GENERAL GUIDELINES CONCERNING THE FORMATION, OPERATION AND TAXATION OF CORPORATIONS UNDER THE LAWS OF THE REPUBLIC OF PANAMA

Panamanian corporations are widely known to the world’s shipping and business communities for over 65 years. This is a basic outline of how Panamanian companies are formed, operated and how taxation works. Panamanian law does not tax profits generated outside the territory of the Republic of Panama. The formation and operation of corporations are matters governed by Law 32 of 1927.

• REQUIREMENTS FOR INCORPORATION

Two or more persons of full age, of any nationality even though not domiciled in the Republic of Panama, may form a corporation for any lawful purpose pursuant to the formalities stipulated herein.

Panamanian corporate laws imposes no restriction upon ownership of shares by foreign citizens or corporations, nor are there any nationality restrictions or residence requirements upon the directors or officers.

Corporations are usually formed through nominee incorporators in Panama, who execute the basic incorporation document called “Pacto Social”, commonly known in English as “Articles of Incorporation”. The articles of incorporation are executed before a Notary Public, subsequently registered at the Panamanian Registry. Once registrations take place corporate existence begins.

The articles of incorporation may be executed anywhere, and in any language, as long as the signatures are certified by the Notary Public.

The basic requirements of the Articles of Incorporation are summarized as follows:

1. Names and domiciles of each incorporator.
2. Name of the Corporation, which shall not be similar nor the same to any other registered corporation. The name must include a word, phrase or abbreviation indicating that it is a corporation such as S.A.,o or Inc.. Names can be expressed in any language. As a matter of precaution it is always advisable to provide several possible names in order to verify their possible registration.
3. The general purpose or purposes for which the corporation is organized.
4. The purported capital structure of the corporation or the authorized capital, including the number and classes of shares, whether with or without par value, nominal shares only, and if there are to be shares of different classes, the number of shares in each class, the designation and relative rights, preferences and limitations thereof.
5. The number of shares each subscriber to the articles of incorporation agrees to take.
6. The domicile of the corporation which may be in Panama or elsewhere, as well as the name and domicile of its Resident Agent in Panama, who must be an attorney or law firm in Panama.
7. The duration of the Corporation which may be perpetual.
8. The full names and addresses of at least three directors.
9. Any other lawful clauses the subscribers agreed upon.

It is required to include the full names of the first officers or the corporation consisting at least of a President, a Secretary and a Treasurer. See Section V below.

1. CORPORATE POWERS

Under Panamanian laws, every corporation may exercise the following powers: To sue and be sued; to adopt and use a corporate seal and alter it at its convenience; to acquire, purchase, hold, use and transfer real property and chattels of all kinds and make and accept pledges, appoint officers and agents; to enter into all kind of contracts; to enact by-laws for the management, regulation and administration of its affairs; to transfer its shares; to call shareholders or directors meeting and any other lawful purpose; to conduct its affairs and exercise its powers in any foreign country; to agree upon its dissolution in accordance with the legal regulations; to borrow money and incur debts in relation with its affairs, issue bonds promissory notes, bills of exchange; to guarantee, acquire, purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of assets, negotiate in shares of stock, bonds or other obligations issued by other corporation or agency. In addition, it may do all things necessary in carrying out the purpose listed in the Articles of Incorporation, or whatever becomes necessary or convenient to those ends.

III. CAPITAL STRUCTURE

Panamanian Corporate Law requires the capital of the corporation to be set forth in the Articles of Incorporation, clearly establishing the number and par value of the shares into which the capital is divided. The Articles of Incorporation may impose restrictions for the transfer of shares, but any restriction which prohibits the transfer of shares in an absolute manner is null and void.

