By: Morgan & Morgan Group
When must an entity register to do business in your jurisdiction? Are there alternative forms of registration (full registration vs. representative office)?
An entity must register to do business in Panama when it is going to do local activities (within the Panamanian territory). It can be registered through the incorporation of a Panamanian Corporation or a Limited Liability Company.
The alternative form for a representative office will be by registering a Branch through the registration of the Foreign Corporation or LLC or any other foreign legal entity in the Panamanian Public Registry.
Depending on the activity to be carried on, the entity should get either an Operation Permit from the Ministry of Commerce, Banking License, Insurance License, Free Zone’s Operation Permit, etc.
Are there any treaties that govern foreign entities doing business in your jurisdiction? Are there exemptions for educational activities under those treaties?
Foreign and Domestics entities doing business in Panama will be ruled by the local laws and not by international treaties.
There are special zones that are ruled by special regimens, mainly for purposes of conducting business taking effect out of the Panamanian territory. These zones will get benefits and exemptions on some taxes and labor obligations.
There are also treaties and laws that grant protection to foreign investment in Panama.
As for exemptions for educational activities, there are no regulations regarding it, considering that treaties don’t govern foreign entities operating in Panamanian jurisdiction.
What is the test for when a foreign entity is subject to local taxes?
Income tax is ruled under the territorial system. All income arising from local activities or Panamanian sources will be taxed.
There are other taxes that affect any foreign entity as long as it has local activities or real state located in Panamanian territory such as real state tax, municipal tax, operation tax, service tax, real state transference tax, etc.
Are there any tax treaties that provide exemptions? In general, what types of exemptions are available?
In fact, Panama has signed many agreements and treaties relating to tax exemptions, which we can list using the following categories:
- Conventions for the avoidance of double taxation with respect to taxes on Income and the prevention of fiscal evasion.
- Conventions for the avoidance of double taxation with respect to taxes on Income and on Capital and prevention of fiscal evasion.
- Agreements for tax cooperation and the exchange of information related to tax matters.
- Agreements for the avoidance of double taxation with respect to the international operation of ships and / or aircrafts.
- Reciprocity agreements in matters of exemption from Income Tax derived from ocean freight coming from the operation of ships.
- Free Trade Agreements
- Convention establishing the Andean Development Corporation.
- Roads Convention between the Republic of Panama and the United States of America, signed at Panama on September 14, 1950.
In general the type of exemptions available in the treaties listed above involve tax matters such as Income Tax, Wealth tax, customs duties, taxes on sea freight and Import Tax.
There are also exemptions granted by statutes, such as real state tax exemption to new constructions, Income Tax exemption to activities located in special areas and Import tax granted to some immigration programs.
Are there special rules for foreign institutions of higher education?
In Panama, all higher education institutions, whether domestic or foreign, must comply with the provisions of Law 30 of 2006, which created the National Assessment and Accreditation for Improving the Quality of University Education. This law is regulated by Executive Decree 511, of 2010.
The law in question indicates the documentation to be provided by private universities to be authorized to operate in Panama.
What is the test for independent contractor vs. employee in your jurisdiction?
Employees have special protection by Constitution and by the Labor Code. There is a presumption that any service relation rendered by a person to a person or corporation under conditions of economical dependence (it is its only income) and juridical subordination (receive orders, has to comply with a number of hours of work), will be considered as a labor relation ruled by the labor jurisdiction.
Labor relation is strictly ruled by the Panamanian Labor Code.
When is a work permit required?
All foreigners working under a payroll, for an employee registered in Panama, will need to get a Work Permit from the Labor Ministry.
There is a special regimen for companies that establish in Panama its regional operations, which allows foreign personnel to work in Panama only with the Residence Permit.