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Legal 500 Doing Business in Panama

Contributed by EY Law Central America

Doing Business in Panama graphic


Over the past decade, Panama has been one of the fastest growing economies worldwide. The Panamanian economy and its banking system have been known internationally over the years as one of the most solid systems in the continent. One of the main components for this economic solidity is the steady growth of the GDP, which reached an average of 5.3% since the mid-1990s until the beginning of the decade of 2016, and has not had contractions since 1988.

According to the world competitiveness ranking of the World Economic Forum, Panama is the most competitive economy after Chile, and consolidates its top position in Central America.


Quick facts

Population: 4.2 million


$24.300 MM
Annual growth 5,3% (2017)

Inflation: 0,9% (2017)

Language: Spanish

Ease to doing business:  79 of 190 (2018)

 Panama City

Competitiveness index: 50


Legal considerations to start a business in Panama

  • To start a business in Panama, the business owner/business should take into account that there are several ways for business organization per the Commerce Code of Panama, which are:
  • Corporations: Panama has different legal forms; the most used is the Panamanian corporation (S.A.). 
  • Limited Liability Corporations (SRL in Spanish): At least two people, Panamanian or foreign, corporations or individuals, must participate to constitute SRLs. The minimum capital is not established, and partners are not required to pay the capital at the time the corporation is constituted.
  • Branches of foreign companies: Certificate of notarization of the Company’s bylaws, contracts and other documents related to its constitution, last operation balance sheet, constitution certificate, and certificate of authorization per the country’s laws issued by the Consul of the Republic in such country and by the Consul of a friendly nation.

Accounting and corporate records: In accordance with the Panamanian Commerce Code, all corporations are bound to keep clear and precise accounting records of their commercial operations, assets, liabilities and equity.  Accounting records must always reflect the transaction amounts and their nature.

Labor laws

The Constitution of Panama establishes that “Work is a right and a duty for individuals.” Work as a right and duty is incorporated in the Political Constitution of Panama and regulated by the Panamanian Labor Code in the broadest manner.

Labor laws in Panama protect employees against injustice to which they can be exposed. Labor laws enshrine the principle of equal salary that establishes that employees that perform the same service for the same employer, with equal roles, shifts, efficiency and time conditions, will be entitled to equal salaries.  

Important regulations:

  • Social Security: The Panamanian Social Security legislation is based on two pillars: 
    • Constitutional standards established in Articles 109 to 117.
    • The law that reforms the Organic Law of Social Security.
  • Collective bargaining agreements: Collective bargaining agreements are written agreements related to work and employment conditions, signed between two parties: the first party is an employer, a group of employers or one or several employer organizations, and the second party is one or several unions, federations, confederations or worker unions. These agreements are regulated in Book III (which include the provisions of Collective Bargaining Relationships), Title II, Chapter I of the Labor Code of Panama.
  • The Ministry of Labor and Social Welfare is in charge of the regulation of work relationships in Panama. 

Procedures to obtain work visas

All foreign individuals who want to work or provide services in the Republic of Panama must have a work permit. To do so, they must apply to one of the several migratory categories in Panama in order to identify the appropriate requirements to apply for work permits. The Ministry of Labor and Labor Development (MITRADEL in Spanish) is in charge of approving work permits for foreign workers.

  • General Requirements:
  • Original and copy of power or request issued by an attorney or notary, or by the principal in person;
  • Certificate issued by the National Immigration and Naturalization Office that indicates the migratory status of the applicant;
  • Readable copy of the applicant’s personal identification card, authenticated by the National Management of Registration;
  • Four passport sized photos with the applicant’s name written on the back.
  • Ten years are counted from the first resolution authorizing the provisional permit. If the person entered as a minor, the length of his/her time in Panama will be counted.

Environmental regulations

The Constitution of the Republic of Panama establishes that the State must oversee the health of the population and guarantee that they live in a healthy environment free of contamination, where air, water and food are sufficient for developing an appropriate way of life.  It also establishes that the State and all of the country’s citizens are responsible for contributing to a social and economic development that prevents environmental contamination, maintains the ecological balance and avoids the destruction of ecosystems.

