Company Formation in Panama
Territorial taxation and a dollarised economy — set against a place on the EU blacklist that an EU-resident owner cannot ignore.
Information as of October 2026. Rules change often — confirm the current position with us before acting.
Read this before anything else
Panama is on Annex I of the EU list of non-cooperative jurisdictions for tax purposes, in the revision adopted by the Council on 17 February 2026. That is the blacklist, not the grey list. For an owner resident in an EU Member State this has concrete, immediate consequences described in the section below, and it is the first thing we discuss rather than a footnote. Panama has committed to a Global Forum review, but the listing stands today.
With that on the table: Panama remains a serious jurisdiction for genuinely international trade, for shipping and logistics, for dollar-denominated business and for owners from countries that qualify for its residence programme. It is a poor choice for an EU-resident owner looking for a quiet holding company, and we will tell you so before you pay us.
| Position as at 2026 | |
|---|---|
| Corporate tax | 25% on Panama-source income |
| Basis of charge | Territorial — income from activity carried on outside Panama is not taxed |
| ITBMS (VAT equivalent) | 7% |
| Currency | The US dollar circulates as legal tender alongside the balboa |
| Company form | Sociedad Anónima, requiring at least three directors |
| Directors | Three; residence not required |
| Audit | Not required for a company with no operations in Panama |
| Residence route through the company | No direct route; the Friendly Nations visa is a separate programme with its own country list |
| EU list status | Annex I (blacklist), as at 17 February 2026 |
| Apostille | Available |
| Our fee | From $2,500 |
Territorial taxation, precisely
Panama taxes income derived from activity carried on within Panama at 25%. Income from operations conducted outside Panama is outside the charge. That is the actual rule, and it is narrower than the phrase “tax free” that gets attached to it.
What counts as Panama-source is a question about where the activity was performed, not where the customer or the bank account sits. Directing operations from an office in Panama City, employing people there, or performing services within the territory brings income into the charge. Invoicing from a Panamanian company for work done elsewhere generally does not.
What the company must still do
The absence of an audit requirement for a company without Panamanian operations does not mean the absence of obligations. Accounting records must be kept and made available through the resident agent, beneficial ownership must be registered with the authorities, and the annual franchise tax and resident agent fees fall due whether or not the company trades. Companies that stop paying fall into arrears, are struck off and eventually dissolved — and reinstating one costs more than maintaining it.
For EU nationals and EU-resident owners
The blacklist is not symbolic. Member States committed, from 2021, to apply at least one legislative defensive measure against Annex I jurisdictions, and at least eighteen of them apply two or more. The four measures on the menu are: non-deductibility of costs incurred in the listed jurisdiction; controlled foreign company inclusion; increased withholding tax on payments to the jurisdiction; and limitation of the participation exemption on dividends received from it. Which of these applies to you depends entirely on which Member State you live in.
The reporting consequence has no escape hatch
DAC6 hallmark C.1(b)(ii) makes a deductible cross-border payment between associated enterprises reportable where the recipient is resident in a jurisdiction assessed as non-cooperative. Crucially, that hallmark is not subject to the main benefit test. A deductible payment to a Panamanian associated enterprise is reportable within 30 days whether or not any tax advantage is sought, whether or not the arrangement is aggressive, and whether or not anyone involved intended anything at all. This is the single most commonly missed obligation we encounter.
National lists diverge from the EU list
| Member State | Position on Panama | Consequence |
|---|---|---|
| Italy | On the decree of 4 May 1999 | An Italian citizen deregistering and moving to Panama is presumed to remain Italian tax resident under Article 2(2-bis) TUIR, with the burden of rebuttal on the individual |
| Portugal | On the Portaria 150/2004 list, as amended in 2025 | Domestic anti-avoidance consequences under Portuguese law |
| Spain | Not on the list under Order HFP/115/2023 | Article 8.2 LIRPF five-year rule does not apply to a Spaniard moving to Panama |
| Germany | No national list of this kind | § 2 AStG extended limited tax liability turns on the low-tax test on income of EUR 77,000, applied to the facts |
Controlled foreign company rules apply on top of all of this. A Panamanian company earning foreign-source income pays no Panamanian tax on it, which fails every Member State low-tax test comfortably — Germany and Italy at 15%, France at a 40% differential, Spain at 75% of the Spanish charge. The substance carve-out in Article 7(2)(a) of the Anti-Tax Avoidance Directive is available in principle, but it requires staff, equipment, assets and premises actually in Panama.
Where Panama does work for an EU national
The Friendly Nations visa is open to nationals of roughly fifty countries, and most EU Member States are on the list. The programme is governed by Executive Decree 343 of 2012 as modified by Executive Decrees 197 and 226 of 2021, and now requires one of three qualifying routes: an employment contract with a Panamanian company, ownership of real estate with a registered value of at least USD 200,000, or a certificate of deposit of at least USD 200,000 in a Panamanian bank with a minimum validity of three years. If personal relocation to Latin America is genuinely part of the plan, this is a real route — and it is available to you in a way it is not to many other nationalities.
