A crypto exchange is at the forefront of the most demanded and popular blockchain-based projects around the world. An increased number of entrepreneurs resort to forming and licensing their crypto exchange ventures in allowing and flexible offshore jurisdictions. Panama happens to be one of them. What do you need to know before registering your crypto exchange business there?
What are the current legal and regulatory frameworks for cryptocurrency exchanges in Panama?
First and foremost, in order to operate a legal crypto exchange in the country, one must obtain a Panama crypto license. The obtainment process is relatively simple and fast, with minimal regulatory complications attached to it. The crypto legal framework itself is rather light in Panama, with the country giving business owners free rein as to how they want to run their crypto companies. At the same time, there is still a law in place, Law 129 of 2020, which applies to all businesses, including crypto, as well as regulatory authorities that issue licenses and oversee the registration process. For example, the Superintendency of Banks of Panama (SBP), which accepts license applications and hands out legal permits, and the Financial Analysis Unit (UAF), which oversees the AML/CFT compliance of businesses.
What are the tax implications of operating a crypto exchange in Panama?
According to Panama’s territorial tax system, all the income earned outside the country’s borders is not subject to taxation. In addition, there is no specific tax for crypto-based incomes, and no direct guidance on this matter has been given by any of the governmental authorities. On the one hand, the absence of rigid taxation can be beneficial for crypto businesses; on the other, it’s better to consult with a tax professional to ensure ongoing compliance with Panamanian laws since the framework can be volatile and subject to change.
What are the requirements for obtaining the necessary licenses and registrations?
If you specifically want to obtain a license to run a crypto exchange in Panama, you will need to secure the so-called Exchange Authorization, which is one of the two license types issued by the Panamanian authorities. In order to get such a permit, you will have to register your legal entity with the Panamanian state as a Specialized Financial Institution (SFI). Before submitting your application, collect and prepare a set of all the required legal documents: identity documentation of all beneficiaries, directors, and shareholders, proof of address for each, a filled due diligence form, and a business plan with a detailed description of all the company’s activities. Once the SFI is formed, you can freely move on to submitting a licensing application.
What are the anti-money laundering (AML) and know-your-customer (KYC) regulations that apply to crypto exchanges in Panama?
There are no specific AML/CFT regulations existing for companies in Panama. At the same time, all businesses registering in the country are expected to adhere to the best international practices for Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures. Implementing robust AML/KYC policies can help mitigate potential risks and align your business procedures and security with global standards, thus fostering trust among users and partners.
What are the cybersecurity and data protection requirements for crypto exchanges in Panama?
At the moment, Panama does not have specific cybersecurity or data protection laws tailored for cryptocurrency exchanges. However, general data protection regulations apply, and it’s essential to implement strong cybersecurity measures to protect user data and maintain your crypto exchange safe and trustworthy. While you are preparing your platform for licensing and launch, it’s highly recommended to engage a cybersecurity professional, who can run a detailed check and confirm that there are no breaches or potential risks associated with the operations of your platform.
What are the potential risks and challenges of operating a crypto exchange in Panama?
Despite Panama being a flexible jurisdiction to register a crypto business in, there are still some risks and challenges to be aware of. The fact that the country doesn’t have a robust and detailed framework for regulating crypto ventures means that you can come across legal uncertainties, especially when the regulations start changing and getting stricter to align with international standards. In addition, this legal uncertainty can pose a challenge in establishing strong and secure banking relationships, and banking gateways are more often than not obligatory for crypto exchanges.
What are the advantages of registering a crypto exchange in Panama?
The most obvious benefit of Panama for registering a crypto exchange is its favorable tax regime, with no capital gains tax on transactions in cryptocurrency. Besides, foreign-sourced income is exempt from Panama’s territorial tax system, which makes it extremely advantageous to run a business and offer services to customers outside the country. In addition, the country’s strategic location and advanced financial infrastructure further enhance its appeal for establishing a crypto exchange.
What are the best practices for establishing and operating a successful crypto exchange in Panama?
If you want to leverage the benefits offered by Panama to crypto exchanges and similar businesses, you can follow a number of best practices to ensure compliance and a good reputation for your project. For starters, stay informed about any developments in local regulations and ensure adherence to general business laws: if you can, employ a certified lawyer who can provide you with ongoing advice and notify you promptly should any of the laws be amended or changed.
Secondly, make sure to implement strong AML/KYC measures to prevent fraudulent activities and build trust with your customers and partners. Then, invest in advanced security protocols to protect user data and assets. Remember that for all these practices, you can consult with legal and crypto professionals to navigate the business registration and licensing processes effectively.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin