Starting a business in Panama requires coordinating legal, tax and operational decisions. The structure you choose determines who is liable for obligations, how resources are managed, which taxes are payable and what conditions must be met to carry on the activity.
Incorporating a company is only one part of the process. You must also check the location of the premises, permits, invoicing, municipal obligations and, where applicable, employment requirements and sector-specific supervision.
This guide explains the main issues entrepreneurs and investors should consider when establishing a business in Panama, from choosing an entity to meeting ongoing compliance obligations.
Define the activity and check its legal feasibility
Before incorporating a company or signing a lease, establish what the business will do, who will own it and where it will operate.
The description should identify whether the business will sell goods, provide services, import merchandise or engage in a regulated activity. This definition affects permits, tax classification and eligibility for incentives.
You should also check whether participation in the activity is restricted. In Panama, retail trade and certain professions are subject to nationality, professional licensing or other specific requirements.
Where foreign investors are involved, it is essential to distinguish ownership of a business from the right to reside in Panama and authorization to work. Incorporating a Panamanian company does not remove restrictions on the activity or automatically grant residence or a work permit. Retail trade framework published by MICI.
Choose the legal structure
The legal structure determines who signs contracts, who owns the assets and which assets are available to creditors.
Operating as an individual
An individual may carry on business in their own name without incorporating a company.
This approach reduces some corporate formalities, but the business and its owner do not have legally separate assets. Debts and claims arising from the activity may reach the owner’s personal assets, subject to the applicable legal limits.
This exposure deserves particular attention where there are employees, financing, inventory, dealings with the public or significant contracts.
Corporation (sociedad anónima)
A corporation has its own legal personality and assets. It can enter into contracts, acquire assets, employ workers and carry on business in its own name.
As a general rule, a shareholder’s liability is limited to the obligation to contribute the subscribed capital. This separation facilitates the admission of investors, transfers of ownership interests and business continuity.
Asset protection requires proper management. Personal guarantees, unlawful acts and other legal grounds may give rise to individual liability. For example, a shareholder who personally guarantees a loan assumes an obligation of their own, even if the company receives the money.
Incorporation should be accompanied by corporate arrangements covering share registers, corporate decisions, a resident agent and up-to-date beneficial ownership information.
Entrepreneurship company (sociedad de emprendimiento)
The sociedad de emprendimiento is a simplified vehicle subject to specific conditions.
The reform introduced by Law 451 of 2024 permits incorporation by between two and ten adult individuals of any nationality who are permanent residents of Panama. The law imposes restrictions on participation in other entrepreneurship companies and on the activities and formalities of the regime.
Its suitability depends on whether those conditions fit the founders, the activity and the planned investment. Law 451 of 2024.
Other structures
Limited liability companies, civil-law companies (sociedades civiles) and other vehicles are also available. Sociedades civiles are particularly relevant to certain professional activities.
The choice should take account of risk, management arrangements, financing needs and the rules governing the admission and departure of owners.
Agreements between owners
Where several people are involved, contributions, ownership interests, management powers and profit distributions should be documented.
It is also advisable to establish how disagreements will be resolved, what happens if an owner wishes to leave and the conditions for selling ownership interests. These rules reduce the risk that a dispute between owners will bring the business to a standstill.
Consider AMPYME and special economic regimes
Incentives should be assessed before committing to the final location and structure. Some benefits depend on business registration; others require operating within a designated area and carrying on authorized activities.
AMPYME: classification and benefits
Business classification is based on annual gross revenue:
| Category | Annual gross revenue |
|---|---|
| Microenterprise | Up to B/.150,000 |
| Small enterprise | Over B/.150,000 and up to B/.1,000,000 |
| Medium-sized enterprise | Over B/.1,000,000 and up to B/.2,500,000 |
Microenterprises that meet the requirements may qualify for an income tax exemption during the first two tax periods counted from registration.
The benefit is measured in tax periods. It should therefore not be budgeted as an automatic exemption for twenty-four full months.
Filing requirements and other applicable obligations remain in force during the exemption. In addition, AMPYME classification is not the same as the special MIPYME tax regime: the latter has an annual gross revenue limit of B/.500,000 and additional requirements. AMPYME Business Registry.
Colón Free Zone
The Colón Free Zone is particularly relevant to importing, warehousing, distribution, logistics and re-export activities.
Authorized companies operate under the corresponding operating code. Activities covered by the regime do not require the ordinary Aviso de Operación, although other sector-specific authorizations may still be required.