For Indian residents
Panama is the weakest of the six for an Indian-resident owner, and the reasons are structural rather than reputational.
- There is no comprehensive double taxation agreement between India and Panama. Panama does not appear in the Indian treaty network. That removes treaty relief on withholding, removes the tie-breaker protection on residence, and removes the tax residency certificate route that makes other jurisdictions workable.
- The Friendly Nations visa does not include India. The country list runs to around fifty nationalities and India is not among them, so the residence advantage available to EU nationals is simply unavailable.
- The overseas investment rules apply in full. Form FC and a Unique Identification Number before any remittance, the USD 250,000 annual Liberalised Remittance Scheme limit, 20% tax collected at source above ₹10 lakh, a single designated authorised dealer bank, and an Annual Performance Report by 31 December.
- Rule 19(1) prohibits real estate activity for every person resident in India — which matters here, because Panamanian property is one of the more common reasons clients ask about the jurisdiction. Buying and selling real estate is barred; the definition carves out development of townships, residential or commercial premises, roads and bridges for sale or lease.
- A resident individual may not invest in a foreign entity engaged in financial services activity, and may not hold control in an entity that has a subsidiary or step-down subsidiary.
The disclosure exposure is the same, the protection is not
A Panamanian company held by an Indian resident and ordinarily resident must be reported in Schedule FA on a calendar-year basis, and the Black Money Act applies — 30% tax under section 3, penalty of three times that under section 41, a flat ₹10 lakh penalty under sections 42 and 43 subject to the ₹20 lakh carve-out for non-immovable assets, and prosecution exposure of six months to seven years. The CBDT has run successive campaigns using automatic exchange data. What differs from Hong Kong or the UAE is that there is no treaty standing between you and the outcome.
We do not refuse to work on Panama for Indian clients. We do insist that the absence of a treaty is understood before, not after, and in most cases the same commercial objective is better served from the UAE or Hong Kong.
Setting up and running it
| Requirement | Detail |
|---|---|
| Company form | Sociedad Anónima (SA) is the standard vehicle; a limited liability form also exists |
| Directors | Minimum three; no residence or nationality requirement |
| Shareholders | Minimum one; corporate shareholders permitted |
| Resident agent | A licensed Panamanian lawyer or law firm is mandatory and holds the accounting records |
| Share capital | No minimum paid-up requirement in practice |
| Bearer shares | Immobilised — held by an authorised custodian rather than by the shareholder |
| Accounting records | Must be kept and made available through the resident agent |
| Beneficial ownership | Registered with the authorities; not publicly accessible |
| Annual costs | Franchise tax and resident agent fee, payable whether or not the company trades |
Our fee starts at $2,500. Government and resident agent fees recur annually. Because there is no audit requirement for a company without Panamanian operations, the running cost is genuinely low — which is exactly why the jurisdiction attracts structures that should not exist, and why banks scrutinise it.
Banking
This is the practical constraint that decides most Panama cases. A Panamanian company with no operations in Panama, held by a non-resident beneficial owner, sits at the difficult end of every correspondent bank’s risk appetite. Being on the EU blacklist does not help. Accounts are obtainable where there is genuine trade, a documented supply chain and a reason for the money to move — and are close to unobtainable for a holding shell.
We do not promise an account with the company. Where the outlook is poor we say so before incorporation, because a Panamanian company you cannot bank is worse than no company at all.
When Panama is not the answer — and when it is
It is a poor fit for any EU-resident owner whose structure involves deductible payments to the company, because of the blacklist consequences and the unavoidable DAC6 reporting. It is a poor fit for an Indian resident, because there is no treaty and no residence route. It is a poor fit where a bank account is essential and there is no real trade behind it. And it is a poor fit for anyone whose adviser described it simply as “tax free”.
It is a defensible fit for genuine Latin American trade, for shipping and maritime structures where Panama’s registry and legal framework are the point, for dollar-denominated operations, and for an EU national who actually intends to relocate under the Friendly Nations programme with real assets on the ground.
Frequently asked questions
Is Panama on a blacklist?
What does the EU listing actually mean for me?
Is Panama tax free?
Does my Panamanian company need an audit?
Can I get residence in Panama?
Is there a tax treaty between India and Panama?
Can an Indian resident own a Panamanian company?
Are bearer shares still available?
Will my ownership be private?
How hard is it to open a bank account?
How much does it cost?
Should I use Panama at all?
Compare with the other jurisdictions
Choosing between two or three options is normal at this stage. Each page below sets out the same ground — tax, audit, reporting, residence and the rules that apply where you are resident — so the comparison is like for like.
Or start from the full comparison of all six, which sets them side by side on tax, audit, residence and EU list status.
Panama, or something that works better?
Tell us what you are actually trying to achieve. In most cases we end up recommending a different jurisdiction — and we would rather say that now than after you have paid for a company you cannot bank.