Generally, individuals who decide to engage in a commercial activity in Panama are free to choose the type of legal entity. Legal entities such as the Panama private interest foundations and non-profit organisations are subject to special legal provisions according to which they cannot be established for the purpose of engaging in business activities on a day-to-day basis. Foreigners are able to engage in commercial activities within Panama, with the exception of a “retail business”, which is limited to Panamanians and legal entities owned by Panamanians, according to article 293 of the Constitution. However, there are exceptions to this restriction. For example, the sale of goods to a commercial company or business enterprise, even if the said entity is the end-user of the goods, is not considered a retail business. Likewise, services are not considered “retail”, even if they are provided to the end user. Furthermore, as a result of the Free Trade Agreement (FTA) between Panama and the US, Law No. 5 of 2007 was modified by Law No. 62 of 2012, to allow US business enterprises to engage in retail business, including the sale of goods to individuals that are end users, as long as the said business enterprise invests more than $3m in Panama and offers its goods and services in the same location. The Code of Commerce establishes different types of commercial companies. The most commonly used is the corporation (sociedad anónima). The second most popular is the limited liability company. They are used especially when there is a tax advantage in the home country of the foreign investor or multinational enterprise due to the tax laws in said country permitting the limited liability company to be disregarded for tax purposes. These companies require at least two members and one or more managers.


The Panamanian corporation is eminently capitalist and provides the benefit of limited liability to all its shareholders (or its sole shareholder). The shareholders, directors and officers may be Panamanian or foreign individuals or legal entities. It can be structured so that management and ownership are separated, but there is no restriction with respect to shareholders having an active role in the management or day-to-day operations of the corporation, as directors, officers or employees of the corporation.

There must be at least three directors, as well as a president, secretary and treasurer. There are no legal requirements regarding minimum capital and there is no need to state that the capital subscribed has been paid in. The corporation is not deemed to have legal existence with respect to third parties, until the date it is registered in the Mercantile Section of the Public Registry. Therefore, business should not be conducted under the corporate name prior to this date.

Public Companies

A corporation is deemed public when its shares or bonds are subject to a public offering that requires authorisation from the Superintendency of Securities, which includes those listed in a Panamanian stock exchange; and when the corporation has 50 or more shareholders residing in Panama that own at least 10% of the stock issued and outstanding ( excluding affiliates, employees, directors and officers of the corporation for the purpose of this calculation). However, a corporation under the second situation can opt out from being considered a public corporation if at least 75% of the stock issued and outstanding resolves to continue as a non-publicly held company.

Foreign Corporations

A corporation formed and in good standing under foreign legislation may opt to continue its existence as a Panamanian corporation and vice versa. In addition, pursuant to the Panama General Corporation Law, registering a foreign corporation in Panama and maintaining its existence under the foreign law of origin is possible.

Registration with the Public Registry of Panama will have the effect of establishing a branch in Panama. In general, the tax regime applicable to said branch will be the same applicable to a Panamanian commercial entity. From an exposure perspective, the foreign corporation and the branch are the same corporation. Thus, the foreign corporation will be jointly liable for all obligations, responsibilities and risks of the Panamanian operation.

To avoid the aforementioned, forming a Panamanian subsidiary could be an option. Panamanian jurisprudence has established that a piercing of the corporate veil only occurs in the case of criminal acts.

Free Zones & Special Economic Zones

With the purpose of promoting international trade, manufacturing and complementary services, Panama has created special laws and regulations to allow local and foreign investors to establish companies in specific special areas (special economic zones) with a wide range of fiscal, migratory and labour incentives.

The most popular, due to its impact for international commerce, is the Colón Free Zone (CFZ), created by means of Decree Law 18 of 1948.

Other special economic zones are the City of Knowledge (Ciudad del Saber), a scientific, technological and entrepreneurial park regulated by Decree Law 6 of February 10, 1998; and the Panama Pacifico Special Economic Area (Law 41 of 2004), an area assigned for the production of goods and services with high added value and technology.

The free zones, covered by Law 32 of 2011, also offers a set of tax benefits, migratory and labour incentives that makes the establishment of these special areas within the national territory more attractive, mainly addressed to foreign trade activities.

The licences given by the Ministry of Commerce and Industries referring to the free zones are: licence as developers and/or free zone operator; and licence as a company to establish and operate within a free zone.