Benefits do not automatically extend to operations outside the zone. The treatment of international transactions must be distinguished from that applicable to operations within Panama’s fiscal territory. Legal framework of the Colón Free Zone.
Panamá Pacífico
Panamá Pacífico has its own business registration and authorization system. Benefits depend on the approved activity and compliance with the conditions of the regime.
The business must genuinely establish and operate within the authorized scope. The assessment should include setup costs, economic substance requirements and obligations for remaining in the regime. Panamá Pacífico business registration.
Ciudad del Saber
Ciudad del Saber may be suitable for projects involving knowledge, innovation, education, technology and cooperation.
Admission and the corresponding benefits depend on the characteristics of the project. It is not a general alternative for relocating any business solely to obtain incentives.
Protect the name and logo
The corporate name, trade name and trademark serve different purposes. Registering a company and obtaining an Aviso de Operación do not replace trademark registration.
Before investing in advertising, packaging or signs, investigate the availability of the mark and assess potential conflicts with earlier trademarks.
Protection is sought through DIGERPI for specific goods or services, grouped in the relevant classes of the Nice Classification.
Where the business uses a name and a logo, it may be advisable to protect them separately:
- Word mark: protects the name.
- Figurative or combined mark: protects the design as filed, including its graphic elements and, where applicable, wording.
The trademark owner should reflect the intended ownership structure of the business. Rights in the design should also be documented where it was created by a third party.
The application is filed through a lawyer. MICI trademark registration requirements.
The website domain and social media accounts should remain under the company’s control. Their availability does not, by itself, establish that the name can be used without infringing third-party rights.
Register with the DGI and set up invoicing
The individual or legal entity must arrange registration with the Dirección General de Ingresos (DGI), activate its RUC tax registration and obtain credentials to manage its obligations.
The registration must accurately reflect the economic activity, address, representative and tax obligations. This information must be kept up to date as the business changes.
Free Invoicing System and PAC
The Facturador Gratuito is intended for individuals and legal entities with annual gross revenue of up to B/.36,000 and a maximum of 100 documents per month.
Exceeding either limit requires arranging the corresponding migration to a Proveedor Autorizado Calificado, known as a PAC. Both indicators should be monitored throughout the year to avoid interruptions in invoicing. DGI conditions for the Free Invoicing System.
The obligation to issue invoices is separate from ITBMS. An invoice may be issued without that tax where the taxpayer or transaction is not subject to its collection.
Check the premises and obtain the Aviso de Operación
The suitability of the premises must be checked before signing a lease or starting alterations.
The assessment covers land use, physical conditions, condominium restrictions and requirements specific to the activity. The owner’s agreement to lease the property does not guarantee that the business may legally operate there.
The Aviso de Operación must identify the activities actually carried on. Including unnecessary activities may affect municipal classification and trigger additional requirements; omitting activities that are actually performed also results in noncompliance.
Alcohol sales and other regulated activities require specific authorizations. Some activities are exempt from the Aviso, including certain professional services provided individually or through sociedades civiles. The exemption does not remove the corresponding tax, employment or sector-specific obligations. Panamá Emprende regime.
Complete municipal registration
The business must verify its tax registration with the municipality where it operates and the correct classification of its activity.
Procedures and deadlines depend on the district. A uniform grace period after obtaining the Aviso de Operación should not be assumed.
Where the municipal regime provides for it, the business initially pays a minimum or provisional charge. Declared revenue subsequently allows the assessment to be updated.
The municipal revenue return is separate from the income tax return filed with the DGI. Filing one does not replace the other. Failure to file may lead to assessments by the authority, fines, surcharges and difficulties obtaining a tax clearance certificate. Annual revenue declaration for the Municipality of Panama.
Changes in activity, address, branches or cessation of operations must also be reflected in the relevant records.
Prepare the bank account and organize funds
Opening a bank account is a separate process from incorporating a company.
The bank must identify the people controlling the company, understand its activity and verify the source of funds. It will normally require corporate documents, identification, beneficial ownership information and evidence of the planned operation.
For a new business, contracts, documented contributions and projections may help explain the financial profile and expected transactions. Approval depends on the bank’s assessment. Banking Superintendency due diligence rules.
From the outset, determine whether money provided by owners is capital, a loan or another type of contribution. Each has different consequences and must be recorded correctly.
Determine the applicable taxes
To understand taxation, distinguish revenue from net taxable income.
Revenue reflects what the activity generates. Net taxable income is the resulting tax base after allowable costs, expenses and tax adjustments. Accounting profit and taxable income may differ.
