Contents of this guide
- Which legal form to choose
- The seven steps to open the company
- The Notice of Operation explained
- Taxes and obligations from day one
- Hiring staff: Social Security Fund and Ministry of Labour
- What changes if the entrepreneur is a foreigner
- Mistakes that cost time and fines
- Frequently asked questions
- Sources
Which legal form to choose
The initial decision shapes taxes, liability and procedures. In Panama three common options coexist for a local business.
| Form | Who it is for | Liability | Advantages | Limits |
|---|---|---|---|---|
| Natural person | Self-employed, small shops, professionals | Unlimited: liable with personal assets | Notice of Operation of 15 balboas, no Public Registry, simple bookkeeping | No separation of assets; hard to bring in partners |
| Corporation (S.A.) | Most companies with partners or investment | Limited to the capital | Flexible, recognised by banks and clients, transferable shares | Three directors, resident agent, flat annual fee, accounting records |
| Limited liability company (S. de R.L.) | Family SMEs and companies with few partners | Limited to the contribution | Simpler structure than the S.A., quotas instead of shares | Less familiar to banks; more rigid transfer of quotas |
The Panamanian corporation is governed by Law 32 of 1927 and is the same vehicle used for international operations. The difference between a local company and an offshore one lies not in the law but in where it generates its income, as explained in Radar Panamá’s guide to offshore companies. A company that invoices in Panama is taxed in Panama.
The seven steps to open the company
- Define the activity and check whether it needs a prior regulator. Banking, insurance, securities, finance companies, private security, transport, occasional lodging and arms sales must first obtain authorisation from their regulator. Everything else goes straight to the Notice of Operation.
- Incorporate the company, if there will be one. A lawyer drafts the articles of incorporation, notarises them and registers them at the Public Registry. Directors, officers and a resident agent are appointed. If operating as a natural person, this step does not exist.
- Obtain the Notice of Operation on Panamá Emprende. A sworn declaration with the activity, the address of the premises and the invested capital is filed online. The system issues the notice the same day in most cases. Legal Solutions Panamá sums it up in its five steps to set up a company in Panama: “to apply for the Notice of Operation you must have in hand the registration of the company at the Panamanian Public Registry”.
- RUC and NIT with the DGI. The Notice of Operation automatically activates the Single Taxpayer Registry. With it, the NIT is requested to operate on the e-Tax platform of the Directorate General of Revenue.
- Municipal registration. Each municipality charges a tax on commercial activity. The company must register with the mayor’s office of the district where it operates and pay the monthly rate according to its category.
- Employer registration with the Social Security Fund. Mandatory before hiring the first worker. The employer number is obtained and monthly payrolls are declared.
- Tax invoicing and books. Taxpayers must issue electronic invoices through an authorised provider or fiscal equipment, and keep accounts in accordance with DGI rules.
The Notice of Operation explained
Law 5 of 11 January 2007 defines the Notice of Operation as the process by which it is recorded that the commercial or industrial activity the declarant will carry out has been notified to the Public Administration. It is a mandatory sworn declaration needed to start the activity, and it is processed on the Panamá Emprende platform of the Ministry of Commerce and Industry.
| Aspect | Detail |
|---|---|
| Notice fee | 15 balboas for natural persons; 55 balboas for legal entities, one-off |
| Annual Notice of Operation tax | 2% of invested capital, minimum 100 and maximum 60,000 balboas; businesses with capital under 10,000 balboas are exempt |
| Who does not need it | Liberal professions, agriculture, livestock, beekeeping, aquaculture, agroforestry, crafts and non-profit activities (they can apply for it free of charge to formalise) |
| Who needs prior authorisation | Banking, insurance, finance companies, brokerage houses, security, transport, arms, occasional lodging |
| Requirements for natural persons | Legal age, valid ID or passport, address of the establishment, activity and capital |
| Requirements for legal entities | Company registered at the Public Registry, legal representative, address, activity and capital |
| Public lookup | Anyone can verify a notice on the Panamá Emprende portal |
Taxes and obligations from day one
Panama applies a territorial system: only income generated inside the country is taxed. For a company operating locally, the main obligations are these.
| Obligation | Rate or rule | Frequency |
|---|---|---|
| Corporate income tax | 25% on net taxable income; micro and small business regimes with reduced rates according to revenue | Annual return, with monthly advances |
| ITBMS (sales tax) | 7% general; 10% on alcohol and lodging; 15% on tobacco. Mandatory from 36,000 balboas in annual revenue | Monthly |
| Notice of Operation tax | 2% of capital, between 100 and 60,000 balboas | Annual |
| Municipal tax | According to district and activity category | Monthly |
| Flat fee for companies | 300 balboas for corporations | Annual |
| Accounting records | Up-to-date accounts and, for companies, delivery of records to the resident agent | Annual, before 30 April |
Hiring staff: Social Security Fund and Ministry of Labour
Hiring in Panama is governed by the Labour Code and requires prior employer registration with the Social Security Fund. The employer withholds the worker’s contribution and pays its own on the salary, declares the payroll each month and pays the thirteenth month in three instalments (April, August and December). Contracts must be registered with the Ministry of Labour and Workforce Development. The law reserves at least 90% of the ordinary workforce for Panamanians, with exceptions for technical and trusted staff of up to 15%.
