases, foreign individuals may also pursue residency options in Panama through the establishment of a company. This allows for permanent residence based on economic or professional ties to Panama.
Panama continues to serve as a jurisdiction of interest for individuals and entities seeking a flexible and privacy-conscious legal structure within a tax-neutral framework. The use of corporations for offshore purposes remains viable, provided the income is derived entirely from outside Panama and appropriate recordkeeping is maintained.
Legal *
Country code – PA
Legal basis – Civil law
Legal framework – Ley No. 32 de 1927 sobre Sociedades Anónimas, Código de comercio (Decree-Law No. 5 of 1997, Article 5).
Company form – Sociedad Anónima (S.A.) (Corporation limited by shares).
Liability - The liability of the shareholders for the company is limited to the amount of their respective shareholdings.
Share capital – The minimum standard authorized and issued share capital is US$10,000. Share capital may be in a non-paid up basis. It may be denominated in USD or any other currency. Bearer shares and no par value shares are allowed but must be fully paid when issued. Bearer share certificate must be kept by the registered agent in safe custody and the Registrar must be notified of these shares.
Shareholders – Corporations in Panama may be formed by one or more shareholders, who can be either natural or legal persons, residents or non-residents, without restrictions. Details of shareholders may not be available to the public.
Directors – At least three directors and officers. President, treasurer, and secretary, who may be simultaneously directors and officers. They may be natural persons or corporations, residents or nonresidents. Directors’ details are available in the public registry. Nominee directors are permitted.
Secretary – A secretary is required who may be an individual or a corporation, resident or non-resident. Director may also act as company secretary.
Registered Address – Corporations must have a registered office and resident agent located in Panama.
General Meeting – Annual general meetings are not mandatory. However, if meetings are held, they can be anywhere in the world and they may be by proxy.
Electronic Signature – Permitted.
Re-domiciliation – Inward and outward re-domiciliation is allowed.
Compliance – Panama corporations are required to keep accounting records and underlying documentation, which must be available for 5 years. Records shall be kept at the office of the resident agent in Panama. Financial statements signed off by a person who is a certified public accountant (either in Panama or overseas) must be deposited in the registered office every year.
- Shareholders not disclosed *
- Directors not disclosed *
- Corporate shareholders permitted * *
- Corporate directors permitted * *
- Local director required * *
- Secretary required * *
- Local secretary required * *
- Annual general meetings required * *
- Redomiciliation permitted * *
- Electronic signature * *
- Annual return * *
- Audited accounts * *
- Audited accounts exemption * *
- Exchange controls * *
- Civil law Base legal
- 1 Minimum shareholders *
- 3 Minimum directors *
- USD 10,000 Minimum issued capital *
- - Minimum paid up capital *
- USDAny Capital currency *
- Anywhere Location of annual general meeting *
- 2018 AEOI *
Taxes *
Tax residency – A company is tax resident in Panama if is incorporated under Panamanian law or its management and control are in Panama. However, both resident and nonresident companies are taxed only in Panamanian-source income.
Basis – Panama corporate income tax is levied on a territorial basis. Both resident and non-resident companies are subject to tax on their income derived from Panama. Foreign-source income is not subject to taxation, whether remitted or not.
From a source of income perspective, income from sales of goods or commodities that do not enter Panamanian territory (bought and sold overseas) is deemed foreign-sourced income and not subject to taxes, regardless of whether sales and purchase contracts or transactions are concluded in Panama or managed by a local office in Panama. Income from goods or commodities sourced and exported from Panama is generally subject to taxes in Panama.
Service fees are considered offshore income if the services are not performed within Panama to Panamanian customers. If the services are performed overseas to overseas customers from a Panamanian office, service fees may not be exempt from taxes if such services are related to the generation of Panamanian source income by the foreign client.
Dividends received and capital gains from the sale of securities are also considered offshore income as long as the underlying company’s income is not of Panamanian source, regardless of whether it is a Panama-incorporated company or a foreign-incorporated company.
Tax rate – Corporations are subject to income tax at a fixed rate of 25% on any Panamanian-source income.
The tax base (i.e. amount to which the tax rate will apply) for companies whose taxable income is greater than 1.5 million USD is the greater of:
- net taxable income calculated on the normal basis or
- 4.67% of the gross taxable income (excluding exempted and non-taxable income and foreign-source income); this is called the alternate calculation of income tax (Calculo Alternativo del Impuesto sobre la Renta or CAIR).
Capital gains - Locally-sourced capital gains are taxed separately at a 10% rate. If capital gains are derived from the sale of real property and constitute the main economic activity of the taxpayer, these are subject to corporate income tax standard rate. Foreign-sourced capital gains are exempt from taxation.
Dividends - Dividend income is generally exempt from taxes.
Interests - Locally-sourced interest income is subject to taxation at standard rates.
Royalties – Royalty income is subject to income tax to the extent that it reflects operations carried out in Panama.
Withholding taxes – Distribution of dividends may be subject to a final withholding tax of 10% on local-source profits and 5% on foreign-source profits (income from exports).
A dividend withholding tax exemption applies for companies that do not hold an "Operations' Notice" i.e. companies whose business activities are exclusively outside Panama.
If the entity’s shares are issued to a bearer, dividends may be subject to dividend tax of 20%.
