Panama company: tax, residency and real banking

25%. Panama is no longer what it used to be. SA, tax residency programs, banking, CRS and why most non-residents are better off with a US LLC.

Panama was, for decades, a name associated with offshore companies, discreet banking and soft tax residency programs. Much of that image was built in the 1990s and 2000s, when the country sat at the heart of the global offshore map. Today, that map has changed a lot and Panama is not what it used to be.

At Exentax we get frequent questions about incorporating Panamanian companies or moving tax residency to Panama. This guide explains honestly what is still true, what has changed and why for most of our clients the US LLC ends up being the better option.

Available company types

The standard structure for foreigners remains the Panamanian Sociedad Anónima (S.A.), regulated by Law 32 of 1927. Authorized capital is symbolic (USD 10,000 declared, but no payment required). Three directors (can be foreigners, residents in any country, no physical presence required).

There are also Sociedades de Responsabilidad Limitada (SRL) and Private Interest Foundations, the latter widely used for wealth planning.

Incorporation: 5-15 days, typical costs USD 1,000-2,500 depending on the firm.

Taxation: the territorial principle still applies

Panama applies a territorial tax system: it only taxes income earned within the country. If your Panamanian company invoices exclusively clients outside Panama and has no operating activity in Panamanian territory, profits derived from those foreign operations are not taxed in Panama.

This is still true on paper. The problem is what has changed around it.

What has changed: international pressure and compliance

Since 2016 (Panama Papers) and especially since 2018 (CRS adoption) and over the last few years (<a href="https://www.oecd.org" target="_blank" rel="noopener">OECD</a>/FATF pressure), Panama has had to dramatically tighten its rules:

  • Beneficial Ownership Register mandatory since 2020. The opacity of the past is gone.
  • Economic substance required for many offshore structures.
  • Grey and black lists: Panama has entered and exited several times the EU list of non-cooperative jurisdictions and the FATF monitoring list. This has tightened international banking relationships.
  • CRS adoption: Panamanian bank accounts are reported automatically to the account holder's country of tax residence.
  • BEPS adoption.

The result is that the combination "Panamanian offshore company + Panamanian account + opacity" no longer works for tax residents in developed countries.

Real costs of keeping a Panamanian company

  • Annual flat fee to the government: USD 300.
  • Resident agent required (Panamanian lawyer): USD 250-600 per year.
  • Registered office: included in many packages or USD 200-400 extra.
  • Corporate maintenance and books: USD 200-500 per year.
  • Annual return if there is local activity or local shareholders: variable.
  • Bookkeeping: now mandatory to keep (not necessarily to file) and retain for 5 years. External service: USD 600-2,000 per year.

Realistic annual floor: USD 1,500-3,500. Not ruinous, but well above the USD 500-800 per year of a US LLC.

Tax residency in Panama

Panama offers several heavily marketed residency programs:

  • Friendly Nations Visa: closed to many nationalities since 2021 and reopened with changes. Today it requires a minimum investment of USD 200,000 in real estate or an equivalent bank deposit.
  • Pensionado Visa: for retirees with a demonstrable monthly income of USD 1,000 (USD 1,250 if the property is of lower value).
  • Self-Economic Solvency Visa: USD 300,000 deposit or equivalent investment.

Becoming a tax resident also requires actually living in the country a meaningful part of the year and obtaining the DGI tax residency certificate. It is not a stamp you buy by mail: real presence is required.

For a Spanish or Latin American resident planning to keep their life in their home country, Panama solves nothing on its own.

Panamanian banking: the most drastic change

Panamanian banking is still serious, but opening an account as a foreigner today is hard:

  • They require physical presence at a branch in Panama.
  • Exhaustive KYC: contracts, invoices, source of funds declarations, international banking references.
  • High minimum balances (USD 10,000-50,000).
  • Processes that may take 1-3 months with uncertain outcomes.
  • Some Panamanian banks do not open accounts for Panamanian companies with non-resident shareholders.

Compared to opening Mercury for a US LLC in 7-14 days without traveling, the difference is enormous.

Panama residency and the US LLC solve different problems

For the typical profile we serve:

  • Net taxation: both structures can reach 0% in the country of incorporation (Panama through territoriality, US through <a href="/en/blog/llc-pass-through-with-real-tax-structure">pass-through</a>). In your country of residence you pay the same with either.
  • Substance and compliance: Panama increasingly requires substance to be justified. The US LLC has no such burden.
  • Banking: Mercury vs Panamanian banking odyssey.
  • Reputation: a US LLC is perceived as a normal company. A Panamanian company, especially since 2016, raises eyebrows with many clients and vendors.
  • Annual cost: USD 500-800 vs USD 1,500-3,500.
  • Gateways: Stripe USA, PayPal, compatible processors, DoDo Payments with the LLC. In Panama, Stripe is not available; options are more limited.

