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Ask most people around the world their thoughts on Panama
and you would probably be met with the same one word reply:
canal. However, after a small amount of further investigation
you would find that this country at the gateway of Central
and South America certainly isn't as one dimensional as
that. Aided by stable, pro-business governments using the
invaluable canal as a catalyst, Panama's friendly tax and
regulation system has helped to established the country
as one of the most modern and respectable business and financial
centres outside the established 'onshore' countries, and
ranks as probably the most important trading and business
hub in the region.
400 miles long and between 30 and 115 miles wide, Panama
appears on the map as a narrow isthmus running from east
to west, forming an important land bridge between continental
South America and North America, dividing the North Atlantic
and Pacific Oceans. Its strategic advantages in terms of
trade were recognised as far back as the first Spanish colonisers,
prompting them to establish their first permanent settlement
in the New World at Panama City in 1513.
remained a Spanish colony for approximately three hundred
years to 1821 before it was annexed by Colombia. This state
of affairs endured until 1903 when the US helped win the
modern day country its independence in return for a slice
of land that would eventually see the Americans building
and operating the famous canal, completed by the Army Corp
over the last two decades, the United States has gradually
scaled back both its military presence and political influence
in Panama, and a second treaty signed by the former President
Torrijos (father of the more recent President) and US President
Carter in 1977 set in train a 25-year transition period
that saw the administration and running of the canal pass
back to the Panamanians.
the Canal, another legacy from the country's interdependence
with the United States that has played an equally vital
part in Panama's recent economic successes has been its
peg to the dollar at par. Since there is no government-controlled
central bank printing notes, Panama has had very little
problem with inflation, unprecedented in the region, and
with the dollar the effective currency in all but name (the
balboa is the 'official' currency), investor confidence
has not been the issue that perhaps it has in other parts
of the region. However, high international commodity prices,
combined with Value-Added Tax (VAT) and minimum wage increases,
have pushed inflation above historical averages, with inflation
in 2011 projected to be above 6 percent, according to the
International Monetary Fund's (IMF) annual review of the
Panamanian economy, published in April 2012.
Under President Torrijos, Panama enjoyed something of a
boom; growth was 8.1% in 2006, exceeded 10% in 2007 and
was 8.3% in 2008. The rate of growth fell to 2.3% in 2009;
but Panama’s economy rebounded quickly following the
2008–09 global crisis. Supported by strong fundamentals,
political stability, and prudent fiscal management, real
GDP growth rates have been among the highest in the region.
Macroeconomic stability and policies to foster greater social
inclusion have reduced unemployment to historic lows.
the 2009 slowdown, output grew by 7.5% in 2010, and is expected
to have grown by 10% in 2011. Construction, commerce and
transportation have been the most dynamic sectors, while
canal traffic has been buoyed by strong demand from emerging
Asia and South America. Crucially, the strength of the financial
system also helped to buffer Panama against the worst effects
of the financial crisis in 2008/9. Robust economic growth
and steady fiscal consolidation have also contributed to
lowering the public debt ratio, which fell from 43.3% of
GDP in 2010 to 37.8% in 2011.
IMF suggests that Panama's macroeconomic outlook is "favourable",
with future growth likely to be underpinned by the vast
Panama Canal expansion project, and other large public investment
IMF also commended Panama’s success in establishing
a strong banking center, which has become an important regional
hub. However, to compete globally and in a broader range
of investment and wealth management services, the Fund believes
that the country will need to upgrade its financial sector
supervision and infrastructure.
per head was USD13,600 (2011 est) at Purchasing Power Parity
and unemployment levels are at 4.5% (2011 est). As of 2011,
Panama's GDP at Purchasing Power Parity was valued at USD50.25bn.
it is hard to understate the importance of the canal in terms
of its advantages both for world trade and as an asset for
Panama (even though the canal itself is technically neutral
territory). Around 12% of the United State's seaborne trade
in tonnage terms passes through the canal every year, which
in total sees 13,000 ship movements annually, carrying 192
million tons of cargo. And by navigating the 40-mile waterway,
a cargo vessel bound from Japan to the eastern seaboard of
the United States can reduce its journey by some 3,000 miles.
