Projecting a stable growth rate between 3.8 and 4.5 percent, Panama is known for its economic stability and resilience. To add to it, the jurisdiction has brought in numerous policies and legislation that attract foreign capital, including a qualified investor program, SEM and EMMA laws that fast-track corporate visas, and more.
Given the above facts, it is the right time to utilize numerous government-dispersed benefits and grow your business by setting up a Panamanian company. When moving forward with the process, it is imperative to identify the right business entities in Panama that meet your business needs.
Our latest blog covers the various legal entities in Panama in detail and outlines the suitability criteria to help you make an informed decision.
Types of Business Entities in Panama
Panama is one of the business-friendly offshore jurisdictions that boasts numerous company structures conducive to business growth.
Here is a quick detail on legal entities in Panama and their applicability to the real business environment for foreign entrepreneurs:
International Business Company or Corporation [Sociedad Anónima (S.A.)]
Also referred to as an international business company, a Panama corporation is governed by Law 32 of 1927. It is one of the most prominent business entities in Panama for offshore company formation in the region. Given that it is governed by an extensive legal framework that allows foreign ownership, two or more persons of any nationality can set up a company in Panama.
Apart from this, the firm must appoint at least 3 directors and can issue one or more classes of shares to the shareholders. They enjoy limited liability and are liable only up to the amount they invested.
Limited Liability Company (Sociedad de Responsabilidad Limitada / S. de R.L.)
A limited liability company is another prominent Panama company structure that foreign entrepreneurs prefer to set up a company. It is governed by Law 4 of 2009. A Panama LLC can be formed by two or more natural or legal persons and must be constituted by a public deed registered in the public registry. Unlike in a Delaware LLC, the members of a Panama LLC are also referred to as partners at times.
The investment-related flexibility of this Panama company structure also makes it a top choice for foreign investors and entrepreneurs. Thus, an LLC set up in Panama can merge with another national or foreign company to meet its business requirements.
General Partnership (Sociedad Colectiva)
Another sought-after business entity in Panama, the partnership is governed by Chapter 3 of the Panama Commercial Code. It is regulated by Articles 251 through 265. As in other jurisdictions, partners in a general partnership have unlimited personal liability, and their personal assets are not protected in case creditors file lawsuits. Thus, they are liable to sell their personal assets to repay the debts of the partnership.Nonetheless, this structure is used rarely due to a major drawback associated with the naming of the partnership (Partnership Business Suffix). As per Article 299, a person who lends their name to the firm gets unlimited liability automatically, regardless of their association with the business. Additionally, the use of their name automatically makes them liable for the partnership's debts (if any).
Limited Partnership (Sociedad en Comandita Simple)
Chapter 4 of the Panama Commercial Code governs the limited partnership in Panama. It is regulated by Articles 330 to 346. Like other jurisdictions, a limited partnership in Panama has a mix of partners. These include limited partners (often termed as silent partners in Panama) and general partners.
Limited partners enjoy limited liability but are not allowed to make operational decisions or have their name in the partnership’s name. Also, they cannot disclose to the public that they are a part of Sociedad en Comandita Simple. On the other hand, the duties of general partners remain the same as outlined above in the general partnership section.
Partnership Limited by Shares (Sociedad en Comandita por Acciones)
Section 2 of Chapter 4 of the Code governs partnership limited by shares in Panama. It is a sub-category of limited partnership and not a widely used structure, especially for offshore company formation in Panama. It attempts to create a hybrid structure that combines features of a partnership with a corporation.
Like a limited partnership, it has two sets of partners: limited and general. Limited partners are issued shares and thus enjoy limited liability. It must mandatorily have a general partner that takes complete responsibility for the business, including managerial decisions.
Moreover, if a limited partnership chooses to divide its capital in shares, it must follow the regulations outlined in Law 32 of 1927 that governs corporations.
Foreign Corporation or Branch Office
Among the top business entities in Panama for offshore expansion, a foreign corporation is governed under the Article 90 of the Law 32 of 1927. Branch offices are defined as offices or agencies that may engage in business within the Republic after filing with the mercantile registry.
