A guide on Mergers and Acquisitions in Panama

Francisco Arias, Partner, Morgan & Morgan (head of M&A practice)
Roberto Vidal, Partner, Morgan & Morgan

Regulatory framework for foreign investment

The Panamanian Constitution reserves “retail activities” for Panamanian nationals.  Various statutes have limited the application of the prohibition to activities that involve the sale of goods to consumers.

By statute, the private sector (national or foreign) may not participate in water and sewage services; in other words, these services are reserved to the State. Likewise, electricity transmission services (as distinguished from generation and distribution) is also by statute reserved to the State.

Certain activities in Panama are reserved totally or partially for Panamanian nationals, based on constitutional provisions and regulated by statute.  For example, commercial fishing in national waters is reserved for Panamanian nationals.  Similarly, broadcast radio and television is reserved for Panamanians, but foreign persons may own up to 35% of corporations holding concessions for those activities.

Another type of restriction in Panamanian statutes prohibits foreign governments from owning land and participating in certain industries.  For example, foreign corporates and entities controlled by foreign governments may not hold a majority stake in public service of telecommunications corporations. Similar restrictions are found in mining.

Foreign persons may not own real estate within 10 kilometers of the border with other countries. 

Exchange control or currency regulations

The monetary unit in Panama is the Balboa. However, the U.S. Dollar (US$) is the legal tender of Panama and the same nominal value as the Balboa. There are no capital controls or foreign currency controls in Panama. Forced currency is prohibited in Panama’s Constitution and the parties may enter into obligations and establish payments in the currency they freely agree upon.

Grants or incentives

Investments (national or foreign) may qualify for incentives provided they are made in certain areas designated by law. 

Labour regulations

Individual employment contracts / Termination regulation

  • Termination of employment contracts is regulated by the Labor Code, which grants special protection to employees.


  • There is a process that can be followed before the Ministry of Labor to reduce personnel based on “economic grounds”, but companies normally carry out reductions without pursuing that process.

Tax charges

Capital gains in the sale of shares are taxed at 10%. The buyer must withhold 5% of the price paid and the seller may accept the amount so withheld as its definitive tax or file a return to obtain a credit for the difference between the amount withheld and the taxed caused by the gain realized in the transaction. In an asset transaction, the tax treatment will depend on the asset being transferred.  For example, real estate is levied with two taxes: transfer tax (2%) and capital gains tax (10%).  The buyer must withhold 3% of the purchase price, leaving the seller to accept the amount so withheld as its definitive capital gains tax or file a return to obtain a credit for the difference between the amount withheld and the capital gains taxed caused by the gain realized in the transaction. There are stamp taxes that may apply to the documentation granted. The issuance of shares does not cause any taxes.

Antitrust jurisdiction triggering events/thresholds

Corporate concentrations that affect competition will be subject to antitrust review.  The threshold at which concentration may affect competition is 25%. Parties to a transaction that affects competition may submit a petition to the antitrust authority to review and approve, which approval may be granted without or with conditions. A concentration that is approved by the antitrust authority may not be reviewed by the authority or subject to judicial review.  Without such approval, within three (3) years after perfected both the authority or a court (upon petition by a third party) may review the transaction and impose sanctions (including divestment) if found detrimental for competition. 

Signing/closing meeting documents

Closings are ordinarily carried out through the delivery of documents set forth in definitive agreements, including share certificates duly endorsed in the case of share transactions.  Payment is usually made through wire transfers.

In the case of asset deals, special documentation, formalities and filings depend on the type of asset.  For example, real estate is only transferable through a public deed (“escritura pública”) granted before a notary public, which deed must then be submitted for registration and actually registered in the Panama Public Registry Office. 

Gap requirements between signing and closing

In the case of share transactions, there are no such gaps required by law, except for tender offers of publicly traded shares.  In the case of asset transactions involving real estate, for example, such gaps arise because registration of the public deed takes at least 24 hours.

Proof of identity and authority to sign

Corporate resolutions in the case of legal entities, accompanied by a good standing certificate of the jurisdiction of incorporation, and passport or other identification document for the person signing.  All documents granted or executed outside Panama must be authenticated by a Panamanian Consul or through the Apostille (Hague Convention (1961) on legalization of document).

Document execution

  • Simple contracts are executed by written signature. Public deeds are granted by a Notary Public upon personal appearance and execution by signatories before the Notary Public.
  • In the case of simple contracts, written signature by the persons signing on behalf of corporate parties thereof will suffice – ie, the parties validate whether the persons are duly authorized to enter into an agreement on behalf of the corporate party.
  • Individuals with legal capacity may enter into contracts and grant deeds by written signature.
  • In the case of foreign companies, it is customary to require powers of attorney duly legalized by a Panamanian Consul or through the Apostille.

Notary impact on transaction timetable

Authentication of signatures by notaries is viable and may be obtained during the execution ceremony, provided that signatories are physically present at such ceremony.  Post execution authentication is viable, provided the signatory is in Panama and customary identification documents (eg, passport) is produced to the notary.

 Changing of stockholders, officers and directors

Changes of stockholders in the books of the corporation may be regulated in its articles of incorporation and/or by-laws.  In the absence of such regulation, it is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement in order to make annotations in the share register.

Changes of directors and officers requires corporate resolutions to be submitted to a Notary Public for issuance of a public deed, which deed must then be filed and registered with the Panama Public Registry Office.

Private limited company

Transfer of title of shares is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement. 

Execute document in counterpart

It is customary to avoid counterparts in order to minimize stamp taxes, which are caused and payable with respect to each counterpart. Signature pages of contracts may be executed in different jurisdictions to be consolidated in a single counterpart, with each signature being authenticated in compliance with the law in the jurisdiction of execution, including legalization by “apostille”.

Strictly enforced undertakings

Strict enforcement of undertakings will be available soon, upon signing and promulgation (ie, publication in the Official Gazette) of recently adopted legislation that reinstated provisions of the Judicial Code that were repealed a few years ago.

Damages are available.

Required due executions legal opinions

None required by statute, but in cross border transactions (particularly for indebtedness) it is customary for legal opinions (debtor’s and creditors’ counsel) to be issued.