Why Forming a Panama Corporation is the Best Solution

Panama Panorama at night

Panama, officially the Republic of Panama, is a Spanish-speaking country in North America with a free market economy that thrives on tourism, banking, logistics and other services sector industries. Although it has been thrust into the global limelight as a secretive tax haven by the Panama Papers leak, the country has always been a popular jurisdiction for individuals and companies looking to protect their assets.

Despite the reputational consequences of the leak, there is absolutely no reason to shy away from starting a Panamanian corporation. It’s an effective corporate strategy for international trade, tax minimization, estate planning and confidentiality. If you are searching for the fairest shores to set up a corporation, here is why you shouldn’t sail beyond Panama.

Quick Incorporation Time

Processing times for company incorporation vary from jurisdiction to jurisdiction. However, those that have quicker timeframes are more attractive to potential investors. In Panama, your offshore company can be incorporated in a very short period of time, typically within a week. Physical presence is not required, so you can hire a resident agent – who must be an attorney or law firm in Panama – to facilitate the incorporation of the company on your behalf. You will need to furnish the agent with the following details:

  • Copies of your identification documents (passport, identity card and utility bills)
  • 3 unique name choices for the company – The Public Registry for Incorporations of Companies and Foundations in Panama will select one name from your listed choices
  • Names of at least 3 directors– Panama companies are required to have a minimum of 3 directors (president, secretary and treasurer). These directors can be either individuals or existing Panamanian or foreign entities. It is important to note that the names and addresses of Panamanian corporation directors are available in the Public Registry.
  • Preferred capital/share structure – This includes providing details about the number and classes of shares allocated to each shareholder. You must also indicate whether you want the shares to be issued in nominative or bearer form. Nominative share certificates identify the owner or beneficiary of the shares, while bearer share certificates do not bear any shareholder names, and must be deposited with an authorized custodian.

Once the company is incorporated, your resident agent will send you original certificate of incorporation, share certificates and other company documents. 

If you need a Panamanian corporation immediately, you can purchase a shelf corporation. These are legal Panama companies that were created and left to age without engaging in any business activity.

Low Cost Solution

Although offshore corporations are often associated with the wealthy, you don’t need a fortune to register one in Panama.  What’s more, you don’t have to pay the declared amount of share capital at the time of registration, and there is no set deadline for which the capital should be fully paid. Offshore companies in Panama can also issue no-par value shares (shares that don’t have any declared value). This makes it easy for investors to start a corporation without worrying about how much money they should set aside as share capital.

Panama Mapshutterstock

Enhanced Confidentiality

Even though records of the directors Panamanian corporations are available to the public, information about beneficial owners or shareholders is not submitted to the Public Registry, as is the share register of companies. In essence, this means that if you want to own a Panamanian corporation without being publicly tied to it, then you cannot serve as one of its directors.

Beyond possible anonymous ownership, Panama companies are not required to report their offshore activities to any Panamanian government authority. The law only requires corporations to maintain internal records of share registers, as well as minutes and other pieces of information about the company’s ownership and nature of operations.

Shareholders and directors are also not required to be physically present in Panama to run the company. They can hold meetings and issue directives to the employees of the company from anywhere in the world via email, telephone or any other suitable communication channel. With such levels of convenience, privacy and confidentiality, a Panamanian corporation can be used to protect personal assets from creditors and even governments.

Tax Exemption

Excessive taxation is one of the main reason companies – even large multinational firms like Google – in high-tax jurisdictions set-up offshore corporations in low-tax countries. If you are planning to create an offshore corporation with the aim of lowering the taxes you owe in your country of residence, then Panama will be an ideal choice. The country exempts companies from corporation tax, as long as the income is sourced from outside its boundaries. If you use your offshore corporation to do business inside Panama, then the Panamanian income will be subject to a tax rate of at least 25 percent, which, incredibly, is still lower than the average federal corporate tax rate of 35 percent in the United States.

Besides zero corporate tax rate for entities that earn all their income from foreign sources, Panama doesn’t tax interest earned on savings held in licensed Panamanian banks, as well as interest from debt instruments that are registered with the Panama National Securities Commission and listed on the local stock exchange.

No Currency Controls

While offshore corporations are legal vehicles for protecting assets and doing business, many financial centers and low-tax countries are accused of enabling corrupt individuals, corporations and governments to hide their money. As a result, many countries often impose policies that regulate the amount of money that can be moved in and out of their boarders. In Panama, there are no such controls. As long as your home country allows, you can transfer any amount of money to Panamanian banks, and you can also repatriate the funds without encountering any restrictions.

Fixed Exchange Rate

Doing international business inevitably comes along with foreign exchange risks. Although offshore banks typically allow clients to hold money in the currencies of their choice, investors who conduct regular cross-border transactions must stay on top of exchange rates to get the best value for their money or risk making a loss. Fortunately, Panama has a fixed exchange rate for the local currency (Balboa) and the USD, so you can hold money in Panamanian Balboa without worrying about whether it will lose value against the USD. To make matters even more interesting, Panama is one of the few countries in the world that use both a foreign currency (USD) and local currency as legal tenders.

Access to Top Banking Institutions

The availability of a sound financial system is an important factor to consider when choosing an offshore location for your business. In this sector, Panama doesn’t disappoint, as it hosts over 50 international banks, including Citibank, Mercantil Bank and First Central Internal Bank and the Korea Exchange Bank. As a foreigner investor, you will be able to open and operate corporate offshore bank accounts in many of the banks in Panama.

To open a personal offshore bank account in a Panama, you will need to provide copies of your government-issued identification documents, utility bills and references letters from your domestic bank. For a corporate account, you will need to provide your company’s incorporation documents along with your identification details.  Even though specialist companies in Panama can help you identify the best bank and get all the necessary documents ready, many banks will require you to be physically available for an interview before the application is processed.

Paper Money Boats Are Floating In The Panama Canalshutterstock

Strategic Location

Investors who want to use their offshore corporations as vehicles for international trade often prefer locations that make it easier to penetrate various international markets. Panama is located on a strip of land that links North America to South America, and is also home to the Panama Canal, a waterway that serves as a bridge between the Atlantic and Pacific Oceans. As such, a Panamanian corporation is ideal for investors who want to access trade markets in the Americas, Asia and Europe.

Stable Jurisdiction

Although the US is known to have vested interests in Panama, the country is completely independent with its own system of governance. It is also a peaceful nation with a good economic reputation. Therefore, a Panamanian corporation will not expose you to any economic or political risks. You can conduct your international businesses while staying assured that your assets are well-protected.

Evidently, forming a Panama company can be the best solution for your business, as well as your personal assets. You can use it to trade in multiple international markets, as well as hold real estate and other pieces of property.

Remember, finding the perfect offshore jurisdiction for your business is only part of what needs to be done for a successful offshoring. You must be familiar with reporting requirements in your home country, so that you don’t expose your business to costly fines and law suits when offshoring. Lastly, be sure to maintain a close working relationship with your corporation’s registration agents, so that they can reliably keep you in the loop on legal changes that affect offshore Panamanian Corporations.