SOME OF THE ADVANTAGES OFFERED BY PANAMANIAN CORPORATIONS
1. The continued stability, flexibility and modern features of the corporate legislation both as to its provisions and their implementation.
2. A Panamanian corporation engaged in business outside of the Republic of Panama is neither subject to any income tax nor requires any commercial license to operate.
3. The protection provided to the beneficial owners of the corporation by the fact that the election of directors and officers and any change in their standing has to be a matter of public record.
4. The legal requirement providing that a General Power of Attorney can be recorded at the Public Registry Office, protects the transactions effected on behalf of the corporation against third parties.
5. The fact that the good standing of any given corporation can be officially ascertained in a very short period of time through the obtention of a “good standing certificate” issued by the Public Registry Office. Unofficially, any information can also be obtained through a quick search of the records.
6. It is not necessary to actually disburse or pay the authorized capital of the corporation or any part of it. An agreement to do so will suffice.
7. The amount of corporate capital and the par value of the shares may be in U.S. dollars or in legal gold currency of any country, or both.
The soundness of Panamanian corporations provides a degree of protection to beneficial owners seldom found in other jurisdictions.
1. Corporations may be formed for any lawful purpose by two (2) or more natural persons of legal age and capacity and of any nationality or domicile by executing the Articles of Incorporation before a Notary Public in Panama or a Panamanian Consul abroad. The Articles of Incorporation so executed must then be recorded at the Public Registry Office in Panama, whereupon the corporation acquires legal personality automatically.
2. Although the law requires that the shares must be subscribed by at least two (2) persons, it is possible to organize it in such a manner that all outstanding shares be held by one (1) person.
3. A corporation engaged in business outside Panama is neither subject to any income tax nor requires any commercial license to operate.
4. It is not necessary to pay the authorized capital of the corporation or any part of it. An agreement to do so will suffice.
5. It is not necessary that the parties in interest come to Panama for the purpose of incorporation. The usual procedure, when not in Panama, is that two (2) nominees execute the Articles of Incorporation in Panama and immediately upon incorporation assign to the parties in interest all their rights accruing from the incorporation through private documents.
6. The amount of corporate capital and the par value of the shares may be in U.S. Dollars or in legal gold currency of any country or both.
7. The Articles of Incorporation may be executed in any language anywhere, in or outside the Republic of Panama.
8. There are no nationality or residence requirements for shareholders, directors and/or officers of the corporation.
9. Stocks must be issued in nominative form.
10. meetings of shareholders and directors may be held outside the Republic of Panama.
ARTICLES OF INCORPORATION
The Articles of Incorporation must at least include the following provisions:
1. The name of the corporation. It may be in any language and must include a word or an abbreviation thereof (also in any language) distinguishing a corporation. It must be borne in mind that according to the law, the word “Limited” or its usual abbreviation “Ltd.” does not indicate a corporation.
2. The objectives and powers of the corporation; although in practice this is superfluous, since the Republic of Panama does not apply the “ultra vires” doctrine. Thus, a corporation may engage in any lawful activity even if not specified in its Articles of Incorporation or by‑laws.
3. The authorized capital, indicating the amount of shares into which such capital is to be divided. If the capital is to be composed of shares without par value, it is not necessary to state the amount of capital, only the number of shares to be issued.
4. The duration of the corporation, which may be perpetual.
5. The number, full names and addresses of the first directors of the corporation, which shall not be less than three (3) natural or juridical persons.
6. The number, full names and addresses of the first officers of the corporation, which must be at least a President, a Treasurer and a Secretary. The law permits one (1) person to hold more than one (1) office.
7. The name and address of the corporation’s Resident Agent in the Republic of Panama, which must be either a lawyer or law firm.
8. The domicile of the corporation, which may be in or outside the Republic of Panama.
9. Any other legal provisions that the incorporators may convey.
The Articles of Incorporation may be amended either by the consent of the shareholders in a duly-constituted meeting, or by the consent of the totality of the shareholders. In this last case, a meeting is not required. Where no shares have been issued, amendments may be authorized by the incorporators.
The directors and the officers need not be shareholders.
1. A corporation may adopt by‑laws for the regulation of its internal affairs and proceedings, but this is not compulsory.
2. Should by‑laws be in fact adopted, it is not necessary that they be recorded in the Public Registry of Panama. If they are recorded, however, any amendment thereof must also be recorded.
