¿What are the registration processes of the change of jurisdiction of foreign corporations to the Republic of Panama and vice versa and branch establishment?

CHANGE OF JURISDICTION OF FOREIGN COMPANIES TO THE REPUBLIC OF PANAMA.

Panamanian legislation allows a foreign company constituted in another jurisdiction to continue its legal existence in the Republic of Panama as a Panamanian company, notwithstanding the provisions established in the law of the country of origin.[1]

This change of jurisdiction is colloquially known as “re-domicile.” This term is incorrect because this process does not consist of a change of the domicile or the registered office. Instead, it is the “nationality” of the Company that changes, resigning to its jurisdiction of incorporation and adopting the Panamanian.

The steps required for a company incorporated aboard to be able to convert into a Panamanian company are the following: 

1. Inscription of its juridical personality in the Public Registry through the protocolization in a public deed of the following documents, according to Article 11B of the Code of Commerce:

• Record or evidence of its constitution and validity in the foreign jurisdiction. The law establishes that the competent authority must issue this document, and if this is not possible, present a notarial certification of the Company in which its validity is confirmed. Whichever of these documents shall be apostilled or authenticated by a Panamanian consul. Certificates of Good Standing are usually submitted, issued by the Commercial Registers of the countries of origin or by the corresponding competent authority.
• Minutes of the competent body of the Company, or secretarial certification of same, in which it is approved the continuation of the Company to the Panamanian jurisdiction. Depending on what is established in the articles of incorporation of the Company, the competent body may be the Board of Directors, the Shareholders, the Partners, or the administrator. This resolution could be established the reasons for which the decision to change the Company’s jurisdiction has been taken.
• Articles of Incorporation or Certificate of Constitution of the Company in accordance with Panamanian law. This is the constitution document in the original jurisdiction. It must be adapted and/or suitable to the content requirements established in Panamanian law. These modifications shall be approved by the same corporate body that decides the change of jurisdiction.

These documents have to be legalized by the apostille, or, failing that, by the Panamanian consul of the jurisdiction where the documents are issued.

After the date of inscription of these documents in the Public Registry, the continuation of the Company shall take effect between the parties and with third parties, retrospectively from the date of incorporation of the Company in its initial jurisdiction because the Company maintains its existing legal relationships to the date of the change of jurisdictions. In other words, the change of jurisdiction of a company to the Republic of Panama does not interrupt the fulfillment of the obligations that may appear between the members of the same entity and with third parties.

It is important to mention that within the public deed containing these documents, it must be determined that the new Articles of Incorporation subrogate the constitution document registered in its country of origin.

With the change of jurisdiction, the corresponding corporate body may also decide the transformation of the legal entity to the legal nature and legal structure to convert it to another company type, for example, from a stock company to a Panamanian limited liability company.

According to Article 11-C of the Code of Commerce, the change of jurisdiction and the continuation of a foreign company to the Republic of Panama does not absolves or releases the encumbrances on assets held by the Company; that is to say, these will not be affected by the continuation of the Company to our country. Neither will be the rights of the creditors that the Company may have. Furthermore, the Company will remain as the owner of its assets, franchises, privileges, and rights in general but must comply with the obligations to which it was subjected in its jurisdiction of origin.

The proceeding to transfer the jurisdiction of a foreign company to ours described in the preceding paragraphs refer to the cases that are made in a definite way. There is the option to carry out an inscription of the continuation of a foreign company in a conditional way, as long as it is registered subsequently the document that proves the definite continuation, meaning that it complies with the previously established requirements, within the deadlines specified in the law.[2] Some clients prefer to continue their companies in two steps, whether it is to comply with legal requirements of their country of origin or because of restructuration issues within the Company.

2. Inscription of the Company’s Single Taxpayers’ Register (RUC) in the General Revenue Directorate of the Ministry of Economy and Finances. The General Revenue Directorate assigns a taxpayer number to the Company to identify it from all legal entities. However, if it does not generate income within Panamanian territory, it would not be a taxpayer. It should also be handled by the Tax Identification Number (NIT). The Company will be able to access a portal in which it will receive notifications from the tax administration and can verify the status of its obligations with same.
3. Discontinuation of the Company in the country where it was initially constituted. This process varies depending on the laws that govern the country of origin of the Company. Usually, the Change of Jurisdiction deed must be registered in the mercantile registry of that country for them to unregister the Company.

CONTINUATION OF PANAMANIAN COMPANIES TO FOREIGN JURISDICTIONS

Panamanian companies may continue their existence in foreign jurisdictions if the law of the country to which they would be transferred allows it. Previously to this change of jurisdiction, the Company must be in good standing with its tax obligations required by Panamanian regulation.[3]

The steps required for a Panamanian company to change its jurisdiction are the following: 

1. Inscription in the Public Registry, according to Article 11-E of the Code of Commerce, of the public deed in which it is protocolized before Panamanian public notary the following documents:

• Certification or document whereby the approval of the shareholders of the change of jurisdiction is confirmed.
• Document issued by competent authority that certifies the inscription of the Company in a foreign jurisdiction, duly apostilled or authenticated by Panamanian consul. This can be analogous to a Certificate of Panamanian Public Registry.