When does Panama still make sense? If you are going to live there (climate, cost of living, expat network), if your business has real presence in Central America, or if you plan wealth structures with private interest foundations well-designed. For everything else, it does not pay off.

Risks and common pitfalls

  • Thinking Panama hides anything: CRS reports your balances to your country of residence.
  • Underestimating banking pressure: holding a Panamanian company can complicate opening accounts in other countries or working with European corporate clients.
  • Trusting old structures: many Panamanian companies from 10 years ago are outdated and do not meet new requirements. Keeping them requires restructuring.
  • Not declaring in your country: if you are a Spanish tax resident with a Panamanian company, you must declare effective control (Modelo 720, controlled foreign company rules). Failing to do so is a tax crime.

Real scenarios where Panama company: tax, residency and the real picture applies

Case 1: European entrepreneur seeking real tax residency outside the EU.

Panama offers real territorial taxation with Latin American quality of life, USD as currency and international recognition. Reasonable costs and faster residency process than most alternatives.

Case 2: professional with clients only outside Panama.

Optimal combination: Panamanian residency + US LLC. Pays zero in Panama for services abroad and zero federal in the US. Realistic total burden between 2% and 5% if managed correctly.

Case 3: company with Panamanian or Latin American clients.

A local Panamanian SA makes sense to invoice within the country and region. Combined with residency, it offers a full local-international structure hard to replicate in another American jurisdiction.

FAQ on Panama company: tax, residency and the real picture

Is Panama territoriality total?

Yes for income generated outside Panama. Income produced inside Panamanian territory is taxed at 25%. The key is that real activity (services rendered, clients invoiced) is clearly external and documented.

How long does Panamanian residency take?

Friendly Nations: 4-6 months after depositing 5,000 USD and submitting documents. Pensionado: 2-3 months with verified lifetime income. Qualified Investor: similar to Friendly Nations but with 300,000 USD real estate investment.

Will my home country recognize Panamanian residency?

Only if you clearly break prior residency: stop meeting the 183 days, move center of vital interests and assets. Without that break, you remain a tax resident in your home country regardless of the Panamanian certificate.

Is Panama really safe for banking?

Banco General, Banistmo and BAC are solid. Local banking is conservative with foreigners: extensive documentation, source-of-funds justification and real-use commitment required. Without presence, opening an account is hard.

When to combine Panama with a US LLC?

If you will reside in Panama and want real territorial taxation. The US LLC stays as international operational vehicle, while Panamanian residency exempts you from taxing dividends and services billed abroad. A common and effective combination.

How does the EU grey list affect Panama?

Panama has entered and exited grey lists several times. It has implemented transparency and BEPS reforms to meet OECD standards. Transitory inclusion mainly affects EU banking relations, not the legality or fiscal validity of the structure.

Practical close on Panama company: tax, residency and the real picture

Panama remains a serious country with a technically solid jurisdiction, but its historical appeal has eroded. International compliance, banking pressure and operating costs have leveled the playing field versus simpler alternatives.

For non-resident entrepreneurs looking for fiscal clarity, working banking and international reputation without complications, a US LLC solves the average case better. If your situation has real LatAm substance, multiple countries or meaningful wealth, Exentax compares Panama, the LLC and any holding layer with banking and reporting on the table. <a href="/en/book">Book a strategic review</a> before adding a jurisdiction you may later have to unwind.

Panama remains one of the most interesting jurisdictions in the Americas for efficient tax residency, as long as it is understood that success depends on real relocation, impeccable documentation and periodic review of local and international regulatory frameworks.

A Panama company only works when residence, substance, banking and reporting logic support it. The right analysis is comparative: what problem does Panama solve, what problem does it create, and whether a US LLC or another route explains the business better.

> <a href="/en/book">Review my case</a>

  • Mercury: as a US account for an LLC, it must match residence, activity, ownership and documentation. In structures involving Panama, Hong Kong, the UAE or another jurisdiction, it does not replace local substance or make the structure opaque; it works only when the USD flow and banking file are coherent.
  • Payoneer operates through European entities (Payoneer Europe Ltd, Ireland) that are also in scope for CRS for clients resident in participating jurisdictions.

FinCEN and <a href="https://www.irs.gov" target="_blank" rel="noopener">IRS</a> reporting requirements moved recently; the current state is:

  • EIN and notice. Without an EIN you cannot file Form 5472. The IRS does not warn before imposing penalties; you find out when an EIN is flagged or a later filing is rejected. In an Exentax file, the source record comes first and the response follows from it.