By the end of 2010, more than 1 million vessels had transited
through the canal since its opening 1914.
then, has grown to be one of the most important industries
in Panama, which has the world's largest registered merchant
fleet, and a recent investment programme has seen billions
of dollars used in the building of four more container ports
and the widening of the canal to accommodate more 'Panamax'
October, 2006, 79% of Panamanian voters approved a USD5.25bn
plan to expand the Panama Canal even further. Panama's then
President Martin Torrijos said that the vote on expansion
of the Canal was the most important national vote since
Panama gained its independence.
the expansion plans, two 3-chamber locks are being constructed
at both ends of the canal. This will create a third lane
of traffic wide enough to handle the largest of modern container
ships and tankers. New approach channels will also be prepared,
whilst existing channels will be dredged to ensure large
craft can enter the system.
project will take about seven years and employ up to 8,000
people. In December, 2008, President Torrijos and Panama
Canal Authority (ACP) Administrator/CEO, Alberto Aleman
Zubieta, signed a USD2.3bn agreement with leaders from five
multilateral and development agencies to finance the waterway's
expansion project. The final three bids to undertake the
dredging and excavation of the Pacific Access Channel entrance
were received from international contractors in August 2010,
representing the last major expansion programme contract
to be awarded. Once completed, the new access channel will
also link the new Pacific Locks with the Gaillard Cut (the
narrowest stretch of the Panama Canal).
expansion project was said by the Panama Canal Authority
to be 15% complete by October 2010 and the canal's expansion
is said to be on schedule following the recent completion
of the permanent concrete works for the new locks, and the
Authority hopes that work on the waterway will be completed
by the end of 2014. The third phase of the dry excavation
project in the construction of the Pacific access channel
was completed in October 2011.
October 19, 2011, Panamanian President Ricardo Martinelli
witnessed a new milestone in the expansion project with
the filling of a segment of the new access channel that
will allow the transit of Post-panamax vessels between the
new locks and the Culebra Cut.
Canal Authority Board of Directors Chairman and Canal Affairs
Minister Rómulo Roux said at the time that the expanded
Canal "will be able to meet the demands of world trade
and will change shipping patterns which will translate into
more opportunities for Panama and the region".
Canal Authority Administrator Alberto Alemán Zubieta
added that "the Canal continues to focus on enhancing
the value of Panama as a world trade route as our country
offers all kinds of geographic and competitive advantages.
Today´s act of filling part of the channel is one
more step in that direction."
On December 31, 2009, Panama celebrated the tenth anniversary
of nationalized operations at the Canal. A statement from
the Canal noted that “the canal has long stood as
one of the world's most recognized and respected engineering
marvels and a crucial link in the global supply chain. Building
on this, the decade of Panamanian stewardship and leadership
has been evidenced by change, achievement and growth. By
nearly every measure, the Canal's role in world trade and
value to global commerce has increased significantly in
the past 10 years.”
a decade of Panamanian management, Zubieta spoke of his
vision for Panama's hopeful future: "Reflecting over
the past decade, I am proud of what we have achieved,"
he said. "Proud of the employees of the ACP, proud
of our accomplishments and proud of Panama. We have achieved
goals that some thought were daunting and overcome obstacles
that, at times, seemed insurmountable."
Management and Maritime Operations
has the largest merchant marine fleet in the world, whether
measured in terms of total tonnage or in terms of number
of vessels. The registry was founded in 1925 and has no
restrictions either on the nationality or domicile of owners
or on the age, size or type of vessel. In fact, it accepts
many types of vessel that are not counted as such by other
registries, such as drilling rigs.
was a total of 8,900 vessels registered in Panama, totalling
over 222.5 million gross tons, in 2011, making it the world’s
top ranking open registry flag.
registry forms part of the Panama Maritime Authority, and
has offices in London, New York, Houston and New Orleans.
Provisional registration is effected through lawyers in
Panama, but the provisional registration documents can be
issued by Panamanian consuls. They are valid for six months,
renewable. A considerable amount of information must be
supplied, comparable with other registries. Permanent registration
with a renewable 4-year navigation patent will follow issue
of the provisional documents and completion of documentation.
registration for 6 months costs USD500, and USD50 for renewal;
the renewable provisional 3-month radio licence costs USD150
Law no. 4 of 1983 (as amended) ongoing annual registration
fees are based on tonnage (GRT) as follows:
Up to GRT2,000 - US500
GRT2,000 up to GRT5,000 - USD2,000
GRT5,000 up to GRT15,000 - USD3,000
GRT15,000 - USD3,0000 plus USD0.10 per GRT to a maximum
(Consular Tasa) are also payable based on tonnage as follows:
Up to GRT1,000 - USD1,200
GRT1,000 up to GRT3,000 - USD1,800
GRT3,000 up to GRT5,000 - USD2,000
GRT5,000 up to GRT15,000 - USD2,700
Over GRT15,000 - USD3,000
There are also annual Tasa charges dependent on tonnage
covering inspection and regulatory costs.
