Selling U.S. Goods and Services

An Expert's View about Sales in Panama

Posted on: 26 Apr 2012

 Using an Agent or Distributor
According to Panama's constitution, nationals and foreigners are treated equally under the law. Both Panamanian and foreign companies must fulfill the same basic requirements to organize and operate most types of business activities in Panama. There are restrictions on foreigners participating in retail trade and practicing certain professions. In practice, however, there are legal ways to overcome these restrictions. U.S. firms interested in retailing should consult a local attorney. Please contact us for a list of qualified attorneys in Panama.
There is no law regulating the relationship between international suppliers and local agents and distributors. This relationship is only governed by the private agreements made between the parties involved. In cases of contract termination or disputes, the private contract clauses prevail over any other document or practice.
Individuals may engage in business activities in their own names or through legal entities. The most commonly adopted form of legal entity is the corporation (Sociedad Anonima, or S.A.). Other types of legal entities commonly used in Panama are general partnerships, simple limited partnerships, joint stock partnerships, and limited liability companies.
To learn more about how we can assist you in securing an agent or distributor in Panama, please visit our website at http://export.gov/panama/servicesforuscompanies. You can also call us at 011-507-317-5000 or email us at daniel.crocker@trade.gov.

Establishing an Office
Establishing an office in Panama is a straightforward process. There is plenty of office space available with many options related to location and cost. Panama has one of the most modern and flexible corporate law frameworks in Latin America. Below are some of the advantages offered by Panamanian corporate law:
Two or more persons of any nationality may organize a corporation for any lawful purpose. They do not have to be domiciled in Panama. The articles of incorporation may be executed anywhere, even outside of Panama, and in any language, provided a Spanish translation is submitted for registration.
There are no requirements regarding the amount paid in capital.
Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian except if it is to undertake certain operations within Panama.
There are no nationality or residence requirements for shareholders.
Neither the directors nor the officers are required to be shareholders.
The Board of Directors must be composed of at least three directors, but one person may hold more than one position.
Meetings of shareholders or directors may be held outside of Panama and through electronic means. Proxies may be used by shareholders/directors.

In order to form a corporation in Panama, the client must furnish the following information:
The name of the corporation. It may be in any language, but it must terminate in a word or abbreviation indicating that it is a corporation.
The objectives and purposes of the corporation.
The amount of the authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each. Shares may be nominative or bearer shares.
Duration of the corporation, usually perpetual.
The full names and addresses of three or more directors and/or officers.
The domicile of the corporation.

The time period usually involved in setting up a corporation is from fifteen days to two months. Attorney fees usually range from US$600 to US$1,500 per corporation.
Every corporation organized pursuant to the laws of Panama must have a resident agent within Panama, who must be an attorney. The annual fee for this service is about US$200. Approximately 400,000 corporations are registered in Panama.
In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministry of Commerce and Industry. There are three basic types of licenses involved:
Commercial License Class A is required for wholesale operations, commercial and mortgage banks, financial companies, international financial brokers, insurance and reinsurance companies,
international transportation companies, mutual funds, public utilities, and high-technology service companies.
• Commercial License Class B is required for retail businesses, including representation agencies, service companies, bars, restaurants, drugstores, real estate agents, fuel stations, local transportation, distributors and others. This license is only granted to Panamanians or corporations owned solely by Panamanians.
• An Industrial License is required for extractive and manufacturing industries, as well as for construction companies.

Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle, bee, or poultry raising, or in the manufacturing and sale of handicrafts, provided that the work is not performed by hired workers. Licenses must be kept at all times in a visible and accessible place. The cost for obtaining a license ranges from US$250 to US$750. Also, an annual tax is levied based on the net worth of the company, as stated in the income tax return, plus other income taxes.
Most service providers are required to withhold a seven percent (7%) value-added tax on most of their services.

Franchising
Panama is receptive to U.S. style franchising. The market for both specific and general franchising opportunities is attractive. Panama maintains no control on royalty payments or transfers. Recreation, entertainment services, fast food, automotive, and hotel and motel franchises are readily marketable as the local market demands better facilities and services. The U.S. Embassy recommends consulting a local attorney for details on how to set up a franchise in Panama. Please contact us for a list of qualified attorneys in Panama.
Key factors for market success in Panama are high quality, customer service, brand-name recognition and attractive packaging. U.S. products targeting the middle to upper-middle income market are usually competitive. Panamanians have a penchant for high quality U.S. products.
Consumers with high disposable income follow sophisticated U.S. and European consumption patterns. Many high-end U.S. and foreign brand names are represented in Panama. An aggressive marketing strategy is usually necessary to succeed in this trend-conscious market.

Direct Marketing
Local laws allow companies and individuals to import directly with no intervention from agents or distributors. This situation opens the door for a direct marketing approach especially in certain sectors such as industrial goods, industrial machinery, agricultural equipment and other high value equipment or machinery.

Joint Ventures/Licensing
Joint ventures, especially for large projects, are becoming common in Panama. Some joint ventures are formed for limited periods of time, such as for a specific construction contract or technology transfer contract. The profits from joint ventures can be distributed annually to each joint venture partner and are taxed in the same manner as any other income.
Panamanian law requires the registration of license agreements, although in practice few licensors and licensees do so. License agreements are frequently used to reinforce rights to registered trademarks. The agreements must be attached to the registered trademark and filed with the Industrial Property Department in the Ministry of Commerce and Industry. The agreement becomes part of the file on the trademark covered.
Panama is an interesting and potentially profitable site for licensing agreements and joint ventures as well as routine buy/sell operations. The Colon Free Zone (CFZ) offers the U.S. exporter looking for regional marketing arrangements a convenient one-stop distribution center. However, there have been instances of money laundering, intellectual property piracy and drug trafficking reported in the CFZ. All U.S. firms should perform due diligence before commencing operations there. Please contact us for assistance in identifying good business partners in the CFZ.

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Posted: 26 April 2012

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