Social Enterprise Law Surveys |
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Panama |
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| (Latin America/Caribbean) Firm Arias, Fábrega & Fábrega | |
| What jurisdiction(s) do you practice in? | Panama |
| What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ... | The most common for-profit organizational forms utilized in Panama are corporations (sociedades anónimas) and limited liability companies (“LLC”).
Corporations have a board of directors. LLCs have administrators. Other types of business organizations in Panama include limited partnerships (“sociedades en comanditas”) general partnerships (“sociedades colectivas”), and civil companies (“sociedades civiles”). Limited partnerships and general partnerships are seldom used, and civil partnerships are mostly used to carry out professional activities (the practice of Law, for instance).
a. The most common for-profit organizational form used by Enterprises that seek financing from investors and will have multiple owners is a corporation (sociedad anónima). b. Panama jurisdiction does not contemplate the organizational form of Social Enterprises. The most analogous organizational form to a Social Enterprise is a Nonprofit, as explained further below. |
| Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required... | Directors of Corporations and administrators of LLCs have a general duty of care to the corporation or limited liability company, respectively, and may become personally liable for negligence in the discharge of these duties. Panamanian law does not require nor prohibit the Directors or administrators from considering, balancing or prioritizing interests other than shareholder value. |
| Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ... | Panama jurisdiction does not have organizational forms specifically designed for Social Enterprises. The most similar organizational form in our jurisdiction is that of Nonprofit (Organización Sin Fines de Lucro), which we will use for purposes of answering certain questions below. a. Panama jurisdiction does not contemplate organizational forms specifically designed for Social Enterprises. b. Nonprofits materially defer to the other organizational forms in that Nonprofits do not produce any equity benefits to their founders, directors or members. c. The main benefits for Nonprofits are tax benefits, which are detailed further. d. Nonprofits may not be affiliated to a political party. Furthermore, the authorities do not recognize Nonprofits that promote any type of discrimination. e. Creating a Nonprofit takes longer than a traditional Enterprise because its registration requires prior approval from the Ministry of the Interior (Ministerio de Gobierno) with the consent of other governmental entities, as applicable. Creating a traditional Enterprise takes about 5-10 days, while creating a Nonprofit takes 4-8 months, depending on the activities that the Nonprofit will carry out. f. Nonprofits are well known in Panama and very common for charitable and social purposes. |
| Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat... | As mentioned, Panamanian law does not provide for Social Enterprises, formed as Nonprofits or otherwise. |
| Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms. | Panama jurisdiction does allow for worker-owned Enterprises, including, specifically, cooperatives. Cooperatives have the following tax benefits: exemption from all national taxes, contributions, encumbrances, rights, rates and tariffs of any kind or denomination, which fall on the following (i) Constitution, recognition, registration and operation of cooperatives, as well as the judicial actions in which they intervene, actively or passively, before the jurisdictional courts; (ii) The payment of national taxes on that portion of the property reserved exclusively for the development of its activities. (iii) The payment of stamp and notarized paper, stamp taxes, registration, and annotation of the documents granted by the cooperatives or by third parties in favor of them. (iv) Import of machinery, equipment, spare parts, fuel, lubricants, supplies and other items, destined for their activities. Donations, bequests, subsidies, and all other similar resources received by cooperative associations, from any natural or legal person, will be exempt from paying income tax and will be deductible, for that purpose, for whoever carries it out. Cooperatives, due to their character and nature, will not be subject to the payment of income tax. |
| Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to. | N/A. Panamanian law does not provide for Social Enterprises. |
| In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples. | Panamanian law does not provide for Social Enterprises. In any case, the Republic of Panama has a civil legal system. That is to say, case law and jurisprudence are not a primary source of law. Therefore, Panamanian courts are compelled to rule based on statute or codified legislation. In certain cases, jurisprudence can be applied by Panamanian judges merely as “probable doctrine”, however, it is not legally binding. Therefore, the outcome of a particular judgment involving Nonprofits or another corporate form will not have a significant impact on the development or treatment of said corporate form. |
| Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe. | No. No ESG requirements apply generally to Enterprises. However, Enterprises generally must comply with environmental laws and regulations. |
| Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe. | N/A. Panamanian law does not provide for Social Enterprises. |
| Does your jurisdiction have any ESG requirements for investors? If it does, please describe. | No. |
| Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi... | Investor classes are not required to look at ESG issues, but they are permitted to consider such factors. |
| What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)? | Panamanian law does not provide for Social Enterprises. Nonprofits commonly receive charitable investments, grants, and on occasions, government funds. |
| How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)? | For-profit impact investments have been slowly increasing in Panama. Some recent examples are the issuance by Banistmo, a subsidiary of the Bancolombia Group, of a social gender bond, structured by IDB Invest. The issuance, back in 2019, made Panama the first country in Latin America with a social bond with a gender focus, targeted exclusively at increasing access to financing for women-led SMEs. Additionally, UEP Penonomé II, S.A., energy solutions provider domiciled in Panama, recently issued an international green bond under the 144A/Reg S Rule, structured by Citigroup Global Markets, Inc. |