3. By‑Laws may be adopted either by resolution of the Shareholders or by resolution of the Board of Directors. Subsequently, they may be amended by the body which initially adopted them.
POWERS OF THE CORPORATION
The corporation may perform any lawful act, which a natural person may perform and is subject only to the restrictions of its Articles of Incorporation and by‑laws, if any.
The powers of the corporation are vested in the Shareholders and the Board of Directors. The Shareholders and the Directors may issue Special or General Powers of Attorney in favor of third persons, who need not be a shareholder or director, with wide powers of administration so that the business of the corporation may be conducted by such third-parties until said Power of Attorney is revoked or the business concluded.
1. The Shareholders meeting may be called by the President, Vice‑President, Secretary and/or Sub-Secretary of the corporation or any other person specifically authorized by the Articles of Incorporation or By‑Laws. There is no legal obligation on the corporation to have Shareholders meetings at any particular interval, so that unless the Articles of Incorporation or the by‑laws specify otherwise, they may be called at any time by any of the above‑mentioned persons.
1. The notice of the meeting must be given in the manner specified in the Articles of Incorporation or the by‑laws, and if they say nothing in this respect, it must be delivered personally or by mail, not less than ten (10) nor more than sixty (60) calendar days before the date of the meeting.
3. Notice of the meeting may be waived if all the shareholders are present. Shareholders may, of course, vote by proxy. On the other hand, one (1) or more shareholders may agree in writing to transfer their shares to a voting trust in order to grant it the right to vote for a specified period in accordance with the conditions of the voting trust.
4. Shareholders meetings may be held wherever the Articles of Incorporation or the by‑laws require. If they say nothing, they must be held in the Republic of Panama.
5. The law reserves the following powers to the Shareholders:
5.1. Amendment of the Articles of Incorporation.
5.2. Disposal of the corporation’s capital assets.
5.3. Dissolution and/or merger of the corporation.
5.4. Election and removal of the directors of the corporation.
If the Articles of Incorporation or the By‑Laws do not provide for a special majority, Shareholders resolutions must be passed by simple majority at a meeting assembled in order to be valid.
However, the totality of the shareholders may issue a resolution or subscribe an instrument whereby they agree to amend the Articles of Incorporation, without the need to hold a meeting. In the same context, the majority of the shareholders may also issue a resolution or subscribe an instrument whereby they agree to the sale the capital assets of the corporation, without the need to hold a meeting. In both instances, the resolutions or instruments must carry a certification from the Secretary of the corporation stating that the persons who have executed it constitute the totality or the majority, as the case may be, of the shareholders with a right to vote.
BOARD OF DIRECTORS
1. The administration of a corporation is vested in a Board of Directors, which must be composed of at least three (3) persons of legal age and of any nationality or domicile or three (3) juridical persons of any nationality or domicile.
2. The Board of Directors has absolute control and full direction of the corporation, unless the law, the Articles of Incorporation or the By‑Laws confer those powers or reserve them to the Shareholders.
3. It is not necessary that the members of the Board of Directors be shareholders, although, if desired, this may be required in the Articles of Incorporation.
4. The members of the Board of Directors may vote by proxy.
5. Although the Board of Directors is elected by the Shareholders, the directors may, if stipulated in the Articles of Incorporation or authorized by the Shareholders, fill the vacancies occurred in the board.
6. The Board of Directors must hold meetings and adopt resolutions in order to exercise its powers.
7. The Board of Directors may grant a General or Special Power of Attorney to one (1) or more individuals, authorizing them to act on behalf of the corporation with respect to any or all of the powers which are vested in the Board of Directors. A General Power of Attorney should be recorded at the Public Registry of Panama in order to be effective against third parties.
8. The Board of Directors meetings may be held at the time and place that the Articles of Incorporation or the by‑laws so require.
9. The Board of Directors’ resolutions must be signed by the person or persons who acted as President and Secretary of the meeting.
10. One (1) or more directors or the entire Board of Directors, may exercise the functions reserved to the Shareholders if it is so provided in the Articles of Incorporation or a General Power of Attorney.
1. A corporation must have a minimum of three (3) officers, a President, a Secretary and a Treasurer, who may be of any nationality or domicile.
2. The officers are elected by the Board of Directors, and the same person may hold more than one (1) office.
3. The elected officer need not be a director or a shareholder, unless the Articles of Incorporation or the by‑laws so require.
