Employer Of Record in Panama

Because of its geographic location at the crossroads of the Pacific and Atlantic oceans and between North and South America, Panama is known as the “Hub of the Americas”. Panama is the home of the Panama Canal, with ports on both oceans. Panamanian business, and the social climate, is heavily influenced by North American and Latin American cultures. Its diversified economy — largely focused on banking, trading and tourism — has increased its role in the global marketplace. Currently in this country there is a focus on encouraging women into secondary education, therefore furthering the growing potential for an educated workforce.

The Economy 

Panama has a stable government with a dollar-based economy. It’s democratic and actively seeks foreign investment, offering attractive low inflation rates, and zero foreign exchange risk. Panama’s economy is primarily based on its services sector, this sector includes the Canal, banking, tourism, logistics, activities in the Colón Free Trade Zone (CFZ), insurance, container ports, and flagship registry. 

The Importance of Small and Medium-sized Companies

One of the significant characteristics of a flourishing economy is the success and growth of small and medium enterprises (SMEs). In Panama more than 80% of businesses are classified as micro-, small-, or medium-size.

Population Characteristics

Panama is a nation with a population of about 4.4 M people. The average age is 29 years old and the literacy rate is 95%. Panamanians are quick to tell you what they love about their country, national pride runs deep and feelings towards Americans are mainly positive.

Economic Opportunities

Panama has one of the fastest growing economies in Latin America and dedicates substantial funding to social programs. Expanding a business beyond the U.S. borders is warmly welcomed. Its strong economy, low taxation, entrepreneurial opportunities, low barriers to entry and stable government make Panama an exceptional choice.

Key Sectors of the National Economy

• Foreign Trade

Panama is mainly export oriented and highly dependent on trade. The country also has the largest trading fleet in the world. The free zone of Colón is the second largest free zone in the world after Hong Kong, demonstrating the country’s openness to foreign trade.

• Agriculture

Agriculture is a major industry in Panama. Major foreign corporations are some of the largest landowners in the country

• Services

The service industry is the biggest industry in the country. Transport is the most important economic pillar in the service industry, as it comprises the Panama Canal; the government’s chief revenue source. Financial services in Panama are another important economic pillar. In the late 20th century, Panama gained a reputation as a tax haven. Also, insurance is big business in Panama and auto insurance in particular, which is mandatory to all vehicle owners in the country.

Human Talent

English-language courses and higher education represent the best prospects for Panamanian students within the study abroad market. In fact, 85% of all managerial positions are filled by candidates who study abroad. The most in-demand fields of study for Panamanian students in the U.S. are business administration, management, finance, banking, marketing, and engineering.

Prominent Cities for Business

• Panama City

This is the economic and financial center of the country. The city’s economy is heavily weighted toward banking, tourism and commerce. The Panama Canal helped the city establish itself as a prime location for offshore banking and tax planning.

• San Miguelito

The second largest city by population with 315,019 people, it is also a port city which gives it excellent transport facilities that connect it to the sea. These have proven valuable for the vibrant economic activities in the city.

• Juan Díaz

Juan Diaz is one of the centers of manufacturing in Panama, including food processing, wood products, paper, textiles, and other products. It is an important economic, education and commercial area.

Technological Ecosystem

Panama has been called the region’s “Technology King” following strong wireless growth. It’s long been recognized as a telecommunications hub. Panama’s excellent infrastructure kept it at the tech forefront first in land lines then later cell phone service.

Facilities for Foreign Investment

Incorporating a company and launching a new international venture is simpler in Panama than most anywhere else in the region. And income obtained outside the country is free of income tax. Panama is a unique country in the fact that you can register a business in around two weeks, and you do not need to physically be in the country during or after the incorporation process. By establishing an offshore company in Panama, you can create a holding company to protect your assets and real estate from future liability.

Business Culture in Panama

Meetings Always confirm meeting times in advance because things can often change on short notice. Punctuality is expected, although preliminary small talk sometimes delays the official start time of a meeting. Gestures and Body Language Good eye contact is appreciated in Panama and interpreted as a show of interest and integrity. Being loud, using profanity or generally drawing negative attention to oneself is considered very rude. As is pointing at others with the index finger. Gifts Giving gifts to Panamanian business associates is discouraged, instead follow up with a thank-you note within a few days of the meeting or social event.

