By Steven Rich, MBA
Marketing Manager for Panama Offshore Legal Services

First published in The Visitor June, 2006

Hundreds of foreigners residing here are starting up new businesses in Panama
every year.

Panama offers many opportunities for business entrepreneurs. You can start a
bar, restaurant, retail shop, hotel, bed & breakfast, provide tour-guides or
professional services.

Maybe you are thinking about opening a new business full time? Or, you are
retired and thinking of passing the time by engaging in a part-time business.

Whichever you do, Panamanian laws must be understood and complied with.
That's why the following information will be useful for every reader who is
thinking about starting a business in Panama.

Your first consideration is to decide what type of business structure to use.

There are 3 normal business entities here in Panama:

Sole Proprietor where you and your spouse & family operate a business as
sole owners.

Partnership where you team up with one or more persons in running the

Corporation where you register with the government as a company issuing
stocks, having a Board of Directors and corporate officers.

While a sole proprietorship can be an oral agreement between close family
members, the other two entities need the assistance of a Panamanian lawyer.
That's because legal documents need to be prepared forming a Partnership or
Corporation. If they are wrongly prepared, they will be legally null and void
causing a business legal nightmare for its members.

Let's examine the different legal structures here in Panama:

Corporation (Sociedad Anonima)
Corporations are formed under the Law No. 32 of 1927 and the Commercial
Code (Decree-Law No. 5 of 1997, Article 5).
A Panamanian corporation is formed by two persons (called Subscribers) or
Nominees (who act on behalf of absent foreigners) who execute legal
documents called the Articles of Incorporation. Those documents are filed with
the Panama Public Registry office. After the corporation is formed, only one
shareholder will be required.

Corporate shares are issued which can be of various classes, can have par
value or not, may be officially registered, or can be discreet Bearer shares.

The corporation must have a resident Registered Agent (Panamanian lawyer).

There must be at least three Directors whose names must be in the Articles of
Incorporation. Any changes of Directors must also be filed with the Public
Registry. Unless the Articles are changed or the corporation merges or
dissolves there will be no other filing requirements.

Foreign Corporation
If you already have a corporation in another country, it can do business in
Panama by filing the following documents at the Public Registry Office:

   1. A notarized Spanish translation of the Articles of Incorporation;
   2. Board of Directors minutes authorizing the Panamanian registration;
   3. Copies of the most recent financial statements;
   4. A certificate from a Panamanian Consul confirming that the company is
      organized according to the laws of its place of incorporation;
   5. Notification of the transfer of capital to the Panamanian operation.

General Partnership
General Partnerships are permitted in Panama. As with most countries, the
partners will have unlimited civil liability. That means every partner can be sued
even if only one of them commits an error in the course of business.

Limited Partnership
Limited Partnerships (called Sociedad de Responsibilidad) are also permitted in
Panama. They are governed by the Commercial Code and Law No. 24 of 1966.

There may be from 2 to 20 partners with no restrictions as to their nationalities
or domicile. Their Capital must be at least $2,000 up to $500,000. The names of
the partners must be registered with the Public Registry Office including the
amount of Capital each contributed. Each partner's civil liability for the
Partnership's debts is limited to the amount subscribed to but unpaid. If the
Partnership appoints an independent administrator, his/her name must also be
registered. No meetings are required if the Partnership has 5 members or less.
Otherwise, a meeting must be held at least once a year. There are no
requirements for annual returns or filing of any accountings.

An alternative to a Sole Proprietorship is to create an Individual Limited
Proprietorship (Empressa Individual de Responsibilidad Limitada). This is set up
in the same manner as a Limited Partnership except having only one member.
The individual transfers his/her assets to the business. Business civil liability is
limited to the amount of the committed assets.

Civil Partnership
A Civil Partnership (Sociedad Civil) is allowed by the Commercial Code and
Law No. 24 of 1966. The liability of the partners is unlimited. This type of
partnership is often selected by professionals such as lawyers and accountants.