Special Economic Regimes

With the sole purpose of promoting international trade, Panama has created a number of laws and regulations allowing both local and foreign investors to establish companies in segregated special areas, with a wide range of tax, migratory and labour incentives, recognised as special economic zones. These include Colón Free Zone, Panama Pacifico Special Economic Area, City of Knowledge and the Multinational Corporations Headquarters (MCH), among others.

With respect to the MCH, since the entry into force of Law 41 on August 24, 2007, by means of which a special regime for the establishment and operation of the MCH in Panama was created, there are now 105 multinational enterprises with regional headquarters set up throughout the country.

The MCH is able to operate as a foreign company registered in Panama or as a Panamanian company, owned by a transnational company. The companies will be considered multinational even if they operate solely in a certain country, as long as they have important operations in different regions inside that country and decide to establish a branch, affiliate, subsidiary or associated company in Panama to carry out transactions in the region. As stipulated, Law 41 grants licences indefinitely, as long as the holder does not execute any local activity and does not incur in any of the infractions laid out under the regulation of the said law.

Fuel & Hydrocarbons

The hydrocarbons and petroleum market is regulated by Decree No. 36 of 2003 and Law No. 8 of 1987. The government entity in charge of regulating matters related to hydrocarbons is the Secretary of Energy. Most activities related to hydrocarbons will require a permit from the Secretary of Energy. For example, importers of petroleum products or lubricants will require a special permit.

Cabinet Decree No. 36 allows for the establishment of petroleum free zones, called fuel free zones (zonas libres de combustible) because the hydrocarbons regulations were modified in 2008 to include biofuel and other types of fuel derived from animals or plants as permitted products for these zones. To obtain fuel free zone status, the interested party must enter into a contract with the government regarding the specific area where the free zone will be established.

Once the area is deemed a petroleum free zone, all fuel or hydrocarbons-related products that have not been imported into the fiscal territory of Panama can enter, be stored, modified and exit without paying taxes, as long as they are exported or delivered to other fuel free zones; vessels crossing the Panama Canal or located in a port of Panama, but having a foreign port as destination; planes located in Panamanian airports; official entities of foreign governments or international organisations that have the right to import fuel or hydrocarbons without paying taxes; or companies engaged in the generation of electricity activities for public use duly authorised by the Secretary of Energy. These advantages apply to the concessionaire of the fuel free zone, as well as companies which have obtained a fuel free zone user permit.

Government Contracts

Law 22 of 2006 establishes the rules for governmental contracting and creates the appropriate conditions for the enforcement of transparency policies during the contractual proceedings with the objective of developing an efficient process by promoting more access, opportunities and non-discriminatory measures to actors in the private sector.

The Public Bidding Law is applicable to all the autonomous and semi-autonomous agencies, municipalities, Social Security Office, financial intermediaries and corporations of which the state holds 51% or more shares or assets; and those that are done through public funds or national assets for the execution of the following activities: the purchase and sale or lease of goods for the state; the construction of public works; the usage of goods of the state, including its lease; rendering of services; the operation and management of goods; and concessions or any other contract which is not regulated by a special law.


Panama has always had a high rate of immigration due to labour and investment opportunities offered to foreigners. In recent years we have witnessed an immigration boom, which we attribute to several political and economic factors, domestic and international. Additionally, for many years, Panama has been characterised as a country with significant development projects and works of great magnitude, which has had a positive impact on immigration. Projects such as the expansion of the Panama Canal and the construction of the Metro, among others, bring high immigration to Panama, a situation that was foreseen by our immigration law and regulated in response to the urgent need for skilled and qualified labour for such works. However, this was just the beginning of immigration as we know it, given that the current immigration law created by Decree Law 3 of February 22, 2008 and subsequent regulations have been recently modified to create new categories to open the doors to foreigners.

As a result, we see how the country has encouraged large multinationals to establish headquarters in the Panamanian territory with the creation of Law 41 of 2007. Among these advantages is the “SEM Visa”, which allows executives whose functions are carried out abroad to obtain temporary residence for five years. Likewise, with Executive Decree 416 of 2012 foreigners who have financial solvency verifiable through a bank reference letter, whose aim is to invest or work within the territory and provided that they are nationals of specific countries with friendly and economic relations with Panama, may apply for permanent residence without such thorough requirements, including the right to opt for a permanent work permit allowing them to work for any company in the country.

Executive Decree 804 of October 9, 2012 provides in turn an immigration category which allows foreign professionals to apply for an interim two-year residence, provided that such professions are not reserved for Panamanians by the Constitution or by law and, at end of this period, to apply for permanent residence with the right to apply for a work permit under this same category, attracting skilled labour to fill job openings.