Under Panamanian law shares may be issued in exchange for money, labor, services or property of any kind, and shares must be issued pursuant to a resolution of the Board of Directors. Shares may be nominative or bearer. If nominative, such shares may be issued as fully paid and non-assessable, as partially paid, or even without any payment having been made thereon, and are transferable on the books of the corporation. If bearer, such shares may not be issued unless they have been fully paid and non-assessable, and are transferable by delivery. Under Panamanian  law, share certificates are required to state the following information:

1. the registration information of the corporation at the Public Registry;
2. the authorized capital of the corporation;
3. the number of shares belonging to the holder thereof;
4. the class of shares, if there are different classes, as well as any special conditions, designations, preferences, privileges, premiums, advantages and restrictions;
5. if the shares represented by the certificate are fully paid and non-assessable, this fact shall be expressed in said certificate. If not fully paid and non-assessable, the sum that in fact has been paid shall also be stated in the certificate;
6. if nominative shares, the name of the person to whom the shares are issued.

1. CORPORATE MANAGEMENT STRUCTURE – SHAREHOLDERS

The management of the affairs of a corporation is vested in the Board of Directors, Shareholders constitute the supreme power of the corporation. Shareholders approval is required for: amendments to the Articles of Incorporation, removal of directors, if so provided by the Articles of Incorporation, the adoption, amendments and repeal of bylaws, and extraordinary corporate matters such as the sales, lease, exchanges or disposal of capital assets, including clientele and privileges, franchises and rights, if so provided by the Articles of Incorporation, the transfer of assets in trust or pledge or mortgage of assets to guarantee corporate obligations.

In the absence of provisions to that effect in the Articles of Incorporation or Bylaws, shareholders meeting must be held within the Republic of Panama. Written notice of time, place and purpose is required to be given to the shareholders. Notice is given by the officers authorized by the Articles or Bylaws, in the manner provided by the Articles or Bylaws. In the absence of provisions to that effect, in the manner prescribed by the Corporation Law of Panama. Shareholders, or their authorized representatives may waive notice of any meetings in writing, and the attendance of all shareholders at a meeting thereof will operate as an automatic waiver of notice of the meeting.

Under Panamanian Law, resolutions adopted in any meeting in which all shareholders are present, whether personally or by proxy, are valid. Resolutions adopted at a meeting in which there is quorum, having the absent shareholders waiver, will be valid for all purposes listed in the waiver. The quorum requirement for shareholders otherwise the majority of shareholders will constitute the required quorum.

Under Panamanian Law all shareholders have a right to be represented by proxy at all meetings. Proxies can be done by private or public document, with or without power to substitute. The proxyholder may or may not need to be a shareholder of the corporation.

In Panama, The Articles of Incorporation may provide for cumulative voting for the election of members to the Board of Directors.

1. CORPORATE MANAGEMENT STRUCTURE – BOARD OF DIRECTORS

Panamanian corporate law provides the management, administration and control of the corporate affairs upon the Board of Directors. Such a board must be composed at least of three (3) individuals.

The quorum for Board meetings is by the majority of their members. Directors may be removed at any time, with or without cause, by the shareholders. In the absence of a provision, it is not necessary that the members of the Board of Directors be shareholders. If expressly provided by the Articles, it is possible for Directors to be presented at meetings through proxy holders, who need not be directors, and who could be appointed by public or private instrument, with or without power to substitute.

1. CORPORATE MANAGEMENT STRUCTURE – OFFICERS

Panamanian corporations must have at least a President, a Secretary and a Treasurer, who are elected by the Board of Directors. The corporation may have other officers, agents as determined by the Board of Directors, the Articles of Incorporation or the Bylaws. Officers are to be elected as set forth by the Corporate Documents, and can be removed at any time by resolution of the Board of Directors. If so provided, by the Articles of Incorporation or Bylaws, the same person may hold two or more offices, though it is recommended that the President and Secretary be two different persons. In the absence of a provision to the contrary in the Articles of Incorporation or the Bylaws, it is not necessary that the person holding an officership position in the corporation be a Director or shareholder or the corporation.