4. The President shall preside the meeting of the Shareholders and the Board of Directors, and the Secretary shall keep the Minutes. In their absence, any other person may carry out their task, provided the Minutes of the meeting state that the President or Secretary are absent and that another person presided or kept the Minutes.
1. The authorized capital of the corporation may be stated either:
1.1. In terms of certain sum of money of any currency divided into a stated number of shares with a stated par value each (For example: US$ 10,000.00 divided into 100 shares with a par value of US$ 100.00 each); or
1.2. In terms of a stated number of shares without par value; or
1.3. A combination of both.
2. It is not compulsory to subscribe or pay the whole or part of the authorized capital by any particular time.
3. The corporation may issue one (1) or more classes of shares with or without par value and with the designations, preferences, privileges, voting rights, restrictions or other requirements or rights contained in the charter.
4. It is permissible for shares of one (1) class to be converted into another class or classes. All shares of a given class, however, must have identical rights and privileges.
5. Shares may be issued as fully paid, as partially paid, or as unpaid. Unless there is a provision to the contrary in the charter, shares with par value which are to be issued as fully paid, bonds and/or shares convertible into fully paid shares, may not be issued in exchange for services or assets which, in the judgement of the Board of Directors, have less value than the par value of the shares issued or converted.
6. The certificates representing partially paid shares may not indicate payment toward such shares for an amount greater than that actually paid.
7. Paymemt of the shares may be made in money or in exchange for labor, services, or assets of any kind.
8. The shareholders will not be personally liable before the corporation or its creditors with respect to their shares. The responsibility of the shareholders will be limited to the unpaid amount of the subscribed shares.
9. The shares may be issued in nominative form.
10. Nominative shares need not be fully or partially paid.
11. Nominative shares are transferable at the Stock Register Form of the corporation, where the transaction must be recorded.
12. The authorized capital of the corporation can be increased or decreased by amendment of the Articles of Incorporation by the Shareholders.
Share certificates must contain the following information:
1. The corporation’s registration data at the Public Registry Office.
2. The authorized capital of the corporation.
3. The number of shares represented by the certificate.
4. The class of the share when there are different classes of shares, as well as any special conditions, designations, preferences, privileges, or restrictions which any of the classes of shares has over the others.
5. Whether or not the shares represented by the certificate are fully paid; and if not fully paid, the amount paid.
6. The name of the shareholder.
REGISTRATION OF SHARES
The corporation must maintain at its offices in the Republic of Panama, or in any other place specified in the Articles of Incorporation or the By‑Laws, a Stock Register with a record of the names, in alphabetical order, of all shareholders in the company, listing their place of residence, the number of shares each holds, the date of acquisition, the amount paid on account and whether the shares are fully paid.
Panamanian income tax is levied only upon net income derived from operations performed within the territory of the Republic of Panama. Income obtained from operations outside the Republic of Panama is not income obtained from “sources within Panama” and therefore, is not taxable.
Only dividends distributed from income arising from Panamanian sources are taxable at the rate of ten percent (10%), whether received by corporations or individuals, residents or non‑residents. Dividends distributed from income arising from sources outside Panama (offshore) are not taxable. Panamanian law further provides that a Panamanian corporation, which has, as its only income, dividends received from other corporations, is not subject to Panamanian income tax, nor will it need to withhold any dividend tax upon any distribution thereof.
Distribution of Assets
A Panamanian corporation not operating in Panama may distribute all or part of its assets to its shareholders upon dissolution or otherwise, without any tax to the corporation or its shareholders, even if the assets may have a value at the time of distribution that is in excess of the value when originally acquired by the corporation.
Moreover, no estate tax will be caused on the transfer via “mortis causa” of shares of a Panamanian corporation, whether or not doing business or owning real state property in Panama.
Individuals who receive salaries, wages, or any other compensation from Panamanian corporations are subject to income tax only if the services rendered are deemed to be performed within Panamanian territory. Thus, if a Panamanian corporation pays a salary for services rendered abroad, the corporation will not have to withhold any income tax on the salary.
Capital gains derived from the sale of stocks, bonds and other securities issued by Panamanian corporations are subject to income tax. However, such profits will be exempted if the securities sold were issued by corporations registered with the National Securities Commission. Profits obtained from sales of other personal properties are considered as taxable income only in those instances in which the seller is an authorized dealer of such property.
