If you're looking to protect assets, expand internationally, or tap into Latin America's fastest-growing markets, Panama offers something rare: zero tax on foreign income, 100% foreign ownership, and no residency requirement. The catch? New regulations mean you can't just set up and disappear.
At JJ Associates, we've guided many non-residents through company formation in Panama, and we've seen firsthand what works and what doesn't. This guide cuts through the outdated information floating around online and gives you the current playbook, complete with timelines, documentation requirements, and the pitfalls that trip up even experienced entrepreneurs.
Panama offers a territorial tax system, internationally recognized and regulated by the Income Tax Law. Under this framework, only income generated within Panamanian territory is subject to taxation. Income derived from operations carried out abroad is not taxed in Panama, provided that companies comply with the obligations of accounting, transparency, and due diligence established in laws such as Law 52 of 2016 and Law 254 of 2021.
The incorporation of companies in Panama is an efficient process regulated by the Public Registry of Panama, with average registration times of 2 to 5 business days, or even less under special procedures. This process requires the mandatory participation of a Panamanian attorney as resident agent, ensuring compliance with local regulations and international standards for the prevention of money laundering and terrorist financing (Law 23 of 2015).
While many procedures can be managed remotely —such as document preparation, digital authentications, and banking coordination the law requires companies to maintain accounting records in Panama and for resident agents to keep supporting documentation. This guarantees traceability and compliance before the DGI and international organizations.
Compared to other jurisdictions, Panama combines speed in incorporation with a solid legal framework, supervised by national authorities and aligned with the standards of the OCDE and GAFI.
What Makes Panama Different from Other Jurisdictions
Panama offers a competitive and transparent tax framework that supports global business expansion while maintaining full compliance with international standards and reporting regulations. We provide attractive tax efficiencies grounded in solid regulatory oversight and aligned with OECD principles. The services sector contributes 75% of GDP, with infrastructure projects like the $4 billion rail expansion and $1.6 billion reservoir drawing serious international investment.
Recent regulatory updates have actually strengthened Panama's reputation. The EU praised the country's anti-money laundering improvements in June 2025, which means better banking access for legitimate businesses. Yes, compliance requirements increased, but that's filtered out bad actors and improved the jurisdiction's credibility.
For U.S. non-residents specifically, Panama offers FATCA and CRS compliance, meaning your structure stays above board with international reporting standards. About 40% of our U.S. expat clients use Panama for asset protection while maintaining full legal compliance back home.
You have three main options, and choosing the wrong one can create unnecessary headaches. Here's what actually matters for each structure.
S.A. (Sociedad Anónima): The Corporation
Think of this as Panama's equivalent to a U.S. corporation, but with more flexibility. You need three directors of any nationality and at least one shareholder. There's no minimum capital requirement, which means you're not parking cash just to satisfy formation rules.
The S.A. structure works for:
Key requirement for 2026: Bearer shares must now be immobilized with a custodian for anti-money laundering compliance. This doesn't eliminate privacy, it just adds a layer of accountability.
Your ongoing obligations include a $300 annual franchise tax and keeping your Ultimate Beneficial Owner (UBO) registry updated. Miss these deadlines, and you're looking at fines between $5,000 and $1 million under Law 254/2021.
S.R.L. (Sociedad de Responsabilidad Limitada): The LLC
Panama's version of an LLC requires just two partners of any nationality. The governance structure is simpler than an S.A., making it ideal for smaller operations or ventures where you don't need complex shareholder arrangements.
Best suited for:
You'll need to maintain accounting records for five years, but if you're running purely international operations with no local activity, audits aren't required. This keeps compliance costs manageable.
Branch of a Foreign Company
Already running a business elsewhere? A branch lets you extend operations into Panama with fewer setup steps. The parent company manages everything, which streamlines decision-making.
The major downside: Your parent company's assets are fully exposed to any liabilities incurred by the Panama branch. One lawsuit or compliance issue in Panama can reach back to your home country assets.
This structure makes sense when you're expanding an established business and need a local presence for specific operations. Just understand you're trading simplicity for increased risk exposure.
Getting your paperwork right the first time saves weeks of back-and-forth. Here's exactly what you need and how the process actually unfolds.
Core Documents You Must Prepare
Articles of Incorporation (AoAs) form the foundation. These outline your company name, business purpose, and capital structure. Everything must be in Spanish and notarized, even if you're submitting from abroad.
