Panama, formally the Republic of Panama (Spanish: Repblica de Panamá), is a transcontinental republic in Central and South America, bordered to the west by Costa Rica, to the southeast by Colombia, to the north by the Caribbean Sea, and to the south by the Pacific Ocean. Its capital and biggest city, Panama City, is home to roughly half of the country's 4 million inhabitants.
Before the arrival of Spanish colonists in the 16th century, Panama was inhabited by indigenous tribes. In 1821, it declared independence from Spain and joined the Republic of Gran Colombia, a union of Nueva Granada, Ecuador, and Venezuela. Following the dissolution of Gran Colombia in 1831, Panama and Nueva Granada merged to become the Republic of Colombia. With the support of the United States, Panama seceded from Colombia in 1903, enabling the United States Army Corps of Engineers to finish the Panama Canal between 1904 and 1914. The Torrijos–Carter Treaties of 1977 stipulated that the canal would be transferred from the United States to Panama by December 31, 1999. The surrounding land was restored for the first time in 1979.
Although business, finance, and tourism are important and rising industries, revenue from canal tolls remains a large percentage of Panama's GDP. It is considered to have a high-income economy. Panama was rated 57th in the world in terms of Human Development Index in 2019. According to the World Economic Forum's Global Competitiveness Index, Panama has the seventh-most competitive economy in Latin America in 2018. Panama's jungles, which cover over 40% of its geographical area, are home to a multitude of tropical flora and animals, some of which are found nowhere else on the planet. Panama is a founding member of the United Nations as well as the OAS, LAIA, G77, WHO, and NAM, among others.
Employees are entitled to 30 days of paid annual leave after one year of employment.
There are 11 paid public holidays in Panama.
Employees are entitled to 18 paid sick days a year.
Women are entitled to 14 weeks of paid maternity leave at 100% of their daily salary. Maternity leave will begin six weeks before and end eight weeks after the planned due date. If the due date is postponed, the prenatal part of the leave is extended, allowing the mother to take up to 8 weeks of post-natal leave.
The greater of the last wage or the average of the last 180 workdays is used to measure maternity leave.
Three days of paid leave are available to fathers.
In Panama, there are no rules governing parental leave.
In Panama, an employee's dismissal must be justified by the labor code. A written notice of termination must be issued, stating the reason for the termination and the date on which it was granted. A dismissal that violates labor code provisions is considered unreasonable, and the employee may have a claim before a labor court. Employers may continue with the dismissal if the labor court does not settle the issue within 60 days.
However, certain categories of employees may be discharged without cause (domestic workers, fishing or agricultural workers, retail workers).
Except for employees dismissed for cause, notice is not required. Employees who are terminated without cause are entitled to thirty days' notice.
The maximum length of probation periods in Panama is three months.
There are no statutory provisions governing severance pay unless the dismissal is due to redundancy. Payment is determined in this case based on the length of employment and is as follows.
Severance pay is equivalent to 1/2 month's pay for the first six months of employment. Severance pay is equivalent to 3/4 month's pay for up to 9 months of employment. For the first year of employment, severance pay is equivalent to one month's pay. Severance pay is equivalent to three months' pay after two years of employment. Severance pay is equivalent to 4.5 months' pay for employees who have worked for the company for up to four years. Severance pay is equivalent to 5.2 months' pay for employees who have worked for the company for up to five years. Severance pay is up to 9.75 months' pay for employees who have worked for the company for up to ten years. Severance pay is equivalent to 14.8 months of pay for employees who have worked for the company for up to 20 years.
Panama's standard workweek is 48 hours and eight hours per day. Night work is limited to 42 hours per week and seven hours per day between 6:00 p.m. and 6:00 a.m. Daytime and nighttime work hours are limited to 45 hours per week, or 7.5 hours per day.
Young employees under the age of 16 are limited to 36 hours per week and six hours per day. Employees between the ages of 16 and 18 are limited to 42 hours per week, or seven hours per day.
Overtime pay is 125 percent of regular pay between 6 a.m. and 6 p.m.; 150 percent of regular pay between 6 p.m. and 6 a.m. or on a holiday or day of rest; and 175 percent of regular pay when overtime hours carry over from working during night hours.
It's critical to remember that an employee cannot work more than three hours of overtime per day or nine hours total per week. Overtime is not permitted if the work is deemed dangerous or a health hazard.
The minimum wage in Panama is determined by industry and varies depending on the size of the business and area. It costs between US$275 and US$971.28 a month.
Payroll taxes and the general budget are used to finance mandatory healthcare. Private healthcare is also accessible, although it is the secondary choice for primary care.
The national health system offers essential health care.