VII. AMENDMENTS TO THE ARTICLES OF INCORPORATION

The Articles of Incorporation may be amended in the same form established for the execution of the Articles, including the registration at the Public Registry. Any amendment agreed upon prior to the issuance of shares shall be authorized by the incorporators and by all who have agreed to subscribe shares. Upon issuance of shares, any amendments shall be subscribed by the shareholders.

VIII. PROCEDURE AFTER INCORPORATION – CORPORATE RECORDS AND BOOKKEEPING

A Panamanian corporation which does not operate in Panama is required to keep records of financial reports. By law, resident agents are required to maintain copies of audited financial statements or PNL statements prepared by registered public accountants. The company may maintain its books of account in any manner it desires in any part of the world. Panamanian corporations operating in Panama, doing business in Panama are required to file tax returns with the General Directorate of Income of the Ministry of Economies and Finance. No other financial reports are required, except municipal tax information.

All Panamanian corporations, including offshore companies, are required by law to have a minute book, in which the minutes of all meetings of shareholders and/or directors should be transcribed in chronological order. A stock registry book is also required. Both will be supplied, properly stamped, after the corporation is organized. Or will be held in our offices at your request.

Panamanian corporations which do business in Panama are required to have, as well, a journal, a general ledger and a book of inventories and balances and to keep them according to generally accepted accounting practices. All corporate and accounting books must be bound and sealed by Panamanian authorities.

1. PROCEDURE AFTER INCORPORATION – CORPORATE RESOLUTIONS

Under Panamanian law, a company may act either through board resolution (quorum + majority) or a shareholders vote (unanimous if required by the by laws). Resolutions of the corporation require recording in the minute book of the corporation.

Not all corporate affairs require filing of minutes at the Public Registry. However, under certain circumstances, actions taken by the board of directors, or the shareholders will have to be registered at the Public Registry i.e. Amendments to the Articles of Incorporation or to Bylaws, changes in the Board of Directors or Officers of the Corporation and Agreements to dissolve or merge the corporation must be registered in order to be valid.

1. TAXATION OF PANAMANIAN CORPORATIONS

As of 2026, an annual franchise tax of $350.00 is imposed on all Panamanian Corporations.  The annual tax is payable at the date of registration of the Articles of Incorporation, or within the six (6) months of the anniversary thereof in subsequent years. Failure to pay the annual tax within the six (6) months will result in a penalty of $50.00 for each year, or fraction thereof, for which payment is overdue.

Income tax in Panama, for corporations doing business locally, is levied only upon “Net Income” derived from operations within the Republic of Panama. Income obtained from operations realized abroad is not taxable. Even if a Panamanian corporation has an office in Panama, employees in Panama and a license to engage business in Panama, it still does not pay Panama income tax, if the transactions out of which business arose were realized outside Panama. No tax liability arises even though payment of goods is made from Panama, or payment therefore is received in Panama or the transactions are directed from an office located in Panama.

If a Panamanian corporation engages in business within the Republic of Panama and also outside the territory of the Republic of Panama, it is subject to tax only on that portion of its net income arising locally. Only dividends distributed from income arising from local sources are taxable at a flat rate of 10% whether received by any person, resident or not. Dividends arising from outside income are not taxable. Further, Panamanian Law provides that Panamanian corporations which have their only income from dividends or participation on the profits of other corporations, local or foreign, are not subject to Panamanian income or dividends tax.

A WORD ABOUT INCORPORATING IN PANAMA

Almost all Panamanian lawyers and firms incorporate Panamanian companies. Services are widely known and reasonably priced. Our office forms and operates Panamanian companies with utmost discretion and professionalism. Our fees and charges are listed. Being a litigation oriented firm, we also provide services in investigating Panamanian companies and providing legal opinions as to the legality of corporate transactions, minority shareholders rights, actions involving piercing the corporate veil, and alter ego, as well as actions involving fraud, deceit, and improper use of the Panamanian corporate structure, and appearing before foreign courts in actions involving Panamanian companies. We welcome particular inquires in this regard.

Contact us at office@frlplaw.com for more information.