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PANAMA COMPANY FORMATION

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[Panama's approach to the regulation of virtual assets]

 

In April 2022, the Panamanian National Assembly passed Law No. 697, which specifically targets the commercialization and use of cryptocurrency assets. This law allows individuals and companies incorporated in Panama to freely use virtual assets as a means of payment for any commercial transaction permitted under Panamanian law[1].

However, the legal landscape has changed significantly as President Laurentino Cortizo has requested a ruling from the Supreme Court to invalidate the law that authorizes and regulates cryptocurrencies. Although the veto was exercised in June and the amendment passed in October, concerns were raised about two specific provisions of the bill. These concerns led to a request for review by the Supreme Court in early 2023[2].

Key aspects of the bill and the position of the legislature

Commercial use of crypto assets: The bill emphasizes Panama's openness to the use of cryptocurrency assets in commercial transactions, providing a regulatory framework that supports the legal use of these digital assets within the country's economic activities.

Supreme Court Review: The President's request for Supreme Court review was a key turning point in Panama's cryptocurrency regulatory process. It highlighted the government's cautious approach to fully embracing such regulation without a thorough judicial review.

Impact on International Receipts and Taxes: Interestingly, the bill highlights the potential incentive for cryptocurrency investments as cryptocurrency assets are classified as foreign-sourced income under Panama's territorial taxation system, which means that capital gains tax is not imposed on such assets [3].

Implications and Future Outlook

The Supreme Court's decision and the resulting legal process will determine the future of cryptocurrency regulation in Panama. The bill has made Panama a potentially favorable country for cryptocurrency assets by omitting capital gains tax, but the judiciary's review signifies a balanced approach to embracing innovation while protecting financial stability and regulatory compliance.

 

The ongoing developments will undoubtedly affect Panama's position in the global cryptocurrency environment. Panama's legislature and judiciary are at a critical juncture in determining the direction of cryptocurrency regulation in the country, keeping a close eye on international practices and the evolving nature of digital assets.

Conclusion

The legislative process of Bill 697 and the review by the Supreme Court of Panama illustrate the complex process of Panama balancing innovation and regulatory oversight in the rapidly growing virtual asset sector. As Panama navigates these legal and regulatory waters, the outcome of this review will be important for both market participants and observers, and potentially set a precedent for cryptocurrency regulation in the region.

 

Sources:

1. Panama: National Assembly Passes Bill Regulating Cryptocurrency

2. Panama president sends crypto law to supreme court

3. Panama's Crypto Law: No Legal Tender, but Digital Assets Exempt from Capital Gain Tax

 

[Procedures for onshore and offshore operations]

Operating a business in Panama:

 

Compliance with the Operation Notice (Aviso de Operación)

A corporation that conducts business within the jurisdiction of Panama must obtain an Operation Notice, which is called an 'aviso de operación' locally. This certification is an official request to the government to indicate the commencement of business activities within a specific municipality and is represented by a document identified as a “commercial license.” By submitting this official notification, the company must be registered with the local authorities in Panama, which will legally recognize the company's operating status.

Taxation and reporting obligations of domestic corporations

Onshore companies with an operating notice must undergo an annual audit and file a tax return. Such companies are liable to pay taxes on taxable income generated from local (domestic) sources.

Exemptions for offshore companies

On the contrary, entities that do not have a notice of operation and generate income only from foreign sources (defined as “offshore companies”) are generally exempt from most reporting requirements in Panama.

Tax implications for shareholders

It should be noted that shareholders of companies that generate foreign-sourced income, regardless of the operating notice, may be subject to tax liability. Foreign shareholders of companies that hold an operating notice and generate income from overseas or export activities may be subject to a lower withholding tax rate of 5% on dividends, rather than the general rate of 10%.

Local Registration and Fee Structure

For companies located in Colon or Panama City jurisdictions, there are no additional fees associated with filing a formal request for an operating notice or registering with the relevant municipality. However, companies wishing to register in other municipalities may be subject to local fees.

Conclusion

To establish a smooth and compliant operating framework in Panama, companies must be familiar with the complex local corporate obligations, including obtaining an operating notice, tax liabilities, and shareholder-related matters. They also need to be aware of the distinct financial responsibilities associated with:

 

Operating a Panama Offshore Company:

Operating Notice and Annual Reporting Exemptions

If a business does not conduct any operational activities within the borders of Panama (e.g. if it does not have local employees or a physical office) and its revenue is generated solely from sources outside of Panama, the business is not required to receive an operating notice. Therefore, it is not required to submit annual accounts or tax returns. Such companies can benefit from being completely exempt from all forms of taxes imposed within Panama.

