Sociedad de Responsabilidad Limitada (Limited Liability Company)
Panama is an international trade and financial center strategically located between the Americas. Its politically stable environment, its pro-business legislation, its attractive tax regime, and a developed and large banking sector have made Panama one of the most popular jurisdiction to establish international companies.
Panama has excellent infrastructure and communications and is one of the largest international distribution and free trade centers worldwide.
In addition, Panama levies taxation in a territorial basis, hence SRLs in Panama that exclusively conducts its business outside of Panama, are exempt from all local taxes including income tax, capital gains tax and withholding taxes. Furthermore, interest paid by local banks are tax-exempt and there are no foreign exchange controls.
Unlike a corporation, an SRL requires at least two members, and its details are disclosed in a public registry. At least one manager is required who may be a member or a third party. There are no initial capital requirements.
Panama SRLs exclusively doing business outside the country, also benefit from minimal reporting requirements as they are not required to file annual return nor tax return, neither filing any kind of statements or financial reports.
The incorporation process is quick and straightforward, and the ongoing maintenance costs are low.
In addition, citizens of more than 50 countries (denominated friendly nations), may be eligible to apply for a permanent residence permit through incorporation, provided that certain conditions are met.
Panama SRLs are commonly used for fund management, e-commerce, access to banking and merchant accounts, and professional services.
Legal
Country code – PA
Legal basis – Civil law
Legal framework – Ley 4 de 2009 que regula las sociedades de responsabilidad limitada.
Company form – Sociedad de Responsabilidad Limitada (S.R.L.) (Limited Liability Company)
Liability - The liability of the members of the company is limited to the amount of their capital contributions.
Capital – There is no minimum capital, need not to be paid up at the time of incorporation. Capital shall be divided into partner quotas, issued in nominative form and represented in quota certificates. Transfer of membership quotas shall be subject to the approval of the partners.
Members – LLCs in Panama may be formed by at least two members, who can be either natural or legal persons, residents or non-residents, without restrictions. Details of members are available in a public registry.
Managers – An LLC must be managed by one or more managers who need not be partners and can be natural or legal persons, residents or non-residents. Details of managers are available to the public.
Secretary – There is no statutory requirement for a Company Secretary to be appointed.
Registered Address – LLCs must have a resident agent and maintain a registered address in Panama.
General Meeting – Annual general meetings are not mandatory. However, if meetings are held, they can be anywhere in the world and 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.
- Members not disclosed
- Members not disclosed
- Corporate members permitted
- Corporate manager permitted
- Local manager required
- Registered office or agent required
- Annual meeting required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Civil law Legal basis
- 2 Minimum members
- - Minimum registered capital
- - Minimum paid up capital
- USDAny Capital currency
- 100% Foreign-ownership allowed
- 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 to overseas customers from a Panamanian office, service fees may also be exempt from taxes, as long as the services provided are not 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.
Dividends received from foreign entities are offshore in nature and therefore not subject to tax.
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
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.