General Information

The Republic of Panama, with an area of approximately 78,200 sq. km, is located between Costa Rica and Colombia, and forms the narrowest and lowest portion of the isthmus that links North and South America.

The Panama Canal, which connects the Atlantic and Pacific oceans, reinforces the nation's standing as one of the most important transportation hubs in the world. Panama City, the capital, is situated on the Pacific coast at the entrance of the Panama Canal. The population of Panama is approximately 2.8 million, about 52% of which are in urban areas. Spanish is the official and spoken language. English is also spoken widely in urban areas and is used daily in commerce and international trade.

Panama was a Spanish colony until 1821 when it became part of the Grand Colombia. In 1903 Panama broke its alliance with Colombia and became an independent republic.

The executive branch of the Government is at present composed of a President and two vice-presidents, elected for a five-year term by direct election. A unicameral Legislative Assembly consists of 72 members, who are elected for five-year terms. Judicial power rests with a Supreme Court, the nine members of which are appointed for 10-year terms by the president with the approval of the Legislative Assembly.

Nearly three-fourths of the gross domestic product (GDP) is generated by the trade and service sector (offshore banking and canal traffic; public administration, coordination with the international trade and financial community). The leading industries are food processing (fish, sugar, banana, cocoa), oil refining, production of natural gas and electricity. The main manufacturing centres are Panama City and the Colon Free Trade Zone. The Colon Free Trade Zone is the second largest in the world after Hong Kong and is located near the Atlantic entrance to the Panama Canal. Operations and transactions taking place in the Free Trade Zone are subject to a special tax treatment whereby imports from other parts of the world and re-exports to other countries are exempted from any import or export taxes imposed by Panama. Income earned from re-exports is taxed at specially reduced rates.

Official currency of Panama is the Balboa, which, under a monetary agreement of 1904 with the United States, is at par with the United States dollar. Since Panama does not issue any paper money, the US dollar circulates freely in the country.

The legislature is based on Spanish Civil Law with many Common Law influences, particularly regarding Company Law, which is based on the Delaware Model. Principal Corporate Legislation – Corporation Law No. 32 of 1927, Decree No. 130 of 1948, Decree No. 147 of 1996, Law No. 32 of 1978, Decree Law No. 5 of 1997 and Executive Decree 196 of 1997.

Incorporation in Panama

To do business outside Panama, corporations (“Sociedad Anonima” – “Joint Stock Company”) are incorporated under the Corporation Law 32 of 1927. Limited Liability Companies and Limited Partnerships are also used.

There are very few restrictions on the activities of Panama corporations, i.e. corporations cannot undertake the business of banking, trusteeship and trust administration, insurance, assurance, reinsurance, fund management, investment funds, collective investment schemes or any other activity that would suggest an association with the banking, finance, fiduciary or insurance businesses.

All Corporations must maintain a Registered Agent and a Registered Office in Panama. Panama income tax is levied only upon net income obtained from operations within Panama. Income obtained from offshore operations is not considered as income obtained from “sources within Panama” and is, therefore, not taxable. Thus a Panama corporation does not pay any tax on its world-wide profits.

Incorporation of a Corporation

Two or more persons, of any nationality, nor physically present, in the Republic of Panama, may form a corporation for any lawful purpose pursuant to the formalities stipulated in the legislature. To incorporate a Corporation, the proposed corporation’s signed Articles of Incorporation (which contains the following information: name and domicile of the subscribers, name of the corporation, its purpose, authorized capital, number of shares, duration of the corporation, names and addresses of its three directors and any other lawful clauses which the subscribers may agree upon) must be presented before a Notary Public who creates a Public Deed for registration at the Public Registry.

The names of all Panamanian corporations must end with the suffix Corporation, Incorporated, Sociedad Anonima or the abbreviations Corp., Inc. or SA. They may not utilize the suffix Limited or Ltd.

The name of a corporation cannot include any of the following words: Bank, building society, savings, insurance, assurance, reinsurance, fund management, investment fund, trust or their foreign language equivalents without a prior approval or a licence.

The law prescribes neither a maximum nor a minimum of authorized capital. The standard authorized share capital is US$ 10,000 divided in to 100 common voting shares of US$ 100 each or 500 common voting shares of no par value, the capital may be expressed in any convertible currency. Such standard capital provides for a registration tax of USD 50,00. The amount will increase as the original capital increases, but such increases are very reasonable.

The minimum issued capital is either one share of no par value or one share of par value. A corporation may issue common, preferred, registered, non-voting or bearer shares. Shares may be issued as fully paid, as partially paid, or as unpaid. Bearer shares have to be paid for in full. The minimum number of shareholders is one. No accounts or information pertaining to the identity of shareholders need be filed on public record.

Both corporations and natural persons may act as directors and the minimum number of directors is three. They may be of any nationality and need not be residents of Panama. Panamanian companies are also required to appoint a minimum of three officers (president, secretary and treasurer) who may also be the directors.

The management of the affairs of a corporation is vested in the board of directors, however the shareholders constitute the supreme power of the corporation and their action is required for introducing any amendments to the Articles of Incorporation, removal of directors and some other extraordinary corporate matters. The board of directors has absolute control and management of corporation affairs, including the adoption, amendment and repeal of By-Laws.

Meetings of shareholders and directors may be held in any part of the world.

Annual reports and payments

From the 1 st of March 1985 all Panamanian corporations pay an annual Franchise Tax. Current fixed rate of this tax is USD 250. The penalty for late payment of the annual franchise tax is USD 50,00 for each year, applicable if after three months of the registration or, thereafter, the anniversary date of such registration, the annual tax has not yet been paid.

The minute book of the company and stock register, which is required under Panamanian law, can be maintained in any part of the world. Provided no business is carried on within Panama there is no requirement to file returns with the Panamanian authorities nor to lodge any financial or other information unless the company is being wound up.

Dissolution of the corporation

If the Board of Directors of any corporation decides that the corporation shall be dissolved, a meeting of the shareholders with the right to vote and decide upon the resolution of the Board of Directors will be called. The resolution adopted should be published in a local newspaper. Nevertheless, if all the shareholders with the right to vote state in writing their consent to the dissolution, neither the meeting of the Board of Directors nor the meeting of the shareholders shall be necessary, but the consent has to be notarized, recorded in the Registry and published once in a local newspaper.



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What is offshore?

The word "offshore" has no precise legal dictionary definition, it simply means "situated or operating in a foreign country or at some distance from the shore" and reflects the fact that most low tax jurisdictions are islands.


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