When you structure a business in Panama you need to plan for tax in Panama and tax in your home country. You also need to build in asset protection and privacy to reduce the risk of being sued in Panama. Here’s how to best structure a business in Panama.
Note that this article is focused on internet businesses, such as affiliate marketing. A business that can be operated from Panama but does not sell to locals. An online business with minimal financial ties to Panama. Businesses that generate foreign-sourced profits for the Panama company.
If you open a restaurant or bar in Panama, the income earned would be locally sourced profits. You would pay tax in Panama and these tax planning ideas would not help. You pay tax in Panama when you sell to locals and have options when you sell to people outside of Panama.
Tax-Efficient OnLine Business in Panama
With that, here’s how to build a tax-efficient online business in Panama.
We start with a Panama corporation and build out from there. The Panama company will have a local bank account and, where possible, a local merchant account. The corporation will provide some level of protection to your business and gives you access to a local bank.
However, Panama now requires you to have a residency visa to open certain types of bank accounts. This is especially true if you want a local e-commerce account with competitive rates. You will get lower rates as a “local business” located in Panama that one operated from abroad. For more, see: Panama is getting out of the offshore banking business.
If you’re from a top 50 country, or your country is on the “friendly nations list,” you have two options to get a residency visa. You can start a business in Panama and apply for residency, or you can invest in one of Panama’s green initiatives and get residency.
Most of our clients who are structuring a business in Panama go with the reforestation visa rather than the business visa. The only exceptions have been larger companies that set up in Panama Pacifico.
The reason business owners are going with the reforestation visa is that they don’t want the attention that comes with a business visa. They don’t want tax people and immigration people going through their books, so they choose the path of least residence, the Panama friendly nations reforestation visa.
Remember that I’m focused on internet businesses generating foreign sourced income and not businesses selling to locals. If you’re running a coffee shop, you’ll be audited anyway. Might as well go with the business visa.
Next, we build out your asset protection and estate planning structure. In Panama, that’s a Panama foundation. When set up properly, the foundation provides maximum asset protection, especially for those with residency visas.
One reason for this is that the foundation is used by wealthy Panamanians and international persons alike. If a Panama court were to rule against a foundation, they would be ruling against the structure every wealthy local use for asset protection.
Unlike other jurisdictions, such as Nevis, Belize, Seychelles, etc., the foundation is used by locals to hold their assets. Just about every local development and business is held inside a foundation. Again, this is unique to Panama.
The issue with Panama is that the owners of a foundation and/or a corporation are public record. The founder of a foundation and the shareholders and officers of a corporation are in a searchable database. This information is not available in other asset protection jurisdictions.
The solution is for the founder of the foundation, along with the shareholders and officers of the corporation to be an offshore LLC.
That is to say, the founder, officer, and shareholders of a Panama structure can be natural persons or foreign companies. Thus, we can form an LLC in Belize to act as the founder of your foundation and another to act as a shareholder an officer of your corporation.
The next component of structuring a business in Panama is a foreign corporation (outside of Panama and the United States). We can use this to minimize the amount of money that comes into Panama and thereby keep it private. Some choose to bring into Panama only the cash they need to run the business and cover their expenses. In that case, the Panama corporation breaks even at the end of the year.
Some clients also require a US corporation and account. If you’re a US citizen with a US address, that’s easy enough… and it cuts your merchant account costs in half or better.
The key to a US structure is that your offshore company must bill your US company each month so that the US company has no profit at the end of the year. You then draw a salary up to the Foreign Earned Income Exclusion (about $100,000 per person per year) and report that on Form 2555. This assumes you are a resident of Panama, qualify for the FEIE, and that you have no US employees.
I hope you’ve found this article on how to structure a business in Panama to be helpful. For more information on building a tax-efficient online business, please contact me HERE
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