The Ministry of Environment is in charge of strategically assessing the environment and promoting the environmental order throughout the country.
On the other hand, the activities or projects that, due to their nature, may generate environmental risks can use the applicable Guide of Environmental Best Practices, provided they have been previously approved and regulated by the Ministry of Environment.
The process of the environmental impact assessment will include mechanisms for citizen participation and will be comprised of the following stages:

  • Presentation of an environmental impact study before the Ministry of Environment.
  • Revision of the environmental impact study by the Ministry of Environment.
  • Approval or rejection of the environmental impact study and the content of the approval resolution.  

Intellectual property

According to Article 1, the current Panamanian law of Intellectual Property protects investments, utility models, industrial designs and models, confidential industrial and commercial information, brands of products and services, collective and guarantee brands, geographical indications, indications of origin, denominations of origin, commercial names, and propaganda expressions and signs.
The General Directorate of Industrial Property Registration of the Ministry of Commerce and Industries (hereinafter “DIGERPI”) is responsible for industrial property matters.

Tax Regulations

The Panamanian legal framework that defines the tax system is comprised of laws, decrees and issued standards.  Thus, the order goes as follows:

  • Political Constitution of the Republic of Panama
  • Tax Code, including the laws regulating each tax
  • Regulations that develop tax laws

The Panamanian current tax system structure is comprised of direct and indirect taxes. These tax revenues together with the non-tax revenues comprise the current income which, in turn, together with the capital income, make up the general budget of the State.

  • Principle of Territoriality The tax system of Panama is based on the principle of territoriality of the source.Revenues from any source that are generated in Panama are subject to the income tax.
  • Income from Panamanian Source: Income generated in Panama, regardless of the beneficiary’s nationality, domicile or residence, place of contract execution, place from where it is paid or perceived and of the payer thereof.
  • Income Tax (ISR in Spanish) - Corporations: This tax is regulated in the Fiscal Code, approved by Law 8 of January 27, 1956, and regulated by Executive Decree No. 170 of October 27, 1993.  This tax is levied on income from any source within the Republic of Panama, that is:
    • Income tax rate (ISR)
    • Taxable base for ISR calculation
    • Alternative method or alternative calculation of ISR (CAIR)

  • Notice of Operation Tax All individuals or corporations that have commercial or industrial businesses in Panama must have a notice of operation. Article 1004 of the Tax Code establishes a Notice of Operation Tax for a Company or for commercial license that is calculated on the base of 2% of the Company’s capital. The companies established or to be established in areas of international trade that own or operate in the ColĂłn Free Zone, free zones or areas or in an existing special economic area or that will be created will not be subject to the Notice of Operation of this Article.
  • Tax on capital gains for transfer of shares, fees and other securities: In Panama, the gains obtained from the transfer of bonds, shares, participation fees and other securities issued by corporations are taxable. The buyer will have the obligation to retain from the seller a sum equivalent to 5% of the total value of the alienation as an advance to the ISR of the capital gain.
  • Income tax withholdings for services provided by subcontractors or foreign vendors:  The Tax Code states that income received by individuals or corporations whose domicile is outside Panama as a product of any service or activity that benefits individuals or corporations, local or foreign, located in the Republic of Panama, will constitute taxable income produced in the Republic of Panama. In this case, the taxpayer must retain the effective rate that arises when applying the ISR rate corresponding to an individual or corporation, at 50% of the amount to be remitted to the supplier.
  • Tax on the Transfer of Goods and Rendering of Services: The tax on the transfer of goods and rendering of services (ITBMS in Spanish) is similar to the Value Added Tax (VAT).
  • Stamp tax: All checks and negotiable documents that are not taxed must be stamped by a franking machine or have a stamp affidavit.
  • Import tax: Products imported into the Republic of Panama, as long as they are not exempted by law, will be subject to the payment of Import Duties and ITBMS.  Import tariffs are differentiated according to the type of product to be imported and are established in a tariff line system.
  • Municipal taxes: The Municipality is a political-legal entity that operates within a District. These taxes are established by each municipality and are applicable to any person (local or foreign) that establishes any business, company or taxable activity in any of the Districts of the Republic of Panama.
  • Repatriation of capital: According to the aforementioned article, any corporation that requires a Notice of Operation to carry out commercial and industrial operations or generates taxable income in Panama is bound to withhold the Dividend Tax or participation fee of 10% on the profits that it distributes to its shareholders or partners when they are of Panamanian source and of 5% on the income from income exempt from Income Tax, as well as income from foreign source and/or export.