The Labour Code considers three kinds of Individual Labour Contracts: for an indefinite period (they constitute the general rule of our labour laws and are used to formalise labour relationships of a permanent nature); for a definite period; and for specific work (they are used to formalise temporary labour relationships, that is, when the cause which motivates the hiring of the employee responds to a temporary need of the company). In this regard, labour contracts for specific work constitute the typical form of labour hiring in the construction activity.

All incomes or remunerations in cash or in kind, which the employee receives by reason of work or as a result thereof, are considered salaries. Bonuses, productivity premiums and gratuities constitute salary solely for the purposes of computing vacations, seniority premium and maternity leave. Participation in profits does not constitute salary. Travel expenses, as well as special allowances for food and lodging, do not constitute salary. Free supplies do not constitute salary. Minimum wage: The minimum wage in Panama City ranges between $2.38 and $3 per hour, according to the most recent amendment in 2013. Retirement and vacations: There is no compulsory retirement age although normally men retire at 62 and women at 57. Every employee is entitled to an annual paid vacation of 30 calendar days for each 11 continuous months of service, The 13th month, or annual bonus as it is known in other countries, is a special bonus equal, under certain circumstances, to one month of salary and whose payment is divided into three portions paid on April 15, August 15 and December 15 of each year. Upon termination of a contract, the employee is entitled to have his employer pay him all the accrued or pending days of vacations (due and proportional), as well as the proportional 13th month that the employee accrued from the date of the last portion of the 13th month paid by the employer until the labour termination date. Also, if the relationship was for an indefinite period, at the moment when the labour termination takes place, the employee is entitled to receive from his employer a seniority premium, at the rate of one week salary for each complete year of services or the corresponding proportional portion.

From the moment it starts operations, every company with employees on its payroll is subject to the payment of the following employer contributions:

• Social Security, at a rate of 12.25% computed over the amount of the monthly salaries;

• Occupational Injuries, computed over the amount of the monthly salaries and whose percentage of contribution shall depend on the risk level or on the type of activities that the company carries out. This percentage ranges between 0.98% and 7%;

• Educational Insurance Tax, at a rate of 1.5%, computed over the amount of the monthly salaries paid to their employees; and

• Severance Fund, at an approximate rate of 2.25% computed over the amount of the monthly salaries paid to employees hired for indefinite period.

Banking Business

The banking business is regulated by Law Decree 9 of 1998 which has been amended and restated from time to time (“BLD”) and regulated through “agreements” approved by the Board of Directors of the Superintendence of Banks. There are three kinds of banking licences: a general licence to conduct banking business within Panama and offshore and requiring a minimum paid-in capital of $10m; an international licence to conduct banking business outside of Panama and requiring a minimum capital of $3m; and a representation licence for banks with a head office outside of Panama, substantial foreign operations and under the control of a foreign regulatory entity. Representation licence holders are allowed only to promote banking services and products and to refer clients and require no minimum capital.

The application for a banking licence from the Superintendence of Banks is a two-step process: the temporary permit and the definite banking licence. A preliminary meeting between the bank and the superintendent is mandatory. A few days after said meeting, the superintendent will send a note inviting the bank to apply for the temporary permit and will approve or deny it within 90 days. A notice shall be published for three working days in a nationwide newspaper and the general public will have 15 days to file any objections. The temporary permit shall be granted for 90 days for the bank to register in the Public Registry its articles of incorporation. Within the following 90 days the bank must file a petition for the definite licence. The bank must start operations within six months.

Every bank must pay an annual supervision tariff. The general banking licence starts at $30,000 and goes up to $100,000; the international banking licence is $15,000; the representation banking licence is $5000. Banks must also pay an annual tax as follows: for a general banking licence from $75,000 to $1m, banks shall pay 50% of the correspondent annual tax for the first year; international banking licence, $75,000; and representation banking licence does not pay taxes.

There is a commercial licence tax (applicable only to the general banking licence) in the amount of 2% of the authorised capital, with a minimum of $100 and a maximum of $60,000.00; and an income tax, currently 25%. Banks are subject to prudential and anti-money laundering rules, among others.

Consumer Protection Laws

Suppliers and providers of products and services are subject to the consumer protection rules contained in Law 45 of 2007 (“the “CPL”). The CPL makes no distinction between the consumer being a natural or a juridical person.

The CPL created the Authority for the Protection of the Consumer and the Defence of Competition (“ACODECO” as it is known in Spanish) having ample disciplinary and administrative powers to investigate, prosecute and penalise the violation of consumer protection statutes and regulations. Decisions issued by said authority are subject to review by the judiciary.