Director and shareholder information requires apostilled or notarized copies of:
The UBO registry is non-negotiable now and requires full disclosure of all ultimate beneficial owners, regardless of their ownership percentage or level of control. While the company may reserve or hold back a portion of its authorized shares for future issuance, every issued share must be properly registered and its beneficial owner identified. This information is submitted to a secure government registry (it is not public) but it must remain accurate and up to date at all times.
Pro tip from our team at JJ Associates: Get your documents apostilled in your home country before starting. This process alone can take 1-2 weeks, and it's often the bottleneck that delays otherwise smooth formations.
Step-by-Step Formation Process
Name reservation comes first. You'll submit your chosen name to the Public Registry to ensure it's available and complies with Panama's naming rules. This typically clears within 24-48 hours.
Notarization of bylaws happens next. A Panamanian notary reviews and certifies your company documents. If you're working with an experienced firm, they'll catch any issues before submission.
Public Registry filing is where your company becomes official. Standard processing takes 2-5 business days. Express service costs more but gets you registered in one business day if you're on a tight timeline.
RUC (tax ID) and commercial licenses follow incorporation. The RUC is automatic for international operations. You only need a commercial license from the municipality if you're conducting business activities within Panama.
Realistic Timeline Expectations
For a straightforward formation with no local operations:
Banking adds significant time. KYC and AML checks now require 1-4 weeks beyond incorporation. Banks want notarized documentation, source of funds proof, and detailed business plans. Some non-residents hit delays when their home country banking relationships don't meet Panama's due diligence standards.
Total realistic timeline: 2-5 business days for the company formation itself, 5-10 days including licenses, and potentially 3-6 weeks if banking is critical to your launch.
In Panama, incorporation is only the first step. Companies must comply with ongoing obligations through a local representative, and failure to do so can result in significant penalties under current legislation.
The Mandatory Resident Agent Role
Every Panamanian company must appoint a Resident Agent, who must be a licensed Panamanian attorney or law firm. This requirement is mandatory and cannot be bypassed.
The Resident Agent is responsible for:
- Maintaining the company’s registered office address in Panama.
- Filing Ultimate Beneficial Owner (UBO) updates when ownership changes, as required by Law 129 of 2020 and subsequent regulations.
- Acting as the official contact point with government authorities.
- Ensuring compliance with AML and CFT obligations under Law 23 of 2015 and Law 254 of 2021.
Compliance and Privacy Considerations
While nominee directors are permitted under Panamanian law, their use must comply with international transparency standards.
Resident Agents cannot act merely as “fronts”; they are legally bound to maintain accurate records and ensure that UBO information is filed with the SSNF.
Companies must also maintain accounting records in Panama and provide copies annually to their Resident Agent. Non-compliance can trigger fines starting at USD 5,000, escalating to USD 1 million for serious violations, as established by Law 254 of 2021.
Here's something many non-residents discover only after forming their company: Your Panama corporation can serve as your pathway to residency and potentially citizenship.
Friendly Nations Visa Through Your Company
Citizens of over 50 countries (including the U.S., Canada, and most of Europe) may qualify for residency under the Friendly Nations program if they establish “professional or economic ties” with Panama.
The process works like this:
You'll need to visit Panama three times total during the process. Once you have permanent residency, there's no minimum stay requirement. In 2025, roughly 70% of approvals came through this program rather than other visa categories.
The territorial tax system applies to your personal income too. If you're not earning money from Panama sources, you're not paying Panama income tax on your worldwide earnings.
Qualified Investor Visa for Faster Permanent Residency
Need permanent residency immediately? The Qualified Investor route requires $300,000 invested in Panama real estate or your company's operations. This gets you instant permanent residency and a path to citizenship in five years.
The presence requirement is minimal compared to most countries offering investment citizenship. This appeals to non-residents who want the flexibility of a second residency without committing to living in Panama full-time.
Tax Considerations for U.S. Non-Residents
If you're American, Panama's structure offers significant asset protection benefits. The combination of territorial taxation and 0% tax on foreign income makes it attractive for holding international assets.
Critical warning: Work with a CPA familiar with international tax. The IRS may view your Panama company as a Passive Foreign Investment Company (PFIC) or trigger Controlled Foreign Corporation rules depending on your ownership structure. These classifications can create unexpected U.S. tax obligations that wipe out your Panama tax benefits.