Income tax: general regime
The general rate for legal entities is 25% of net taxable income.
For individuals under the general regime, the scale is:
| Annual net taxable income | Tax |
|---|---|
| Up to B/.11,000 | 0% |
| Over B/.11,000 and up to B/.50,000 | 15% of the amount exceeding B/.11,000 |
| Over B/.50,000 | B/.5,850 plus 25% of the amount exceeding B/.50,000 |
Costs and expenses must be supported by documentation and meet the legal requirements for deductibility. Recording a payment in the accounts does not guarantee its acceptance for tax purposes. DGI income tax rates.
Special MIPYME regime
The regime requires AMPYME registration and annual gross revenue not exceeding B/.500,000. Legal entities must also meet conditions regarding individual owners, registered ownership interests and the absence of prohibited business fragmentation or relationships.
| Total annual revenue | Legal entity | Individual under the special regime |
|---|---|---|
| Up to B/.11,000 | 7.5% | 0% |
| B/.11,000.01–B/.36,000 | 10% | 7.5% |
| B/.36,000.01–B/.90,000 | 12.5% | 10% |
| B/.90,000.01–B/.150,000 | 15% | 12.5% |
| B/.150,000.01–B/.350,000 | 20% | 17.5% |
| B/.350,000.01–B/.500,000 | 22.5% | 22.5% |
The revenue level determines a single rate applied to net taxable income. Rates are not accumulated across bands.
For example, an eligible company with B/.80,000 in revenue and B/.20,000 in net taxable income calculates B/.2,500 in tax before credits or additional benefits. Law 189 of 2020.
Eligibility must be reviewed annually and whenever the ownership structure changes. AMPYME registration does not cure failure to meet the other tax conditions. Regulations and amendments to Executive Decree 170.
CAIR: taxable revenue exceeding B/.1.5 million
Legal entities with annual taxable revenue exceeding B/.1,500,000 must compare ordinary income tax with the Alternative Income Tax Calculation, or CAIR.
CAIR uses a deemed tax base of 4.67% of taxable revenue. Applying the general 25% rate produces an amount equivalent to 1.1675% of that revenue. The higher result is payable unless relief from CAIR applies.
The mechanism limits erosion of the tax base through costs and deductions, although it may also affect businesses with legitimate expenses and low margins. DGI explanation of the CAIR calculation.
| Example | Amount |
|---|---|
| Taxable revenue | B/.2,000,000 |
| Net taxable income | B/.60,000 |
| Ordinary tax: B/.60,000 × 25% | B/.15,000 |
| CAIR: B/.2,000,000 × 4.67% × 25% | B/.23,350 |
Without applicable relief, B/.23,350 prevails. The two results are not added together.
Relief may be requested where CAIR causes a loss or an effective rate higher than the applicable tax rate. The grounds must be supported by documentation and the request filed within the applicable deadline; reporting a loss does not automatically authorize the business to omit the calculation. Procedure for requesting relief from CAIR.
Estimated income tax
Estimated tax is an advance payment of the tax for the period following the one being reported. For calendar-year taxpayers, it is payable in full or in three equal installments: June 30, September 30 and December 31. Estimated tax payment dates.
When the 2026 return is filed in 2027, estimated tax for 2027 is determined. Advances paid during 2027 are credited against the tax for that period, assessed in 2028.
If the final tax exceeds the advances, the difference is payable. If the advances are higher, a credit balance remains, subject to the corresponding rules. Article 710 of the Tax Code.
Estimated tax must be included in cash flow planning. Any adjustment requires the applicable grounds and procedure.
Dividend tax and complementary tax
As a general rule, profit distributions are subject to 10% tax for Panamanian-source profits and 5% for certain exempt, foreign-source or export income. Special regimes may provide different treatment.
Under the general rule, if a company does not distribute dividends or distributes less than 40% of net profits after income tax, complementary tax arises under the statutory calculation.
Legal entities qualifying under Article 699-A are exempt from complementary tax. That exemption does not eliminate tax on dividends distributed. Dividend and complementary tax rules.
Shareholders’ withdrawals must be documented according to their true nature. A loan to a shareholder cannot be assumed to be an alternative without tax consequences.
Aviso de Operación tax
The general rule establishes an annual tax of 2% of the capital or fiscal equity subject to the tax, with a minimum of B/.100 and a maximum of B/.60,000.
An exemption exists for invested capital below B/.10,000, subject to the statutory conditions. The tax base requires the corresponding adjustments and does not necessarily equal registered share capital.