The CPL also created three special courts around the country, and one superior court, all of them to attend to, among others, consumer protection matters.

Among the basic substantive consumer protection rules established by the CPL, which ACODECO must enforce, are the following: (i) to inform the consumer, clearly and accurately on the characteristics of the product or service offered; (ii) to expressly and visibly show the amount of the debt, the term, the applied interest rate and its method of calculation, the commissions, as well as the natural person or entity that offers the financing, if there were a third party: (iii) all information, publicity or offer to the public transmitted by any media or form of communication, in connection with the offered goods or the services to be rendered, links the supplier; (iv) all public advertisements or ads regarding transactions shall be truthful, and the advertiser shall not misrepresent the facts and shall make sure that the advertisement or the publication does not induce error or confusion.

There are other laws such as Law 6 of 1987, as amended, relating to the rights of, and benefits and incentives to pensioners, and Law 24 of 2002, as amended, which regulates the operation of the Panamanian Association of Credit, the institution which collects information and data relating to the credit history of banks and other financial companies’ clients for distribution and use of that information among such credit institutions.

The Banking Law and the Securities Law establish special legal norms regarding consumer protection applicable to the banking and capital market businesses, respectively, and, therefore, banks and securities intermediaries are specifically subject to those special laws, with the exception of retirees, credit references and matters of publicity.


Law 67 of 2011 modified the regulator structure from a commission composed of three commissioners to one superintendence, headed by a superintendent and a board of directors composed in a mixed form by representatives from the private sector and two representatives of the bank and insurance regulator.

Relevant aspects subject to the modification are succinctly enunciated. Firstly, the development of market intermediaries was maintained, essentially the business of broker-dealer house, investment advisors, investment companies, investment administrators within or from Panama who obtain the corresponding licence or registration, as well as the rules of securities registration subject of public offering; secondly, foreign exchange activity is regulated and will be carried out exclusively by broker-dealer houses, unless it is exercised on its own or by bank treasuries, or when it is exercised by them on account of third parties as foreign trade activity; exchange houses; or money transfers. Investment advisors may advise on foreign exchange matters. Thirdly, in connection with natural persons intermediaries, a mode was introduced that allows a licensed broker-dealer house to hire as brokers and analysts persons without permanent residence. In this assumption the broker-dealer house jointly holds responsibility for all actions of the latter. Moreover, figures in stock exchange of financial instruments, over-the-counter markets, and administrative service providers of the stock market are included, requirements for which will be subject of regulation by the authority. Additionally, the business activity of risk rating agencies and price vendors as a regular and professional activity was developed in the latter case. There were established guidelines for investment administrators, which in case of market price’s absence, shall be used by those companies, and broker-dealer houses in the investment portfolios on their own. Finally, it developed a comprehensive and punctual disciplinary procedure for regulated parties, and those who engage in prohibited activities that require licence and/or registration before the Superintendence of the Securities Market, as well as a substantial increase in fines for violation of regulations in force.

Intellectual Property

Given Panama’s importance as a hub for global trade, trademark registration and enforcement against trans-shipment of counterfeit goods is important.

Law 61 of 2012 simplifies the national system of trademark registration and regulates the Patent Cooperation Treaty. Some of the changes introduced to our intellectual property law (trademarks, slogans, trade names, geographical indications and patents in Panama are governed by Law 35 of 1996 and Executive Decree 7 of 1998) are: notarisation and legalisation of power of attorney for the registration and renewal have been eliminated; the requirement of a certificate of good standing and legal representation has been eliminated; in case of foreign applicants a local address for service must be provided; multiclass applications are now allowed; use of the trademark must be local; registration of licence of use agreement is no longer mandatory as of October 5, 2013; trade names are protected without registration; new regulations for geographical indications have been issued.

To obtain the registration of a trademark, an application must be filed with the Panamanian Industrial Property Office. If the application is found in due form, it is published in the Official Bulletin of Industrial Property. If no opposition is filed, the registration is ordered, and the corresponding certificate of registration is issued to the interested party for a 10-year period from the date of filing of the application, and may be renewed indefinitely for identical periods of time. If a registered trademark has not been used for more than five consecutive years, the trademark may be cancelled.

Trade names do not require registration to be protected. The protection covers the geographical area of the actual clients of the company or establishments incorporated under the trade name and will extend to all of Panama based on whether there is constant mass diffusion on a national level.