Compliance with updated financial record-keeping regulations

From January 2022, corporations will be required to keep copies of their annual financial statements at their registered office in Panama. It is important to note that these documents must be kept on record but do not need to be submitted to the regulator.

The financial statements must be signed by a certified public accountant (CPA) who has been verified in all jurisdictions. If necessary, you can hire a certified public accountant to authenticate your account.

Conclusion

Offshore companies established in Panama can enjoy significant financial benefits, including exemption from local taxes and reporting obligations. However, they are subject to strict financial record-keeping requirements that emphasize transparency and accountability without the burden of having to submit to local tax authorities. Compliance with these financial maintenance standards reflects Panama's efforts to strike a balance between creating a favorable business environment and complying with international financial and transparency best practices.

[Definition and Taxation of Panama Source Income]

Under the tax law system of Panama, source income is classified as income generated within the territory of Panama (Panama source income), regardless of the geographical location where it is generated. Under current tax laws, Panamanian-sourced income is deemed to have been earned or generated within the territory of Panama and is subject to tax by the Panamanian government.

 

Tax exemption for offshore income

On the other hand, income generated outside the territory of Panama (offshore income) is not subject to Panamanian taxation. This refers to income that is sourced outside of Panama, even if the contract or transaction is carried out within Panama, and the physical flow of the goods is outside the territory of Panama. Transactions that occur outside the territory of Panama are classified as offshore income. Panama's taxing authority does not extend to income that is judged to be as such.

Taxation of goods and services exported from Panama

Goods and services produced and exported from Panama are generally considered to be Panama-sourced income and are subject to tax on such income. However, service fees for services provided by a company or office in Panama to an overseas customer may be exempt from tax if the service is not related to the creation of Panama-sourced income for the overseas customer.

Taxation of dividends, securities sales, and interest income, etc.

Dividends, capital gains, and interest income are taxed based on the location of the source. Income from corporate activities that is not sourced in Panama is considered offshore income and is exempt from tax, whether the entity is a Panamanian corporation or a foreign corporation.

Taxation of Panama-sourced income

A flat 25% income tax is imposed on corporations for Panama-sourced income. For companies with annual taxable income exceeding $1.5 million, income tax is imposed at 4.67% of taxable income or the higher of net taxable income calculated according to the general standard. This method is known as the 'Alternative Calculation of Income Tax (Calculo Alternativo del Impuestso sobre la Renta, CAIR). In the event of economic loss, the taxpayer may request the IRS to exclude the application of CAIR.

Regulations on local taxes

Local taxes are imposed on a sliding scale according to the business activities performed by the company in question, and a tax rate that does not exceed a certain standard is applied. Taxpayers are required to file an annual local tax return with the local authority within 90 days after the end of the fiscal year, and failure to do so will result in a fine.

Non-application of Panama's economic substance rules

As Panama has not introduced the 'Economic Substance Requirements' into its tax laws at this point in time, companies incorporated in Panama are not subject to these regulations.

Panama Company Formation Guide

 

Estimated Time Required (Company Formation):

10-15 business days after obtaining all documents.

 

Establishment Requirements:

1. At least three directors/officers (representative, financial officer, secretary) are required.

2. The minimum authorized capital is USD10,000, and there is no obligation to pay it in.

 

Service Included:

1. Registration of the corporation and government fees (Registro Publico)

2. Preparation of the incorporation certificate and articles of incorporation (in Spanish)

3. Role of the First Subscriber (founding shareholder) and declaration of the incorporation certificate in front of a notary public

4. All notary fees related to the incorporation

5. Submission of the notarized incorporation certificate to the Commercial Registry

6. Preparation of resolutions on the appointment of directors and the resignation of the founding shareholder's rights

7. Preparation of the company's articles of incorporation

8. Provision of a certificate of incorporation and a company extract issued by the Commercial Registry

9. Notarization of English translations of company documents

10. Preparation of the minutes of the first board meeting on the allocation of shares, appointment of directors, registered agent, office and other matters

11. Register of shares

12. Share certificates

13. Certificate of Incumbency (Company Survival Confirmation)

14. Registered Business Address (1 year)

15. Local Agent Registration (1 year)

16. Notarization of Corporate Documents and Notarized Copies

17. KYC/Due Diligence

18. International Courier of Corporate Documents

 

Fees:

Registration of incorporation and related services: USD3,000 (View in KRW)

Opening a local account in Panama: USD2,000

Opening a CBI account in Puerto Rico: USD3,880 Go to Account Opening

(Starting from the second year after establishment) Annual renewal fee: USD2,500 (View in KRW)

 

Annual renewal includes the following:

1. Annual government franchise tax

2. Maintenance of minutes, registers and statutory records

3. Registered business address (1 year)

4. Local agent registration (1 year)

5. Certificate of Good Standing (proof of the company's good standing)

 

Local director registration service:

As the details of the officers can be viewed publicly at the public registry, we provide a nominee director service to fill the position of the Panama corporation if necessary. However, we recommend that the representative or all customers be listed as this may cause legal or ethical issues, and if you wish to use the nominee director service for all directors, there must be a valid reason for this.

