Panama is a globally recognized business jurisdiction known for its strategic location, investor-friendly regulations, and robust financial and legal infrastructure. Whether you’re looking to set up an offshore company for international operations or an onshore entity to operate locally, Panama offers flexible and attractive business formation options.
In this guide, we explore the differences between offshore and onshore company formation in Panama, outline the registration process, list legal requirements, and provide key insights into costs, compliance, and taxation.
Why Start a Company in Panama?
Panama’s appeal as a business jurisdiction is rooted in several core advantages:
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Strategic geographic location connecting North and South America
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Use of the US Dollar as legal tender
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No currency exchange restrictions
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Investor-friendly corporate laws
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No local taxes on offshore income
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Flexible company ownership and management structure
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Fast and affordable incorporation process
As a result, Panama is often chosen by international traders, consultants, asset protection specialists, and investors looking for a neutral, efficient jurisdiction.
Understanding Offshore vs. Onshore Companies in Panama
Before registering a company in Panama, it’s important to understand the distinction between offshore and onshore structures.
Offshore Companies in Panama
An offshore company in Panama, typically an International Business Company (IBC) or Sociedad Anónima (S.A.), is formed for the purpose of conducting business activities outside Panama.
Features:
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No corporate tax on income earned outside Panama
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No requirements to file annual tax returns for non-resident companies
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High levels of confidentiality
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Simple and fast incorporation process
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Common for international trade, holding assets, or estate planning
Ideal for:
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E-commerce and digital services
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International consulting
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Intellectual property holding
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Asset protection and estate planning
Onshore Companies in Panama
Onshore companies are established for conducting business within Panama or generating income from Panamanian sources.
Features:
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Subject to local taxation on Panama-source income
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Must register with the local tax authority (DGI)
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May require business licenses or permits
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Subject to VAT (ITBMS), labor, and social security compliance
Ideal for:
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Retail businesses
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Professional services operating locally
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Real estate or construction businesses
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Manufacturing or import/export within the region
The key difference lies in tax obligations and operational scope. Offshore companies are tax-exempt as long as they earn income outside Panama and have no physical presence in the country.
Panama Company Structures
The most commonly used entity for both offshore and onshore businesses is the Sociedad Anónima (S.A.), Panama’s version of a joint-stock company.
Key Features of Panama S.A.:
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Requires only 3 officers: President, Secretary, and Treasurer (can be the same person)
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Shareholders can be individuals or legal entities
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No minimum capital requirement
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Bearer and registered shares permitted (though bearer shares must be held by an authorized custodian)
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No need to publicly disclose shareholders or directors
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Directors’ and shareholders’ meetings can be held anywhere in the world
Other types of entities include:
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Limited Liability Companies (SRL)
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Private Interest Foundations (used for asset protection or estate planning)
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Branches of Foreign Companies
For most commercial applications, the S.A. structure is the default choice.
Step-by-Step Process for Panama Company Formation
Step 1: Choose a Company Name
Ensure your proposed name is unique and includes a suffix like “S.A.,” “Inc.,” “Corp.,” or “Ltd.” Name approval can usually be confirmed within 24 hours.
Step 2: Draft and Notarize Articles of Incorporation
The Articles must be drafted in Spanish (or accompanied by a translation) and include:
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Company name and purpose
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Share capital and types of shares
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Names and addresses of directors
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Duration of the company
These must be notarized by a Panamanian notary.
Step 3: Submit Documents to the Public Registry
Once notarized, documents are submitted to the Public Registry of Panama. Upon approval, you’ll receive your official Certificate of Incorporation.
Step 4: Obtain Company Documents and Corporate Kit
This typically includes:
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Certificate of Incorporation
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Articles of Incorporation
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Share certificates
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Company seal
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Register of directors and shareholders
Step 5 (Optional for Onshore): Register with the DGI
If your company operates in Panama or earns local income:
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Register with the Dirección General de Ingresos (DGI) for tax purposes
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Apply for a business license or notice of operation
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Register with the social security and labor authorities if you will hire employees
Required Documents and Information
To register a company in Panama, you will typically need:
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Valid passport copies of shareholders and directors
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Proof of address
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Company name and purpose
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Number and type of shares
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Appointment of officers
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KYC forms for anti-money laundering compliance
In most cases, a resident agent (licensed Panamanian attorney) is required for incorporation. This agent also handles filings and receives official correspondence.
Timeline for Company Formation
Panama offers a fast-track process for business formation.
Typical Timeline:
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Name reservation: 1 business day
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Drafting and notarizing documents: 1–2 business days
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Registry filing and approval: 2–5 business days
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Tax and license registration (if needed): 3–7 business days
Total estimated time: 5 to 10 business days (offshore setup may be quicker)
Costs of Company Formation in Panama
The cost to register a company in Panama can vary depending on whether it is an offshore or onshore entity and the services required.
Estimated Costs:
| Item | Offshore (USD) | Onshore (USD) |
|---|---|---|
| Government filing fees | $300 – $400 | $300 – $400 |
| Legal and setup fees | $600 – $1,000 | $800 – $1,200 |
| Resident agent fee | $300 – $500/year | $300 – $500/year |
| Public Registry fee | ~$100 | ~$100 |
| Total first-year cost | $1,200 – $2,000 | $1,500 – $2,300 |
Additional services like nominee directors, apostilled documents, or virtual offices may incur extra charges.
Taxes and Compliance
Offshore Companies:
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No corporate taxes on foreign-sourced income
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No VAT or withholding tax
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No obligation to file tax returns or audited accounts if not operating in Panama
Onshore Companies:
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Corporate tax: 25% on local net income
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VAT (ITBMS): 7% on most goods and services
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Social security and payroll taxes for employees
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Annual tax filings and accounting records required
Regardless of type, all Panama companies must pay the annual franchise tax (Tasa Única) of $300 to remain in good standing.
Banking and Business Operations
Panama has a well-established banking sector, although opening a corporate bank account has become more rigorous due to global AML standards.
Requirements for Bank Account Opening:
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Certified company documents
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KYC and due diligence documents
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Business plan and activity description
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Initial deposit (varies by bank)
Opening an account in Panama typically takes 2 to 4 weeks, but many Panama companies opt to open accounts in other jurisdictions for flexibility.
Is Panama the Right Jurisdiction for You?
Panama is an excellent choice if you’re looking for:
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Asset protection and international structuring
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A low-cost, low-tax jurisdiction
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Confidentiality and ownership privacy
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A gateway to Latin American markets
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A legal system based on civil law with modern corporate rules
However, Panama has increased its commitment to international tax transparency (FATCA, CRS), so proper compliance and reporting are essential, especially if you’re a tax resident of a high-tax jurisdiction.
