How to Start a Business in Panama: Complete Guide

Overview — Key Steps to Start a Business in Panama

• Choose your business structure (Sole ownership, Partnership, SRL, or Corporation).
• Reserve a unique company name at the Public Registry.
• Draft and notarize formation documents in Spanish (Articles, Bylaws, or Partnership Agreement).
• File incorporation documents with the Public Registry and obtain registration proof.
• Register for a RUC (tax ID) with the Dirección General de Ingresos (DGI).
• Obtain municipal and sector licenses, and an Aviso de Operación where required.
• Register employees with the Social Security Administration (Caja de Seguro Social) and the Ministry of Labor.
• Open a corporate bank account and comply with ongoing filings and taxes.

Tip: Many entrepreneurs underestimate permitting and sectoral compliance (health, environment, tourism). A law firm experienced in Panama business formation reduces delays and mitigates enforcement risk.

Which Business Structure Is Right for You?
The legal entity you choose affects liability, governance, taxes, and future growth. Below are the common structures used in Panama.

Sole Ownership

Sole ownership (sole proprietor) is where an individual or family starts a business and owns it outright. It’s the simplest route and carries minimal initial paperwork.

• Pros: Fast setup, low administrative cost.
• Cons: Unlimited personal liability — business debts or judgments can reach your personal assets.
• Best for: Very small local businesses or independent professionals starting out (until they need liability protection).

Partnerships

Panama recognizes several partnership types. Partnerships are a flexible way for two or more people to pool capital and manage an enterprise, but the exposure to liability differs by type.

Panama General Partnership (Asociación General)

All partners may be held personally liable for the actions of the partnership or of other partners. If one partner is negligent or commits fraud, civil courts can hold all partners responsible. Because of this unlimited liability, General Partnerships are rarely used by foreign investors.

Panama Limited Partnership (Sociedad de Responsabilidad Limitada — SRL)

An SRL is a commonly used limited partnership in Panama:

• Between 2 and 20 partners may form an SRL.
• Capital commonly ranges from $2,000 to $50,000, though amounts vary by business needs.
• Partners’ liability is generally limited to their capital contributions.
• When there are five or fewer members, formal meetings are not always required, reducing governance burdens for small groups.
• The names of members and their capital contributions are recorded in the Public Registry.

Panama Civil Partnership (Sociedad Civil)

Often used by licensed professionals (doctors, lawyers, architects). Partners face unlimited civil liability, so this structure is most common among regulated professions rather than general commercial enterprises.

Corporation (Sociedad Anónima — S.A.)

The Panama corporation is the most widely adopted structure for investors and growing businesses.

• Requires at least two subscribers to file Articles of Incorporation at the Public Registry; after registration, a minimum of one shareholder is allowed.
• Must maintain a Board of Directors and at least three officers (commonly President, Secretary, Treasurer or variations thereof).
• Shares are issued; corporations can use bearer or registered shares subject to evolving transparency rules and compliance requirements.
• Offers strong liability protection and credibility with banks, landlords, and international partners.

For international trade, holding structures, and investments, the S.A. is often the best option.

Important Administrative Steps & Registrations

Panama Business Name

Choose a unique name and confirm availability with the Public Registry. The Registry holds records of corporations and partnerships; a duplicate name will be rejected.

Panama RUC — Tax Identification

Register for the Registro Único de Contribuyentes (RUC) with the DGI. This is your company’s tax ID and is required for invoicing, purchases, and filing corporate tax returns.

Commercial License / Notice of Operation

Most businesses must obtain an Aviso de Operación or municipal license to legally operate. Specialty sectors (finance, insurance, healthcare, food, construction, tourism) will require additional permits from the corresponding regulator.

Employees, Social Security & Labor

Employers must register with the Caja de Seguro Social (Social Security) and the Ministry of Labor. Employee contracts, payroll, social security contributions, and statutory benefits must comply with Panamanian labor law.

Tourism Businesses & ATP

Tourism operators and hotels must register with the Autoridad de Turismo de Panamá (ATP). Hotels typically collect a 10% tourism tax on top of the standard 7% ITBMS (VAT) in certain cases, and must maintain ATP compliance.