 

The local director name service is available under the following conditions.

1. The local director name service is provided for the purpose of protecting customer information disclosed on the registration of the local director, and the company does not exercise management or control rights and cannot claim ownership of company assets.

2. In order to conduct financial transactions or transactions with exchanges, you must authenticate the company's UBO (Ultimate Beneficial Owner; refers to the actual owner, not the shareholder/director on the simple registration document) and Significant Controller. For this reason, local directors do not perform authentication. Therefore, you must directly authenticate the UBO and Significant Controller.

3. When accepting a business, we will proceed with the identity verification process for UBOs and key controllers, and we will proceed with the identity verification through face-to-face or video meetings. The verification information will be kept by us as a legal record in accordance with the current AML-related regulations.

4. Service fee

Local director service (1 year): USD1,200 for 1 person / USD1,700 for 2 persons / USD2,200 for 3 persons

Local shareholder service (1 year): USD1,300

 

Requirements and documents to be prepared for incorporation:

1. A copy of the passport of the shareholder/director

2. Certification of the original copy of the passport of the shareholder/director

- Korean passport: A copy of the English passport (issued by the district office or city hall) ( See sample )

- Passport of other countries: Certified True Copy or Notarial Certificate ( See sample )

 

3. Two recent (within the last three months) English-language address verification documents for the shareholder/director (must be the same address)

- Living in Korea: English translation of the family register (residential center) + scan of the front and back of the driver's license (View sample)

- Living in another country: Utility bill + bank statement (or equivalent official document) (View sample)

4. Expert recommendation letter (Request to write an expert recommendation letter)

- Those who can sign a letter of recommendation: Accountant, lawyer, judicial scrivener, tax accountant, labor consultant, administrative scrivener, insurance agent, financial planner, financier, doctor, professor, employer, etc. (View sample)

5. Bank statements for the last three months (in English or English translation)

6. English resume

7. Fill out the application for incorporation and the application for registration of members.

Procedure:

1. Submit the required documents of the shareholders/directors to be registered.

2. Pay the incorporation fee.

3. Confirm the availability of the company name and finalize it.

4. Sign and send the incorporation documents prepared by CJ.

5. After receiving the documents, a local notary will prepare the notarized certificate of the company, including the articles of incorporation (3-4 business days).

6. Prepare company documents such as resolutions, lists, and share certificates.

7. Submit corporate documents to the registry and wait for registration approval (5-10 business days).

8. After registration, the establishment of the corporation is complete.

* If you wish to open an account after establishment, please inquire in advance.

Panama Private Interest Foundation (PPIF) Establishment Guide

 

The Panama Private Interest Foundation (PPIF) is a carefully designed offshore asset protection solution by the Panamanian government in accordance with Panamanian law. It offers a wide range of benefits while carrying out activities permitted within the regulations.

The PPIF offers the optimal structure for various purposes, including asset protection, estate planning, and privacy.

The PPIF is a carefully designed offshore asset protection solution by the Panamanian government in accordance with Panamanian law. It offers a wide range of benefits while carrying out activities permitted within the regulations. A PPIF can isolate assets from legal risks associated with personal or business activities, which can be particularly useful in the event of a lawsuit or bankruptcy. A PPIF can be incorporated for a variety of purposes, from asset protection solutions to structuring ICOs for virtual asset startups, and unlike a trust, a PPIF can exist independently of day-to-day business and personal financial activities.

The PPIF is regulated by Panamanian law and can establish its own bylaws to govern its activities. The PPIF's bylaws may include rules relating to the operation of the foundation and may also specify how the property will be disposed of in the event of termination.

Recent developments in Panamanian regulations suggest that Panama is opening up to fintech and cryptocurrency activities. In particular, virtual asset startups can use Panamanian foundations to structure ICOs. Panama is still in the process of drafting and discussing new regulations, so if new regulations are passed and implemented in the future, you may need to prepare for a license application or review your business plan with the advice of a professional.

Expected establishment period: 1 month

Establishment requirements:

The requirements for the four roles of the foundation must be met, and they are as follows.

 

1. Founder *Required:

The founder is listed and disclosed in the Panama Registry and the founder has no influence on the operation of the Foundation.

 

2. Foundation Council *Required:

The Foundation Council is the Foundation's board of directors and at least three Council members must be registered.

