US Company Formation from Panama (2026): US LLC or C-Corp, Panama's Territorial Tax, No US Tax Treaty, Colón Free Zone Traders and Expats

Panama has long been a meeting point of the Americas. Colón Free Zone distributors ship to the whole region, regional headquarters sit in Panama City, and a steady flow of foreign entrepreneurs and remote workers have made Panama their home. A US company is a natural addition for all of them: a US entity for US customers, a Miami warehouse, a US bank account, or a company that American clients and platforms recognise.

Panama also has one of the most distinctive tax systems in this series. It is strictly territorial: Panama taxes income from Panamanian sources and leaves foreign-source income alone, including some income from services performed in Panama but used abroad. The USA and Panama have no income tax treaty, however, so money leaving a US corporation for Panama carries full US withholding. Those two facts point most individual founders in one direction and most companies in another, as this guide explains.

In short: Panamanian citizens and residents of Panama can own 100% of a US LLC or C-Corporation, formed remotely. Panama taxes only Panamanian-source income. Its tax code treats income from operations that take effect or are consumed abroad as foreign-source, so profits from a US company serving foreign customers are generally outside Panamanian tax. There is no US–Panama income tax treaty, so US corporate dividends to Panama are withheld at 30%. A single-member LLC with no US operations usually pays no US income tax and no withholding on distributions. Panama's 2026 economic substance law and reformed foreign-source regime mainly affect Panamanian entities in multinational groups. With UCB, a Wyoming LLC with EIN is $249, a Florida LLC with EIN is $299 and a Delaware corporation with EIN is $358, all-in.

Who can form a US company from Panama

US states place no restriction on where owners live or what passport they hold. A Panamanian citizen, a foreign resident of Panama, a Panamanian sociedad anónima (S.A.) or a Panama-based regional company can own a US LLC or corporation outright, with an individual owner as sole manager or director. No US visa, Social Security number or US address is needed, and no trip is required. The company needs a registered agent in its state, which is included for the first year in every UCB formation (see registered agent explained), and an EIN from the IRS, which needs no SSN or ITIN (see EIN for non-residents).

For identity, US banks want a passport. A Panamanian cédula alone is not enough. For proof of address, use a utility bill (electricity or internet) or a bank statement, translated if it is in Spanish.

If a Panamanian S.A. will own the US company, banks will also want:

• the S.A.'s Public Registry certificate (certificado de Registro Público);
• its register of shareholders;
• identification of its ultimate beneficial owners.

Panamanian corporate structures attract close KYC review in US banks because of their history. Clear, current ownership documents make the difference.

Panama's territorial system and a US company

What Panama taxes

Panama's Fiscal Code taxes only income produced within Panamanian territory. Income from foreign sources is not taxed, for individuals or companies, wherever it is received and whoever owns the business. Article 694 adds that income from transactions perfected, consumed or taking effect abroad is not Panamanian-source, even if the transaction is directed from an office in Panama.

For a resident of Panama who owns a US company, that generally means:

• Profits the US company earns from customers outside Panama are foreign-source, and Panama does not tax them, either in the company or when distributed to you.
• Services you perform from Panama for foreign clients, where the result is used abroad, are generally treated as foreign-source under Article 694. That is a significant difference from Japan, Korea or Thailand, where work done in the country is taxed there.
• Business with Panamanian customers is Panamanian-source and taxable in Panama, whichever entity invoices it.

How the tax authority (DGI) applies Article 694 depends on the facts, and practice has tightened in recent years. Have a Panamanian accountant confirm your position, especially if any of your clients are in Panama.

The 2026 reforms

Panama was on the EU's list of non-cooperative tax jurisdictions from 2020. In response it reformed its foreign-source income exemption and passed an economic substance law with an implementing decree in 2026. On 9 October 2026 the EU removed Panama from its blacklist and moved it to the "grey" annex while a Global Forum review is completed.

The changes are aimed mainly at Panamanian entities that belong to multinational groups. Their foreign-source passive income, such as dividends, interest, royalties and gains, may be taxed in Panama unless they meet substance requirements there. An individual resident owning a US LLC directly is not the target. A Panamanian S.A. holding a US subsidiary could be. Check the current rules with your adviser.

Dividends inside a Panamanian group

A Panamanian company distributing profits to its shareholders withholds Panama's dividend tax: 10% on Panamanian-source profits, and 5% on foreign-source profits, export profits and profits from free zone operations.

US LLC formation from Panama

For individuals, the LLC is usually the right choice.

The US side

A single-member LLC owned by a non-resident is disregarded for US federal income tax. If the business is run from Panama with no US office, US employees or US agents who conclude contracts, its income is generally not effectively connected with a US trade or business, so no federal income tax is due (see effectively connected income explained). Money the LLC passes to you is not a dividend, so there is no 30% withholding. The LLC files Form 5472 with a pro forma Form 1120 every year, and missing it carries a $25,000 penalty (see Form 5472 explained).

An example from Panama City

This is an illustrative example, not a client case. Panama uses the US dollar, so there is no currency conversion.

Ana is a Panamanian cloud-infrastructure consultant working from an apartment in San Francisco, Panama City. Her clients are software companies in the USA and Canada. She forms a Wyoming LLC, opens a US business account and invoices US$140,000 a year. After costs, the LLC's profit is US$120,000.

In the USA, the LLC owes no federal income tax, because Ana works from Panama with no US office or staff. It files Form 5472 and a pro forma 1120.

In Panama, her accountant treats her services as consumed abroad by North American clients under Article 694. That makes the LLC's profit foreign-source and outside Panamanian income tax. When she moves money to her Panamanian account, no Panamanian tax applies to it.

One year she takes on a Panamanian bank as a client. Her accountant tells her that contract is Panamanian-source: she should invoice it through her Panamanian tax registration (or a Panamanian entity) and declare it.

