Panama Country Facts

We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in your country of choice and employment contracts.

Global Expansion Made Easy for You

Expanding into Panama generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.

Panama is an isthmus of biological diversity connecting North and South America with the Panama Canal linking the Pacific and Atlantic Oceans. Panama has some of the world’s most beautiful islands and is one of the safest countries in Central America. It has a stable economy and is a top destination for retirees as well as a top choice for companies to expanding into Latin America.

Most individuals traveling to Panama require documentation to enter, stay and work, because as with every country Panama is keen to protect its borders and workforce. They do, however, encourage business and foreigners with legal immigration routes to suit all … but it can be complicated. For instance, there are 11 ways to acquire a work permit, plus quotas and employment sponsorship. Employers must sort out the best option as they generally apply for the work permit on behalf of their staff.

Many nationalities can enter the country without a visa for three months for tourism; those who are not part of the visa waiver agreement must obtain one from a local embassy or consulate in their country of residence.

Few companies have the resources when it comes to work documentation and many turn to experts such as Bradford Jacobs who provide the know-how to sidestep these issues. Through our Employer of Record (EOR) platforms, we ensure all your employees comply with work permit and Visa regulations. We recruit your employees in Panama through our Professional Employer Organisation (PEO) networks without the need for Visas or permits, putting into action our local knowledge of the region along with our 20 years of global experience. The result? Your company is up and running within days rather than weeks or even months.

The different types of Visas and Work Permits for Panama

Most nationalities require work visas, residence and work permits to enter for employment. Panama also expects companies to offer jobs to local employees first and applies quotas to restrict percentages of foreigners within companies.

There are three types of documentation to enter Panama to live and work, and immigration law stipulates a Panamanian lawyer is required to apply for the work permit and is appointed by the employer.

  1. Work Visa. Enables entry for work purposes; which type depends on nationality, qualifications and duration. This is an immigration visa and allows for Residence Permits. It can be applied for at local embassies and consulates in employees’ home country.
  2. Work Permit Card from Ministry of Labor and Employment Development. Employer generally applies and it is attached to the employer, enabling foreigners to work for them.
  3. Temporary Residence Permit Card is needed for issuing a Work Permit and allows foreigners to reside in Panama and can be obtained from the National Immigration Service (Servicio Nacional de Migracion) through the local embassy or consulate, alongside the work visa.

Types of Visas and Permits

  1. Short-Term Visas or Non-Residence Visa. Required for such as tourism, business, medical and maritime activities. Also, to see relatives, researchers, for traders and allows for stays up to 180 days, but not for employment. https://www.migracion.gob.pa/permisos-y-requisitos-para-visas/permisos-migratorios
    Around 118 countries’ nationals can remain in Panama for between 60 and 180 days without a visa depending on their nationality. Other citizens must apply for a 90-day visa and in some cases only 30-day visas are available. Note: Different rules may apply if travelers arrive by sea. Tourists pay US$5 (€4.70) for a Tourist Card upon arrival and passengers arriving by boat US$100 (€95).
  2. Long Term Visas / Temporary Residence Permits. Different types of visas are available for such as employment, education, humanitarian or family purposes, intra-company transfers and cultural reasons. They allow individuals to live and work in Panama for more than 180 days, but also enable foreigners to receive a residence permit, both of which are required for a Work Permit. They are for two years, renewable.
  3. Immigrant Visa or Permanent Residence Permits. For those wishing to reside permanently. Also for foreigners who go for economic and investment purposes for permanent relocation, a renewable two-year permit is issued.

Main Employment Visas, Residence and Work Permits for Foreigners

Friendly Nations Residence Visa (FNV). Two to three months to process.

  • By companies bringing employees from overseas
  • By investors with up to US$200,000 (€190,500) either in property or in a deposit account for three years

This visa permits any of 50 ‘friendly’ nation’s citizens, who have ‘Professional or Economic activity connections’ to move to Panama and receive a Temporary Residence Permit for two years. After this time, they can then apply for a Permanent Residence Permit, although this is no longer automatic.

Employees offered employment by a Panamanian-registered company with an employment contract. The employer generally applies for the Work Permit on their behalf. To qualify for the FNV, they need:

  • To be registered with the Social Security Fund and General Revenue Department to pay social insurance contributions and income tax
  • Applicants must prove solvency by opening a local bank account and depositing US$5,000 (€4,740) of personal money to demonstrate they can support themselves and US$2,000 (€1,900) per family member. Extra funds are at the discretion of immigration officers. The applicant is allowed to withdraw the money when visa is approved by the Panama Dept. of Immigration k.a. the Servicio Nacional de Migracion, who are responsible for issuing visas and residence permits

How to apply for Visas and Work Permits?

