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Sociedad de Responsabilidad Limitada (Limited Liability Company)

Panama’s position as a leading international business center is underpinned by its geographic location, stable political environment, and a legal framework conducive to foreign investment. Among the various business structures available in Panama, the Sociedad de Responsabilidad Limitada (SRL) — or Limited Liability Company — is a relatively used vehicle for both local and international commercial purposes.

SRLs are governed primarily by the Panamanian Commercial Code and Law 4 of 2009, which outlines the specific rules for limited liability companies. Unlike corporations (Sociedades Anónimas), which are structured through share capital and a board of directors, SRLs are organized around a more flexible membership model, offering greater privacy and simpler administrative obligations.

An SRL is a legal entity distinct from its owners, whose liability is limited to their respective contributions to the company’s capital. It may be formed by a minimum of two and a maximum of fifty partners, known as quotaholders or members. These can be individuals or legal entities, and there are no restrictions concerning nationality or residence.

To establish an SRL in Panama, a formal incorporation deed must be executed before a Panamanian notary public and subsequently registered with the Public Registry. The deed must include the company’s name, duration, purpose, registered office, capital contributions, and the identification of all initial members and their respective participation.

Unlike corporations, SRLs do not require a board of directors. Instead, the administration can be entrusted to one or more managers (gerentes), who may be members or third parties. The names of the managers appear in the Public Registry, whereas information about the members is not publicly disclosed, contributing to a higher level of confidentiality.

There is no legal minimum capital requirement for SRLs. The capital must be fully subscribed at the time of incorporation but does not need to be fully paid in immediately. Contributions may consist of cash, assets, or services, and the capital is divided into quotas rather than shares. These quotas are not freely transferable; a transfer to third parties must be approved by at least 75% of the existing members, unless a different threshold is established in the company’s articles of incorporation.

This limitation on transferability is a key distinguishing feature between SRLs and corporations, making the SRL a more appropriate structure for closely held businesses, family enterprises, and asset protection vehicles.

Panama operates under a territorial tax system. This means that only income derived from activities performed within Panama is subject to local taxation. SRLs whose income is exclusively from foreign sources are not subject to Panamanian income tax. The territorial approach applies uniformly across all business entities, including SRLs.

Income considered foreign-source — and therefore not taxable — includes:

  • Revenues from goods bought and sold outside of Panama
  • Services rendered entirely abroad
  • Dividends from foreign entities
  • Capital gains from foreign securities
  • Interest and royalties earned from non-Panamanian sources

On the other hand, income earned from goods or services sold or performed within Panama, or to Panamanian customers, is subject to income tax at a flat rate of 25%. If the annual gross income exceeds USD 1.5 million, an alternate calculation method may apply (CAIR), based on 4.67% of gross taxable income.

Offshore vs. Onshore SRLs

Whether an SRL is considered “offshore” or “onshore” in Panama depends primarily on the nature of its operations and the source of its income.

Offshore SRLs do not engage in any business activities within Panama, maintain no physical presence, and derive their income solely from foreign sources. These entities:

  • Are exempt from Panamanian income tax
  • Do not need to obtain a business license or municipal registration
  • Are not required to file annual tax returns or financial statements

However, since January 2022, all Panamanian companies, including SRLs, must retain a copy of their annual financial statements at their registered office. These statements must be signed by a Certified Public Accountant (CPA), though they do not need to be submitted to the tax authority unless specifically requested.

Onshore SRLs, by contrast, operate physically within Panama or earn income from Panamanian sources. These companies must:

  • Register for an Operations Notice (Aviso de Operación)
  • File annual corporate tax returns
  • Submit financial statements to the tax authorities
  • Pay municipal taxes based on gross revenue

Panama does not currently impose economic substance requirements on SRLs. There is no obligation to maintain local employees, physical offices, or operational infrastructure. Nonetheless, international regulatory trends may influence future obligations, particularly for entities with cross-border activities or financial exposure.

Panama’s SRL framework offers a flexible, confidential, and tax-efficient structure for both local and international business activities. While offshore SRLs enjoy minimal regulatory and reporting obligations, onshore entities are subject to standard tax compliance measures. The SRL is particularly suited to closely held businesses and international structuring where limited liability, administrative simplicity, and privacy are paramount.

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).
If the entity's tax year results in a loss due to the alternative calculation, the taxpayer may request to the tax administration (the General Directorate of Income, i.e. Dirección General de Ingresos or DGI) not to be subject to the CAIR.
 
A Local municipal tax is charged based on the gross income generated by the business through the corresponding accounting period; it also depends on the type of activity being conducted by the corporation. In most cases, it cannot exceed USD 2,000 per month for each activity performed.

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.

  • Tax transparent entity * *
  • 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 *

Panama *
PAB
Panama City *
North America *
Spanish (Panama), English
3,410,676

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.

Tax treaties *

Country * Type * Date Signed *
Greenland TIEA 2012-11-12
Qatar DTC  2010-09-23
Denmark TIEA 2012-11-16
Barbados DTC  2010-06-21
Korea, Republic of DTC  2010-10-20
United Kingdom DTC  2013-07-29
Luxembourg DTC  2010-10-07
Canada TIEA 2013-03-17
Singapore DTC  2010-10-18
Ireland DTC  2011-11-28
Italy DTC  2010-12-30
Sweden TIEA 2012-11-12
Norway TIEA 2012-11-12
Spain DTC  2010-10-07
United Arab Emirates DTC  2012-10-13
United States TIEA 2010-11-30
Iceland TIEA 2012-11-12
Israel DTC  2012-11-08
Finland TIEA 2012-11-12
Czech Republic DTC  2012-07-04
France DTC  2011-06-30
Mexico DTC  2010-03-24
Netherlands DTC  2010-10-06
Portugal DTC  2010-08-27
Faroe Islands TIEA 2012-11-12

Tax treaties Map *

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Disclaimer *

Although we use our best efforts to keep the information of this site accurate and up-to-date, we make no representations or warranties with respect to the accuracy, applicability, fitness, or completeness of the contents of this website. We disclaim any warranties expressed or implied, merchantability, or fitness for any particular purpose. We shall in no event be held liable for any loss or other damages, including but not limited to special, incidental, consequential, or other damages. The contents of this website are just for illustrative purposes and are NOT to be considered as a legal opinion or tax advice and should not be relied upon as such. Far Horizon Capital Inc., and any associated company, is not engaged in the practice of law or tax. If you wish to receive a legal opinion or tax advice on the matter(s) in this website please contact our offices and we will refer you to an appropriate legal practitioner. Use of our websites FlagTheory.com, Incorporations.io, Residencies.io, Passports.io, is subject to our terms and conditions.

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