separate scale of duties exists for barges, pontoons and
vessels operated other than for profit.
is also a separate regime for pleasure vessels under which
registration is on a renewable 2-year basis; a single fee
of USD1,500 (USD1,000 for a Panamanian individual or corporation)
is payable every two years. Pleasure vessels are exempt
from duties and other Tasa charges.
registry forms part of the Panama Maritime Authority, and
has offices in London, New York, Houston and New Orleans.
Provisional registration is effected through lawyers in
Panama, but the provisional registration documents can be
issued by Panamanian consuls. They are valid for 6 months,
renewable. The following information must be supplied:
and previous name of the vessel;
owner's name and address;
of builder; place and date of construction;
of vessel; number of decks, masts and funnels;
of previous usage;
width and height; gross and net tonnages;
and number of engine, number of cylinders, horsepower;
name of manufacturer;
of qualified radio accounting agency;
of classification society; IMO number.
provisional registration, a renewable 6-month Provisional
Patente of Navigation is issued, along with a renewable
3-month Radio Permit. Permanent registration with a renewable
4-year Patente and Radio Permit will follow issue of the
provisional documents and completion of the following documentation
within 30 days of provisional registration:
power of attorney in favour of a Panama lawyer as legal
notarised Bill of Sale or Builder's Certificate;
certificate from a previous registry;
Tonnage and Class certificates;
inspection report if the vessel is over 20 years old
Panamanian banking industry grew during the last quarter
of the 20th century into a regional banking centre for Latin
American and the Caribbean, due to a variety of factors
including the absence of exchange controls, the rapidly
increasing volume of trade being conducted through the country
(and through the Colon Free Zone in particular), liberal
banking legislation and tight secrecy provisions. At the
end of 1997 more than 100 banks were licensed in Panama,
from more than 20 countries and with assets of about USD23bn;
however the country responded to international pressure
by tightening up on banking regulation, and a number of
banks closed their offices in 2000 and 2001. By mid-2005,
80 licensed banks remained, of which 30 had international
licences. Assets amounted to USD7bn.
to new financial regulation, Panama is once again developing
itself into an important centre for banking. The legislation
introduced a new licensing system for the industry and stricter
compliance procedures, whilst subsequent laws and decrees
have established modern anti-money laundering, fraud and
terrorist financing rules. These initiatives helped to secure
Panama's omission from the FATF (Financial Action Task Force
on anti money laundering) 'blacklist' of non-cooperative
jurisdictions in 2001, and have transformed the nation into
one of the world's most reputable international banking
2007, the banking sector had rationalised further as foreign
giants sought a piece of Panama's fast-growing services
economy. Four deals at the latter end of 2006 had a major
impact on the competitive environment of Panama's banking
industry; these included HSBC's acquisition of Banco del
Istmo - Panama's largest bank - for USD1.8bn, and Citibank's
purchase of Grupo Financiera Uno, Latin America’s
largest credit card issuer, for USD1.1bn. By the end of
2007 total consolidated assets in the banking sector reached
USD69bn. The majority of assets are domestic - as opposed
to offshore - a large chunk of which is accounted for by
demand by wealthy expats, particularly from the US, for
loans on second homes.
assets grew steadily through 2011: in January 2012, the
total assets of Panama's banking centre stood at USD81.4bn,
almost USD9bn higher than in January 2011. Domestic deposits
were USD30.5bn in January 2011 and USD33.65bn in January
2012. Foreign private banking represents the largest proportion
of Panama's banking assets, followed by domestic private
is however being maintained on Panama to adopt international
standards of tax transparency and information exchange.
Panama was among 35 jurisdictions identified by the OECD
as far back as June 2000 as meeting the technical criteria
for being a tax haven and threatened with listing as 'uncooperative'.
This resulted in a written undertaking in April 2002 by
the then minister of Economy and Finances, Norberto Delgado
Duran to the OECD, that Panama would comply with OECD standards
of tax transparency, in particular adopting the principles
of exchange of tax information.