The main route for entering the employment market with companies who are onboarding staff from home country or outsourcing employees from overseas is to:

  • Have a confirmed job offer and employment contract or letter of employment
  • The employee applies for the appropriate Visa and Temporary Residence Permit at the local embassy or consulate in country of residence
  • The employer appoints a lawyer to apply for the Work Permit from the Ministry of Labor
  • Employers must be aware of the quotas applicable to companies in Panama

Applicants should check with the local embassy or consulate for a complete list of required documents or be advised by the appointed lawyer. At the least, paperwork should have a translation into Spanish and be notarized. Typical documents required during the process for the Visa and Permits for Panama include:

  • Visa application should be completed, signed, and dated
  • Passport with six months validity from day of departure from Panama with blank pages for visa stamps
  • Copies of passport pages
  • Passport photographs (four)
  • Contract of employment with registered Panamanian company
  • Health certificate
  • Police report on any criminal activity
  • Marriage certificate if appropriate
  • Accommodation in Panama e.g., hotel booking or rental agreement
  • Proof of funds for duration of the stay

Extra documentation for Work Permit

  • Application form filled out by a Panamanian lawyer
  • Employer provides a Letter of Responsibility for overseeing employee regarding employment, legal issues, financial status etc.
  • Proof of Resident Permit granted from National Immigration Service
  • Proof of residency in the country employee is applying from
  • Passport photographs (four)

The work permit cannot be applied for until Resident Permit is granted. Can take between two and six months.

There are convincing reasons for making the move. Panama has a unique position in world trade with the Panama Canal linking the Pacific Ocean to the Caribbean and the Atlantic. Land routes have Costa Rica to the north and Colombia to the south … opening routes into Central, North and South America.

Panama’s welcoming attitude to overseas investment has been a magnet for many multinational companies, who are allowed 100% ownership of locally-registered subsidiaries. Panama uses the US dollar as legal tender and there is a highly-developed banking and financial services sector geared to smoothing international transactions.

Even so, Panama’s personal and corporate tax regimes demand careful attention … and top-level guidance.

Bradford Jacobs’ dedicated specialists remove the burden of worrying about these complications while you focus on building your business in a new territory. From locating the brightest talent to running your payroll, our Professional Employer Organisation (PEO) and Employer of Record (EOR) specialists are with you at every step.

Overview of Tax in Panama

Personal Income Tax (PIT):

There are three bands. The tax-free limit is up to US$11,000 (€10,540); the excess up to US$50,000, (€47,924) is taxed at 15% and the excess above that at 25%.

Social Insurance Taxes:

Employers contribute the equivalent of 12.25% of the employees’ total remuneration, plus 9.75% from employees’ salary. Independent contractors and professionals contribute 13.5% of their fees.

Payroll Taxes:

In addition to social insurance contributions, employers pay 1.5% of employees’ remuneration towards education insurance tax, while employees pay 1.25%. Between 0.56% and 5.67% is paid to workers’ compensation insurance, depending on the type of company and the risks involved.

Corporate Income Tax:

The standard rate is 25% on net taxable income or 4.67% on gross taxable income. Micro or Small Medium Enterprises are taxed at rates between 7.5% and 22.5%.

Value Added Tax (VAT):

The headline rate is 7%. Accommodation services are subject to 10% with 15% applying to tobacco. Medicines and medical services, some foodstuffs and crude oil are among exempt categories.

Withholding Tax (WHT):

Companies operating in Panama must withhold 10% against dividends from domestic profits and 5% on dividends from foreign-sourced profits.

Capital Gains Tax (CGT):

A tax of 10% applies to gains from selling securities

Personal Income Tax in Panama

Married couples are allowed to file joint tax returns. Individuals must file a tax return unless their entire tax liability from salary and all employment remuneration is deducted by their employer and remitted to the General Revenue Department (Direccíon General de Ingresos DGI). Taxable elements include salary, premiums, profit share, expenses, allowances and benefits in kind. Returns must be completed on forms supplied by the tax authority. Individuals’ estimated liability is paid at the end of June, September and December with any deficit or excess subsequently redressed. The tax year is the calendar year. Individuals are tax residents if they are in Panama for more than 183 days in a year, own a residence there or it is the center of their family and commercial activities. Residents and non-residents are taxed on Panamanian-sourced income.

* Panama’s official currency is the balboa (PAB) but uses the US dollar as its functioning currency, with which the balboa has 1:1 parity.

