Distinctions Between Operating and Non-Operating Corporations in Panama

In Panama, incorporating a corporation is a popular option for both local companies and those conducting commercial activities outside the country. However, it is crucial to understand the differences between operating and non-operating corporations in Panama, as these distinctions can have significant implications for tax and legal obligations. At Delvalle & Delvalle, we understand the importance of selecting the proper legal structure for your business and how this decision can impact your operations, both within and outside of Panama. Throughout this article, we will examine the primary distinctions between these two types of corporations, offering a clear and concise guide to help you make informed decisions that align with your business objectives.

Differences Between Corporations in Panama

Characteristics of Operating Corporations in Panama
A corporation is considered to be operating in Panama if it meets any of the following characteristics. First, if the corporation has commercial offices in Panamanian territory, it is evident that it is conducting activities within the country. Additionally, having an operating notice is a clear indication that the company is formally registered to carry out its activities in Panama.

Another essential characteristic is whether the corporation offers any services in Panama or from Panama. This includes providing services to both local and international clients, with an operational base in Panama. Likewise, if the corporation sells products in Panama or from Panama, whether wholesale or retail, it is considered to be operating.

Furthermore, the distribution of products within the country and the issuance of invoices to natural or legal persons who will use said invoices as deductions from their income also determine that the corporation is conducting activities in Panama.

Corporations that meet these characteristics are subject to several tax and legal responsibilities, including the payment of a flat annual fee of US$300.00, income tax on net profits at a rate of 20%, and the payment of VAT if their yearly billing exceeds US$35,000.00. They must also comply with the payment of municipal taxes and, depending on their activity, may be subject to other specific taxes.

Characteristics of Non-Operating Corporations in Panama
On the other hand, a corporation is considered non-operating in Panama if it does not offer services within the country or from the government, regardless of whether payments are received in a Panamanian bank account. This is a key point in determining its non-operating status.

Another characteristic of these corporations is that they issue invoices related to the sale of products or goods whose final destination is not Panama, regardless of whether payments are made to Panamanian bank accounts. Additionally, if invoices are issued to natural or legal persons outside of Panama, the corporation is classified as a non-operating entity.

Corporations that do not operate in Panama are required to pay a flat annual fee of US$300.00; however, they are not subject to other local taxes, such as income tax or VAT. However, they must maintain private accounting records prepared by an authorized public accountant, and these records may be kept either in Panama or abroad.

Understanding the distinctions between operating and non-operating corporations in Panama is essential to ensure compliance with the corresponding tax and legal obligations. Each type of corporation entails different responsibilities and benefits, so it is necessary to select the structure that best suits your business’s needs and goals.

At Delvalle & Delvalle, our team of experts is ready to advise you every step of the way, ensuring that your corporation is incorporated correctly and operating in accordance with Panamanian regulations. Whether your company operates within Panama or internationally, we are here to offer legal solutions that support the success of your business.

Do not leave your company’s future to chance. Consult with us at Delvalle & Delvalle to receive personalized advice that allows you to make informed and secure decisions, ensuring that your corporation complies with all current regulations.