| What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government... | Panamanian law does not provide for Social Enterprises. Nonprofits may apply for government funding before the Ministry of Social Development for which they would have to be meet certain requirements, such as a detailed plan or project. Such funding is only available to Nonprofits recognized by the Ministry of Social Development. |
| Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)? | No. Panamanian law does not provide for Social Enterprises. |
| To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction. | Publicly traded Enterprises are not required by the local securities regulator to disclose ESG related factors. |
| How prevalent, if at all, are impact bonds in your jurisdiction? | Impact bonds have gain traction in recent years, however, they are not that common. In October 2019, the Panama Stock Exchange, issued the Guidelines for the issuance of Social, Green and Sustainable Securities, with the purpose of offering the market good practice guidelines and parameters for sustainable issuances and reinforcing in its stakeholders the importance of making successful impact investments. |
| In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)? | No. |
| Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a... | Crowdfunding is not currently regulated in Panama. In the absence of regulation, the local securities regulator has stated that crowdfunding initiatives are currently subject to traditional regulations applicable to the public offering of debt or equity investments. On that basis, crowdfunding is not common in Panama. There are no specific local rules to make it easier for smaller businesses to take money from investors that are not qualified as institutional investors. |
| Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe... | Panamanian law does not provide for Social Enterprises. There are tax exemptions available for Nonprofits generally, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form. Nonprofits have two key tax exemption provisions, one being that they do not have to pay income tax themselves, and the other being that donors may take deductions on their reported income. In the case of Nonprofits, they are not considered taxpayers given their charitable purpose, which by definition does not entail the distribution of earnings between their associates or members. The income received or accrued by Nonprofits, recognized as such by the authorities, shall be exempted from the payment of income tax, provided that such income shall be engaged exclusively in civic, venture or guild activities, in social assistance, public charity, education or sports. Nonprofits shall accredit that they are indeed entities exempted from the payment of income tax by registering before the Internal Revenue Office (DGI), for which purpose they shall file an authenticated copy of the authorization issued by the respective Ministry. |
| Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations? | No. Panamanian law does not provide for Social Enterprises. However, deductible donations are allowed for donations to Nonprofits duly recognized by the Internal Revenue Office (DGI). |
| Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.) | No. |
| Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions? | No. |
| Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe. | Not at the moment. Regulatory sandboxes had been previously discussed and proposed as a draft bill, but such a proposal was not approved by the National Assembly. |
| What government operational support, resources, training or services, are available for small businesses or Social Enterprises? | The Authority for the Micro, Small and Medium Enterprise, is in charge of overseeing small businesses and provides training for startups and entrepreneurs, seed funding to micro businesses, financing and support to small businesses. |
| Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are. | No. Panamanian law does not provide for Social Enterprises. |
| Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness. | No. Panamanian law does not provide for Social Enterprises. |
| Is there a different bankruptcy system available for Social Enterprises? | No. Panamanian law does not provide for Social Enterprises. |
| What are the average time and filing fees to form an Enterprise in your jurisdiction? | The average time to form an Enterprise in Panama jurisdiction is about 5-10 days. The filing expenses are approximately US$500.00. |
| What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well... | Panamanian law does not provide for Social Enterprises. |
| Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction. | Yes, startups can easily form and flourish in Panama. Startups and other entrepreneurial enterprises have generally taken the form of corporations (sociedades anónimas). In December 2020, legislation was passed to create a new type of enterprise called Entrepreneurial Company (Sociedad de Emprendimiento) aimed for startups and entrepreneurs and which has relatively fewer reporting requirements and the incorporation process is expected to be simpler and less expensive. However, this type of entity is not yet in effect since additional required regulation has not been issued. |
| Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction. | Panamanian law does not provide for Social Enterprises. |
| Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc... | Panamanian law does not provide for Social Enterprises. |
| In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects. | Panama has made great strides in its anti-corruption legislation by adopting international treaties and national laws to prevent corruption. Notwithstanding, Panamanian authorities still lack adequate tools and know-how to fight corruption and be able to enforce the laws that are being adopted. |
| What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction? |
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| What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)? | Panama already has a significant amount of legislation covering certain fundamental environmental matters and has ratified several international treaties but is lagging behind on Social Enterprises and ESG requirements, for example. As to the already existing regulations, there is room for improvement on actively enforcing the existing environmental laws and regulations. |
| Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not? | No. |
Social Enterprise Law Surveys
Panama
The most common for-profit organizational forms utilized in Panama are corporations (sociedades anónimas) and limited liability companies (“LLC”).