From | Not Over | Tax %
0 – US$11,000 (€10,540): 0%
US$11,001 – US$50,000 (€47,924): 15%
Over US$50,001: 25%

Individual Tax Rules

  • The tax year for individuals runs from January 1 until December 31
  • Spouses are permitted to file joint returns and are allowed a basic deduction of US$800 (€762) on their joint return
  • Individuals are required to file returns unless the tax liability from their entire salary and all employment remunerations is withheld by the employer for remittance to the General Revenue Department (Direccíon General de Ingresos, DGI)
  • Those filing individual returns must do so on forms supplied by the DGI, with estimated liability paid at the end of June, September and December
  • Taxable liability includes salary, premiums, profit share, all allowances and benefits in kind
  • Tax residents are those living in Panama for more than 183 days in a calendar year, receiving income there, who own property and Panama is the center of their family and business interests
  • Panama residents, citizens and non-residents are taxed on income from Panamanian sources

Employer’s Social Insurance and Statutory Contributions

Employers must contribute towards Panama’s social security system through the Social Security Fund (Caja de Seguro Social Panameña, CSS), which is regulated by the Ministry of Social Development (Ministerio de Desarrollo Social, MIDES). Employers in both the private and public sectors contribute a total of 12.25% of their total payroll.

Employers are also required to contribute 1.5% towards education insurance tax and between 0.56% and 5.67% to workers’ compensation insurance, depending on the risks involved.

International companies planning to explore new economic horizons can take the first step by setting up a subsidiary overseas. It can be a risky process as well as expensive both in time and money and there is no guarantee that the effort and financial outlay will bring success.

Hundreds of foreign companies set their sights on the vibrant economy of Panama as the target for expansion. They must establish a subsidiary under Panama’s Corporation Law so they can legally hire staff and operate their payroll. The preferred choices for opening a subsidiary in Panama are a Corporation/Joint Stock Company (Sociedad Anónima, SA) or a limited liability company (Sociedad de Responsabilidad Limitada, SRL), both of which provide protection against liabilities for owners and shareholders. With the subsidiary in place, the company can now deal with Panama’s General Revenue Department (Direccíon General de Ingresos, DGI) and the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS).

But expanding overseas is a major step. If the move fails, companies face the extra expenditure and stress of closing the business, selling property and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory. The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs to locate the finest local talent and administer your payroll in Brazil. Your company will be up-and-running in days rather than weeks or even months and without running any risks.

How to Set Up an Panamaian Subsidiary?

Foreign companies poised to make a move into Panama’s economy must first decide on the business structure best suited to their vision for growth. The preferred choice is a limited liability company (Sociedad de Responsabilidad Limitada, SRL) or a Corporation/Joint Stock Company (Sociedad Anónima, SA). Both provide protection against liabilities for owners and shareholders and are regulated under Panama’s Corporation Law and the Commercial Code.

Registration and other procedures for an SRL include the following:

  • The subsidiary’s unique company name must be confirmed with Panama’s public Registry, which logs all companies in the country.
  • The General Revenue Department (Direccíon General de Ingresos, DGI) of the Ministry of Economy and Finance issues the company’s Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC).
  • Obtain the Notice of Operation Number (Panama Emprende System, MICI), different from the RUC.
  • Provide Articles of Association of the parent company and minutes of the board meeting authorising setting up the subsidiary.
  • The subsidiary’s bylaws or constitution must give details of all shareholders, the business address and type of operation. There must be a Spanish version of the bylaws.
  • The subsidiary needs a minimum of two shareholders, at least one of which must be a Panamanian national or resident, and a legal representative who must also be Panamanian.
  • The bylaws must be notarised to receive the company’s Public Deed, which is subsequently lodged with the Public Registry.
  • Register with the district municipality of the DGI and with the Ministry of Commerce (Ministerio de Comercio e Industrias).
  • Register with the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS) of the Ministry of Labour.
  • No minimum share capital is required, although typically companies initially deposit US$10,000 after opening their corporate bank account.

Once the subsidiary is incorporated, other procedures must be followed before companies can operate payroll for their staff. These include:

  • During the first week of employment, employees must be registered with the CSS. Both employers and their staff make mandatory contributions to the social insurance system.
  • Employers must obtain or verify that the employee has a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • Employers complete the registration process at the DGI website.
  • Employment contracts should always be in written form, in Spanish with translations if required.
  • Full-time employees must be correctly classified for payroll purposes, and not as independent contractors as they are treated differently for taxation purposes.

