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Panama: New regime for limited liability entrepreneurship companies

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As part of the Panamanian government's plan to reactivate the economy following the Covid-19 crisis, it is currently promoting a new regime known as limited liability entrepreneurship companies (LLEC).

At the core of the regime will be various incentives aimed at entrepreneurs to encourage them to formalize their businesses, by giving them access to benefits that should increase competitiveness and promote growth.

The new regime will become effective within one year of its publication in the Official Gazette. Although at the time of writing, the law that governs LLECs is still awaiting sanction by the executive body, this is the last stage in its approval process, and it is expected to be completed any day now.

This new corporate vehicle, although somewhat similar to Panamanian limited liability companies (LLC), will have a particular difference in the fact that LLECs can be created by a single individual, whereas LLCs must have at least two partners. The creation of LLECs primarily seeks to reduce red tape, to substantially lower the costs of creating and operating a company, and to give emerging enterprises the opportunity to enter the market.

The regime will apply to entrepreneurs who, without necessarily being innovative, generate local, national, or international value, or socioeconomic benefits. Only Panamanian micro companies (those with gross income or annual invoicing up to the sum of $150,000) and small companies (those with gross income or annual invoicing between $150,000.00 and $1,000,000) are eligible.

Among the most relevant benefits and incentives given to LLEC´s , we should mention the following : (a) costs to incorporate LLECs are lower than those of other corporate vehicles available under local laws; (b) during its first four years, the LLEC´s will be exempted of the payment of the annual corporate tax and use of fiscal printer, (c) during its first two years, the LLEC´s will be exempted of income tax; (c) the regime creates a one-stop-shop administrative office through which LLECs will be able to digitally submit all the documentation required by the different administrative authorities; (d) bidders in public contracting that subcontract part of their work to an LLEC will have an additional score of five percent in those bids; (e) invoices issued by LLECs must be paid within 30-days, with a one percent monthly interest rate in case of late payments; and (f) a 50% reduction in import duties levied on equipment and raw materials needed for their business.

As expected, and due to the intended target of the new regime, it does have limitations. For example, LLECs will not be able to engage in commercial activities such as operating bars, discos, hotels, and the commercialization of alcohol or tobacco. Plus, one person cannot be part of more than one LLEC.

Apart from proving entrepreneurs with a legal framework aimed at incorporating their businesses in a faster and more efficient way, it is also expected that the new regimen will promote the creation of new jobs as well as strengthen the country´s economy behind the initiatives and creativity of the entrepreneur sector.