Why Crypto Exchanges Require a Panama Entity
Global crypto exchanges offer different service scopes depending on the jurisdiction and type of legal entity involved. As a result, more Korean companies are being informed that certain services are difficult to access through a Korean entity and are being asked to establish an entity in another jurisdiction, such as Panama, and complete KYB (Know Your Business) procedures for that entity.
Panama has traditionally been considered a practical jurisdiction because companies can operate without a VASP (Virtual Asset Service Provider) licence under certain structures and because of its territorial tax system.
More recently, however, jurisdictions such as the British Virgin Islands (BVI) and Seychelles have introduced VASP licensing regimes, making Panama increasingly attractive as an alternative jurisdiction with a comparatively lower regulatory burden.
However, the use of a Panama entity should not be considered solely from the perspective of tax efficiency or regulatory flexibility.
In practice, a Panama entity may be used for multiple purposes, including access to global exchanges, overseas contracting, asset holding, and the separation of business functions. Establishing the entity itself does not guarantee approval of an exchange KYB application, nor does it automatically exempt the business from Korean regulatory requirements.
Legal Basis and Basic Requirements for Establishing a Panama Company
Panama companies are incorporated under the Panama Corporations Law (Law No. 32 of 1927).
Two or more adults may establish a corporation for a lawful purpose regardless of nationality or residence, and foreign individuals or entities may hold shares without restriction. This allows Korean individuals or Korean companies to retain direct ownership of a Panama corporation.
The Articles of Incorporation must generally include the company name, business purpose, capital, registered office in Panama, resident agent, duration, and other required matters. At least three directors are generally required.
Source: Panama Corporations Law (Law No. 32 of 1927) and practical registration standards
Although the corporate registration itself can be completed relatively quickly, this refers only to the period after all required documents have been prepared.
Additional time is often required to finalize the shareholder and director structure, prepare beneficial ownership documentation, and complete translations, notarization, and apostille procedures for documents issued in Korea.
If crypto exchange KYB and local bank account opening are also included, the overall process may extend from several weeks to several months.
Accordingly, it is important to plan the timeline based on the entire period from incorporation preparation through exchange account approval, rather than focusing only on the formal incorporation period.
Korean Foreign Investment Reporting and Virtual Asset Business Reporting
A crypto business structure using a Panama company may also trigger Korean regulatory requirements.
Source: Korean Law Information Center (law.go.kr)
Article 6-2(2) of the Act on Reporting and Using Specified Financial Transaction Information provides for the application of relevant requirements where a virtual asset service provider’s financial transactions are conducted outside Korea but have effects within Korea.
Accordingly, the fact that a company is incorporated in Panama does not automatically exempt it from Korean virtual asset service provider reporting obligations.
Under Korea’s foreign exchange regime, an overseas direct investment report is generally required where a Korean resident acquires 10% or more of the equity of a foreign corporation.
Even where the ownership ratio is below 10%, however, the investment may still qualify as overseas direct investment if there is an ongoing economic relationship, such as the dispatch of officers, long-term transactions, or technical cooperation.
Before remitting incorporation capital or operating funds, the relevant reporting and documentary procedures should therefore be prepared through a designated foreign exchange bank. Additional reports or post-reporting obligations may also arise in connection with further capital contributions, loans, changes in shareholding, or liquidation.
Criteria for Determining Whether the Entity Is a Virtual Asset Service Provider
The Korean Supreme Court has addressed the criteria for determining whether a person or entity qualifies as a virtual asset service provider under the Act on Reporting and Using Specified Financial Transaction Information.
A person who repeatedly buys or exchanges virtual assets through an exchange solely for their own benefit, without any special circumstances, may generally be regarded as an ordinary exchange user rather than a virtual asset service provider.
By contrast, a person or entity that repeatedly conducts the purchase, exchange, transfer, or custody of virtual assets for unspecified customers or users and receives consideration may, in principle, qualify as a virtual asset service provider.
— Supreme Court Decision 2024Do10710, Dec. 12, 2024
Accordingly, if a Panama entity goes beyond managing its own assets and repeatedly conducts virtual asset purchases, exchanges, transfers, custody, or related activities for third-party customers and receives fees, there is a possibility that it may be regarded as a virtual asset service provider.