Sector Permits (Health, Environment, Construction)

Activities such as food service, pharmacies, construction, or industrial operations often require sanitary, environmental, or municipal inspections and permits prior to operation.

Banking & Financial Due Diligence

Panamanian banks follow strict anti-money-laundering and know-your-customer rules. Expect to provide:

• Notarized incorporation documents and Public Registry extract
• RUC (tax ID)
• Proof of identity and address for beneficial owners and signatories
• Business plan, source-of-funds declarations, and professional references

Bank onboarding can be the slowest element of company formation due to compliance checks. A law firm with established bank introductions can shorten the process.

Tax Basics

Panama taxes income earned within its territory. Key points:

• Corporate income tax: generally 25% on Panama-sourced net income (subject to possible variations and incentives).
• Territorial tax system: foreign-sourced income is typically exempt from Panamanian tax if properly documented.
• ITBMS (VAT): commonly 7% on goods and services; tourism and certain sectors may have additional tax rules.

Special economic regimes (see below) can substantially reduce tax rates for qualifying companies, but require careful application and ongoing compliance.

Special Regimes & Incentives

Panama offers targeted tax and customs incentives for qualifying businesses:

• SEM / MHQ (Multinational Headquarters): favorable tax rate (often reduced, such as ~5% for qualifying activities), immigration advantages for foreign staff, and other benefits for companies that centralize regional management functions.
• EMMA (Manufacturing/Services Regime): incentives for manufacturing, R&D, and group service centers.
• Free Zones (e.g., Colon Free Zone): customs and tax advantages for export-oriented companies.
• City of Knowledge: benefits for technology, education, and research organizations.

Each regime has eligibility criteria and substance requirements. ReloFirm advises on qualifying and maintaining benefits.

Foreigners: Restrictions & Residency Considerations

Panama is open to foreign investment, but certain professions and activities are restricted:

• Foreigners cannot practice as medical or veterinary doctors, attorneys, engineers, or architects unless they meet local licensing and residency requirements.
• Retail businesses may have local restrictions in specific cases.
• To become a licensed real estate agent or insurance broker, foreigners must typically be legal residents of Panama for at least 10 years.

If you plan on relocating to Panama to run your business, look into residency options such as the Panama Friendly Nations Visa or other programs. For permanent residency guidance, see ReloFirm’s page on Panama permanent residency.

Estimated Timeline & Costs

Exact costs depend on complexity, sector, and whether you pursue a special tax regime. Ask ReloFirm for a tailored estimate.

Common Pitfalls & How a Panama Business Lawyer Helps

Common mistakes include misclassifying income source (leading to unexpected tax liabilities), operating without local municipal or sector licenses, hiring foreign staff without proper permits, and attempting to open bank accounts without adequate documentation. ReloFirm’s team handles formation, licensing, tax planning, labor compliance, and bank introductions so you can focus on business operations.

Ready to get started? If you want help that covers legal formation, tax planning, banking, and immigration — Contact ReloFirm for a consultation.

Frequently Asked Questions (FAQs)

Can a foreigner own 100% of a Panamanian company?

Yes — foreign individuals and corporate entities can own Panamanian companies in most sectors, except where specific professions or regulated activities restrict foreign participation.

Do I need to live in Panama to own a company?

No. Many foreigners own and operate Panamanian companies while living abroad; however, some licenses and regulated activities may require local residency or specific local representation.

What taxes will my Panama company pay?

Panama taxes taxable income sourced within the country. Corporate tax is generally 25% on Panama-sourced net income. ITBMS (VAT) is commonly 7%. Foreign-sourced income is usually exempt under the territorial tax system, when properly documented.

How long does incorporation usually take?

With complete documentation, the Public Registry process commonly takes 5–10 business days. Banking and sector permits can add time.

Are special economic regimes worth applying for?

For qualifying companies, special regimes like SEM and EMMA can offer meaningful tax and customs advantages. Eligibility, reporting, and substance requirements are strict — legal guidance is essential.