April 2009, following a key G20 summit in London, Panama
was identified by the OECD as a country which had committed
to, but not yet substantially implemented, the internationally-agreed
standard on tax transparency and was placed on the Organization's
'grey list' having signed, at that point, no OECD-endorsed
tax agreements. The country has quite recently, however,
entered a number of Double Tax Treaties and Tax Information
Exchange Agreements (TIEAs). Key among them is the TIEA
with the United States, signed on November 30, 2010 by US
Treasury Secretary Tim Geithner and Panama’s Vice
President and Minister of Foreign Affairs, Juan Carlos Varela.
we are ushering in a new era of openness and transparency
for tax information between the US and Panama," Geithner
declared at the time of the signing ceremony. "This
bilateral agreement to provide for the exchange of tax information
between our two countries reflects the commitment of the
US and Panama to the importance of transparency of tax information."
TIEA entered into force on April 18, 2011 and provides the
US with access to the information it needs to enforce US
tax laws, including information related to bank accounts
in Panama, regardless of whether the requested party has
a domestic tax interest in such information. The agreement
also permits the US and Panama to seek information from
each other on various types of national taxes, in both civil
and criminal matters, for the tax years beginning on or
after November 30, 2007.
is specified in the TIEA that the US federal taxes covered
are income taxes, taxes related to employment, estate and
gift taxes and excise taxes. The taxes imposed by Panama
in the agreement include income tax; real estate tax; vessels
tax; stamp tax; notice of operations tax; tax on banks,
financial and currency exchange companies; and insurance
exchanged pursuant to the TIEA shall be used for tax purposes,
although the information may also be used for other purposes
as permitted under the provisions of the Treaty on Mutual
Legal Assistance in Criminal Matters between the US and
Panama, as long as the tax authorities of the country providing
the information consents to such use in writing.
also signed a number of OECD-compliant double taxation agreements
in 2010, including with South Korea, Singapore, Luxembourg,
Spain, the Netherlands, Qatar, Portugal, Italy, France and
Barbados (although this treaty does not meet the agreed
standard). Double tax agreements were signed with France
and Ireland in 2011.
removal from the OECD 'grey list' was secured in July 2011
following the signing of the tax agreement with France,
which brought the number of agreements signed by Panama
that adhered to the international standard to 12. Commenting
on the decision, OECD Secretary General Angel Gurria said:
“Panama has worked hard to achieve this milestone
and has made remarkable strides toward complying with the
international standards in a very short time. This is very
welcome and shows the Global Forum is achieving its aims.”
Minister for the Economy and Finance, Frank De Lima confirmed
in January 2012 that the government will continue to seek
out tax information exchange agreements with other nations
in the coming year. It was said at the time that preparations
were taking place for the negotiation of a tax agreement
with Germany, while talks were ongoing with the United Arab
Emirates and the United Kingdom in the early part of the
year. Talks were also due to commence with Hungary towards
the negotiation of a tax agreement.
agreements are good for attracting investment into the country
and improving Panama's image in the international arena,"
De Lima explained.
term 'offshore' is not used in Panama legislation; since
taxation is on a 'territorial' basis, ie only Panama-sourced
income is taxed, an entity which has its activities or assets
outside Panama will automatically escape taxation. There
are more than 120,000 corporate entities in Panama, of which
the majority are 'offshore'.
Corporation (Sociedad Anonima) is the most frequently used
corporate form in Panama, and is the usual choice for an
are formed under the Law No. 32 of 1927 and the Commercial
Code (Decree-Law No. 5 of 1997, Article 5).
corporation is formed by two subscribers (or nominees in
the case of absent foreign subscribers) who execute the
Articles of Incorporation (Statutes) before a notary and
then record them at the Public Registry Office. All commercial
and industrial businesses must have a Notice of Operations
in order to engage in business unless they are specifically
exempt. Following incorporation, only one shareholder is
necessary. Shares can be of various classes, can have par
value or not, may be registered or bearer. There is no minimum
capital, and no paying-up rules, except that no-par-value
and bearer shares must be fully-paid when issued.
regulations now apply to bearer shares: the registered agent
must keep the bearer share certificate in safe custody and
must notify the Registrar about such shares. There must
be at least three directors, and their names must be in
the Articles as filed; changes to directors must also be
filed. Each corporation must have a resident Panamanian
agent (a lawyer), named in the Articles; there are no other
filing requirements unless the Articles are changed or the
corporation is merged or dissolved.