Capital gains arising from the sale of real estate property located inside the Republic of Panama, are subject to especial tax rules and are taxed in full, regardless if the corporation had net taxable income or a net operating loss.
If a corporation maintains a bank account in a local bank in the Republic of Panama, it does not imply that the corporation is commercially operating within the territory of the Republic of Panama.
Real Estate Property
If a corporation owns real state property located in the Republic of Panama, it does not imply that the corporation is commercially operating within the Republic of Panama.
Income Tax Returns
Corporations or individuals with taxable income (Panamanian sources) are required to file yearly income tax returns. Corporations organized and domiciled in Panama with no income obtained within the Republic of Panama (offshore), however, are not required to pay any income tax to the Panamanian Government nor are they required to file any income tax returns or publish a balance sheet.
The income obtained by corporations from operations performed within the Republic of Panama, after all deductions permitted by law, will be taxed.
In addition to the Articles of Incorporation, the corporation must register at the Public Registry Office in Panama only those corporate acts which amend the Articles of Incorporation or By-Laws (if any), amend the authorized capital, constitute changes in the Board of Directors or the Officers, or provide for the dissolution or merger of the corporation.
Every corporation must have a Resident Agent in the Republic of Panama, which must be a lawyer or law firm authorized to practice in the Republic of Panama. The functions of such an agent refer, particularly, to juridical representation and serve as liason before all national authorities. According to Panamanian law, when the representative of a juridical person acts on its behalf before the authorities, he is not acting in his own interest but in the name of a different person and therefore, carries out an activity, which is reserved to lawyers.
The corporation must have a record of the minutes and a record of the stock which may be kept in books, electronic means or any other mechanisms and may be kept anywhere in the world.
REGISTRATION FEES AND FRANCHISE TAX
A registration duty, which must be paid at the Public Registry Office upon the filing of the Articles of Incorporation is required. This duty is payable only once, upon registration and upon any increase of the authorized capital, and is based on the authorized capital of the corporation.
The table of registration duty payable on the basis of the authorized capital is the following:
First US$ 10,000.00
From US$ 10,000.01 up to US$ 100,000.00
From US$ 100,000.01 up to US$ 1,000,000.00
More than US$ 1,000,000.00
US$ 50.00 for the first US$ 10,000.00 plus US$ 0.90 per additional US$ 1,000.00 or fraction thereof, up to US$ 100,000.00
US$ 131.00 for the first US$ 100,000.00 plus US$ 0.60 per additional US$ 1,000.00 or fraction thereof, up to US$ 1,000,000.00
US$ 671.00 for the first US$ 1,000,000.00 plus US$ 0.12 per additional US$ 1,000.00 or fraction thereof
Shares without par value will be assessed at US$ 20.00 each for the purposes of computing the registration fees (duty payable) at the Public Registry. If only part of the shares are without par value, the registration fees (duty payable) will be computed over the sum of the shares with par value and the shares without par value. In both instances, the registration fees (duty payable) with respect to the shares without par value will not exceed US$ 1,000.00.
Additionally, each corporation must pay a twenty percent (20%) surcharge over the above mentioned registration duty.
Every Panamanian Corporation must pay an annual franchise tax of US$ 300.00 for the first year at the moment of its incorporation and of US$ 300.00 for each consecutive year thereafter: a) before July 15th of every year, if incorporated between January 1st and June 30th; and b) before January 15th, if incorporated between July 1st and December 31st, to maintain the full effectiveness of the corporation. For all legal purposes, full effectiveness of a corporation shall be deemed to be it’s valid registration at the Public Registry of Panama.
As of May, 2012, new legislation in the Republic of Panama (Law No. 28 of May 8, 2012) increased the annual franchise tax for the first year to US$ 300.00 and regulated its payment.
Default on the payment of this tax will cause a fine of US$ 50.00 per year or fraction thereof, and will stop the registration and/or issuance at the Public Registry of Panama of any documents, certifications and/or resolutions related to the corporation. If tax plus fine (US$300.00 + US$50.00) are not paid before the corresponding due dates of the following year, it will cause an additional fine of US$ 300.00 per year or fraction thereof. If all taxes plus fines are not paid for ten (10) consecutive periods / years, the corporation will be automatically stricken from the record (Public Registry of Panama) and it will be considered legally dissolved and non-existent.
The Articles of Incorporation and any other document can be furnished to the client in both English and Spanish.