Interests and royalties paid to non-residents are subject to a withholding tax of 12.5%. An interest and royalty withholding tax exemption applies for companies that do not hold an "Operations' Notice" i.e. companies whose business activities are exclusively outside Panama.
Losses – Losses arising from taxable income may be carried forward for 5 years (maximum 20% of losses per year), but may not exceed 50% taxable income in any year. Carryback of losses is not allowed.
Inventory - Inventories are generally stated at cost and may be valued using the compound average cost method, first in first out method (FIFO), retail method, or specific identification method.
Anti-avoidance rules – Transfer pricing rules are applicable for all transactions with non-domiciled related parties.
For companies holding an "Operations' Notcie", an information return must be filed within six months after the end of the taxable year. An additional arm's-length economic report must be kept and made available for tax authority inspection upon request.
Panama has not enacted thin capitalization rules, nor controlled foreign companies regulations.
Labor taxes – Employers and resident employees are required to make contributions to the Social security fund at 12.25% and 9.275% on employees’ monthly income, respectively, without a maximum limit amount. Additionally, there is an educational insurance tax at 1.50% for employers and 1.25% for employees, without a maximum limit amount.
Certain industries are subject to a professional risk tax up to 6.25% on resident employees’ wages, paid by the employer.
Tax credits and incentives – Companies established in Free zones may benefit from a tax exemption on import duty tariff, income tax, sales tax, export tax, and selective consumption tax.
Companies engaging in tourism activities that have signed a tourism agreement with the government may benefit from several tax benefits.
Individuals or corporations that engage in agricultural production activities may be exempted from income taxes if annual gross income is lower than USD 250,000.
Companies conducting forestry plantations may be income tax-exempt until 2018, provided that the lot has been duly registered at the Forestry Registry of the Environmental National Authority.
Other tax benefits may apply for companies engaging certain activities such as call centers or real estate investment, or companies establishing their regional headquarters in Panama.
Compliance – On average, a Corporation conducting business in Panama may require 52 payments and 417 hours per year to prepare, file and pay taxes.
Personal income tax - An individual is tax resident in Panama if he or she spends more than 183 days in a year within the territory.
Panama taxes its residents’ income earned within the territory at a 15% on annual income between US$11,000 and US$50,000 and 25% on the excess. Interest on Panamanian government securities, interest on savings accounts and time deposits maintained with Panamanian banks are tax-exempt. Non-residents are subject to a withholding tax on source of 12.5% on their Panamanian income.
Capital Gains are taxed separately. Gains derived from the transfer of immovable properties and the sale of securities and negotiable instruments are subject to a 10% tax. If the transfer of immovable properties constitutes the main economic activity of the taxpayer, capital gains may be subject to corporate income tax.
Other taxes – There is a property tax between 0% and 2.10%, depending on the value of the property. The ITBMS is the Panamanian Value-added tax, and it is currently 7%.
There are no transfer, net wealth and inheritance taxes in Panama.
- Offshore Income Tax Exemption * *
- Offshore capital gains tax exemption * *
- Offshore dividends tax exemption * *
- CFC Rules * *
- Thin Capitalisation Rules * *
- Patent Box * *
- Tax Incentives & Credits * *
- Property Tax * *
- Wealth tax * *
- Estate inheritance tax * *
- Transfer tax * *
- Capital duties * *
- 0% Offshore Income Tax Rate *
- 25% Corporate Tax Rate *
- 0% Capital Gains Tax Rate *
- 0% Dividends Received *
- 10% Dividends Withholding Tax Rate *
- 12.5% Interests Withholding Tax Rate *
- 12.5% Royalties Withholding Tax Rate *
- 0 Losses carryback (years) *
- 5 Losses carryforward (years) *
- FIFOAverage cost Inventory methods permitted *
- 9.75% Social Security Employee *
- 13.5% Social Security Employer *
- 25% Personal Income Tax Rate *
- 7% VAT Rate *
- 25 Tax Treaties *
Country details *
The Republic of Panama is a country located in the southeast of Central America, in the isthmus of Panama, that unites South America with Central America.
It limits the North with the Caribbean Sea, the South with the Pacific Ocean, to the East with Colombia and to the West with Costa Rica. Its mountainous territory is only interrupted by the Panama Canal.
It has a population of over 4 million inhabitants, which half live in the metropolitan area of its capital, Panama City. Its official language is Spanish. Its legal tender currencies are the US Dollar (USD) and the Balboa (PAB), which is pegged to the Dollar at a 1:1 ratio.
Panama is a presidential representative democratic republic, whereby the President of Panama is both head of state and head of government.
Its economy is one of the most stable in Latin America. Its main economic activities are financial, tourism, logistics services and to a lesser extent agriculture and livestock.
Regarding the primary sector, most of its agricultural production is destined for export. Its main crops are sugar cane, bananas, rice, maize, coffee, and tomato. Panama also exports a wide variety of timber, where mahogany stands out.
Its conglomerate of transport and logistics services are oriented towards world trade, whose epicenter is the Panama Canal, where there are ports of transshipment of containers, free zones of commerce, railroad and the largest air hub of passengers of Latin America.
Tourism represents one of the main activities, with over 2 million tourists per year, mainly for business, beaches, and commerce. Most of the tourists come from the US, Canada, Europe, Central America, and South America.
The financial sector is one of the main economic activities of the country. Panama's banking industry is the most modern and largest of Latin America with one of the strictest banking and financial laws worldwide.