No.2 of 2011 introduced new 'know your customer' requirements,
whereby all registered agents operating in Panama must keep
and maintain information on their clients in order that
they can be properly identified upon request by the authorities.
These new rules also cover the identity and location of
holders of bearer shares.
law also allows the following types of company to be formed:
Corporation: A foreign company can be registered
in Panama by depositing the following documents at the
Public Registry Office:
notarised Spanish translation of the Articles of Association;
Board minute authorising the Panamanian registration;
of the most recent financial statements;
certificate from a Panamanian Consul confirming that
the company is organised according to the laws of
its place of incorporation;
of the allocation of capital to the Panamanian operation.
or Limited Partnership: A General Partnership
is permitted under the Commercial Code. The partners have
Partnership: The Commercial Code and Law No 24
of 1966 also govern the Civil Partnership (sociedad civil),
which has legal personality, although the liability of
the partners is unlimited. This type of partnership is
often selected by professionals such as lawyers and accountants.
The Private Foundation Law 1995 governs private
foundations in Panama. Unlike the common law trust, the
foundation is an autonomous legal entity with no members
or shareholders. It is generally used for the protection
of assets and no business activities are permitted. Panamanian
law specifically excludes the operation of foreign 'forced
heirship' rules or judgements against foundation assets.
Panama itself has abandoned these typical civil law provisions
in its own legislation.
Panamanian trust law was updated with Law No 1 of 1984.
Panamanian trusts (Fideicomiso) must be expressed in writing,
so cannot be constructive. Trusts can be stated to be
revocable but otherwise are irrevocable. The settlor,
trustees and beneficiaries need not be Panamanian nationals
or resident in Panama. A Panamanian lawyer must act as
an agent for the trust. Trusts may be settled in respect
of existing or future property; additional property may
be included after the settlement either by the settlor
or a third party. Unlike foundations, trusts are not protected
by specific provisions against foreign inheritance laws,
judgements or creditors. However, purpose trusts are allowed
are required only for financial institutions. Corporations
do not have to disclose beneficial ownership, and Trusts
and Foundations need not disclose the names of their beneficiaries.
Limited Partnerships do however need to disclose the names
of their members.
2007 Panama inaugurated a headquarters company regime (sedes
de empresas multinacionales, or SEM) which offers tax breaks
to encourage multinational companies to set up various types
of service companies (see Panama Tax Regime, below).
firms carrying on business outside of the special zones
(see below), general taxation is imposed on a territorial
basis, meaning that taxes only apply to income or earnings
derived from business undertaken within the country's borders.
The existence of a sales or administration office in Panama,
or the re-invoicing of external transactions at a profit,
does not of itself give rise to taxation if the underlying
transactions take place outside Panama, so dividends paid
out of such earnings are free of taxation.
rate of income tax in Panama has been reduced in stages
from 30% as a result of a fiscal bill passed in the first
months of 2010. A 27.5% rate applied from January 1, 2010
until January 1, 2011 when it fell to 25%. However, companies
in the energy, telecoms, financial, insurance, banking and
mining industries continued to pay corporate tax at 30%
until 2012, when it dropped to 27.5% The rate for these
companies will fall to 25% in 2014. Companies with turnover
of less than PAB200,000 per year pay income tax at individual
is a withholding tax of 10% on dividends paid out of taxed
income. If less than 40% of taxed income is distributed,
then Undistributed Profits Tax of 10% becomes payable on
the undistributed balance; this therefore amounts to a maximum
of 4% tax. In effect this is an advance withholding tax,
and it is creditable against the 10% tax on later distributions
of the taxed profit.
2005 reform package introduced a 'minimum income tax' provision,
under which the net taxable income of a legal entity will
be the higher of the amount resulting from application of
the ordinary Income Tax rules (gross income minus deductible
expenses minus deductible allowances equals net taxable
income), or 4.67% of gross income. Whenever the effective
income tax rate exceeds 30% of the net taxable income earned
by a taxpayer, a waiver may be obtained from the Tax Administration
and no presumptive taxation will apply. The same will apply
in the event of losses for taxable purposes. The waiver
may be granted for a maximum period of 4 fiscal years (the
year for which the waiver is granted and the 3 subsequent
fiscal years). The minimum alternative tax was replaced
in 2010 by a new minimum estimated tax for companies with
revenues exceeding PAB1.5 million.