Patents are the exclusive right granted to an inventor to protect new inventions that are the result of an inventive step and capable of industrial application. Patents are granted for a term of 20 years from the date the application is filed. Utility models must meet only the novelty requirement and be susceptible to industrial use. The duration of a utility model is 10 years, not renewable, running from the date of application. Industrial designs are two- or three-dimensional shapes that if incorporated to a utility product give it a special appearance and make it suitable to serve as a type or model for its manufacture. The registration of an industrial design expires within 10 years from the date of filing of the application for registration and may be renewed for up to an additional five-year period.


Panama became bound by the Patent Cooperation Treaty on September 7, 2012. Any international application filed on or after this date will automatically include the designation of Panama. The purpose of this treaty is to provide a unified procedure for filing patent applications to protect inventions in each of the members of this treaty. A PCT application does not result in the grant of a patent; the grant of a patent is a prerogative of each national or regional authority.

The purpose of copyright is the work as a result of intellectual creation, as to the form of expression in which the author’s ideas are described, explained or illustrated. Copyright in Panama is protected by Law 64 2012 and Executive Decree 261 of 1995, which provides broad protection to authors of audio-visual works, computer programmes, databases and data collections, architectural works, fine arts and journalistic works. The author of a work has original ownership of the rights by mere creation without any registration requirement or any other formality. Economic rights shall subsist for the life of the author, plus 70 years after his death. To enforce an intellectual property right, the titleholder of a protected right may initiate civil and criminal action before the competent court against any person who infringes their right. To further protect your intellectual property rights it is recommend to register your trademarks, patents, utility models and copyrights subject of counterfeiting activities before the Panama Customs Authority. This agency has an effective Customs Record in place. Intellectual property rights holders can provide information on how to detect or identify counterfeit goods, as well as on distributors, routes and any other sensitive information.

Panama is a member of the Paris Convention for the Protection of Industrial Property, World Intellectual Property Organisation, TRIPS, General Inter-American Convention for the Protection of Industrial Property, Trademark Law Treaty, Patent Cooperation Treaty, Budapest Treaty, Universal Copyright Convention, Geneva Phonograms Convention and Berne Convention for the Protection of Literary and Artistic Work.

Maritime Law

The key benefit of ship registration is Panama’s sovereign and independent system recognised by the international maritime community since 1925, which is presently the largest world registry in tonnage and number of vessels. Any ship owner, whether a natural or juridical person, and irrespective of its nationality or place of residence, may register its vessels under the Panamanian flag.

Another benefit relates to taxation. The revenues derived from international maritime commerce of merchant ships registered under the Panamanian flag are not subject to income tax in Panama, and only have to pay taxes and fees on its tonnage under a system of highly competitive tariffs. Panama’s labour force is an additional attractive feature. Ship owners may hire personnel of any nationality under labour laws that have been adapted to international practices and customs of navigation at sea. Panama ratified the Maritime Labour Convention, 2006 related to work conditions on board ships. Discounts from 25% to 60% in registration taxes and fees, depending on the gross tonnage of vessels that have a minimum of 30,000 and a maximum of 100,000 gross tonnes, are granted to groups wishing to register three or more vessels. The final factor is reduced fees for yachts. There is a fixed charge for yacht owners that wish to register their vessels in the Panamanian Merchant Marine. For yachts whose owner is a foreign corporation, the official fee will be $1500 and for yachts owned by Panamanian corporations, the official fee will be $1000.

Panama Maritime law indicates that all vessels sailing the country’s flag must comply with the requirements and most important International Conventions and Codes established by the International Maritime Organisation (IMO), such as the rules of the IMO for the Safety of Life at Sea, the International Convention for the Prevention of Marine Pollution from ships, regulations from ISM Code and IPS Code, and others. Also, Panama-flagged vessels have to comply with the International Convention on Standards of Training Certification and Watchkeeping for Seafarers 1978 (STCW 1978) as amended, and its inserted code.

Ships more than 20 years old are subject to a special inspection before being granted a statutory certificate of registry. All Panamanian ships that are engaged in international trade are subject to an annual safety inspection to determine whether or not the vessel complies with safety or life at sea, as well as marine pollution prevention requirements as proscribed by international and national laws and regulations. The annual safety inspection also verifies the existing living hygienic and working conditions of the crew in accordance with the International Labour Organisation’s conventions, which have been ratified by Panama. In addition, the Certificates of Minimum Safe Manning and Certificates of Competency for the STCW 1978 Convention are issued during the annual safety inspection.