Benefits of Setting Up a Subsidiary

The benefits of setting up a Panama subsidiary include it having a separate legal identity from the parent company and being treated the same as a local operation. The parent company’s liability is generally restricted to the invested share capital; neither is it responsible for any debts or liabilities of the subsidiary, with the same applying to its shareholders.

Panama’s beneficial strategic position as a ‘land bridge’ between North and South America provides the parent company with a potential stepping stone into other regional economies. Then there is the Panama Canal, linking the Pacific and Atlantic Oceans as a key waterway in world trade.

These are key attractions. Additionally, the subsidiary can ‘test the market’ by following its own business ideas and entering into different areas of operation to the owning company. The subsidiary is also free to draw up its own contracts and agreements with clients.

Other benefits for a subsidiary:

  • Easier to obtain potential benefits and incentives and enter into contracts with other Panamanian, Central and South American companies
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches
  • Employees feel there is more stability and job security than from being with a branch

Subsidiary Laws in Panama

International companies moving into Panama’s economy by setting up a limited liability subsidiary operate under the Corporation Law and the Commercial Code, while their employment relationship with staff comes under the Labour Code.

Registration and Documentation:

  • The company name must be confirmed as unique by the Public Registry.
  • Provide Articles of Association of the parent company and minutes of the board meeting authorising setting up the subsidiary.
  • Obtain the Notice of Operation number (Panama Emprende System).
  • Notarised bylaws and constitution must be entered in the Public Registry, with full details of the shareholders, address and type of business. There must be a Spanish version of the bylaws.
  • The company’s Public Deed is created from the notarised bylaws and is subsequently lodged with the Public Registry.
  • Registration with the district municipality of the DGI and the Ministry of Commerce (Ministerio de Comercio e Industrias).
  • Registration with the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS) of the Ministry of Labour.

Accounts and Taxation:

  • The Unique Tax Registration Number (Registro Único de Contribuyentes, RUC) is obtained from the General Revenue Department (Direccíon General de Ingresos, DGI).
  • There is no minimum share capital requirement.
  • Companies must comply with International Financial Reporting Standards (IFRS).
  • There are no filing requirements for audited accounts for companies not registered with the National Securities Commission, but they must keep audited accounts on the premises for inspection.
  • Corporation Tax is paid at 25% on net taxable income or 4.67% on gross taxable income, whichever is greatest.
  • Companies must file returns within 90 days from the end of their fiscal year, which is generally the calendar year although other financial years can be applied for.
  • Value Added Tax registration is mandatory for companies with turnover exceeding US$36,000 (€34,300) annually or US$3,000 (€2,860) a month.

Management:

  • A minimum of two shareholders, including at least one Panamanian national or resident.
  • A Panamanian national as legal representative.
  • There is no requirement for an annual meeting.
  • The company should have three directors, local or foreign.
  • Company officers should include president, secretary and treasurer.

A narrow strip of land with a small population … and yet from its location in Central America the Republic of Panama holds a key position in world economics. Panama forms a ‘land bridge’ between North and South America and the Panama Canal opens the sea routes between the Pacific and Atlantic Oceans.

Economically, Panama is certainly a nation that punches above its weight. It uses the US dollar as official currency, alongside the balboa, and is a middle-income economy that has been one of the fastest growing in the region in the 21st century. Panama’s highly-developed services sector accounts for up to 80% of GDP. It includes modern banking and insurance operations with over 80 established banking and financial institutions in an area that has grown with the free flow of capital and compliance with international regulations.

Work alongside our Professional Employer Organisation (PEO) recruitment specialists, then trust our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Panama and how to navigate its legislative issues that revolve around the Commercial Code.

Starting a business in Panama

International companies who want to open up this potential have the option of taking a foothold by launching a subsidiary as a limited liability company. This is known as a Sociedad de Responsabilidad Limitada, SRL, and is regulated by the Corporation Law and the Commercial Code. Establishing the entity is necessary if companies intend hiring staff and running payroll.

Complying with the Code involves procedures including:

  • Confirming choice of unique company name with Panama’s Public Registry.
  • Obtaining the company’s Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC) from the General Revenue Department (Direccíon General de Ingresos, DGI) and the Notice of Operation Number (Panama Emprende System), which is additional to the RUC.
  • Provide Articles of Association of the parent company and minutes of the board meeting authorising setting up the subsidiary as well as up-to-date financial statements.
  • Draft the subsidiary’s bylaws or constitution, plus details of shareholders, the business address and type of operation which must be entered in the Public Registry. If the bylaws are not in Spanish, there must be a translation.
  • A minimum of two shareholders, at least one of which must be a Panama national or resident.
  • Appoint the company’s legal representative, who must be a Panamanian.
  • Have bylaws notarised to receive the company’s Public Deed and subsequently register the Deed with Public Registry.
  • Register with the district municipality of the DGI and with the Ministry of Commerce (Ministerio de Comercio e Industrias) and the Social Security Fund (Caja de Seguro Social Panameña, CSS) of the Ministry of Labour.

