Panama's reputation took a real, verifiable turn for the better recently: it came off the FATF grey list in October 2023 and the European Commission's AML high-risk list in July 2025, meaningful developments for anyone worried about banking friction. Here's what it takes to start a business in Panama in 2026.
1. Which business structure fits you?
Before you register anything, it helps to know what you're actually choosing between.
- S.A. (Sociedad Anonima). The standard choice under Law 32 of 1927, needing three directors of any nationality and at least one shareholder, with no strict minimum capital requirement (though $10,000 authorized capital is a common practical default many formation agents use). Bearer shares are allowed but must now be immobilized with a custodian for anti-money-laundering compliance, a 2026 requirement that adds accountability without eliminating privacy.
- S.R.L. (Sociedad de Responsabilidad Limitada). Panama's LLC equivalent, needing just two partners of any nationality.
100% foreign ownership is permitted across most business structures, and no residency is required to own a Panamanian company, though incorporating alone doesn't grant you residency; that's a separate immigration matter entirely.
2. Register your business
With complete, notarized documentation, Public Registry processing commonly takes 5 to 10 business days. Hiring a Panamanian law firm to handle the full first-year setup, notarization, registration, corporate documents, apostilles, and Registered Agent service, typically runs $1,500 to 2,100; some all-inclusive offshore-focused packages start around $1,700 to 2,150. Banking is genuinely the slowest step: expect enhanced KYC and anti-money-laundering due diligence that can add 1 to 3 weeks or more, and a firm with established local bank relationships can meaningfully shorten this.
3. Keep your UBO registry current
Panama requires companies to keep their Ultimate Beneficial Owner registry updated, and this isn't optional paperwork: penalties under Law 254/2021 for non-compliance range from $5,000 to $1 million. Combined with the bearer-share custodian requirement, Panama's privacy protections are real but now come with genuine, enforced accountability layered on top.
4. Check licenses and permits
Panama doesn't issue a single national business license. What you need depends on your sector; food service, pharmacies, construction, and industrial operations typically require sanitary, environmental, or municipal permits before operating.
5. Understand Panamanian taxes
Panama runs a territorial tax system: income earned outside Panama isn't taxed there at all, no income tax, no capital gains tax, no dividend tax on foreign-source income, provided it's properly documented. Locally-sourced income is taxed at a flat 25% for companies with revenue under $1.5 million (an alternative minimum tax may apply above that if it results in a higher bill). ITBMS (Panama's VAT) is 7% standard, 10% for hotels and alcohol, 15% for tobacco, with basic food, medicine, and public utilities exempt. Registration is mandatory once annual revenue exceeds $36,000, filed monthly by the 15th. Annual tax filings are required even when claiming zero Panamanian-source income.
6. Stay compliant
Ongoing costs for a small company typically run $1,500 to 3,000 a year: the annual franchise tax (Tasa Unica, $300), Registered Agent fees (from $300), basic accounting ($100 to 500 a month), and a Business License Tax equal to 2% of the company's net worth (minimum $100, capped at $60,000). Corporate tax returns are due 31 March each year. Panama uses the US dollar, which removes currency exchange risk for American founders specifically, though US persons remain fully subject to US tax and reporting regardless of Panama's territorial system.
Panama business costs at a glance
| Item | Cost |
|---|---|
| S.A. formation (law firm, first year) | ~$1,500 to $2,100 |
| Annual franchise tax (Tasa Unica) | $300 |
| Business License Tax | 2% of net worth ($100 to $60,000) |
| Corporate tax, local-source income (under $1.5M revenue) | 25% |
| Foreign-sourced income | Exempt (territorial system) |
| ITBMS (VAT), standard rate | 7% |
| UBO non-compliance penalty range | $5,000 to $1,000,000 |
Frequently asked questions
Is Panama still on the FATF grey list?
No. Panama came off the FATF grey list in October 2023 and the European Commission's AML high-risk list in July 2025.
What's the corporate tax rate in Panama?
A flat 25% on locally-sourced income for companies with revenue under $1.5 million; foreign-sourced income is exempt entirely under Panama's territorial tax system.
How much does it cost to form an S.A. in Panama?
Hiring a Panamanian law firm to handle the full first-year setup typically runs $1,500 to $2,100.
What's the penalty for not keeping Panama's UBO registry current?
Penalties under Law 254/2021 range from $5,000 to $1 million for non-compliance.
When do I need to register for ITBMS (VAT) in Panama?
Once annual revenue exceeds $36,000, filed monthly by the 15th. The standard ITBMS rate is 7%.
Fees and rates above come from Panama's Public Registry and Direccion General de Ingresos as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to a Panama-qualified accountant or lawyer about your specific situation.