2007 Panama inaugurated a headquarters company regime (sedes
de empresas multinacionales, or SEM) which offers tax breaks
to encourage multinational companies to set up various types
of service companies. SEM companies are exempt from VAT on
services rendered to non-Panamanian taxpayers, and are exempt
from income tax on profits from such services. Expatriate
employees of SEM companies also receive tax privileges.
In order to achieve SEM
status, group assets must be worth at least USD200 million.
A minimum initial capital of USD2 million is required if
the group's main office is to be in Panama.
On July 1, 2010, the other
following tax changes became effective:
tax (ITMBS) assessed on the provision of goods and services,
was increased from 5% to 7%;
taxes on cars was further increased to make the effective
increase of 5% (inclusive of extra ITMBS) for cars in
the USD8,000-12,000 price range;
annual tax on total assets held by banking institutions
holding a general license, ranging from USD75,000 to USD1m,
was introduced. Banks with international licenses will
a fixed tax of USD75,000; and
of international transportation companies derived from
freight, passage, cargo and similar services originating
from or destined for Panama are subject to a 1% turnover
tax in Panama. As from July 1, 2010, related taxes paid
in a foreign jurisdiction are deductible against other
income related to international transportation.
estate in Panama has normally been subject to an annual
tax based on assessed value at rates between 0.75% and 1%.
The tax reform package which came into effect in 2010 extended
this annual tax to a number of property types which were
previously exempt. There is also a 2% real estate transfer
gains tax is generally paid at a flat rate of 10% in Panama
by both companies and individuals. However, some changes
to the tax treatment of real estate were introduced in January
2011, including a 3% advance capital gains tax on certain
real estate sales levied on the higher of the sales price
or the value of the property.
individual is considered resident if he is present in Panama
for more than 180 days in any one tax year. Individuals
are taxed on wages, income derived from the carrying on
of a commercial or agricultural business, and investment
income. In 2012, the first PAB11,000 of income is exempt
from income tax. A 15% rate applies on income above PAB11,000
and below PAB50,000; and a 25% rate applies on income above
PAB50,000. There is a 12.5% withholding tax on the gross
income of non-residents providing services to Panamanian
residents for periods of less than 183 days in a calendar
Colon Free Zone
governments have sought to take full advantage of the country's
financial stability by offering significant tax breaks for
firms setting up in a growing number of 'free trade zones'
occupying sites formerly used as bases by the US military.
The largest of these is the Colon Free Trade Zone, situated
at the northern end of the canal in close proximity to the
major ports on the Caribbean coast, which offers firms exemption
from tax on all import and export movements.
in the Colon Free Zone, or in other Export Processing Zones,
are treated in the same way as companies with external operations,
ie they are exempt from income tax on external (i.e. re-export)
operations. They are also exempt from paying sales taxes,
import taxes and municipal taxes. However, a fiscal package
introduced in 2005 aimed at reducing Panama's indebtedness
included a 1% turnover tax to apply to all operations in
the Free Zones, and a 1.4% turnover tax which may apply
to some other types of companies. Furthermore, under a 2009
law, an exemption from dividends tax was removed for free
zone companies. They must also pay an annual franchise tax
addition, Free Zone companies benefit from an absence of
certain bureaucratic requirements such as licensing and
guarantees. Overall, this generous incentive regime has
attracted around 2,500 merchants generating exports and
re-exports estimated to be worth in excess of USD16bn per
draft law establishing a simplified and comprehensive scheme
for establishment and operation in the free zone was approved
by the Executive in December, 2010. Minister for Trade and
Industry, Roberto Henriquez, explained that the initiative
seeks to adapt national legislation to meet WTO standards.
The bill encourages new investment in high-tech companies,
logistics and environmental services as well as higher education
establishments and research centres.
to capitalise on the success of the Colon Free Trade Zone,
the Panamanian government in 2003 announced plans in partnership
with the World Bank's International Finance Corporation
to transform the American military's Howard airforce base
into a special economic zone equipped with high-tech logistical
and telecommunications facilities with similar tax advantages
for firms locating there. It is hoped that the project,
now called Panama Pacifico, will attract some USD600 million
in investment and create 20,000 jobs over two decades.
benefits for companies located in Panama Pacifico are established
by Tax Law 41 of 2004 and include exemption from all indirect
taxes, income tax and dividend tax. Panama Pacifico companies
also benefit from relaxed labour and immigration laws, including
for overtime pay, compulsory rest days, employment contracts
and visa rules, with three- to five-year work visas allowed
instead of the usual one-year visa. The scheme also offers
a five-year investment visa for those investing more than
USD250,000 in the zone.
first set of offices at Panama Pacifico, which have been
ready for occupation since November 2009, are now 100% leased.
The first phase of the project is not due for completion,
however, until 2016 and more than USD400m is expected to
be spent on real estate development during this phase. Phase
one will see the construction of: a 'town centre' featuring
retail outlets, offices and residential units; an international
business park featuring high-end offices; the 'PanAmerica
Corporate Centre' for logistics, distribution and light
manufacturing activities; and an exclusive residential neighborhood,
including low- and medium-density luxury homes and apartments
in a country club resort setting, known as Kobbe Hills.
Future phases may include the development and expansion
of the existing airport, and an additional commercial center
– Forest Business Park –adjacent to the Pan-American
Highway. The Puente Verde neighborhood is planned on the
north side of the project and will start construction in
a future phase.
February 2011, Dell officially launched a USD13m expansion
project in Panama Pacifico. The investment includes the
construction of a new 5,000 sq.m building and improvements
to current installations located in the Panamá Pacífico
area. The investment was expected to create around 500 new
jobs, increasing the company’s workforce in the country
by approximately 25% over two years.
April 2012, Panama Pacifico announced that real estate in
the new River Valley neighbourhood would go on sale. Once
completed, River Valley will consist of 345 homes including
single-family detached homes, townhomes and low-density
condominiums. A gentle stream runs through the center of
the new residential area, and will include attractive walking
paths and play areas around it, for the residents enjoyment,
as well as a private neighborhood pool. Residents will also
benefit from having a new private school in the neighborhood,
as well as being located across the street from the new
sports park, the construction of which is die to begin in
'Technopark' has also been established at the former US
Army base at Fort Clayton on the Pacific coast which has
attracted the likes of Microsoft, Oracle and Cisco. Now
known as the City of Knowledge, this business park also
offers companies tax and immigration benefits and direct
access to the land portion of five international fiber optic
cables that go across Panama. The City of Knowledge hosts
research centres, educational institutions, and companies
in the software development, telecommunications, multimedia,
logistic applications, outsourcing and IT security industries.
has placed a great deal of emphasis on building up a modern,
hi-tech telecommunications infrastructure, with firms having
ready access to high-bandwidth fibre-optic networks, marking
the country out as Central America's e-commerce hub. Its
promoters are also keen to point out that unlike other countries
in the region, Panama is less prone to natural disasters
such as hurricanes and earthquakes, minimising the risks
of frequent and prolonged down time.
US Free Trade Agreement
many years of delay, President Obama signed the US/Panama
Free Trade Agreement (FTA) into law in 2011. The US and
Panama signed the agreement on June 28, 2007, and Panama's
parliament approved the deal on July 11 that year. However,
the US ratification of the FTA stalled after Obama arrived
in the White House in 2009 and the Democrats won a Congressional
majority in the previous year's elections.
formerly Democrat-controlled Congress refused to ratify
the deal until concerns over Panama's perceived status as
a 'tax haven' were addressed by the country's government.
While the balance of power in Congress has shifted towards
the Republicans, the Obama administration refused to send
the agreement to Congress until Panama had confirmed that
these and other issues, including concerns over labour rights
in the country, had been dealt with.
Obama has made it clear that any trade agreement we present
to Congress must be consistent with our key values and in
the clear interests of Americans," Deputy United States
Trade Representative Miriam Sapiro told a Congressional
trade hearing in March 2011. "The Administration has
therefore been working hard with Congress and stakeholders
since it came into office to identify specific steps that
Panama could take to improve its protection of internationally
recognized labour rights.”
Republicans, who took control of the House of Representatives
in January 2011, have repeatedly implored the administration
to send the FTA to Congress, warning that every day of delay
is a potentially missed opportunity for American businesses.
Republican leader in the United States Senate Mitch McConnell,
the Republican ranking member for the Senate Finance Committee
Orrin Hatch, and 42 further Republican senators, wrote to
the Democrat Senate majority leader Harry Reid in March
last year in a bid to pressure the Democratic leadership
to present America's three pending FTAs, of which Panama
is one, to Congress forthwith.
agreements were negotiated and finalized more than three
years ago,” the letter says. “Through these
agreements Colombia and Panama committed to opening their
markets to US exports and adopting rules of trade that will
make it easier for US workers to export to these markets.