- Minimum wage: set by decree every two years by region and activity.
- Working hours: a maximum of 48 daytime hours a week, with surcharges for overtime and night work.
- Holidays: 30 days for every 11 months worked.
- Seniority premium and severance: mandatory on termination of the employment relationship according to the type of contract.
What changes if the entrepreneur is a foreigner
Legal Solutions Panamá, in its guide on how to set up a company in Panama as a foreigner
A foreigner can be a shareholder, director and legal representative of a Panamanian company without residing in the country. What they cannot do without a permit is work in it or engage in retail trade as a natural person, an activity the Constitution reserves for Panamanians. To run the business day to day they need residency and a work permit, and the residency routes by investment or Friendly Nations, detailed in Radar Panamá’s guide to residency in Panama, combine well with opening a company.
In addition, a company that wants to operate with the outside world can assess special regimes such as Panamá Pacífico, the Colón Free Zone or the SEM and EMMA licences, which offer tax and immigration advantages for specific activities, compared in Radar Panamá’s analysis of special regimes.
Mistakes that cost time and fines
- Opening the premises before the Notice of Operation. Operating without a notice carries fines and closure. The procedure is same-day: there is no reason to skip it.
- Declaring unrealistic capital. The annual tax is calculated on the declared capital. Inflating it for prestige costs money every year.
- Hiring before registering with the Social Security Fund. It generates surcharges and liability for uncovered accidents.
- Ignoring the municipal tax. It is the most forgotten and the municipality claims it with surcharges.
- Not issuing electronic invoices. It is mandatory and the DGI cross-checks data with payment platforms.
- Using the company for undeclared activities. The Notice of Operation must cover the real activity; extending it is a simple procedure.
Frequently asked questions about opening a company in Panama
How much does the Notice of Operation cost in Panama?
15 balboas for natural persons and 55 balboas for companies, one-off. Separately, an annual tax of 2% of the invested capital is paid, with a minimum of 100 and a maximum of 60,000 balboas, from which businesses with capital under 10,000 balboas are exempt.
What is Panamá Emprende?
The online platform of the Ministry of Commerce and Industry, created by Law 5 of 2007, where the Notice of Operation is filed. It replaced the commercial licence and several prior permits, and automatically activates the RUC with the DGI.
How long does it take to open a company in Panama?
The Notice of Operation is issued the same day in most cases. If a company has to be incorporated, registration at the Public Registry adds between a few days and two weeks. With the documentation ready, the whole process fits within one or two weeks.
Can a foreigner open a company in Panama?
Yes, as shareholder, director and legal representative of a company, without residing in the country. To work in it they need residency and a work permit, and they cannot engage in retail trade as a natural person.
Which activities do not need a Notice of Operation?
Liberal professions, agriculture, livestock, beekeeping, poultry farming, aquaculture and agroforestry activities, crafts and non-profit activities. They can apply for it voluntarily and free of charge to formalise.
When does ITBMS have to be charged?
When gross annual revenue exceeds 36,000 balboas. The general rate is 7%, with 10% for alcohol and lodging and 15% for tobacco. It is declared monthly to the DGI.
Is it better to be a natural person or a corporation?
A natural person for small businesses with no partners and little risk; a corporation when there are partners, investment, contracts with companies or a need to separate personal assets. The S. de R.L. is a middle option for family SMEs.
What obligations arise when hiring the first employee?
Employer registration with the Social Security Fund, registration of the contract with the Ministry of Labour, monthly payroll with contributions, thirteenth month in three instalments and compliance with the minimum wage and the 48-hour week.
Need support to incorporate and register the company?
Legal Solutions Panamá, a law firm based in Panama City led by Kathia Rivera, with more than ten years of experience and clients from more than 55 nationalities, incorporates companies and handles the Notice of Operation, the RUC and municipal registration for local and foreign entrepreneurs.
Sources
- Panamá Emprende, Ministry of Commerce and Industry.
- Law 5 of 2007 on business opening.
- Application for a Notice of Operation, Panamá Digital.
- Single Taxpayer Registry, Directorate General of Revenue.
- Social Security Fund, employer registration.
- Ministry of Labour and Workforce Development.
- Formalízate, Micro, Small and Medium Enterprise Authority.
- Datos sobre el impuesto de aviso de operación, La Prensa.
- Cinco pasos para crear una empresa en Panamá and cómo crear una empresa siendo extranjero, Legal Solutions Panamá.
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