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María Eugenia Brenes, associate of the Intellectual Property and Corporate Law Department of Morgan & Morgan
[email protected]
Formalizing a business requires several decisions of a legal nature.
Business Owner
The first thing that should be considered is to determine whether the venture is on a personal basis or through a corporation. This decision is very important and it depends, mainly, on the following factors:
a) Economic Factor. It is more cost-effective to carry out business activities on a personal basis (natural person), since maintaining a company (legal person) involves, among others, the payment of fees to the lawyer acting as a resident agent and the flat annual franchise tax. However, the fiscal obligations per se are the same, that is, the requirements of the General Directorate of Revenues (DGI) must be met in both scenarios by presenting reports, declaring taxes and having a fiscal team, among others.
b) Risk Factor. Choosing to carry out activities through a company involves separating the personal assets, rights and obligations from those of a company; therefore, the assets of natural persons would not be affected in the event that the company has to answer for any obligation and vice versa. The foregoing means that the personal assets would not be affected in the event of any claim by third parties against the company.
In view of the above, although it is more expensive to operate a business via a company, we consider it appropriate to take that path as it allows keeping the personal assets separate from that of a company.
Type of activities to be carried out
The second consideration is to determine if the activities to be carried out are allowed or not, since there are restrictions in Panama for reasons of nationality and suitability. This applies to natural persons as well as to the directors and shareholders of a company. For example, certain activities such as retail sales, or beauty clinics, stylists or cosmetologists are activities that are reserved for Panamanians. There are many other activities that can be exercised by nationals of other countries without any restriction, for example, the wholesale sale of goods and the provision of services in general.
Domicile or business premises
Having determined the commercial activity to undertake, it is necessary to determine the address or location where it will be carried out. This is essential, since, depending on the zoning code, certain areas are not suitable for commercial activities or some type of them. For example, if the zoning of a residential area prohibits the location of food stores or beauty salons; it will not be feasible to carry out these activities on said location. The Ministry of Commerce and Industries recommends to all applicants of a Notice of Operation to have a zoning certificate of the site where the commercial activities will be carried out to demonstrate its viability.
Notice of Operation
The next step is to obtain a Notice of Operation that will constitute the ideal instrument that enables either a natural or legal person to trade in Panama. For this purpose it is necessary to enter the site www.panamaemprende.gob.pa.
When accessing, all the fields of the notice application must be filled in, including, among others, the name that is intended to be used to identify the commercial establishment. It is convenient to choose a name that shows distinction with other businesses to avoid any confusion with other businesses that may give rise to disputes over commercial denominations. The commercial name of an establishment is closely related to the use of the brand with which it is intended to identify products and/or services; thus, it is important to have the advice of a legal professional.
Once the system generates the payment slip for the corresponding rights, it is necessary to pay off the amount with a credit card or directly in Banco Nacional de Panamá. When the payment is made, the system will accept it and allow the printing of the Notice of Operation that will protect the business activities.
For certain businesses it is necessary to request and obtain prior or special permits before opting for the Notice of Operation. Such is the case, among others, of coffee shops, restaurants, bars, banks, financial companies, engineering services and construction in general.
Tax obligations
Operating a business entails tax implications, regardless of whether they are carried out in a personal capacity or using a corporation, such as:
- Updating the Single Taxpayer Registry (RUC), and obtaining a Tax Identification Number (NIT);
- Annual payment of the Notice of Operation Tax;
- Getting of fiscal printer, depending on the business;
- Registering in the corresponding Municipality and pay monthly taxes;
- If there have workers, signing up for the CSS (Social Security System), withhold fees, and pay them monthly;
- Present monthly reports of the ITBMS (Sales Tax) to the DGI;
- Present income statements before the DGI and the Municipality of Panama.
It is worth mentioning that natural persons or companies that register with the Micro, Small and Medium Enterprise Authority (AMPYME) have the right to obtain the exemption from payment of income tax during the first two years of operation of the business. In this way, registering with the AMPYME offers advantages that also include, among others, guarantees for loans.
Generally speaking, these are the aspects that must be considered before starting a business in the Republic of Panama.
The professionals of Morgan & Morgan have the qualifications to provide optimal advice for the start of your business, foreseeing compliance with all the legal provisions that govern the matter, as well as to advise on the protection of their intellectual rights within the framework of the business.