Dispute resolution means

The legal order of Panama is conformed by the Political Constitution, Treaties or International Agreements, Laws, Decree-Laws, the Cabinet Decree, Executive Decrees, Municipal Agreements and Ministerial Resolutions.

The administration of justice in Panama is public, free, expeditious and uninterrupted and judicially is exercised permanently by the Supreme Court of Justice, the Superior Courts of Justice, the Circuit Judges, the Municipal Judges, the Juvenile Court, the Maritime Courts, the Superior Courts of Labor, the Sectional Labor Courts and any other tribunal that is created within the Judicial Organ.

The territory of the Republic of Panama is divided into four judicial districts. These are divided into Judicial Circuits that, in turn, are divided into judicial Municipalities:

  • First Judicial District: It includes the Provinces of Panama, ColĂłn, DariĂ©n, the District of San Blas and the Province of PanamĂĄ Oeste;
  • Second Judicial District: It includes the Provinces of CoclĂ© and Veraguas;
  • Third Judicial District: It includes the Provinces of ChiriquĂ­ and Bocas del Toro;
  • Fourth Judicial District: It includes the Provinces of Herrera and Los Santos.

Data Protection

Panama does not have any legislation for data protection. However, there is a draft of Law No. 463, of February 8, 2017, which aims to safeguard and guarantee the fundamental right to the protection of citizens' personal data. This bill seeks to establish regulations and treatments for the handling of personal data, for all individuals or corporations that carry out the treatment or custody of data in general.   This bill has not yet been discussed in the Legislative Assembly.

Customs regime: import and export of goods

The Customs Regime refers to the different destinations to which the goods that are under customs control can be subjected, which are divided into the following:

  • DEFINITIVE    (Art. 91- CAUCA)
    •  Definitive import
    •  Definitive export
    •  Definitive import and export modality Art. 108-RECAUCA
      •   Postal consignments
      •   Urgent shipping
      •   Border traffic
      •   Travelers’ baggage
      •   Household goods
      •   Non-commercial small shippings
      •   Other established by regulations
    • Customs transit
    • Temporary import with re-export in the same State
    • Temporary admission for active improvement
    • Customs warehouses
    • Temporary export with re-import in the same State
    • Temporary export for passive completion
    •  Free Zones
    •  Re-import
    •  Re-export

Telecommunications market

The government entity that regulates telecommunications services in Panama is the National Authority of Public Services (ASEP in Spanish). The telecommunications sector is classified into 22 types of services that can be provided by individuals or corporations that have a concession of telecommunications services in the Republic of Panama.

Telecommunications services are classified as follows:

Type-A Services: These services, for technical or economic reasons, are granted under temporary exclusivity regime, or to a limited number of concessionaires that will operate under competition regime;

Type-B Services: These are the other telecommunications services that are freely provided under the competition regime.

Insurance market

The insurance activity has been present in Panama since the beginning of this century. For approximately half a century, insurance activity was framed within the parameters of the Commercial Code. It is thus subject to the oversight of the Executive Body through an Insurance Superintendence that would work in the Ministry of Commerce and Industries.

Energy production and commercialization

Electricity generation, transmission, distribution and commercialization in Honduras is governed by the provisions of the General Law of the Electricity Industry of Honduras. It also regulates all import and export activities of the sector and the operation of the national electricity system.

Operating permits

The electricity sector consists of three main activities through which energy is produced, transported and delivered to the end user. These activities are: Generation, Transmission and Distribution.

  • Generation: It is the production of energy in the generating plants. Panama has two types of generating plants: hydroelectric and thermal.  The main hydroelectric plants are: Fortuna, La Estrella, Los Valles (located in the province of Chiriqui) and Bayano, located in the province of Panama. The main thermoelectric plants are BahĂ­a Las Minas, located in the province of ColĂłn and Pan Am, located in the province of Panama.
  • Transmission: Once the energy is produced by the generating plants, it is injected into the transmission system, which basically consists of a high voltage line that receives the energy produced by the generators and transports it to the different delivery points.
  • Distribution: After being placed in the delivery points, the energy is distributed through lower voltage lines, to all end users.

The National Authority of Public Services raises the entire regulatory framework for the service to be provided in accordance with the objectives established in the Sector Framework Law and other related legislation that guarantees customers an adequate service. 


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