Expanding your business into Panama

Opening a business in any overseas territory brings issues. Moving staff across the world means complex procedures to obtain visas. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to deal with all these issues.

Panama welcomes foreign investment, but there are always considerations surrounding compliance with the relevant legislation. In Panama this revolves around the Commercial Code and the Labour Code, which lays down the obligations of employers and the protected rights of their employees.

There are other issues, too. Where will you find manufacturers, offices and distributors?

Finding an Office in Panama

Panama is strategically placed as a sea and air transportation center, a bridge connecting South and Central America with the Panama Canal connecting the Pacific Ocean to the Atlantic. The Canal changed the face of global commerce during the past century and has a major impact on the economic geography of the Americas. 2022-23 will see over US$2.5bn invested in new tunnels and tolls … a country on the move economically with added appeal to foreign investment.

Foreigners working and living in Panama enjoy an inexpensive lifestyle, friendly and welcoming atmosphere with an exciting culture and beautiful environment. Also, the four largest population centers, Panama City, San Miguelito, Tocumen and David, plus the world’s second-largest Free Trade zone and free port, have good transportation links for commuters and businesses; important considerations when opening an office and employing staff.

What Panama has to offer:

Panama City is a modern haven for expatriates and hosts many international companies from banks to multinationals enjoying a wide range of facilities. This popular metropolis is more expensive than other cities, but is much cheaper than equivalents in Europe and North America. It provides a safe, stable society both politically and economically and a robust infrastructure which is excellent for companies starting a business.

Business Clusters and Hubs

Panama’s ports on the Atlantic include the world’s second largest free port, Colón. Panama is the region’s Business Hub, with the government planning growth with hubs in business and services, aviation, manufacturing in the medicaments and technology sectors. The digital hub, also up for expansion, already includes Google as a user. This concentration of like-minded companies and areas of expertise offers a larger pool of labour with appropriate skills, improves supply chains and maximises ideas, knowledge and research and offers development opportunities.

Free Trade Zones (FTZ)

As of 2022 there were 12 FTZs offering a streamlined approach to businesses. They promote employment, exports, and investment levels while reducing complicated regulations and high levies, increasing production and throughput of goods. The main FTZ is the Colón Free Zone, one of the more important logistics and storage hubs.  It has been serving the region as the main commercial center for more than 70 years over nearly 1,100 hectares, hosting over 3,000 companies.

City of Knowledge

A different aspect of Panama can be seen in this groundbreaking non-profit community. A hub for learning, experimentation, research and innovation which is close to Panama City and the iconic Panama Canal has a mission for boosting economic development and human welfare through business and science.

Some Panama Business Facts

  • Capital – Panama City.
  • Population – 4.44 million (2022 projection).
  • Regions – There are nine administrative provinces, plus three provincial-level indigenous regions.
  • Official language – Spanish.
  • Economy and world ranking – US$63.6 billion (2021), 86th
  • Leading sectors – Service 80%, (Panama Canal revenue 10%); industry 17%; agriculture 3% approximately.
  • Main exports – Agricultural products including corn, coffee, bananas and sugar, pineapple and watermelon, copper ore, shipbuilding and packaged medicaments.
  • Main imports – Mineral products, capital equipment, electronics, foodstuffs.
  • Main trading partners – US, China, Mexico, South Korea, Japan, Colombia.
  • Government – Popularly-elected representative system.
  • Currency – Balboa and US dollar.

Advantages and Challenges when entering the Market

Advantages of expanding into the Panama market include:

  • Location: Strategically perfect with land mass linking North and South America and the Panama Canal accessing the Pacific and Atlantic Oceans.
  • Gross Domestic Product: Expected to grow in 2022 with expansion in the mining sector and tourism and air transportation rebounding after pandemic.
  • Security – Reckoned to be one of the safest, most stable countries in South and Central America.
  • Finance – Using the US dollar as official currency brings fiscal stability, with no restrictions on funds leaving or entering the country.
  • Taxation – Liability only for funds earned in the country for individuals and companies.
  • Economy – Stability from a wide spread of sectors including shipping and ports, logistics and transportation, banking and finance, free trade zones.

