Don't Start a Business, yet.
Panama's business landscape has hidden pitfalls even seasoned expats miss – learn what you don't know before you gallop in.
So, like you, I had dreams of not only moving to Panama but starting a business that grows, funds my newly reduced expenses (since Panama is so much cheaper, right?), and aligns with my passion. My passion is solving problems via IT, typically by developing new web-based solutions.
I set out in Panama to find a problem, start a business, solve the problem, and rake in the Balboas (that's the Panama currency, and it's 1:1 with the US dollar, however you can use US dollars everywhere, but you often get change back in Balboa coins, which is annoying AF - ok, that's another post).
I actually found a real problem and, with the help of a good friend as my beta user, developed an online solution that helped him make more sales! I was stoked! So I worked with my attorney to create a new business... here is what I learned:
1. Creating a new business is straightforward but the ongoing fees and taxes can be expensive
Creating a new business (aka Sociedad Anónima or S.A.) is straightforward, but the annual fees and taxes are a pain and pricey.
Your attorney will gladly help you create a new company, walk you through the paperwork, and hand you some glossy legal-sized official stamped documents showing you now have a business! What your attorney may omit is:
The amount of quarterly and annual taxes due
The maze of tax websites you have to gain access to and make payments through
The annual tax returns due
The annual fee to be your registered agent on the business
Much of this is paid before you make a single Balboa, so consider if creating an S.A. should be step 1 or step 19.
2. Banking can be tough
Everybody complained about the inability to open a bank account, but I put on my finest slacks, button-down shirt, and Stacy Adams shoes and glided on over to Banistmo with a binder of tax returns, declarations from my attorney that I am a cool dude and tons of other documents. After laughing, smiling, and repeating myself 12 times in my broken Spanish, I walked out with a shiny debit card and an account.
However, the options may be more limited and more stringent for commercial banking. They don't know you, and you want to start a business? The paperwork is long, and the line to talk to a personal commercial banker may be longer. So, build in time and patience and work with your accountant. Oh yeah, you need an accountant. Did I mention that?
3. You gotta invoice too
There are invoicing requirements in Panama that are mostly optional at this time but may become required in the near future. Panama, like other countries, has you register invoices with the federal tax authorities to ensure the proper amount of taxes were paid, which requires specialized software. The Dirección General de Ingresos (DGI) has been implementing its Electronic Fiscal Equipment (EFE) program gradually since 2018, but enforcement has been inconsistent and repeatedly delayed. Many expat business owners hire local accountants just to manage these requirements properly, as mistakes can result in hefty fines starting at $1,000 and potentially leading to tax authorities closing down your business. Be prepared!
So, before you leap, make sure you solidify your business plan and consider all the financial and time impacts of maintaining a new business in Panama.
Look out for a paid subscription post on details regarding key steps to open a business in Panama and the fastest, painless way to open a bank account.
Until next time expat friends!
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