The tax result is unusually favourable, and its strength rests on the facts: foreign clients, work used abroad, and records that show it. Ana keeps her contracts, invoices and the LLC's US filings in order, so she can show the DGI the source of her income if asked.

US C-Corp formation from Panama

The US side

A C-Corporation pays 21% federal tax on its profits, plus state income tax where it does business (Florida charges 5.5% corporate income tax). It files Form 1120 and Form 5472 every year (see the 21% corporate tax explained and the C-Corp guide for non-residents). With no treaty:

• Dividends to a Panamanian shareholder are withheld at 30%.
• Royalties are withheld at 30%.
• Interest to a shareholder owning 10% or more is withheld at 30%.

Profit paid out to Panama therefore bears about 44.7% in US federal tax alone, before any state tax. Panama does not add tax to it, but it gives no credit either.

When a corporation is right

• A Colón Free Zone company with a US operation. Take an illustrative case: a Free Zone electronics distributor opens a warehouse and sales team near Miami. The US business is clearly a US trade or business, with inventory, staff and US customers. It belongs in a US corporation, not in a disregarded LLC that would make the Panamanian S.A. itself a US taxpayer, subject to branch profits tax on top. The Florida subsidiary buys from the Free Zone company at arm's-length prices and pays US tax on its own margin. Most of the regional margin can legitimately remain in the Free Zone company (see US subsidiary for a foreign company). Profits are generally reinvested in the US business rather than paid out to Panama.
• Raising investment. US investors expect a Delaware C-Corporation (see raising US investment as a foreign founder).
• Several owners in different countries, such as a regional startup with founders in Panama, Colombia and Mexico. A corporation keeps the cap table and taxes clean.

Expats and remote workers in Panama

Panama attracts foreign residents through the Friendly Nations visa, the Pensionado programme and the visa for remote workers of foreign companies. Many of them run a US LLC.

Panama's territorial system is a large part of the attraction: their foreign-source income is generally outside Panamanian tax. The remote worker visa in particular is designed for people whose income comes from outside Panama. They must not work for Panamanian clients.

But Panama's rules are only one side. Your home country may still consider you resident, or may tax its citizens wherever they live. US citizens and green card holders are taxed by the USA on worldwide income whatever their residence, so a US LLC is not disregarded in the same way for them. Europeans who keep ties at home should check how their home country treats the LLC (see the country guide).

Which state

• Wyoming for a service or online business run from Panama: low yearly costs and owners kept off the public filing.
• New Mexico as the cheapest alternative, with no annual report.
• Florida for a business with a Miami presence: the city is Panama's main US connection by air and sea, and has a large Latin American business community. See Florida LLC for non-residents.
• Delaware for a corporation raising investment.

See best state for non-residents and the state selector.

What it costs

State fees and the first-year registered agent are included. A US business address with your own suite number is $60 a year. See what a US LLC costs every year.

Banking and payments

Panama left the FATF grey list in 2023, and residents of Panama are generally accepted by US banks and fintechs for remote business accounts. Because of Panama's past reputation, applications receive careful review. What helps:

• A precise business description.
• An English website.
• Clear ownership documents, especially if a Panamanian S.A. is in the chain.
• A US business address with your own suite number rather than the registered agent's.

Moving money is simple because Panama uses the dollar, so there is no currency conversion. Panamanian banks ask the origin of incoming international transfers, so keep invoices and the US company's records to hand. See US business bank accounts for non-residents, why banks reject non-resident applications and Stripe for non-residents.

Visas

Panama is an E-2 treaty country under its bilateral investment treaty with the USA. A Panamanian citizen who makes a substantial investment in a real US business can apply for an E-2 investor visa through that company, with an immigration lawyer. Once you live in the USA, the company's profits become US taxable income for you.

Common mistakes

• Forming a C-Corp and paying dividends to Panama, at 30% US withholding with no treaty.
• Assuming every invoice from the US company is foreign-source in Panama. Panamanian clients and services used in Panama are Panamanian-source.
• Owning a disregarded LLC through a Panamanian S.A. for a US business with real US operations, which exposes the S.A. to US tax and branch profits tax.
• Weak ownership documents for a Panamanian S.A. in the bank application.
• Skipping Form 5472 because the LLC owed no US tax.

Frequently asked questions

Can a Panamanian citizen own 100% of a US company? Yes, without visiting the USA or holding a US visa.

Does Panama tax income from my US LLC? Generally not, if it comes from customers and operations outside Panama, because Panama taxes only Panamanian-source income. Business with Panamanian clients is taxable in Panama.

Is there a US–Panama tax treaty? No income tax treaty. US dividends, royalties and related-party interest paid to Panama are withheld at 30%.

Will my US LLC pay US tax if I work from Panama? Usually not, with no US office, staff or agent. It files Form 5472 and a pro forma 1120 every year.

Should my Colón Free Zone company use a US LLC or a corporation? For a US operation with a warehouse or staff, a corporation. A disregarded LLC would make the Panamanian company itself the US taxpayer.

I am a foreigner living in Panama. Is my US LLC income tax-free? In Panama, foreign-source income is generally not taxed. Your home country may still tax you, and US citizens are always taxed by the USA.

Do I need an ITIN? Not to form the company or get its EIN. See what is an ITIN and who needs one.

How UCB can help

We handle US company formation from Panama remotely: the state filing, EIN, registered agent, US business address and bank application, and then the yearly federal return through our US tax filing service. Your Panamanian accountant confirms the source of your income in Panama, and we provide the US documents they need. See our formation, EIN and bank account package ($348) and the Latin America guide.

Setting up a US company from Panama? WhatsApp us at +1 315 961 2956 or email enquiries@ucbsolutions.com.