About 40% of U.S. expats we work with at JJ Associates form Panama companies specifically for asset protection. Your Panama company's assets generally stay protected from U.S. judgments, but you must structure everything correctly from day one.
Let's talk about what actually goes wrong, because the mistakes we see cost real money and time.
Misclassifying Income Sources
Panama's territorial tax only works if your income truly originates outside Panama. If you're selling services to Panamanian clients or conducting operations within Panama, that income gets taxed at 25%.
The problem? Many entrepreneurs misunderstand what constitutes "local" income. Providing services to a Panama company from your laptop in Mexico might seem foreign-sourced, but Panama tax authorities could disagree. Get professional guidance on classifying your specific income streams.
Skipping Required Local Licenses
Forming a company doesn't automatically authorize you to conduct business operations in Panama. If you're hiring local employees, renting office space, or serving Panamanian customers, you need commercial licenses and permits from government authorities and the municipality.
Operating without proper licenses brings fines starting around $1,000 and can escalate if you continue. This trips up about 15% of our 2025 formations where clients assumed incorporation covered everything.
Banking Preparation Oversights
Here's where reality hits many non-residents hard. You can incorporate your company in 2-5 days, but opening a bank account takes 4 weeks and sometimes fails entirely.
Panama banks now require extensive due diligence:
Come prepared with bulletproof documentation. One missing apostille or unclear explanation of fund sources sends you back to square one.
Ignoring Home Country Tax Implications
This is the mistake that gets expensive. Just because Panama doesn't tax your foreign income doesn't mean your home country won't.
An offshore consultant on X (formerly Twitter) puts it bluntly: "Form a company with no revenue needed, get residency instantly under territorial tax. It's a legal edge for expats, but pair with home-country advice to dodge CFC traps."
The U.S., Canada, and most European countries have anti-deferral rules. If you control a foreign company and don't report it properly, you're looking at penalties from your home tax authority that dwarf anything Panama might charge.
It is advisable to engage a knowledgeable local provider in order to navigate procedural formalities efficiently and avoid delays or administrative issues.
Why Expert Guidance Matters for Non-Residents
The documentation requirements are specific and unforgiving. One missing apostille or incorrectly notarized document sends your application back for resubmission. That turns a 5-day process into a 3-week ordeal.
At JJ Associates, we handle the entire formation process for non-residents, from document preparation through banking introductions. We're familiar with the specific requirements of different home countries, so we can flag potential issues before they become problems.
Questions to Ask Before Hiring Help
Not all service providers offer the same quality. Here's what separates experienced professionals from document mills:
How do you handle UBO compliance? The right answer includes details about the closed registry system and ongoing update requirements under Law 254/2021.
What's your relationship with Panama banks? Established firms have banking contacts that can streamline account opening. Newer providers might incorporate your company fine but leave you struggling for banking access.
How do you address home country tax reporting? They should ask about your residence and flag potential CFC or PFIC issues. If they don't mention this, they're not protecting your interests.
What's included in annual maintenance? Get clarity on whether the quoted fee covers just the $300 franchise tax or also includes resident agent services, UBO updates, and compliance monitoring.
The Role of Resident Agents
Your resident agent isn't just a name on the registry. They're your compliance partner and your buffer against penalties.
Good agents proactively remind you about filing deadlines, flag regulatory changes that affect your company, and coordinate with authorities when permits or licenses come up. They also provide the registered address and official contact point for any government correspondence.
In most non-resident incorporations, it is common for the resident agent to provide director services as part of the corporate structure. This approach limits the amount of personal information appearing on public records, while allowing shareholders to retain decision-making authority through appropriate documentation. It is important to ensure that these arrangements are evaluated for any potential tax implications in the jurisdiction of the beneficial owners.
Once your company is formed, the real opportunities start appearing.
International Trade and Asset Holding
Panama's position as a global shipping crossroads isn't just geography. The canal processes enormous volumes of international trade, and your Panama company can serve as a holding entity for international assets or trade operations.
Real estate holdings work particularly well through Panama corporations. Property can be titled in the company name, providing asset protection and simplifying estate planning. When structured correctly, this keeps real estate out of probate proceedings in your home country.
International trading operations benefit from Panama's territorial tax system. If you're buying from one country and selling to another, with no Panama-sourced components, that profit stays tax-free in Panama. Combine this with the country's banking system and you have efficient cross-border payment capabilities.