Commandite Company
The Commandite Company (Sociedad en Commandita) is a hybrid partnership
and corporation also governed by the Commercial Code and Law No. 24 of
1966. At least one partner must have unlimited liability, while the liability of the
limited partners is limited to the amount of capital subscribed. This type of legal
structure is seldom used in Panama.

Once you have either formed a Panamanian Corporation, or a Partnership, or
are acting as a Sole Proprietor, you will need to register your business with the
government before opening for business.

The 6 steps provided below are the requirements for registering your business
with the national and local governments:

   1. Income Tax Registry
      This is called "Registro Fiscal" with the Panamanian government.
      The Panamanian government has a website explaining what is
      necessary to register in Spanish. Go to the govt. website at:
      This is the government Revenue (Tax) Service where your company
      receives its income tax id number called the Direccion General de
      You will need to keep records of income and expenses and file an annual
      income tax (or corporate tax) return and pay any taxes owed.
   2. Commercial License
      Another Panama government website will give you information regarding
      getting a commercial license in Spanish at:
      This Ministry is called the MINISTERIO de COMERCIO e INDUSTRIAS,
      translated as the Ministry of Commerce & Industry.
      This is otherwise known as your Business License. Every business in
      Panama is required to have one.
   3. Municipal Taxes
      After getting your Panamanian government licenses, you need to register
      with your local municipality in order to pay your municipal taxes.
   4. Social Security Number
      Then you must go to the Registro Patronal de la Caja de Seguro Social
      (CSS) to get a Social Security number for your business and for yourself.
   5. Sanitary Permit
      If your business deals with food or beverages, you will need to get
      Permisos Sanitarios with the Ministerio de Salud.
      That translates as a Health Certificate from the Ministry of Health for
      permission to operate a sanitary business.
      Every employee (including owners & management) who prepare or serve
      food or beverages (or are in the vicinity of food or beverage preparation
      or service) must obtain two different Permits. One requires a medical &
      dental examination at a public hospital. The other is issued after
      attending a two day health & safety course.
   6. Fumigation Certificate
      Every business which is open to the public must be fumigated. You will
      need to hire a private fumigation company every four months to fumigate
      against ants, roaches, and other bugs.
      You must then present a receipt from the fumigation company and obtain
      a Fumigation Certificate from your local municipality. This must be
      publicly displayed at your business entrance.

Hiring Employees
Now that you have obtained all of the required government permits and
licenses, you are now ready to hire employees.

For those of you thinking of hiring your expat buddies, Panama limits a
company's work force to a maximum of 10% foreigners (non-Panamanian).
Panamanian laws require that 90% of a company's employees be Panamanian
citizens, or married to a Panamanian, or foreign persons residing here for at
least 10 years.

But, there are exceptions:

   1. Required technical or specialized staff unavailable in Panama increases
      your quota to 15% foreigners. You can also petition the Ministry of Labor
      for a higher quota.
   2. Companies having less than 10 employees can employ 1 foreigner.
   3. Companies can employ foreign Managers and Supervisors when the
      company does business abroad from Panama with prior approval by the
      Ministry of Labor.
      You must obtain a work permit from the Ministry of Labor for every
      foreign worker.

Panama’s Labor Laws
The Labor Code of 1971 deals with Labor Relations including the rights and
duties of employers and employees. "Subordination" is the key concept of the
law. Any relationship where one person is subordinate to another falls within the
law. It makes no difference whether the relationship is or is not described as

There are certain basic employee rights which must be followed:

   1.   Written Employment Contract
   2.   Minimum Wage
   3.   Maximum Hours
   4.   Paid Vacation Time
   5.   Firing Employees
Employee Contracts
You must have your employees sign a written employment contract called an
Inscripcion Contratos con trabajadores.

You must file two copies of the contract with the Ministerio de Trabajo y
Desarrollo Laboral.

Employers can easily terminate the employee during the first two years. After
that, employees have greater protection under the law. The law lists "just
causes" for dismissal. Unlawful dismissals can result in minimal compensation
payments. Both parties can contract for "fixed terms".