The territoriality concept governs Panamanian income taxation. Income earned in Panama is taxed whether received by a resident or non-resident organization. Residency is solely important in determining whether or not the entity is liable to withholding tax (WHT).
Corporations are liable to income taxation at a flat rate of 25%.
The income tax system in Panama is based on a territorial notion of income. Income earned in Panama is taxed for both citizens and residents. Non-residents are only taxed on income earned in Panama, and any income given to a non-resident must be withheld by the payer. Exempt income is not taxed on behalf of citizens, residents, or non-residents (i.e. interest on Panamanian government securities, interest on savings accounts, and time deposits maintained with banks established in Panama).
For a taxable income between USD 0 to USD 11,000, the tax rate is set at 0.
For a taxable income between USD 11,000 to USD 50,000, the tax rate is set at 15 percent.
For a taxable income over USD 50,000, the tax rate is set at 25 percent.
The ITBMS (Impuesto de Transferencia de Bienes Muebles y Prestación de Servicios) is Panama's value-added tax on moveable goods and services (VAT).
Currently, the general tax rate is 7%. Tobacco and tobacco-derived goods are taxed at 15%, while alcoholic drinks and hotel accommodations are taxed at 10%.
ITBMS is computed on the basis of value-added using a combination of tax credits (i.e. ITBMS paid on transactions that result in taxable transactions) and tax debits (i.e. ITBMS collected on transactions). Exports are not taxed, and the ITBMS spent to create them may be reimbursed. The sale of commodities such as medications, groceries, and some baby items is not taxed, and the provider may be able to recover the ITBMS as an exporter if specific conditions are fulfilled.
Medical and transportation services, among others, are not taxed yet do not provide ITBMS credit for the supplier.
As a general rule, employers/companies must employ 90% Panamanian natives or foreigners who are either married to a Panamanian citizen or have lived in the country for at least 10 years. They may hire an expert or foreign technical people, but no more than 15% of the total number of employees may be hired.
Employers who need to hire foreign workers must get a permit from the Ministry of Labour. Except for inhabitants of some designated countries, who may get a permanent work permit, this authorization, or work permit, is valid for renewable one-year intervals. Employees covered by the Marrakech Treaty may renew their residency and work licenses for a maximum of six years.
The Pensionado Visa is the most often used Visa (for retirees). A Pensionado Visa requires documentation of a lifetime income of at least $1,000 USD per month for one individual, plus an extra $250 USD for each dependant.
In Panama, employment contracts might be either written or verbal. Written employment contracts must contain the following provisions:
Employer and employee names
Probation time
Detailed job description
Workplace Working hours
Salary and payment method
Duration of the contract whether it is for a certain period of time or for a particular project
Other conditions agreed upon by the parties
Fixed-term contracts must be in written and may only be used for temporary assignments or employment. They may be employed to temporarily replace an employee who is on leave or for a specialized role that, because to the nature of the organization, is not permanent.
In most cases, a fixed-term contract cannot be longer than 12 months. A fixed-term contract for particular services and technical abilities, on the other hand, may last up to three years with two renewals. If the employee continues to work beyond the termination date, the employment contract is said to be an indefinite contract. The probation phase might last up to three months and must be documented in writing.
Panamanian Balboa
The process of establishing a Panama subsidiary is dependent on numerous criteria that must be discussed before to commencing the expansion process. Panama subsidiary laws might vary by area or city, much as minimum wages in Panama vary by region or city. If you are unfamiliar with the various places, we suggest consulting with an expert who can assist you in locating the finest location with the friendliest incorporation rules.
Panama recognizes three types of subsidiaries: a limited liability corporation (LLC), a branch office, and a representative office. An LLC is the most common choice since it provides the greatest operational flexibility, while branch and representative offices are more constrained. Work with other business leaders to determine what operations you want to carry out in Panama and the optimum subsidiary structure.
If you intend to incorporate your Panama subsidiary as an LLC, you must take the following steps:
1. Fill out an online purchase form with your personal contact information.
2. Indicate your preferred name for your new LLC and check to see whether it is available.
3. For the sake of transparency, specify who you intend to nominate as a director of the LLC.
4. Determine how you want to distribute share certificates.
5. On the online purchase form, provide your chosen mode of payment.
LLCs are subject to Panama subsidiary laws that differ from those applicable to branch and representative offices. For example, you must designate at least three directors and one shareholder who may be of any nationality and reside anywhere in the globe. The minimal share capital required for incorporation is merely one dollar.
The Panama subsidiary formation procedure also requires the appointment of a company secretary, who may be either a human or a corporation. If you don't want to employ another individual, your director may also serve as the company secretary. Accounting records and other underlying documents should be kept for five years to comply with Panamanian subsidiary rules. You must store such documents at the office of your LLC in Panama or anywhere else specified by the board of directors.