- Corporations (sociedades anónimas) are the most widely used vehicle for conducting business in Panama.
- In recent years, LLC’s (“sociedades de responsabilidad limitada”) have gained popularity as vehicles for doing business in Panama, especially for US taxpayers; however, it is important to note that Panamanian LLCs are different from US limited liability companies and have unique characteristics as provided by Panamanian law.
- The main differences between a Panamanian corporation and Panamanian LLCs are the following:
- Corporations have shareholders and their identity is not public. LLCs have members and their identity is public.
- As opposed to corporations (which may have only 1 shareholder), LLCs are required to have at least two members.
Corporations have a board of directors. LLCs have administrators.
Other types of business organizations in Panama include limited partnerships (“sociedades en comanditas”) general partnerships (“sociedades colectivas”), and civil companies (“sociedades civiles”). Limited partnerships and general partnerships are seldom used, and civil partnerships are mostly used to carry out professional activities (the practice of Law, for instance).
a. The most common for-profit organizational form used by Enterprises that seek financing from investors and will have multiple owners is a corporation (sociedad anónima).
b. Panama jurisdiction does not contemplate the organizational form of Social Enterprises. The most analogous organizational form to a Social Enterprise is a Nonprofit, as explained further below.
Directors of Corporations and administrators of LLCs have a general duty of care to the corporation or limited liability company, respectively, and may become personally liable for negligence in the discharge of these duties. Panamanian law does not require nor prohibit the Directors or administrators from considering, balancing or prioritizing interests other than shareholder value.
Panama jurisdiction does not have organizational forms specifically designed for Social Enterprises. The most similar organizational form in our jurisdiction is that of Nonprofit (Organización Sin Fines de Lucro), which we will use for purposes of answering certain questions below.
a. Panama jurisdiction does not contemplate organizational forms specifically designed for Social Enterprises.
b. Nonprofits materially defer to the other organizational forms in that Nonprofits do not produce any equity benefits to their founders, directors or members.
c. The main benefits for Nonprofits are tax benefits, which are detailed further.
d. Nonprofits may not be affiliated to a political party. Furthermore, the authorities do not recognize Nonprofits that promote any type of discrimination.
e. Creating a Nonprofit takes longer than a traditional Enterprise because its registration requires prior approval from the Ministry of the Interior (Ministerio de Gobierno) with the consent of other governmental entities, as applicable. Creating a traditional Enterprise takes about 5-10 days, while creating a Nonprofit takes 4-8 months, depending on the activities that the Nonprofit will carry out.
f. Nonprofits are well known in Panama and very common for charitable and social purposes.
As mentioned, Panamanian law does not provide for Social Enterprises, formed as Nonprofits or otherwise.
Panama jurisdiction does allow for worker-owned Enterprises, including, specifically, cooperatives. Cooperatives have the following tax benefits: exemption from all national taxes, contributions, encumbrances, rights, rates and tariffs of any kind or denomination, which fall on the following (i) Constitution, recognition, registration and operation of cooperatives, as well as the judicial actions in which they intervene, actively or passively, before the jurisdictional courts; (ii) The payment of national taxes on that portion of the property reserved exclusively for the development of its activities. (iii) The payment of stamp and notarized paper, stamp taxes, registration, and annotation of the documents granted by the cooperatives or by third parties in favor of them. (iv) Import of machinery, equipment, spare parts, fuel, lubricants, supplies and other items, destined for their activities.
Donations, bequests, subsidies, and all other similar resources received by cooperative associations, from any natural or legal person, will be exempt from paying income tax and will be deductible, for that purpose, for whoever carries it out.
Cooperatives, due to their character and nature, will not be subject to the payment of income tax.
N/A. Panamanian law does not provide for Social Enterprises.
Panamanian law does not provide for Social Enterprises. In any case, the Republic of Panama has a civil legal system. That is to say, case law and jurisprudence are not a primary source of law. Therefore, Panamanian courts are compelled to rule based on statute or codified legislation. In certain cases, jurisprudence can be applied by Panamanian judges merely as “probable doctrine”, however, it is not legally binding. Therefore, the outcome of a particular judgment involving Nonprofits or another corporate form will not have a significant impact on the development or treatment of said corporate form.
No. No ESG requirements apply generally to Enterprises. However, Enterprises generally must comply with environmental laws and regulations.
N/A. Panamanian law does not provide for Social Enterprises.
No.
