The new regime for Limited Liability Entrepreneurship Corporations (LLEC) was recently approved by the National Assembly and is currently awaiting the approval of the Executive branch. This proposal is directed towards micro and small businesses, in an effort to encourage entrepreneurship by providing them with a corporate vehicle specifically tailored to their needs.

The primary objective of this initiative is to promote entrepreneurship culture by streamlining the process of constituting a corporation, mainly by reducing the amount of red tape required to do so.  Additionally, it looks to generate employment by creating a corporate structure unlike the ones currently available, thereby attracting potential employees from sectors such as information technology.

LLEC’s was created in order to benefit micro and small businesses, the proposal defines the former as those who generate an annual gross income/invoicing of up to (B/150,000.00). Meanwhile, the latter is defined as those generating an annual gross income/invoicing starting from (B/.150,000.01) up to (B/.1,000,000.00).

In contrast to the traditional alternatives, LLEC’s permit a single individual (1-5 residents of Panama, 18 or older) to constitute the legal entity. Nevertheless, the initiative imposes a limit of one LLEC per individual.

Given the ever evolving nature of business, and to offer flexibility for entrepreneurs, other types of legal entities may transform into  LLEC’s and viceversa.  In order to do so, the legal entity must issue a resolution, approved by the absolute majority of its partners, in which they agree to the transformation, provided they meet all the necessary requirements to constitute the new type of legal entity.  However, legal entities operating in Panama for over three years may not transform into a LLEC.

All LLEC’s partners must be their final beneficiaries and thus must provide their personal identity document and proof of address, in order to ensure that the standard due diligence is being practiced. Additionally, the initiative requires all LLEC’s to maintain updated accounting records and financial statements, as a means of guaranteeing transparency regarding the business’s financial and fiscal aspects.

The following are the key benefits that this new corporate vehicle offers:

1. LLEC’s are exempt from paying their annual corporate fee tax for a period of four years after their constitution.
2. LLEC’s are exempt from the requirement of using a fiscal printer for invoicing, for a period of four years after their constitution.
3. LLEC’s are exempt from paying their income tax for period of two years counted since starting operations.
4. The Ministry of Commerce and Industries may establish reductions of up to 50% on tariffs for resources, raw materials, services or innovative processes  imported into Panama by LLEC’s.

LLEC’s are eligible to receive donations of up to (B/.10,000.00) once per fiscal year, per individual, which will be deductible from the donor’s income tax.