Challenges of expanding into the Panama market include:

  • Bureaucracy: Lack of transparency in dealing with public institutions and officials. Panama ranked only 111th out of 180 nations in the 2020 Transparency International Corruption Index.
  • Workforce: Skills shortages through lack of training. Incoming companies can find the labour laws restrictive, along with limits on recruiting non-Panamanians.
  • Social: Disparity in earnings and living standards between Canal area and other regions.
  • Economy: Vulnerable to wider economic conditions of Central and South America.
  • Finance: Concerns over lack of action on money laundering.

The favourite options in Panama for opening a subsidiary are a Corporation/Joint Stock Company (Sociedad Anónima, SA) or a limited liability company (Sociedad de Responsabilidad Limitada, SRL), both of which provide protection against liabilities for the owning company and shareholders.

Establishing an entity is an essential step in order to hire staff, operate payroll and comply with the General Revenue Department (Direccíon General de Ingresos, DGI) and the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS).

There is more. The company’s relationship with staff is strictly regulated by Panama’s Labour Code in terms of statutory minimums. Any collective agreements must be taken into account and employers cannot alter the terms of an employment contract or collective agreement without permission of the other parties.

Once Bradford Jacobs’ Professional Employer Organisation (PEO) recruitment networks have located the best talent for your company, we step in to steer you through this crucial element of recruitment.

The different types of Panamaian Employment Contracts

  • Indefinite, open-ended, ‘undefined’ employment contracts (Contrato a término indefinado): These should be in writing, with no specified end date. They can be ended mutually or according to regulations regarding termination and severance.
  • Fixed-term, ‘defined’ employment contracts (Contrato a término fijo): Contracts tied to a defined timescale or project cannot exceed one year, but can be renewed up to a total of three years provided there is justified reason. Fixed-term contracts cannot be used to fill a temporary role. If contracts are renewed without justified reasons they will be considered to have become indefinite.
  • Probation Period (Período de prueba): These are for a maximum three months and must be included in the terms of the indefinite contract. Probation periods cannot be used in fixed-term contracts. Either party can terminate during the trial period without cause.

Employment Contracts Requirements

General considerations for employers include:

  • Providing employees with contracts in writing, in Spanish with translations if required.
  • The employer, employee and Ministry of Labour each have a copy of the contract.
  • The contract should include full details of the employee including any dependents; place and type of work; type of contract – indefinite or fixed-term; working hours and paid vacation allowance; salary and payment schedule; date, time and place where the contract was signed.
  • During the first week of work, employees must be registered with the social insurance authority, the CSS.
  • The employee must have a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • The registration process is completed at the DGI website.
  • Full-time employees must be correctly classified as such with the authorities and not as independent contractors, as they are treated differently for taxation purposes.

In Panama, employee benefits, entitlements and compensation are governed by the Constitution and the Labour Code (Código del Trabajo). The Code was drawn up in 1971, since when there has been only one update, in 1995. Employment disputes are dealt with by the conciliation boards of the Ministry of Labour.

International companies establishing their presence in Panama must set up a legal entity as a subsidiary in order to hire staff and run their payroll. Once staff are onboarded, the employer must operate within the Code’s framework of legislation, which provides safeguards and guarantees for the workforce.

This is where Bradford Jacobs points you in the right direction, drawing on over 20 years of experience as a Professional Employer Organisation (PEO) and Employer of Record (EOR). We deal with the complexities while your staff focus on work.

What are the Compensation Laws in Panama?

Panama has a very stable approach to labour legislation. The Labour Code (Código del Trabajo) was constructed in 1971 and has been amended only once since, in 1995. The Constitution also covers some aspects of legislation, such as discrimination, with any disputes handled by the conciliation tribunals of the Ministry of Labour.

Collective, union or workplace agreements can improve employee benefits but any arrangements that fall below the statutory minimums are invalid. Minimum levels apply to such as maternity and sick leave, working hours, paid vacations, notice periods and severance payments