Financial Services and Investment Management
Panama maintains a sophisticated financial services sector. While you'll face enhanced due diligence as a new company, legitimate operations have access to international banking, investment platforms, and wealth management services.
The country ranks at the top of Central America for foreign direct investment inflows. Services account for 75% of GDP, with financial services forming a significant portion. This creates opportunities for non-residents providing consulting, advisory, or specialized services to the region.
Regional Expansion Throughout Latin America
At JJ Associates, we've seen non-residents use Panama as a launchpad for broader Latin American operations. Once you have a Panama base, expanding into Costa Rica, Brazil, or other regional markets becomes more straightforward.
Panama's infrastructure projects, including the $4 billion rail expansion and $1.6 billion reservoir, signal continued economic growth. Companies positioning themselves now can benefit as the country's role in regional trade expands further.
Restrictions to Watch
Foreign ownership is prohibited in certain sectors:
Make sure your intended business activity falls outside these restrictions before incorporating. The resident agent should flag any potential issues during the initial consultation, but it's worth double-checking if your business model is unusual.
You've got the framework. You understand the structures, documentation requirements, and compliance obligations. You know about the territorial tax benefits and the penalties for getting it wrong.
The question now is whether Panama makes sense for your specific situation. Are you protecting assets, expanding internationally, or seeking residency? Does your home country's tax treatment of foreign corporations support or undermine the benefits?
At JJ Associates, we work with non-residents across Panama and throughout Latin America, specializing in company formation, residency pathways, and financial services. We've guided businesses through standard S.A. formations and complex multi-country structures that leverage Panama's benefits while maintaining full compliance at home.
If you're ready to explore company formation in Panama, reach out for a consultation. We'll assess your specific situation, identify potential obstacles, and map out the most efficient path forward. Whether you're forming your first international company or adding Panama to an existing structure, we'll make sure it's done right the first time.
Can I form a Panama company without visiting the country?
Yes, 95% of our 2025 non-resident formations completed entirely remotely. You'll need apostilled documents from your home country, but the actual incorporation, RUT issuance, and even banking can be handled through professional service providers. Some banks prefer an initial in-person visit, but many now accept video verification.
How long does it take to open a bank account for my Panama company?
Expect 4-6 weeks after incorporation for banking approval. The timeline depends on your documentation quality and the bank's current KYC workload. Have bank reference letters, source of funds documentation, and a detailed business plan ready before approaching banks. Missing any of these extends the process significantly.
Will Panama report my company information to my home country?
Panama participates in Common Reporting Standard (CRS) and FATCA for U.S. citizens. This means financial account information gets reported to your home tax authority. The company formation itself isn't automatically reported, but banking activity is. Factor this into your planning and make sure you're meeting all home country reporting obligations.
What happens if I don't file UBO updates?
Penalties start at $5,000 for minor violations and can reach $1 million for serious or repeated non-compliance. Beyond fines, your company can't legally transfer shares, apply for licenses, or conduct certain transactions until filings are current. Keep your resident agent informed of any ownership changes immediately.
Does forming a Panama company automatically qualify me for residency?
Forming the company is a prerequisite for business-based residency, but you still need to apply for the visa separately. The Friendly Nations Visa requires incorporation plus a work permit application. Approval typically takes 2-4 months after filing. The company itself doesn't grant residency, it qualifies you to apply for it.
Can my Panama company own U.S. real estate?
Yes, Panama companies can own property in the United States and many other countries. However, this triggers U.S. tax reporting requirements including Form 5472 and potentially others depending on your citizenship and the property's use. Consult a CPA familiar with foreign-owned U.S. real estate before structuring this type of investment.
What's the difference between territorial tax and tax residency?
Territorial taxation means Panama only taxes income sourced within Panama, regardless of where the company is based. Tax residency determines which country has primary taxing rights over your personal income. You can have a Panama company benefiting from territorial tax while remaining tax resident in another country, but your home country's rules about foreign corporations still apply.
Are there ongoing reporting requirements besides the UBO registry?
If your company conducts local operations, you'll need to file annual accounting records with your resident agent. International operations with no Panama-sourced income have minimal ongoing reporting beyond maintaining current UBO information and paying the annual $300 franchise tax. Your resident agent handles most routine compliance, but you're responsible for notifying them of changes.
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