Free zones and special economic areas have specific provisions. Article 1004 of the Tax Code.
This national tax is separate from municipal taxes and the cost of the opening procedure.
ITBMS
The general rule excludes from taxpayer status small producers, traders and service providers whose previous-year revenue did not exceed B/.3,000 in average monthly gross revenue or B/.36,000 in annual gross revenue.
The monthly figure is an average. When the limits are exceeded, the obligation to enter the tax regime must be determined, taking into account the treatment of the activity and each transaction.
The general rate is 7%. Special rates of 10% apply to alcoholic beverages and accommodation, and 15% to tobacco products.
A business that validly retains non-taxpayer status does not add ITBMS to its sales. Tax paid on purchases normally forms part of its cost or expense. Imports have their own rules. Official ITBMS instructions.
Charging the customer and withholding by a designated agent are different mechanisms. Suppliers must substantiate their non-taxpayer status where appropriate to prevent improper withholding. ITBMS withholding.
Annual corporate fee (tasa única)
Corporations should budget B/.300 per year for the tasa única, in addition to fees and services associated with corporate maintenance.
The due date depends on the half-year of registration: July 15 for companies registered from January through June, and January 15 for those registered from July through December. A lack of commercial activity does not automatically eliminate this obligation. DGI annual corporate fee guidance.
Hire workers and comply with CSS requirements
Hiring staff requires arranging employer registration, employee enrollment and payroll filings with the Caja de Seguro Social (CSS).
The CSS requires employer registration from the start of the employment relationship and employee enrollment within the first six business days. Employer registration and employee enrollment.
Employment costs extend beyond monthly wages. Employer contributions, vacation, the thirteenth-month payment and other applicable benefits must be budgeted.
When hiring foreign staff, permits and employment conditions must be verified. Calling an arrangement “professional services” does not exclude an employment relationship where the actual circumstances involve subordination and the other relevant elements.
Identify special regulations and inspections
SSNF supervision
Certain activities are subject to anti-money laundering obligations under the supervision of the Superintendencia de Sujetos No Financieros (SSNF). These include:
- Real estate developers, agents and brokers when participating in property purchases and sales for clients.
- Construction companies and general or specialized contractors.
- Businesses covered by the Colón Free Zone, Panamá Pacífico and other free-zone regimes.
- Casinos, gambling and betting.
- Pawnshops and valuables transportation.
- Trading in precious metals and stones.
- Lawyers and accountants in the activities specifically subject to supervision, and notaries within the relevant scope.
Regulated-entity status requires registration, customer due diligence, beneficial owner identification, risk assessment, record retention and reporting under the sector-specific rules. Sectors supervised by the SSNF.
These obligations must be incorporated into the business’s operations as soon as they become applicable.
MINSA, the Fire Department and Customs
Depending on the activity and premises, inspections by the Ministry of Health and the Fire Department may be required, together with health or safety permits.
Certain operations require registration or authorization from the National Customs Authority, particularly where facilities or activities are subject to customs control.
The review should take place before adapting the premises or committing to inventory, because its findings may affect the budget and opening schedule.
Organize contracts, accounting and compliance
Accounting should begin with the first contributions and expenses. Capital, loans, revenue, advances, costs, taxes and distributions must be distinguished.
Documentation must allow each transaction to be reconstructed and explain the source and use of funds. Missing invoices and supporting documents can affect deductions, collections and the defense of claims.
Clear terms should also be established with customers and suppliers: scope of service, deliveries, payments, advances, warranties and termination.
For digital businesses, contracting, consumer protection and personal data processing must be addressed in the relevant processes and documents.
The compliance calendar should identify responsible people, dates and supporting records for:
- Tax returns and payments.
- Municipal obligations.
- Payroll and social security.
- Annual corporate fees and corporate maintenance.
- Permits and renewals.
- Sector-specific obligations.
- Review of invoicing limits and tax regimes.
Growth requires reviewing the structure. Crossing a threshold, admitting a shareholder or opening a branch may change the obligations.
Budget for opening and recurring costs
The budget should separate three components.
Opening expenses: incorporation, registrations, permits, trademarks, contracts and premises alterations.
Recurring costs: accounting, invoicing, resident agent, annual corporate fee, municipal taxes, payroll and sector-specific compliance.
Working capital: funds to sustain operations while the first sales are collected, including inventory, rent and suppliers.
This distinction makes it possible to assess the cost of establishing the company and the resources it needs to operate. A structure that is inexpensive to set up may have operating costs or risks that make it unsuitable.