Panama Gastronomy: regional and traditional cuisines

A typical meal in Panama will include meat, fruits and vegetables, coconut and some rice and beans. Because of its enviable location on two oceans, seafood is always an excellent choice. Ceviche is common, typically made from curing fresh, raw, seafood with citrus juice and served cold. Typical Panamanian foods are mild in flavor. Common ingredients are corn, wheat flour, plantains, yuca, beef, chicken, seafood and pork.

General Highlights

Year	2022
Country	Panama
Capital	Panama City
Num. States / Province	10 provinces and 3 indigenous regions
Principal Cities	Panama City, San Miguelito, Juan Díaz
Language	Spanish
Local Currency	Balboa or U.S. dollar
Major Religion	Christianity
Date Format	DD/MM/YYYY
Thousands Separator Format	999,999,999.99
Country Dial Code	+507
Time Zone	GMT-5
Population	4,404,110
Border Countries	Costa Rica & Colombia
Continental surface	75.517 km²
Fiscal Year	October 1 to September 30
VAT %	Taxpayer Identification Number (NIT)
Minimum Wage	U.S. $ 971.28 per month
Taxpayer Identification Number Name in the country	NIT
Current President	Laurentino Cortizo

What you need to know about employing personal in Panama

Laws and Agencies that regulate labor relationships

A business must register with the Financial Services Regulatory Commission, the Registrar of Companies, the Ministry of Finance, the Inland Revenue Department, and the Social Security Board.

Laws	Brief Description
Constitution of Panama	With the ultimate purpose to strengthen the Nation. This includes the guarantee of freedom, ensuring democracy and institutional stability, exalting human dignity, promoting social justice, maintaining general welfare, and regional integration, and invoking the protection of God.
Labor Code	Labor and employment in Panama is governed by the Labor Code.   This code was adopted through Cabinet Decree N. 152 of March 1971, reformed by Law N. 44 of August 1995 and it specifies norms to regularize labor.
Tax Code	Article 694 of the Panamanian Fiscal Code states the object of Income Tax is “the taxable income that is produced, from any source, within the territory of the Republic of Panama whichever may be the place where it is perceived”.

Key Tax and Labor Authorities

Labor Code	Labor Code in Panama is governed by its Labor Code and it specifies norms to regularize labor.
Labor Contracts in Panama	Definite term: This contract may not exceed one (1) year, except for those services that require special technical preparation, the term of the contract may be stipulated up to a maximum of three (3) years. Indefinite term: It establishes an employment relationship without defining the term, a start date is established but not an end date.
Contracts Signed	Labor contracts must be written and signed at the beginning of the employment relationship in three (3) copies, one for the Ministry of Labor and Labor Development, one for the company and one for the employee.
Probation	A period of 3 months.
The International Labor Organization	Panama is a member as of 1996.
Work Hours	8 hours per day, 48 hours per week. Underage employees of 16 are limited to a 36-hour working week.

Basic Requirements

The contract must contain:

• Name, nationality, age, sex, marital status, domicile and identification card number of the
• Name of the persons who live with the worker and depend on him/her.
• Specific determination of the agreed work or
• Place or places where the service is to be
• Duration of the contract, if it is for a fixed, determined or indefinite period of
• Duration and regular division of the working
• The salary, form, day and place of
• Place and date of conclusion of the
• Signature of the parties, or the corresponding

Payroll

Legal Benefits in Panama:

Minimum Wage	U.S. $ 971.28 per month
Wages	Wages are paid monthly in USD
Overtime	•          There is a maximum of overtime allowed per day, 3 hours and 9 hours per week. •          If 48 hours per week are exceeded, overtime must be paid at an overtime rate dependent on the hours the overtime was worked. •          If the hours worked are between 6:00 a.m. and 6:00 p.m., the overtime rate is 125% of the employee’s regular salary. •          From 6:00 p.m. to 6:00 a.m., or on a day off or holiday, the overtime rate is 150% of the employee’s regular salary. •          Hours carried over from night work are increased to 175% of the employee’s regular salary.
Christmas Salary	Paid in three equal parts on April 15, August 15 and December 15.
Panama’s Workers Comp	Panama’s Workers Comp pays for all accidents and sickness at the workplace. And it is administered by Panama’s Social Security System.   Employers pay between .98% – 5.6% into the workers comp system with the rate depending upon the risks associated with the job and the salary.
Vacations or PTO	30 days of paid annual leave following the commencement of 12 months of employment.
Leaves of Absence Employees have the right to paid absences for the following things:	•          Maternity Leave: Begins six weeks before the due date and ends eight weeks after delivery for a total of 14 weeks. It is paid by the social security (if the employee has accrued nine monthly social security contributions before the seventh month of pregnancy). Otherwise the employer pays. In the case of a difficult multiple birth or pregnancy-related illness, the leave can be extended in advance with a medical certificate. •          Paternity Leave: The father is entitled to 3 days of leave after the birth and the company compensates him. •          Adoptive mothers: Are entitled to 28 days of paid leave.
Foster child leave	A foster mother who adopts a child that is under three years of age has the right to 26 weeks’ maternity leave, from the date of the family placement. The foster mother is also entitled to enjoy indemnification (paid by social security) for her living maintenance and that of her child, and is protected against dismissal for two years from the family placement Foster fathers of children under three years of age are protected from dismissal for up to two years after the family placement (Article 339, New OLL) Foster fathers of children under three years of age can take paid paternity leave for 14 continuous days from the family placement.

Employers Contribution or Labor Cost

Payroll taxes: Social security 9.75% Education contribution 1.25% Annual Taxable Income Income of resident individuals expressed in tributary units is subjected to tax at progressive rates. As of June 2021, each TU is valued at VES 20,000.

Over this amount	Not over this amount	Tax % on Excess
Less than $11,000	$22,000	No income tax
$11,000	$50,000	15%
$50,000 and over		25%

Corporate Tax Rates Corporations are subject to a fixed income tax that is of a rate of 25%.

Disability

The “Social Security Fund” includes “Professional Risks”. The purpose of this program is to substitute, within certain limits and conditions, the employer’s responsibility stipulated in the Labor Code, to protect or compensate its employees for damages due to occupational diseases or accidents resulting from risks to which the workers are exposed.

Public Holidays

The Labor Code provides for public holidays that are observed in Panama:

Date	Holiday Name
1 January	New Year’s Day
9 January	Martyrs’ Day
Tuesday before Ash Wednesday	Carnival Tuesday
Friday before Easter	Good Friday
1 May	Labor Day
3 November	Separation Day
5 November	Colon Day
10 November	Primer Grito de Independencia de la Villa de Los Santos
28 November	Independence Day
8 December	Mother’s Day & Feast of the Immaculate Conception
25 December	Christmas Day

In Panama any termination must be in writing and must follow the laws outlined in the Panamanian Labor Law. This varies according to the employment agreement and collective bargaining agreement in effect and is based on the type of contract and the reason for termination.

Type of Termination	Brief Description
Justified Dismissal	It is classified into 3 categories: •          Disciplinary •          Of a non-attributable nature •          Economic
Unjustified Dismissal	When the unjustified dismissal is proven, the employee receives a severance payment that will correspond to their seniority time and salary. The amounts are calculated on the wages received during the last 6 months or 30 days, whichever is more convenient for the employee.
Voluntary Resignation	Resignation without just cause in Panama is a right that workers have and must present it in writing to the employer 15 days in advance.

Other forms of compensation upon termination include:

• If the employee resigns he/she is not entitled to severance
• For pre-notice: In the case of a contract for an indefinite term, neither party may terminate it without giving prior notice to the other, except as provided in Articles 81 and 84 of this Code, in accordance with the following rules:

1. upon completion of the probationary period up to one year of service, 30 days
2. for more than one year and up to five years of service, 45 days
3. for more than five and up to ten years of seniority, 60 days
4. more than ten years of seniority and thereafter, 90 days

For severance pay: In the event of dismissal without just cause ordered by the employer, whether or not notice has been given:

Length of Employment	Required Notice
0 – 30+ years	15 daily wages for each year of service or fraction of six months