Panama SA Corporation: Formation, Territorial Tax, and Post-Panama Papers Realities

Panama's Offshore Corporate History

Panama has been a major offshore financial centre since the adoption of its corporate law framework in 1927 (Law 32 of 1927, the still-operative foundation for Panamanian corporate law). The Panama SA (Sociedad Anónima) became one of the world's most used offshore corporate vehicles through the twentieth century, attracting business from Latin America, Europe, and Asia for its territorial tax system, nominee structures, and minimal disclosure requirements.

The April 2016 publication of the Panama Papers — 11.5 million leaked documents from Panamanian law firm Mossack Fonseca — exposed the extensive use of Panama corporate structures for tax evasion, money laundering, and sanctions evasion by individuals and entities globally. The immediate consequences were severe: enhanced due diligence requirements from banks worldwide, the abolition of bearer shares (Law 47 of 2013 had already required immobilisation; bearer shares were fully prohibited from 2015), and Panama's repeated placement on EU and FATF grey lists.

Despite these challenges, Panama's underlying corporate law — particularly its territorial tax system — remains a legitimate basis for offshore structuring where the client profile and activity genuinely support it.

Panama SA Formation Structure

A Panama SA is governed by Law 32 of 1927 and its amendments. The key structural features:

Board of Directors

A Panama SA must have at least three directors (President, Secretary, and Treasurer — can all be held by the same person or by different individuals). Directors can be:

• Natural persons or legal entities
• Of any nationality
• Resident anywhere in the world (no Panamanian residency requirement)
• Nominee directors (appointed by a local law firm on behalf of the beneficial owner)

The nominee director structure remains fully legal and widely used. The beneficial owner controls the company through a Power of Attorney granted by the nominee directors to the beneficial owner — giving the beneficial owner full control without appearing publicly on the corporate register.

Registered Agent and Registered Office

Every Panama SA must have a Panamanian registered agent (a licensed Panamanian law firm or legal entity) and a Panamanian registered office (the registered agent's address). The registered agent maintains the corporate books and records.

Share Capital

The authorised capital is declared in the Articles of Incorporation. There is no minimum capital requirement. Bearer shares have been prohibited since 2015 (Law 2 of 2015). All shares must be registered — the shareholder register is maintained by the registered agent but is not publicly available.

The Private Interest Foundation (PIF)

Panama also offers the Private Interest Foundation under Law 25 of 1995, modelled on the Liechtenstein Stiftung. PIFs are used for wealth management, succession planning, and as an alternative to offshore trusts. The PIF has a founder (who establishes the foundation), a foundation council (similar to a board of directors), and beneficiaries. PIFs are not subject to Panamanian tax on foreign income.

Territorial Tax System

Panama operates a strict territorial tax system. Tax is levied only on income derived from Panamanian sources. Income from activities carried out outside Panama — regardless of where the company is incorporated — is not subject to Panamanian income tax.

This means a Panama SA that:

• Is incorporated in Panama
• Derives all its income from operations and clients outside Panama
• Has no Panamanian employees and no Panamanian business activities

Pays 0% Panamanian corporate income tax on that foreign income.

There is no withholding tax on dividends paid by Panama SAs on foreign-sourced income to non-resident shareholders. (Dividends on locally-sourced income are subject to a 10% dividend withholding tax, but this does not affect structures with exclusively foreign income.)

Income Type	Tax Treatment
Foreign-source income	0% Panamanian tax
Panamanian-source business income	25% corporate tax
Dividends from foreign income	0% WHT
Dividends from Panamanian income	10% WHT
Capital gains on foreign assets	0%

Formation Costs

Panama SA formation is among the most affordable offshore options:

Cost Item	Amount
Formation fees (government)	$300 – $500
Registered agent (year 1 included in formation)	$500 – $1,500/year
Nominee directors (if required)	$1,000 – $2,500/year
Annual government franchise tax	$300/year
Total annual ongoing cost	$1,800 – $4,000/year

The Panama Papers Aftermath: Banking Reality

The Panama Papers' most enduring impact is on banking access. As of 2026, banking for a Panama SA with no genuine operational substance in Panama is extremely difficult through mainstream international banks.

Effectively closed to Panama SAs:

• HSBC, Standard Chartered, Barclays, Citibank — all have substantially reduced or eliminated account opening for Panama corporate entities
• Swiss private banks (UBS, Credit Suisse successor entities, Pictet, Julius Baer) — require substantive relationship and significant AUM
• Most EU-regulated banks — enhanced due diligence requirements make Panama SAs non-viable in practice

Still accessible (with enhanced KYC):

• Smaller Central American and Caribbean banks
• Some UAE banks for established clients with UAE connections
• Niche fintech banks and EMIs (Electronic Money Institutions)
• Georgian banks (TBC, BoG) — accessible with standard KYC

The banking challenge is the most significant practical limitation on Panama SAs. A company that cannot access functional banking is difficult to operate commercially.

When Panama Is Used Legitimately Today

Panama's genuine utility in 2026 is concentrated in:

1. Latin American holding structures: Panama is geographically and legally central to Latin American business. A Panama SA as a holding vehicle for Colombian, Mexican, or Brazilian operating companies remains a legitimate and well-understood regional structure.

2. Inactive holding and shelf companies: A Panama SA holding intellectual property, brand rights, or financial investments with no immediate requirement for banking activity can function without a bank account.

3. Private Interest Foundations for succession: Panama PIFs for family wealth succession planning are still used, particularly by Latin American families, and are backed by a well-developed local foundation legal and advisory infrastructure.

4. Combined structures: A Panama SA as the holding entity with a banking entity in a more accessible jurisdiction (Georgia, Cyprus, or UAE) — where the banking account is in the name of the lower-jurisdiction entity but assets are legally held by the Panama entity.

HPT Group takes a candid approach to Panama: it remains a legitimate offshore jurisdiction but requires a clear-eyed assessment of whether banking access is sufficient for the client's needs. For many clients, the combination of low cost and banking challenges makes a more banking-accessible alternative (such as a Cyprus Ltd, a UAE free zone entity, or a Maltese company) a better choice. For a comparison of Panama against alternative jurisdictions, visit our offshore structuring services page or contact our team.