Jurisdiction of the month: Panama

2014 03 25 | Category: News

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Geography, Population, Languages

The Republic of Panama occupies an area of 75,990 square kilometres and is situated between Costa Rica in Central America and Columbia in South America. Panama forms the narrowest isthmus between North and South America, with the Pacific Ocean on one side and the Atlantic on the other. Its capital, Panama City, is on the Pacific coast at the entrance to the Panama Canal. The country has a population of about
3.2 million of which 700,000 live in Panama City. About 52% of population live in urban areas. The official and main spoken language is Spanish. English is also widely spoken in urban areas and is used daily in commerce and international trade, i.e. Spanish and English are used equally in business circles.

History, Political Structure and Law

The isthmus of Panama was discovered in 1501 by Rodrigo de Bastidas and Vasco Nunez de Balboa. In 1510 they established the first permanent settlement on the mainland of the America. In 1513, Balboa led an expedition to Panama and discovered the Pacific Ocean. Panama City was founded in August 1519, almost a hundred years before the first permanent English settlement in North America. Panama was a Spanish colony until 1821 when it became part of the Gran Colombia of Simon Bolivar. In 1903, Panama broke its alliance with Colombia and became an independent republic.

The Constitution of Panama provides for a republican form of government. The executive branch of the government is a President and two Vice-presidents elected for a five-year term. Citizens over the age of 18 years have the right and obligation to vote directly for the President and two Vice- presidents, and to vote for the appointment of legislators to the Legislative Assembly. For the purpose of the election of legislators, the country is divided into electoral circuits with an average of 30,000 voters in each.

Panamanian law is based on the Spanish Civil Code, with many Common Law influences, particularly regarding Company Law, which is based on the Delaware model.

Economy and Infrastructure

Panama City is connected with the principle cities of North, Central and South America, Europe and the Far East by major scheduled airlines. Panama has excellent telecommunications and postal facilities, and courier services are well established in the country.

The Colon Free Trade Zone is located on the Caribbean side of the Isthmus of Panama near the entrance to the Panama Canal. This Free Trade Zone is the second largest in the world after Hong Kong. Operations and transactions taking place in the Free Trade Zone are subject to special tax treatment, whereby imports from other parts of the world and re-exports to other countries are exempted from any import or export duties imposed by Panama. Income earned from re-exports is taxed at specially reduced rates.

The official currency is the Balboa which, under a monetary agreement of 1904 with the United States, is on a par with the United States dollar and is freely convertible. The US Dollar is also legal tender, and since there is no Panamanian paper currency it circulates freely. There is no exchange control.

Company Incorporation

The principal corporate legislation is Corporation Statute Law No. 32 of the 1927 Commercial Code, Decree 5 of 1997 and Executive Decree 296 of 1997. The types of Company used for international trade and investment are the Limited Liability Company and Limited Partnership. The language of legislation and corporate documents is Spanish, and certified English translations are required.

Trading and business activities are subject to the following restrictions:

• A Company has no right to engage in the business of banking, trusteeship and trust administration, insurance, assurance, reinsurance, fund management, investment funds, collective investment schemes, or any other activity that would suggest an association with the banking, finance, fiduciary or insurance businesses.

Incorporation procedure involves the presentation of the proposed corporation’s signed Articles of Incorporation before a notary public who creates a Public Deed for registration at the Public Registry.

There is no requirement under Panamanian law for a registered office to be maintained in Panama, but the company must maintain a Resident Agent who must be a Panamanian lawyer or firm of Panamanian lawyers. The minute book of the company and stock register which is required under Panamanian law, can be maintained in any part of the world. Off-the-shelf Companies are available.

Company names are subject to the following requirements and restrictions:

• Names may be expressed in any language that uses the Latin alphabet. A Spanish or English translation may be requested by the Registrar.
• A name similar to that of an existing company is not acceptable.
• Names of well-known companies incorporated elsewhere or a name that implies government patronage are not acceptable.
• Names containing the following words: Bank, Building Society, Savings, Insurance, Assurance, Reinsurance, Fund Management, Investment Fund, Trust or their foreign language equivalents, require consent or a licence.
• All Panamanian corporations must end with the suffix Corporation, Incorporated, Sociedad Anonima or the abbreviations Corp, Inc or SA. They may not utilise the suffix Limited or Ltd.

Details of the directors must be registered on the public file. Both corporations and natural persons may act as directors and the minimum number of directors is three. They may be of any nationality and need not be residents of Panama. The directors of a Panamanian company must appoint a president, secretary and treasurer. This can be one person, but may not be either a director or a shareholder. The directors may equally appoint themselves. A company secretary must be appointed, and this may be a natural person or corporate body. The company secretary may be of any nationality and need not be a resident of Panama. A company should have a minimum of one shareholder, and the names of subscribing shareholders will appear on public record. They can, however, be nominees. Panamanian law does not require details of any changes of shareholders to be lodged after incorporation.

The standard authorised share capital is US$ 10,000 divided into 100 common voting shares of US$ 100 each or 500 common voting shares without par value; the capital may be expressed in any convertible currency. The minimum issued capital is either one share without par value or one share with par value.

The following classes of shares are permitted: non-voting shares, preferred shares, bearer shares and registered shares. Bearer shares must be paid in full.

Annual Taxation and Fees

Taxation in Panama is strictly territorial. If the company’s activities are run outside Panama, no tax will be levied other than an annual franchise tax which is payable to maintain the good standing. There is no requirement to file financial statements if income is from non-Panamanian sources. There is no requirement to file returns with the Panamanian authorities or to lodge any financial or other information unless the company is being wound up.

EditorJurisdiction of the month: Panama