2. Notification of the change of jurisdiction before the General Revenue Directorate, to get the issuance of the Company’s annual tax suspended for the next tax periods.

The procedure to complete the change of jurisdiction of a Panamanian Company to another jurisdiction will depend on whether it is made in a single act or two. These stages are known as the provisional change of jurisdiction and the definitive.

1. Provisional: it is called temporary because the certification that proves the Company’s register in another jurisdiction has not been yet obtained. This stage consists of the registration in the Public Registry of the document containing the member’s or shareholder’s agreement of continuing the existence of the Company in another jurisdiction.

This change concludes, or it is considered definitive, once the document that certifies the change of jurisdiction of the Company, issued by the other country’s competent authority, is registered. For the definitive to be constituted, the law has granted six months. Meaning that, after the inscription of the member’s agreement to continue the existence of the Company in another country, the document that proves that the Company has been registered in another jurisdiction must be reported within six months.

If it is not possible to comply within the period previously indicated, the law determines that a six-month extension can be granted, either by requesting it directly to the Public Registry or through the inscription of a public deed in which it is protocolized the minutes of the shareholders of the Company whereby they express the need for the process of change of jurisdiction to be extended.

2. Definitive: consists of performing the process of change of jurisdiction described in the above paragraphs in a single registration act. In the same public deed, both of the required documents are protocolized and then registered in the Public Registry. Just like the case presented in section I of this article, once the definitive continuation of the Company to a foreign jurisdiction has been registered, the rights, franchises, and all of the assets that may be the property of the Company, as well as the encumbrances that they may have, won’t be affected by the continuation of the Company in another jurisdiction.

 

ESTABLISHMENT OF BRANCHES OF FOREIGN COMPANIES IN PANAMA

In addition to the foreseen cases in the previous sections, Panamanian law also contemplates the establishment of branches or agencies of foreign companies to the Republic of Panama. This option allows companies to have offices in Panama without transferring their domiciles to our country.

The steps to be followed to establish a branch of a foreign Company are:

1. Constitute in the Public Registry as a foreign company, through the protocolization of the following documents, legalized through apostille or by Panamanian consul of the jurisdiction of origin of the Company, in a public deed before Panamanian public notary[4]:

• Continuation certificate or Articles of Incorporation of the Company’s jurisdiction.
• Copy of the latest Balance Sheet of the Company.
• Certification that confirms its validity and legal existence under the law of the country of origin, duly legalized by Panamanian consul in said country.
• Certification issued by the Company in which it is determined the amount of the capital stock that will be used for operation in Panama.

According to the Manual of Qualification of the Public Registry of Panama[5], it is established in section B, point 3, about the establishment of branches of foreign companies that in addition to the requirements stated above, a Legal Representative must be appointed in the Republic of Panama.

2. Inscription of the Company in the Single Taxpayers’ Register (RUC) in the General Revenue Directorate and obtainment of the Tax Identification Number (NIT).
3. Obtainment of permits or licenses and entity notification: The Company must comply with the notification and/or obtainment of the necessary permits depending on the activity it will develop. For instance, if the Company engages in local activity, it may require a Notice of Operation, to notify the corresponding Municipality of the start of operations, to get registered as an employer in the Social Security Fund and enter the payroll, as can also operate in a Free Trade Zone, which has another tax system. In short, the obligation described in this statement will depend on the type of activity that the Company pretends to develop in Panamanian territory.

Once these requirements have been met, the Company shall perform its activities in our country and exercise the corresponding civil rights.

The agency or branch is an extension of the juridical personality of the Company in its country of the constitution. Therefore, any harm that the branch may cause, the Company must assume it as its own.

Foreign companies registered as so in the Panamanian Public Registry must present all of the amendments and/or modifications that are made to their statutes in their country of origin. These companies, regarding their statutes, will continue to be governed by the legislation of their jurisdiction of original, nevertheless, they will remain subject to Panamanian law.

Some registry criteria to take into account when determining the name of the branch are[6]:

• It won’t be possible to establish branches with names that already exist in our Public Registry, nor that can create phonetic or alphabetical confusion.
• The branches can be registered with their original names, as registered in their country of origin. This name must be available in the Panamanian Public Registry.
• It is not necessary to state the mandatory acronyms (S.A., INC., Corp., among others), it is left to the discretion of each Company.
• The word “Panama” cannot be used to differentiate the name of the Company from another one.

[1] Commercial Code of the Republic of Panama. Article 11-B. Added by Decree-Law 5 of July 2nd, 1997 (Panama).

[2] Commercial Code of the Republic of Panama. Article 11-D. Added by Decree-Law 5 of July 2nd, 1997 (Panama)

[3] Commercial Code of the Republic of Panama. Article 11-E. Added by Decree-Law 5 of July 2nd, 1997 (Panama)

[4] Article 90 of Law 32 of February 26th, 1927, Company Law, Official Gazette 5067 of March 16th, 1927.

[5] Passed through the Resolution DG-028-2019 of 2019, Official Gazette N°28786-A of May 31^st, 2019.

[6] Qualification Manual of the Public Registry of Panama passed through Resolution DG-028-2019 of 2019, Official Gazette N°28786-A of May 31st, 2019.