There are strict regulations for meeting registration requirements; otherwise, a firm faces serious consequences, including a prohibition on holding judicial proceedings against anyone. However, creditors can file lawsuits against the firm.
Private Interest Foundation (PIF)
Governed by Law 25 of 1995, the private interest foundation (PIF) is one of the popular legal entities in Panama. Unlike regular foundations, a private foundation in Panama is not formed for profitable business purposes. It can act as a holding entity to manage and protect assets as well as hold a stake in corporations and invest the income thus received in alignment with the purpose for which the foundation is formed.
Entrepreneurial Society (Sociedad de Emprendimiento)
Also known as an individual limited liability company, it is specifically designed for entrepreneurs and requires at least 2 founding members. This is one of the most modern business entities in Panama for an individual entrepreneur. It was originally created by Law No. 186 of 2020 and recently updated by Law No. 451 of 2024.
It is strictly a domestic business structure; that means it does not have widespread applicability for offshore businesses. It has annual revenue caps (ranging from $150,000 to $1,000,000) and can only operate within the physical territory of Panama.
Which are the Best Business Entities in Panama for Offshore Business?
As mentioned earlier, not all structures are conducive to offshore business. Here is a quick overview of the business entities in Panama that can be utilized to build a prosperous overseas business:
Company Structure | Best Used For | Reasons to Choose It |
Sociedad Anónima (Panama IBC) | Multi-owner startups Holding assets/real estate Overseas investments M&A Offshore holding company | It can divest shares to onboard more investors to pursue its growth strategy. |
S. de R.L. (Panama LLC) | Solopreneurs & freelancers Digital nomads Simple family businesses | Pass-through taxation (depending on the owner’s home country’s law) Easier management Can employ a nominee director |
Benefits of Setting Up a Company in Panama
Panama is a growing economy with the government actively putting measures in place that create an accommodating environment for businesses. There are numerous business entities in Panama, and by choosing the right one, you can enjoy the following benefits:
Business Supportive Tax Regime
Panama operates under a territorial tax regime, which means only Panama-sourced income is taxed. This automatically exempts foreign-source income from local taxation. It is especially beneficial for foreign entrepreneurs who seek to trade globally through their Panama-registered company. On top of that, a Panamanian company that distributes profits to foreign stakeholders is exempt from dividend tax.
Similarly, any sale of foreign securities is also exempt from capital gains tax. A company in Panama is also exempt from value-added tax if it specifically renders services and issues invoices for international commercial activities.
Consistent Economic Growth
Panama is one of the most resilient Latin American economies that has shown remarkable growth over the years. According to the International Monetary Fund (IMF), Panama’s real GDP is set to grow at 4 percent, underscoring the strength of its non-mining sector.
Typically in developing economies, the real GDP growth rate is canceled out by the inflationary environment. However, in Panama, firms have a chance to prosper as the jurisdiction boasts significantly low inflation, which stabilizes the operational costs.
Currency Stability
The currency environment in Panama is unique. Though the official currency is Balboa (PMB), the jurisdiction uses the United States Dollar as a legal tender for all transactions. This protects business owners from currency-fluctuation-related losses and enhances the credibility among investors and creditors.
World Class Infrastructure
Panama boasts over 140 maritime routes that connect businesses seamlessly to Europe, Asia, and the Americas. On top of that, Panama is also home to the Colon Free Trade Zone (CFZ), which is the second-largest free trade zone in the world. This allows entrepreneurs to import, store, assemble, and re-export goods entirely tax-free and free of customs duties.
How Can Business Setup Worldwide (BSW) help?
Panama offers a conducive environment for business formation. From a dollarized economy to business-friendly freezones, the region offers a range of benefits that support business growth.
While setting up a business, choosing the right structure from the business entities in Panama is essential to achieve remarkable growth. That’s where BSW comes in. Our experts help you choose the right business entity in Panama and accomplish all the ensuing formalities. Contact us today!