  • Maternity Leave and Benefit: Pregnant employees receive six weeks leave before the due date and eight after. Benefit is set at 100% of current salary or the average over the previous 180 days, paid by Social Security Fund (Caja de Seguro Social Panameña, CSS).
  • Sick Leave and Benefit: Employees receive 100% of salary paid by the employer for up to 18 days sick leave per year, with any necessary subsequent benefit paid by the CSS.
  • Minimum Wages: There are close to 40 different categories for minimum wages, but no national minimum. Rates depend on the type or size of business, experience of employees and the region in which the business operates. In January 2022 monthly minimums were increased to approximately US$326 (€311) in some categories and US$971 (€926) in others.
  • Probation Periods: Open-ended contracts can stipulate trial periods up to three months, but they cannot apply to fixed-term contracts. During the trial period either party can terminate without giving a reason.
  • Working Hours: The Labour Code allows eight per day, 40 per week up to 172 a month for a five-day week, or 48 a week and 206 a month for employees working a six-day week. Day work is between 6am and 6pm, with night work between 6pm and 6am.
  • Overtime: Pay for working extra hours depends on which shift applies. Day workers receive 25% above their usual hourly rate; night and mixed-shift workers 50% above usual rates. When mixed shifts begin between 6pm and 6am the rate is 75% above normal pay. Overtime is restricted to three hours per shift and nine per week with excess hours reimbursed at 75% above the normal rate.
  • Notice Periods: Employs give 30 days’ notice in writing, employees give 15 days.
  • Termination / Severance / Redundancies: Employees with less than two years unbroken service can be dismissed without cause with 30 days’ advance written notice or payment in lieu. Otherwise, employees receive 3.4 weeks’ salary as severance for each year’s employment, pro rata averaged over the previous six months. The Labour Code regulates collective dismissals and redundancies, which must have prior agreement from the Ministry of Labour.
    Paid Vacations: Entitlement is 30 days paid leave after 11 months continuous service with an employer, which can be taken in a maximum of two blocks. Leave equates to one day for every 11 days worked, approximately.

Social Security in Panama

Panama’s social security system is regulated by the Ministry of Social Development (Ministerio de Desarrollo Social, MIDES), with employers and employees contributing to the CSS for both private and public sectors. Employers contribute the equivalent of 12.25% of the employees’ total remuneration, plus 9.75% on the employees’ behalf to the Social Security Fund (Caja de Seguro Social Panameña, CSS). Independent contractors and professionals contribute 13.5% of their fees.

Private affordable healthcare is a popular option as coverage and care under the state system is sketchy.

The CSS is also responsible for funding the pension regime, which is regulated by MIDES, and funded by the contributions from employers and employees. The public pension system is mandatory, as is the occupational complementary pension fund for civil servants. Additionally, there are voluntary private and personal occupational pensions. The retirement age is 62 for men and 57 for women.

Panama’s relatively small population of around four million obviously equates to a relatively small workforce, factors which add to the problems of negotiating the recruitment process.

Additionally, companies are restricted in the number of foreigners they can employ in relation to local employees on their payroll, generally 10%. Even if skills shortages are recognised in certain sectors, foreigners with the necessary qualifications cannot account for more than 15% of payroll. This can become a major factor if companies want to recruit for sectors where there are skills shortages among Panamanians.

As with other employment markets, however, the first steps can revolve around social media, LinkedIn, international recruitment sites and the local job boards Opcionemploeo, Konzerta, Encuentra24 and OLX.

Finding and recruiting the best talent in an overseas territory that may be thousands of miles away is always a major task for companies broadening their international horizons. Where to begin?  This is where Bradford Jacobs’ global experience is vital for taking the smartest recruitment route into Brazil. Our Professional Employer Organisation (PEO) solutions have worldwide reach and include a total understanding of the complexities of the Brazilian employment market

Recruiting in Panama

In order to legally run payroll for their staff, companies must establish a legal entity in Panama. Those ‘going it alone’ must then deal with the complexities of compliance with the General Revenue Department (Direccíon General de Ingresos, DGI) and the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS).

Responsibilities and requirements include:

  • Employers must provide employment contracts in written form, in Spanish with translations if required.
  • Minimum requirements for the contract include full details about the employee including dependents; location and type of work; whether contract is indefinite or fixed-term; working hours; salary and payment schedule; date, time and place where contract was signed.
  • The contract has three copies, one each for the employer, employee and Ministry of Labour.
  • Employees must be registered with the social insurance authority, the CSS, during the first week of employment.
  • Employers must ensure the employee has a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • The registration process is completed at the DGI website.
  • Full-time employees must be correctly classified as such with the authorities and not as independent contractors, as they are treated differently for taxation. Confusing the two can lead to fines and sanctions.

Employees’ Legal Checks

Scope:  Generally, employers can run pre-hire checks to verify an applicant’s references, work history and educational qualifications without their permission. The candidate must give written authorisation for the employer to carry out criminal record or credit history checks, or the employer can ask the individual to provide a criminal background certificate. Employers can ask employees to undergo a medical examination to confirm they have no condition that could put other workers at risk.

Basic Facts when Recruiting in Panama

The overriding legislation governing the relationship between employers and employees in Panama is the Labour Code (Código del Trabajo), which was drawn up in 1971 and amended in 1995.

