Panama

Economic and Legal Climate

Panama, located at the crossroads of North and South America, offers a highly favorable business environment characterized by political stability, a growing economy, and a strategic location along major global trade routes. The country has strengths in sectors such as logistics, financial services, tourism, real estate, and agriculture. Panama’s legal system is based on civil law, providing comprehensive legal protections and a transparent regulatory framework. The government has implemented various reforms to attract foreign investment and foster economic diversification.

Official Languages

The official language of Panama is Spanish. While English is widely spoken in business circles, especially in larger cities and among the educated population, proficiency levels can vary. Engaging local legal and business experts who are fluent in Spanish is advisable for international investors.

Banking System

Panama has a well-regulated banking system overseen by the Superintendency of Banks of Panama. The country hosts a variety of local and international banks offering comprehensive financial services. The banking sector is known for its stability, innovation, and strong regulatory standards, supporting both domestic and international business operations.

Maintenance Costs

Maintenance costs for companies in Panama are moderate. Annual compliance requirements include renewing business licenses, filing tax returns, conducting audits, and maintaining proper accounting records. These processes are relatively straightforward but can involve some administrative efforts and costs, generally manageable with the assistance of local professionals.

Setting Up Costs

Setting up a company in Panama involves several costs, including incorporation fees, legal fees, and registration with the Public Registry of Panama. The process includes drafting the company’s articles of incorporation, obtaining a tax identification number (RUC), and registering for VAT if applicable. The incorporation process is efficient and can typically be completed within a few weeks if all documentation is in order.

Corporate Tax Rate

Panama offers a competitive corporate tax regime with a standard corporate tax rate of 25% on taxable profits. The country provides various tax incentives and deductions for investments in specific sectors, particularly in special economic zones and the Colon Free Trade Zone, enhancing tax efficiency for businesses.

Territorial or Non-Territorial Principles

Panama operates a territorial tax system, meaning only income derived from within Panama is subject to tax. This principle makes it an attractive destination for businesses looking to minimize their tax liabilities on international income.

Currency Regulation

Panama imposes no significant restrictions on foreign exchange transactions, allowing for the free flow of capital. The currency used is the Panamanian Balboa (PAB), which is pegged to the US Dollar (USD), and the US Dollar is also legal tender, providing stability and ease of international transactions.

Advantages of Setting Up a Company in Panama

1. Strategic Location: Panama’s location provides access to markets in North America, South America, and the Caribbean, and is a key global logistics hub.
2. Business-Friendly Environment: Transparent regulatory framework, efficient administrative processes, and supportive government policies facilitate easy company setup and growth.
3. Tax Advantages: Competitive corporate tax rate with various tax incentives and exemptions for specific sectors.
4. Stable Legal System: The civil law system provides strong legal protections and clear regulations for businesses.
5. High Quality of Life: Panama offers a high standard of living, with excellent healthcare, education, and leisure facilities, making it an attractive destination for expatriates.

Disadvantages of Setting Up a Company in Panama

1. Bureaucratic Complexity: Navigating Panama’s regulatory and bureaucratic landscape can be challenging and time-consuming.
2. Language Barrier: While English is widely spoken, proficiency in Spanish is essential for many legal and administrative matters, necessitating local expertise.
3. Economic Dependence: The economy's reliance on sectors such as logistics and financial services can pose risks in times of global economic downturns.

Conclusion

Panama offers a highly attractive environment for setting up a company, with its strategic location, business-friendly environment, and tax advantages. Despite challenges such as bureaucratic complexity and language barriers, the overall advantages make Panama a compelling choice for international investors. Global Expand can assist you in navigating the complexities of setting up a company in Panama, ensuring a smooth and successful entry into this dynamic and strategic market.