Do I Need a Local Entity to Hire in Panama?

In Panama, a "local entity" refers to a business structure, such as a subsidiary or branch office, that allows you to be recognized as an employer. This setup is crucial for managing payroll, tax obligations, and employment regulations locally. Without a local entity, you generally can’t fulfill employer responsibilities, such as registering for social security or issuing compliant employment contracts.

However, if you want to hire employees in Panama without the complexities of setting up a local entity, you can consider using an Employer of Record (EOR). An EOR acts as the legal employer, allowing you to hire and manage employees while remaining compliant with local laws.

What is Required to Employ Someone in Panama?

• Local employing entity required to directly employ? Yes (unless using an EOR)
• Payroll registration required? Yes (employer must register with the Dirección General de Ingresos)
• Withholding/tax remittance required? Yes (mandatory payroll tax withholdings apply)
• Social contributions required? Yes (employer must contribute to the Social Security Fund)
• Local employment agreement required? Yes (written contracts are mandatory in Panama)
• Mandatory benefits to budget? Yes (includes vacation, sick leave, and social security)
• Works council/collective agreements considerations? Usually (certain sectors may have collective agreements)

Best Options If You're Hiring in Panama

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but be cautious about misclassification risks.

In Panama, hiring independent contractors can be a viable alternative to setting up a local entity. However, if the contractor's work resembles that of an employee, you may face legal challenges. It's essential to ensure that contractors maintain independence and are not integrated into your business operations.

• Contractors should have multiple clients to avoid exclusivity.
• Control over their work should be minimal to maintain independence.
• Clear contracts outlining the scope and terms of work are crucial.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Panama, depending on required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated 300–800 PAB per month ($300–$800)
• Payroll provider: Estimated 50–150 PAB per employee per month ($50–$150)
• Employer registrations and recurring compliance: Varies by complexity
• Corporate tax filings and annual reporting: Estimated 1,000–3,000 PAB per year ($1,000–$3,000)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 p/month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Panama

Hiring in Panama can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Panama quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.