Where the business also targets Korean users or otherwise has substantial effects in Korea, a separate review is required to determine whether Korean reporting requirements apply.
Ongoing Local Obligations After Incorporation
The obligations of a Panama company do not end once incorporation is completed. Certain ongoing maintenance obligations continue after formation.
Annual Government Fee (Tasa Única)
A Panama corporation must pay an annual government fee. Failure to pay may result in penalties and may cause the company to fall out of good standing.
Beneficial Ownership Registration and Updates
Panama operates a non-public beneficial ownership registry known as the Registro Único de Beneficiarios Finales.
The resident agent is generally required to verify the company’s shareholders and ultimate beneficial owners and register the relevant information in the system.
Authorized authorities may access the information for purposes including anti-money laundering investigations, sanctions compliance, and international cooperation.
The appointment of nominee directors or shareholders does not eliminate these beneficial ownership disclosure obligations.
Accounting Record Retention
Even where the company operates exclusively outside Panama, it must retain transaction records, accounting documents, and supporting evidence.
Where records are kept outside Panama rather than with the resident agent, the company must generally inform the resident agent of the person responsible for maintaining the records and the place where they are kept.
Economic Substance Requirements Applying from the 2027 Fiscal Year
Through Law 526 of 2026, enacted on May 28, 2026, Panama introduced economic substance requirements for certain Panama entities that form part of multinational enterprise groups and earn passive foreign-source income, such as dividends, interest, royalties, and capital gains.
These requirements will apply from the 2027 fiscal year.
A covered entity that fails to demonstrate sufficient economic substance in Panama—including actual management and decision-making, personnel, and facilities—may be subject to a single 15% tax rate on the relevant passive income.
However, the regime applies to foreign-source passive income of Panama entities belonging to multinational enterprise groups and does not generally apply to purely domestic groups or Panama-source income.
Certain regulated financial institutions, including banks, securities firms, and insurers, may also be excluded within the scope prescribed by law.
Source: Panama Law 526 of 2026, enacted May 28, 2026 and published in Official Gazette No. 30534-B
Coordinating Exchange KYB with Korean Reporting Obligations
When a Panama entity is established for crypto exchange KYB purposes, the following practical issues should be reviewed together.
Confirm the Exchange’s Requirements in Writing
The specific reason for requiring a Panama entity, the scope of services that may be approved, and the required documents should be obtained from the exchange through written materials such as email or official guidance.
If incorporation proceeds only on the basis of verbal guidance, there is a risk that the post-incorporation requirements may change or that the expected services may still be unavailable.
Ensure Consistency Between the Entity’s Role and Contractual Structure
The exchange account holder, asset flow, contracting party, and actual business structure should be aligned.
The contractual relationship between the Korean entity and the Panama entity may need to address services, cost sharing, intellectual property, and other intercompany arrangements.
Review Korean Reporting Obligations in Parallel
Where equity is acquired or management participation occurs, the structure should be reviewed for Korean overseas direct investment reporting requirements.
If the business actually targets Korean users, the possibility of a virtual asset service provider reporting obligation under Korean law should also be reviewed.
Administrative sanctions for failure to file overseas direct investment reports and criminal penalties for operating an unreported virtual asset business are subject to different legal requirements and should therefore be assessed separately.
How Decent Law Firm Can Assist
The overseas corporate structure of a virtual asset business requires more than simply establishing a foreign company. Exchange review requirements and Korean reporting obligations must also be considered together.
Decent Law Firm’s Virtual Asset Team works with local professionals in Panama to provide integrated support for matters including:
- Structuring the Panama company’s business purpose and operating model
- Reviewing exchange KYB requirements and preparing submission materials
- Reviewing overseas direct investment and Korean virtual asset business reporting requirements
- Structuring agreements between the Korean entity and the Panama entity
- Advising on post-incorporation corporate maintenance and exchange compliance
If a global exchange has requested that you establish an overseas entity, or if you are reviewing a related cross-border crypto structure, it is advisable to first determine how the proposed business model connects with applicable regulations and reporting obligations before proceeding with incorporation.
This content is provided for general legal information purposes only and does not constitute legal advice for any specific matter.