Investor classes are not required to look at ESG issues, but they are permitted to consider such factors.
Panamanian law does not provide for Social Enterprises. Nonprofits commonly receive charitable investments, grants, and on occasions, government funds.
For-profit impact investments have been slowly increasing in Panama. Some recent examples are the issuance by Banistmo, a subsidiary of the Bancolombia Group, of a social gender bond, structured by IDB Invest. The issuance, back in 2019, made Panama the first country in Latin America with a social bond with a gender focus, targeted exclusively at increasing access to financing for women-led SMEs. Additionally, UEP Penonomé II, S.A., energy solutions provider domiciled in Panama, recently issued an international green bond under the 144A/Reg S Rule, structured by Citigroup Global Markets, Inc.
Panamanian law does not provide for Social Enterprises.
Nonprofits may apply for government funding before the Ministry of Social Development for which they would have to be meet certain requirements, such as a detailed plan or project. Such funding is only available to Nonprofits recognized by the Ministry of Social Development.
No. Panamanian law does not provide for Social Enterprises.
Publicly traded Enterprises are not required by the local securities regulator to disclose ESG related factors.
Impact bonds have gain traction in recent years, however, they are not that common. In October 2019, the Panama Stock Exchange, issued the Guidelines for the issuance of Social, Green and Sustainable Securities, with the purpose of offering the market good practice guidelines and parameters for sustainable issuances and reinforcing in its stakeholders the importance of making successful impact investments.
No.
Crowdfunding is not currently regulated in Panama. In the absence of regulation, the local securities regulator has stated that crowdfunding initiatives are currently subject to traditional regulations applicable to the public offering of debt or equity investments. On that basis, crowdfunding is not common in Panama.
There are no specific local rules to make it easier for smaller businesses to take money from investors that are not qualified as institutional investors.
Panamanian law does not provide for Social Enterprises.
There are tax exemptions available for Nonprofits generally, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form. Nonprofits have two key tax exemption provisions, one being that they do not have to pay income tax themselves, and the other being that donors may take deductions on their reported income.
In the case of Nonprofits, they are not considered taxpayers given their charitable purpose, which by definition does not entail the distribution of earnings between their associates or members. The income received or accrued by Nonprofits, recognized as such by the authorities, shall be exempted from the payment of income tax, provided that such income shall be engaged exclusively in civic, venture or guild activities, in social assistance, public charity, education or sports. Nonprofits shall accredit that they are indeed entities exempted from the payment of income tax by registering before the Internal Revenue Office (DGI), for which purpose they shall file an authenticated copy of the authorization issued by the respective Ministry.
No. Panamanian law does not provide for Social Enterprises. However, deductible donations are allowed for donations to Nonprofits duly recognized by the Internal Revenue Office (DGI).
No.
No.
Not at the moment. Regulatory sandboxes had been previously discussed and proposed as a draft bill, but such a proposal was not approved by the National Assembly.
The Authority for the Micro, Small and Medium Enterprise, is in charge of overseeing small businesses and provides training for startups and entrepreneurs, seed funding to micro businesses, financing and support to small businesses.
No. Panamanian law does not provide for Social Enterprises.
No. Panamanian law does not provide for Social Enterprises.
No. Panamanian law does not provide for Social Enterprises.
The average time to form an Enterprise in Panama jurisdiction is about 5-10 days. The filing expenses are approximately US$500.00.
Panamanian law does not provide for Social Enterprises.
Yes, startups can easily form and flourish in Panama. Startups and other entrepreneurial enterprises have generally taken the form of corporations (sociedades anónimas). In December 2020, legislation was passed to create a new type of enterprise called Entrepreneurial Company (Sociedad de Emprendimiento) aimed for startups and entrepreneurs and which has relatively fewer reporting requirements and the incorporation process is expected to be simpler and less expensive. However, this type of entity is not yet in effect since additional required regulation has not been issued.
Panamanian law does not provide for Social Enterprises.
Panamanian law does not provide for Social Enterprises.
Panama has made great strides in its anti-corruption legislation by adopting international treaties and national laws to prevent corruption. Notwithstanding, Panamanian authorities still lack adequate tools and know-how to fight corruption and be able to enforce the laws that are being adopted.
- Considering the creation of Social Enterprises.
- Considering revising rules to implement ESG requirements.
- Expressly legalizing crowdfunding.
- Easing the process for Nonprofits to benefit from tax donation deductions.
Panama already has a significant amount of legislation covering certain fundamental environmental matters and has ratified several international treaties but is lagging behind on Social Enterprises and ESG requirements, for example.
As to the already existing regulations, there is room for improvement on actively enforcing the existing environmental laws and regulations.
No.