For a wide audience, Panama is a remote and exotic country that attracts the world’s richest, and occasionally makes headlines.
We at Clevver decided to shed light upon its “mystical” tax laws & inform you about the possibilities Panama enables.
Have a look at the key facts about Panama:
Panama – Politics & Jurisdiction
Panama is a small transcontinental country in Central and South America. With a presidential representative democratic political system, the president serves as both – the head of state and the head of government. Panama is a multiparty country and has enjoyed political stability for the past thirty years. In fact, since 1989, the country has witnessed five peaceful transfers of power among opposing political groups. Panama’s judiciary is based on the civil law system and accepts the compulsory dominion of the International Court of Justice with reservation.
Why is Panama considered as a tax haven?
All over the world, Panama is best known for being a tax haven, attracting renowned multinational companies, such as Procter and Gamble, Nike, Adidas, Halliburton, Amazon, and Nestle, among others.
The reason why it attracts thousands of companies can be easily spotted in its tax jurisdiction; For instance, Panama charges a paltry 0.5% annual tax rate on a firm’s capital. Apart from tax saving, investors are free to choose from three categories of Panama business ownership, including partnership, sole ownership, or corporation. Investors should be ready to invest anywhere between $2,000 to $50,000 for Limited Partnerships.
|Annual tax rate||0.5% on a firm’s capital|
|The local equivalent to a limited liability company||Sociedades Anonima (S.A.)|
|Company Suffix||Corp.; Inc.; S.A. (freedom of choice)|
|Income tax on foreign establishments (operating outside the country)||0%|
|Corporate tax on foreign establishments (operating outside the country)||0%|
|Capital gains tax on foreign establishments (operating outside the country)||0%|
|Estate tax on foreign establishments (operating outside the country)||0%|
|Founders & Shareholders need to be residents||No|
|Identity submission to public records||No|
|Legal System||Civil Law|
The Panama Tax Deal for Foreign Investors
Panama legislation presents a broad scope of desirable financial services, including international banking, the incorporation of foreign firms, listings of ships, yachts, planes, and the creation of any Panama trust and foundation. There is no income, corporate, capital gains, or estate taxes enforced on foreign establishments that only conduct commerce outside of the country.
Please bear in mind, Panamanian income tax is based on the territoriality principle, meaning that Panamanian-source income would be subject to taxation. If you operate in Panama, you will be subject to an income tax of 25%.
This doesn’t apply to companies operating outside the country.
What Requirements Should Be Met?
For non-Panamanian firms, no reporting fulfillments are necessary.
Moreover, organizations are not required to keep books, and their executives and shareholders can be from any country, or they can reside at any corner of the globe. What makes it even easier is that entities don’t have to be in Panama to register. It’s also not obligatory to publicly register the identities of corporate shareholders.
Why Start a Business Organization in Panama?
In many countries, tax systems are very complex, and tax-optimization is considered unethical. Nevertheless, many multi-million firms continue to engage in tax optimization practices to boost their economic standing and gain a competitive advantage in the global market. And countries like Panama offer tax reprieves that attract international businesses.
This is one way how SME/ start-ups can compete with big players in today’s cutthroat environment. With that said, investing in Panama provides the following benefits:
- Utmost secrecy
Panama has stringent banking secrecy laws. Panamanian banks are not allowed to disclose any information about offshore bank accounts. The only exception is when a bank receives a special Panamanian court order, based on a criminal investigation.
- Freedom to hold meetings from wherever
Expanding doesn’t have to be complicated. Even shareholder meetings don’t have to be held in Panama and can be organized in any country.
- Panama is a cooperative tax jurisdiction
With effect from 26 January 2018, Panama was exempted from the EU’s blacklist of ‘bad’ tax havens. This decision was taken, thanks to the country’s efforts towards tax transparency, as well as successful anti-money laundering efforts.
Panama has had a stable democracy for quite a long time now. It has had no political instability/ civil unrest since 1989.
- Continued economic growth
Panama has witnessed a steady growth of the economy over the last fifteen years. This trend makes it an ideal location for international entities keen on growth.
- Security for foreign investments
Panama’s legislations give foreign investors equal rights as Panamanians regarding asset ownership, finances, and commerce.
That said, despite the apparent benefits of forming an offshore company in Panama, there are some significant downsides, as well. For one, the business owner must stay in the country. Two, 50% of the company must be owned by a resident. However, for a non-resident investor wanting to form an offshore company, a registered agent-based in Panama can help to circumvent these problems. The agent, who can either be a Panama lawyer or a law firm, will register your article of incorporation when the corporation is formed.
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Please note: We at Clevver want to inform SME/ start-up owners and founders about options in the struggle to compete with the low tax-paying multinational enterprises. Clevver does not encourage or support tax evasion. The options stated in this article are not meant as legal advice. If you are interested in using one of the options, please consult a specialized company lawyer.