To open a subsidiary in Panama, foreign companies interested in expanding their activities to this jurisdiction will follow the general process for company incorporation in Panama. The subsidiary will be incorporated as a local company. Read below to find out more about this business structure.
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What is a subsidiary in Panama?
A subsidiary is a locally incorporated company that is wholly or partially controlled by a foreign legal entity. The overseas company is not directly liable for the debts or obligations of its Panamanian subsidiary, as it would be in the case of a branch.
The foreign company and the subsidiary are two legally distinct (separate) legal entities. That means that they conclude agreements in their own name and can enter into litigation in their own name. Our lawyers in Panama can give you more details upon request.
What are the requirements to open a subsidiary in Panama?
The process to open a subsidiary in Panama is the same as to set up a company in Panama. What this means is that the subsidiary is a local company, registered according to the Panamanian rules for company creation and one that observes the corporate law in Panama.
A short, general list of steps for Panama incorporation is presented below by our team:
- Choose the business form: in Panama, the choice is between the corporation (the S.A.) and the limited liability company (the S.R.L.);
- Select the name: make sure that the name intended for use is available and it is not too similar (or identical) to one that already belongs to a registered company;
- Decide on the particulars: these include the company’s registered office address and other information relevant for the future business;
- Prepare the documents: these include the Articles of Association and Memorandum, drafted in Spanish. Our team can help you with this step;
- Register the new company: this is done with the Public Registry and it can also be assisted by one of our local agents.
Depending on the industry in which it will activate, the subsidiary will also have to apply for a license.
How is a subsidiary in Panama taxed?
Taxation is mandatory for locally-registered companies in Panama and this is something to consider for those who open a subsidiary in Panama. Our team lists some of the main taxes below:
- Progressive tax rates range from 7.5% to 22.5% for micro, small, and medium companies;
- For other companies, a 1.17% rate can apply on gross taxable income or tax is calculated at the greater of a 25% rate on the net taxable income;
- A 10% dividend withholding tax can apply, however, other dividend withholding rates of are also in place;
- Certain investment incentives are in place which can be discussed with our local team of specialists.
Because subsidiaries are locally incorporated companies, they follow the applicable local filing requirements. However, these apply mainly to companies in the financial sector (banks, insurance and reinsurance companies), and others registered with the National Securities Commission. For these types of companies, audited financial statements are expected.
Doing business in Panama for foreigners
There are no restrictions on nationality in the case of foreign companies that intend to open a subsidiary in Panama, nor are there on the nationality of their appointed representatives.
As seen in this article, to open a subsidiary in Panama one must follow a set of mandatory steps. A residence permit in Panama, or immigration to Panama are not however required. If you do require information on immigration matters, including on how to obtain Panamacitizenship, our team can also answer these types of questions.
Contact us if you want to know more about how to open a subsidiary in Panama.