Minimum wage levels vary according to the employee's seniority.

Vacations: There are 11 public holidays per year. In addition, employees are
entitled to a 30 day vacation every year.

13th Month: The law also requires a 30 day paid bonus every year which is
known as "the 13th month". This bonus is estimated at one-salary day for every
11 days of work. The 13 month bonus is paid in 3 equal installments: April 15th,
August 15th, and December 15th every year.

Unions are allowed in Panama. Unions can collectively negotiate on behalf of
the employees. Strikes are lawful under defined circumstances after a majority
vote of the member employees. Conciliation is mandatory before a strike can
occur. However, only around 11% of the private sector employees are

Leasing Office or Business Premises
Panama's laws regarding leasing commercial space is similar to most English
speaking countries.

   1. It needs to be in Writing.
   2. It needs to properly describe the location of the pre-mises.
   3. It needs to address the amount and frequency of the lease payments,
      length of the lease period, whether there is a Security and/or Damage
      deposit, who pays for gas, water, electricity, and repairs. It will also
      contain provisions for late rent payments, tenant property damage, and
      renewal of the lease term.
   4. It must be signed by the property owners (or legally authorized
      representatives) and the tenants.
   5. All signatures must be Notarized before a Notary Public.

There are many more terms and conditions which should be included in a
standard commercial lease which is why you should consult with a Panamanian
attorney before signing one prepared by your landlord.
Business Bank Account
Even if you are a sole proprietor, you should never co-mingle your personal
funds with business monies. That is why you'll need to open a bank account for
your business.

Partnerships and Corporations definitely need to open separate Business or
Corporate Bank Accounts.

When you open an account for a corporation, partnership, or a business most
banks require the following information and documentation:

   1. Most banks require a personal interview, while some banks may allow a
      telephone interview.
   2. A clear copy of the account's Signatory and each corporate Director's
      Passport (must include the photo & personal information page, and
      Panama entry stamp page).
   3. A clear copy of a second photo id (such as a driver's license or national
      id card).
   4. Two bank references for each Director and account Signatory. These
      references must entail the satisfactory conduct of the account holder and
      that the banking relationship had been ongoing for a minimum of 2 years.
      It would be helpful if the references also confirm the person's residential
      address. Many Panamanian banks require the references be specifically
      addressed to that bank's branch. Some banks may accept only one bank
      reference letter (especially if you have done all of your banking with only
      one bank).
   5. Two professional references for each Director and account Signatory.
      These references may be written by one's accountant, lawyer, stock
      broker, insurance broker, real estate broker, or employer. They should be
      written on their company letterhead. These must include the duration and
      nature of their business relationship with the applicant. Only an Original
      letter will be accepted.
   6. Proof of Address: You must provide a copy of a utility bill (phone, water,
      electricity, cable TV, or Internet service) which contains your name and
   7. A "Company Profile" letter must be submitted which briefly describes the
      type of business the account holder will engage in. This will include the
      location of the business, the products or services you are selling, the
      nature and expected volume of business, the origin of the funds to be
      deposited, an estimate of the monthly or annual amount of funds to be
      deposited, and the reason for opening a bank account in Panama.

It will help if your Panamanian lawyer accompanies you to the bank in order to
make sure the process goes smoothly.

Once all of these documents have been received, they will be forwarded to the
bank's Compliance Officer who reviews the entire application to insure no
money laundering will occur.
This process will go smoother and may have less required documents if you
first go to the Panamanian bank where you already have a personal account as
they already know you.

Now that you are licensed, moved into your commercial space, hired employees
and have a bank account; you need to worry about taxes.

There are many legal documents, government applications, contracts, and laws
one must comply with in order to start a business in Panama. That is why you
should consult with a Panamanian lawyer who is knowledgeable with Panama's
Business, Labor, Tax, and Real Estate laws before going into business

STEVEN RICH, MBA is the Marketing Manager for Panama Offshore Legal Services.
He can be reached at or by calling ++(507) 236 – 8303 in
Panama City, Republic of Panama

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