Entrepreneurship Societies

Law No.186 of 2020 created entrepreneurship companies in Panama. The law defines them as those commercially operative Societies of social economic purpose directed to the creation of innovative processes, products or services, or that represent creations of value or social benefit ”.

The law is aimed at those who seek to undertake, so that they can identify and create new business opportunities without having to incur complex legal procedures. In the same way, they would be subject to more beneficial tax rates than they would be subject to using other types of corporate structures such as public limited companies.

In order to establish an Entrepreneurship Company, two (2) to five (5) natural persons, of any nationality, domiciled in the Republic of Panama are required. The law strictly prohibits a natural person from being part of another existing entrepreneurial society. However, the members of the Entrepreneurship Society do have the possibility of belonging to any other type of legal entity.

Entrepreneurship Companies do not require the name of a Resident Agent, as required by a Public Limited Company; Although if the partners so wish, it can be designated, so that it acts as the liason between the company and the government entities related to it (Ventanilla Unica, Ampyme, Public Registry, DGI and MICI, among others). If they do not designate a resident agent, the administrator of the company is the one who will have this function.

A corporation can be transformed into an entrepreneurial company, but only those corporations that have not been operating in the country for more than three years will have this option.

There is a maximum gross income limit for Entrepreneurship Companies, which is one million balboas (B / .1,000,000), while Corporations do not have an income limit. In the event that an Entrepreneurship Company obtains income greater than one million balboas, it will have the obligation to formalize its transformation to another type of legal entity within a period of no more than six (6) months;

The partners of the Entrepreneurship Company can only be natural persons, while of the Limited Liability Companies or Public Limited Company they can be legal persons;

The law exempts the payment of the single annual rate to Entrepreneurship Companies for a period of two years, while Public Companies are subject to an annual payment of three hundred balboas (B / .300).

Entrepreneurship companies must have a Register of Participations, Minutes and Administrators, either physically or digitally; and they must issue an electronic invoice for all the provision of services or sales of goods that they carry out;

They will also be obliged to digitally control all income and expenses of the company, and based on them prepare the Financial Statements of the entity, which once a year must be submitted to the Virtual Window of Entrepreneurship of the AMPYME .

In the event that an entrepreneurial company is hired for the provision of a service or the sale of a good either to the State, or to a private company, the latter will have the obligation to make the corresponding payment in a term not exceeding thirty ( 30) calendar days from the presentation of the invoice. If there is a delay in payment, a monthly interest of one percent (1%) will be incurred on the amount of the invoice.

There are certain activities that are not contemplated to operate under the regime of a limited entrepreneurship company.

The most prominent are:

• Colon Free Zone companies, Panama Pacifico and other free zones.
• Money remittance and exchange houses.
• Casinos and gambling.
• Dedicated to real estate, both promoters and agents.
  Dedicated to the construction industry.
• Canteens, bars, discos and barbecues.
• Hotels, hostels, lodgings and dating houses.
• Buying and selling used cars.
• Sale, transportation, marketing and manufacture of tobacco and alcoholic beverages.
• Buying and selling real estate.
• Pawnshop.

The law grants these companies the following Tax Benefits:

1. Exemption from Income Tax during the first two (2) years of operation, counting the term from the date of registration in the Public Registry of Panama;
2. Entrepreneurship Societies are exonerated from the use of Tax Printers, the provisions of Law 72 of 2011 not being applicable;
3. The Cabinet Council may establish reductions of up to fifty percent (50%) of the Import Duties of inputs and raw materials for the creation of innovative products, services, or processes;
4. Donations made by natural or legal persons to Entrepreneurship Societies, up to a maximum amount of ten thousand balb, will be considered a deductible expense.