Frequently asked questions about starting a business in Panama
Is incorporating a company mandatory?
No. You may operate as an individual if the activity and applicable requirements permit it. A company is often advisable where there are several owners, contractual exposure, employees or investment needs.
Does a company protect all personal assets?
Separation of assets provides protection within its legal limits. Personal guarantees, unlawful conduct and other grounds may give rise to individual liability.
Can a foreigner own a business?
Foreigners may participate in permitted activities. Nationality restrictions and sector requirements must be reviewed, and investment must be distinguished from residence and work permits.
Can a home be used as the business address?
It depends on the activity and the property’s conditions. Permitted use and applicable restrictions must be checked. Registering an address does not authorize every type of operation there.
Does an online business need to be formalized?
Yes, according to its activity. Selling through a website or social media does not remove tax, commercial or consumer protection obligations.
Is the Aviso de Operación enough to start?
Only where all other applicable conditions are also met. Certain activities require prior authorizations or additional permits.
Are AMPYME and the MIPYME tax regime the same?
No. AMPYME maintains a business classification with its own limits. The tax regime imposes additional requirements and a revenue limit of B/.500,000 for its special rates.
Does the AMPYME exemption last twenty-four months?
Not necessarily. It is counted in tax periods from registration. Its effective duration must be assessed according to the registration date and the conditions of the benefit.
When must a business leave the Free Invoicing System?
When the applicable revenue or document limits are exceeded. The transition should be prepared in good time to maintain uninterrupted invoicing.
Can an invoice be issued without ITBMS?
Yes, where appropriate because of the issuer’s tax status or the treatment of the transaction. Issuing an invoice does not automatically require adding the tax.
Is income tax calculated on all sales?
The ordinary method uses net taxable income after permitted deductions and adjustments. Legal entities subject to CAIR must also carry out the corresponding comparison.
Does exceeding B/.1.5 million in invoicing always mean paying CAIR?
The general threshold refers to taxable revenue of legal entities. Once it is exceeded, the ordinary and alternative methods must be compared. The ordinary method may prevail, or authorized relief may apply.
Does a loss allow a business to omit CAIR?
Not automatically. The company must substantiate the grounds and submit its request for relief within the relevant deadline.
Is estimated tax paid in addition to the final tax?
It is an advance credited against the tax for the corresponding period. Its cash flow effect must be budgeted even though it is not an additional tax.
Does the municipal return replace the income tax return?
No. They are separate obligations before different authorities.
Can a shareholder freely withdraw company money?
Withdrawals must have an appropriate basis and documentation: remuneration, reimbursement, loan repayment or profit distribution, among others. Each category has different consequences.
Does incorporation guarantee a bank account?
No. The bank conducts its own assessment of the structure, activity, beneficial owners and source of funds.
Does the name registered in the Public Registry protect the trademark?
It does not replace trademark registration. Protection of the name and logo should be assessed through DIGERPI.
Is accounting necessary from the outset?
Appropriate records and supporting documents must be maintained from the first transactions. Early organization makes it possible to determine taxes, justify expenses and monitor funds contributed by owners.
How long does it take to start a company?
It depends on the entity, documents, permits, location and banking procedures. Corporate registration and full operational readiness have different timelines.
What happens if the business stops operating?
Ceasing activity does not automatically cancel registrations. The relevant procedures before Panamá Emprende, the DGI, the municipality and the CSS must be addressed, along with assessing dissolution of the company.
Keeping registrations active may preserve filing and payment obligations. Cancellation of obligations before the DGI.
Advice on establishing a business in Panama
Opening a business requires coordinating the corporate structure, taxes, permits and operating conditions. An initial assessment helps identify applicable requirements and prepare a realistic budget.
At GrimaldoPrestán, we assist entrepreneurs and investors with the legal and tax organization of their businesses in Panama.
Request a consultation to assess your project and define the steps needed to establish it.
Legal notice
This publication contains general information on starting and operating businesses in Panama. It does not constitute individualized legal advice, a legal opinion or a tax recommendation for a specific case.
The application of the rules depends on the activity, business structure, location and circumstances of each individual or entity. Legislation, regulations and administrative interpretations may change.
Before incorporating an entity, starting operations, claiming a benefit or making a decision with legal or tax consequences, contact a lawyer licensed to practice in the Republic of Panama and obtain advice tailored to your circumstances. Where appropriate, the assessment should be coordinated with a certified public accountant.
Reading this guide does not create an attorney-client relationship.