  • Written contracts must be agreed at the start of the employment process, written in Spanish, translated if necessary, with a copy for the employer, the employee and the Ministry of Labour.
  • Contracts can be indefinite and open-ended without a termination date or fixed-term with a specific end date or tied to a particular project.
  • Individual fixed-term contracts cannot exceed one year, but can have a combined duration of three years where the work requires specialist skills. Renewing without justified reasons can make the contract indefinite.
  • Probation periods, to a maximum of three months, must be entered into the contract and can be ended without either party giving notice. Fixed-term contracts cannot have trial periods.
  • Employers give 30 days’ notice; employees 15 days.
  • Employers ensure the employee has a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • Employees are registered with the Panamanian Social Security Fund (Caja de Seguro Social Panameña, CSS).

After hiring and onboarding, employers must comply with requirements of the Labour Code.  Statutory minimum standards apply to such as minimum wages, sick leave, working hours, maternity allowances, paid vacations, termination and severance, notice periods and social insurance payments. Examples include:

  • Employees are allowed up to 18 days sick leave per year after providing a medical certificate, with 100% salary paid by the employer. If necessary, subsequent payments are made by the CSS.
  • In a regular five-day week, the Labour Code allows for eight hours per day, 40 a week and 172 each month. In a six-day working week, the maximums are 48 a week and 206 per month.
  • Maternity leave totals 14 weeks, with six before the due date. Wages are paid by the CSS at 100% of salary, or the average over the previous 180 days, whichever is greater.
  • Employees are entitled to 30 days’ paid vacation after working for an employer continuously over 11 months, equating to one day’s leave for every 11 days worked.

Panama occupies a unique geographic location, as a land bridge between North and South America with the Panama Canal linking the Pacific Ocean to the Caribbean Sea and the Atlantic. It’s a position which has seen the Central American republic become one of the fastest-growing economies in the region in the 21st century.

There are solid reasons for Panama’s growth. Alongside its currency, the balboa, the US dollar is also official currency and Panama’s ‘dollarised’ economy has seen it converge with US living standards at a faster rate than any other country in the Central American region.

The highly-developed services sector accounts for 80% of Gross Domestic Product (GDP) and features over 80 modern banking and finance institutions, while increased privatisation of state-owned enterprises encourages foreign direct investment.

The Panama Canal is also key to the nation’s growth. It accounts for around 10% of GDP and revenue was boosted by the US$5.5 billion upgrade that created wider locks and deeper channels. Licensing merchant ships to the Panamanian flag creates more revenue and the Cólon Free Trade Zone holds the world’s second largest free port.

Away from the commercial world, the capital Panama City juxtaposes skyscrapers with traditional colonial architecture in the Casco Viejo district reflecting the nation’s Spanish heritage. ‘Old Panama’ – Panama Viejo – was once a prized target for Caribbean pirates. Despite its advance into the modern world, Panama City remains a melting pot of cultures, nationalities and heritage.

Nevertheless, traditional values and outlook will still apply in some sectors of the business environment, both for companies and individuals. So, there will be a lot to get used to

The Basics of the Panamaian Work Culture

  • Language:  The national language is Spanish, although English is often spoken in the business world. If your Spanish is inadequate and you are unsure of how meetings will be conducted, take an interpreter.
  • Punctuality: Expected and assumed, so be on time.
  • Negotiations: As Panamanians prefer basing business on trust, expect to spend time on small talk and building relationships. The business structure is hierarchical and decisions will come down from the top. Confrontation is avoided, so the fact that no-one openly disagrees does not necessarily mean they actually agree!
  • Greetings: ‘Buenos Dias’ (Good morning) or ‘Buenas Tardes’ (Good afternoon) are a great way to start. ‘Mucho gusto’ is fine for a first meeting, meaning ‘A pleasure to meet you’. Women often greet with a hug and kiss on the cheek, men exchange a firm but not too tight handshake. Until on first name terms, address men as ‘Don’ and women as ‘Dona’ followed by their surname. Always use titles, such as Doctor or Professor if they apply.
  • Gift Giving:  Not usual practice, although a modest branded item from your company would be ok.
  • Business Cards: The details should be in Spanish on one side, which you present face up.
  • Dress Code:  Men wear a conservative, dark suit often with a ‘camisillas’, an open-necked shirt, not necessarily tucked in. Similarly smart, conservative suits, skirts and blouses for women.
  • Out of Hours:  Dining, networking and socialising is an important part of building relationships.
  • Avoid:  Pointing is considered rude.

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