Concluding these agreements will provide new export opportunities
for US businesses and workers.”
the Administration's concerns over Panama's tax transparency
and labour laws seemingly addressed, Obama finally signed
the legislation on October 21, 2011. However, discussions
between the Administration and Congress on the implementing
bill for the FTA have yet to be concluded.
US-Panama FTA is a comprehensive free trade agreement that
can result in significant liberalization of trade in goods
and services, including financial services. It also includes
important disciplines relating to customs administration
and trade facilitation, technical barriers to trade, government
procurement, investment, telecommunications, electronic
commerce, intellectual property rights, and labor and environmental
the agreement is effective, US firms will have better access
to Panama's services sector than it provides to other WTO
Members under the General Agreement on Tariffs in Services.
All services sectors are covered under the agreement except
where Panama has made specific exceptions. Moreover, Panama
has agreed to become a full participant in the WTO Information
has also entered into a bilateral agreement with the United
States resolving a number of regulatory barriers to trade
in agricultural goods ranging from meat and poultry to processed
products, including dairy and rice.
industrial goods currently face an average tariff of 7%
in Panama, with some tariffs as high as 81%. US agricultural
goods face an average tariff of 15%, with some tariffs as
high as 260%.
87% of US exports of consumer and industrial products to
Panama will become duty-free immediately once the agreement
is effective, with remaining tariffs phased out over ten
years. US products that will gain immediate duty-free access
include information technology equipment, agricultural and
construction equipment, aircraft and parts, medical and
scientific equipment, environmental products, pharmaceuticals,
fertilizers, and agrochemicals.
effective, nearly 56% of current agricultural trade will
receive immediate duty-free treatment under the FTA, with
most of the remaining tariffs to be eliminated within 15
years. Panama will immediately eliminate duties on high-quality
beef, frozen turkeys, sorghum, soybeans, soybean meal, crude
soybean and corn oil, almost all fruit and fruit products,
wheat, peanuts, whey, cotton, and many processed products.
The Agreement also provides duty-free access for specified
volumes of standard grade beef cuts, chicken leg quarters,
pork, corn, rice, and dairy products through tariff rate
And Working In Panama
classifies foreigners entering the country as Tourists,
Temporary Visitors, Special Temporary Visitors, Tourist-Pensioners,
Immigrants and Investors.
visas are issued freely; the Tourist-Pensioner visa is given
to those who can demonstrate a designated monthly income
from interest on time-deposits in a Panamanian bank; the
Investor's visa is for those who invest their own capital
into local business activity. Immigrant visas cover long-stay
those thinking of living, working or setting up a business
in Panama, there is no distinction made between foreigners
and nationals under Panamanian law.
rules meanwhile are fairly simple and unbureaucratic. Whilst
there are no statutory residency rules as such, an individual
is considered resident if he is present in Panama for more
than 180 days in any one tax year and residence has to be
officially recognised by the Government.
labour and employment market on the other hand, is more
closely controlled by the authorities and the law sets maximum
percentages for the employment of foreigners in a business
according to its sector. Usually the figure is 5% although
foreign companies are allowed to fill senior positions with
expatriates, up to a maximum of 12% of the staff. However,
the Ministry Of Labour, which is responsible for issuing
work permits, may be flexible on this issue and is open
to negotiation for the setting of higher limits in certain
relatively light system of tax and business regulation,
a stable dollarised economy and a benign political system
makes Panama an attractive proposition for any aspiring
expat currently plotting his or her escape from the high
tax countries of North America or Europe. Those seeking
sunnier climes to retire to will also be happy to hear that
Panama's Pensionado Visa Program offers a variety of tax
breaks and discounts on such things as car imports, furniture,
mortgages, utility and medical bills.
perhaps just as important is that residents can enjoy a
good quality of life in Panama with its tropical climate,
miles of sandy beaches and picturesque mountain scenery.
As the country is still a relatively undiscovered destination,
real estate remains relatively inexpensive with potential
for appreciation. Panama also has first class infrastructure
in terms of communications ensuring that international phone
calls will always connect, and internet access is reliable.
Furthermore, the cost of living in Panama City is around
half of that of the United States.