SME Law · EN
Entrepreneurship Companies in Panama: Benefits, Requirements, and Key Points (Law 182 of 2020).
Law 182 of December 2, 2020 created Entrepreneurship Companies (SdE): limited liability companies with temporary tax benefits for entrepreneurs in Panama. Incorporation requirements, a table of benefits, tax obligations, grounds for dissolution, and the restrictions worth knowing before incorporating one.
Law 182 of December 2, 2020 created Sociedades de Emprendimiento (SdE, Entrepreneurship Companies) in Panama: limited liability legal entities whose members may only be natural persons residing in Panama. The minimum share capital is B/. 500.00, and the partners' liability is joint and several up to the amount of their contributions.
This structure applies to any venture that, without necessarily being innovative, represents value creation or social and economic benefit at the national level, provided that its taxable income is generated within the territory of the Republic of Panama. Entrepreneurship companies enjoy, at a minimum, the same incentives and benefits that the State grants to micro and small enterprises.
Tax benefits
| Reason | Benefit |
|---|---|
| Public contracting | Payment within a maximum of 30 days, or 1% monthly interest on the amount invoiced in the event of default |
| Private contracting | Payment within a maximum of 30 days, or 1% monthly interest on the amount invoiced in the event of default |
| Single Annual Fee (Tasa Única Anual) | Exempted during the first two years |
| Fiscal Printer (Impresora Fiscal) | Not required during the first two years |
| Income Tax (Impuesto Sobre la Renta) | Exempted during the first two years, in line with the regime that applied under AMPYME |
| Import tariff | The Cabinet may grant reductions of up to 50%, by separate decree |
| Donations | Deductible from Income Tax up to B/. 10,000.00 per year per donor, provided the donor does not participate in the management nor benefit directly from the company's activities |
Most of these benefits last for two years from the incorporation of the company, except for the late-payment discount on contracting and the deduction for donations, which have no time limit. After the first two years, the company begins to pay Income Tax and the Single Annual Fee normally, and the use of a Fiscal Printer becomes mandatory.
Tax and reporting obligations
Entrepreneurship companies must invoice electronically and record their cash flow in the entrepreneurship virtual window (ventanilla virtual de emprendimiento), information that must be reflected in the annually reported financial statements. Any change in the information of their members must be reported within a maximum period of 30 days. Where a resident agent is required, it must be an administrator (partner) designated by the company itself.
Grounds for dissolution
Grounds for dissolution of the company include, among others:
- Failure to file the annual financial statements.
- Failure to issue electronic invoices for the services rendered.
- Having income exceeding one million balboas (B/. 1,000,000.00).
- A reduction of more than 50% of the capital set in the articles of incorporation (pacto social).
Transformation of existing companies
It is possible to transform any already-incorporated company into an Entrepreneurship Company, and vice versa, but the tax benefits only apply when the transformation is carried out for the first time: those who have already taken advantage of similar schemes under other laws cannot benefit again, and companies more than 3 years old cannot make this transition.
Restrictions and disadvantages to consider
Before incorporating an Entrepreneurship Company, it is worth bearing in mind its participation limitations. Article 5 of Law 182 of 2020 establishes that no natural person who is part of an entrepreneurship company may simultaneously belong to another. Article 27, in turn, provides that no person who has been a partner of an entrepreneurship company may dissolve it and create a new company to carry out the same activity that was conducted through the dissolved entity.
This last restriction seeks to prevent the improper use of the law's tax benefits, but it can prove problematic for former partners of a failed venture, who would be barred from incorporating another Entrepreneurship Company in the same line of business.