Law 186 of December 2, 2020 and Executive Decree 93 of August 20, 2021 (hereinafter both the “Regulations”) creates the regimen for Entrepreneurial Companies and seek to create a new type of legal entity who: (i) facilitates the formalization of companies through a simple registration system and; (ii) grants tax benefits to entrepreneurs.

The incentives of these Regulations can be applied to all innovative ventures or those representing value creation or social and economic benefits at a national level, whose taxable income is produced within the territory of the Republic of Panama.

Those companies who after their “incorporation” remains within the following income margins will be considered as micro and small businesses:

• Microbusiness: Formal or informal economic unit generating a gross income or annual billing up to the sum of one hundred and fifty thousand dollars (US$150,000.00).
• Small business: Economic unit who generates gross income or annual turnover from one hundred and fifty thousand dollars and one cent (US$ 150,000.01) to one million dollars (US$ 1,000,000.00).

Some of the most relevant aspects of the Regulations for Entrepreneurial Companies are:

• A Single Window system for Entrepreneurship (VUE) is created and consists of a physical and virtual space, with its operational center at the headquarters of the Micro, Small and Medium Business Authority (Autoridad de la Micro, Pequeña y Mediana Empresa – AMPYME), which will focus on a single headquarters of all the information, procedures and procedures of the different entities involved in the operation, update, transformation and termination of the entrepreneurial companies.
• Two to five individuals, of legal age, of any nationality who are domiciled in the Republic of Panama may constitute, for any lawful purpose, an Entrepreneurial Company, in accordance with the formalities and limitations established within the Regulations.
• A simplified articles of incorporation called “Standard Statute” is established for the constitution of an Entrepreneurial Company.
• Are only able to commercially operate in Panama and the commercial activities to be engaged must be compatible, related, linked or complementary to each other. Activities that do not maintain a binding or compatible relationship with each other are not allowed.
• The minimum autorized capital will be five hundred dollars (US$500.00).
• Any company may be transformed into an Entrepreneurial Company and vice versa.

Below several incentives for Entrepreneurial Companies:

• Do not have to pay a single annual fee (Tasa Única).
• It is not mandatory to invoice using a fiscal printer.
• Are not required to pay income tax during the first two years of operation counted from is registration date in the Mercantile Registry of the Public Registry of Panama.
• In case an Entrepreneurial Company is hired by the State, payments must be made within thirty calendar days, counted from the submission of the relevant invoice. In case of a past due payment, the State will incur a one percent (1%) monthly interest rate on the invoice amount.
• They may receive donations up to the sum of ten thousand dollars (US$10,000.00) per person, per fiscal year and will be deductible from donor´s income tax.

The benefits established within the Regulations will only be applicable once and will be counted from the moment the transformation of the company is registered in the Public Registry.

The Entrepreneurial Companies will have a period of six months to start operations and is counted from the issuance of their Notice of Operation (Aviso de Operación). In case of not starting operations within this period, it will be dissolved ex officio.

The Regulations will take effect on December 3, 2021.

Any questions about the implementation of the Regulations, benefits, requirements, limitations and reporting obligations, please do not hesitate to contact us so that we can provide you with a comprehensive advice tailored to your needs.