President, Secretary, Treasurer

 

Council members can be natural persons or legal persons, and can also serve as founders and protectors. All council members are listed and disclosed in the Panama Registry.

 

3. Protector (Protector) *Not required:

The protector is essentially the person who runs and controls the foundation and has the authority to appoint and replace the members of the Council. The protector is also disclosed to the Panama Registry.

 

4. Beneficiaries (Beneficiaries) *Not required:

Beneficiaries can be set through the protector or the foundation's by-laws, and the Letter of Wishes and By-Laws can be kept private to protect the beneficiaries' personal information. The foundation can set the protector as the sole beneficiary until death, after which the foundation can continue for the benefit of other beneficiaries.

*Therefore, the minimum number of members for establishing a Panama private foundation is three.

 

 

[Cost Information]

 

Establishment of Panama Private Foundation and maintenance costs for the first year:

USD3,800 (View in KRW)

 

Included:

1. Drafting of Foundation Public Deed (English and Spanish)

2. Provision of Foundation founder's name

3. Notarization of Foundation Public Deed

4. Registration of Foundation Public Deed with the Panama Registry

5. Establishment costs and related registration tax

6. Acquisition of the establishment certificate

7. Preparation of the foundation board of directors' organizational resolution

8. Preparation of the foundation resolution for the appointment of the protector

9. Preparation of the foundation resolution for the appointment of the beneficiary

10. Preparation of the foundation regulations

11. Translation and notarization of foundation documents

12. Certificate of Incumbency (Company Survival Certificate)

13. Registered Business Address (1 year)

14. Registered Agent and Secretary Services (1 year)

15. KYC/Due Diligence

16. International Courier of Corporate Documents

 

Annual Maintenance Fee (Payable 1 year after establishment):

USD2,500 (View in KRW)

 

Annual renewal costs include:

Registered business office services for one year

Registered agent and secretary services for one year

Annual government registration tax

 

Other costs:

Opening a local account in Panama: USD2,000

Opening a CBI account in Puerto Rico: USD3,880 Go to account opening information

 

Local director registration service:

As the details of the officers can be viewed publicly at the public registry, we provide a nominee director service to fill the position of the Panama corporation if necessary. However, we recommend that the representative or all customers be listed as this may cause legal or ethical issues, and if you wish to use the nominee director service for all directors, there must be a valid reason for this.

 

The local director name service is available under the following conditions.

 

1. The local director name service is provided for the purpose of protecting customer information disclosed on the register of local directors, and the company does not exercise management or control rights and cannot claim ownership of company assets.

2. In order to conduct financial transactions or transactions with exchanges, you must authenticate the company's UBO (Ultimate Beneficial Owner; refers to the actual owner, not the shareholder/director on the simple registration document) and Significant Controller. For this reason, local directors do not perform authentication. Therefore, you must directly authenticate the UBO and Significant Controller.

3. When accepting a business, we will proceed with the identity verification process for UBOs and key controllers, and we will proceed with the identity verification through face-to-face or video meetings. The verification information will be kept by us as a legal record in accordance with the current AML-related regulations.

4. Service fee

Local director service (1 year): USD1,200 for 1 person / USD1,700 for 2 persons / USD2,200 for 3 persons

Local shareholder service (1 year): USD1,300

 

Required documents for establishment:

1. Copy of the passport of the member/director

2. Original fact certification of the copy of the passport of the member/director

- Korean passport: English passport copy certificate (issued by the district office or city hall) ( Sample )

- Passport of other countries: Certified True Copy or Notarial Certificate ( Sample )

 

3. Two types of proof of address in English for the member/director within the last three months

- Living in Korea: English certified or certified copy (resident center) + front and back scans of the license (View sample)

- Living in another country: Utility bill + bank statement (or equivalent official document) (View sample)

4. Expert recommendation (Request to write an expert recommendation)

- Those who can sign a letter of recommendation: Accountant, lawyer, judicial scrivener, tax accountant, labor consultant, administrative scrivener, insurance agent, financial planner, financier, doctor, professor, employer, etc. (View sample)

 

5. Bank statements for the last three months (in English or English translation)

6. English resume

 

7. Fill out the foundation establishment application and member registration application.

Procedure:

1. Submit the required documents of the foundation members to be registered.

2. Pay the establishment fee.

3. Confirm the availability of the foundation name and finalize it.

4. Sign and send the foundation establishment documents prepared by CJ.

5. After receiving the documents, a local notary prepares the foundation's notarized documents, including the articles of incorporation (takes 3-4 business days)

6. Prepares foundation documents, including resolutions and lists

7. Submits corporate documents to the registry and waits for registration approval (takes 5-10 business days)

8. After registration, the foundation is established

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