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Invest in Panama (general information)
Panama has a number of laws designed to encourage the development and expansion of local and export industries. Under these laws, considerable tax and other investment incentives are awarded to investors. These incentives are granted primarily in exports, manufacturing, mining and tourism sectors.Political, Social, and Economic Stability
Panama is a democratic Republic. Since 1989, Panama has experienced consistent progression with steady growth in investments and employment. A national police force has replaced the military. There is no political unrest. With government policy that encourages international investment and eco-tourism, foreigners are readily welcome. In fact, many new laws creating attractive incentives for the foreign investor have recently been passed. Panama is able to offer goods and services at more competitive prices than its neighbors due to Free Trade Agreements with Taiwan, Singapore, El Salvador, and Chile. Panama is in final negotions to arrive at a Free Trade Agreement with the United States and Central America, has plans to negotiate an agreement with the European Union and is preparing to enter into the G-3. As well, Panama is a proposed headquarters for the Free Trade Area of the Americas (FTAA-ALCA) and is a member of the World Trade Organization (WTO-OMC). The Republic of Panama has been recognized as first in the region for low cost of living and low operational costs by the Tripartite Committee which consists of the Latin American and Caribbean Economic Commission(ECLAC), the American Estates Organization (OAS) and the Inter-American Development Bank (IDB).
US Dollar and Fiscal Policy
Panama, unlike any other Central American country, has permission to use the US dollar as its currency. The US dollar has been Panama’s currency since 1904, although it is called the Balboa for nationalistic reasons. As a consequence, fiscal policy is the principal government macroeconomic policy instrument. Because Panama does not have a central bank to print its own currency, government spending and investment is strictly bound by tax and non-tax revenues and the government’s ability to borrow. Thus, creditworthiness is linked directly to public finances. Panama uses the U.S. dollar as its legal tender, virtually eliminating any currency exchange risks to foreign companies operating here. The country has maintained an annual inflation rate of under two percent for the last 40 years, and just 2.3 percent in 2005 with no risk of devaluation. Panama's economy has become one of the healthiest in Latin America, in spite of the Latin American economic crises. Panama has no restrictions on the outflow of capital or outward direct investment.
Investment Stability Law
In it’s effort to offset the losses from the Panama Canal and the closure of the military bases in the late 90s, the Panamanian government has created a host of incentives to attract foreign investment. The Investment Stability Law of 1998 is one which guarantees to both foreign and national investors equal rights to investments and business opportunities. With this law Panama has created an environment for foreign investing which requires no special authorizations, permits, or prior registration. The law also provides a 10 year guarantee for investments assuring that taxes, customs procedures, municipal, labor and legal rules will remain the same as those at the time of registration. This is an important guarantee to ensure that no changes will affect the amortization of investments. Currently more than 2 billion dollars worth of projects have been registered under the protection of this legislation, ranging from energy and petroleum to industrial and tourism development projects. The Politic Risk Service (PRS) named the Republic of Panama as one of three countries in the hemisphere with the best qualifications for investment.
Panama as an International Banking Center
Panama has the most modern and successful international banking center in Latin America, with more than 70 banks from 35 countries represented. Panama’s new comprehensive banking law (Decree No. 9) meets the standards of leading financial centers around the world for transparency and regulation, and conforms to the statutes of the Basel Committee. In the fourth quarter of 2005, for example, Panama's financial district recorded assets of US$ 44.9 million.
Some of the banks found in Panama are: Citibank, HSBC, Dresdner, Bank of Boston, International Commercial Bank of China, and Banque Sudameris among others.
The government of Panama has a firm commitment to combat and maintain a proactive role against money laundering and the financing of terrorism and organized crime through its different governmental bodies and in close cooperation with other jurisdictions.
Panama's banking system has effectively achieved concordance with the following:
* International Standards
* International Cooperation
* Modern legislation
* Competitive advantages
Efficient Transportation Infrastructure
Panama is well-known for its Canal. Today the Panama Canal transports more than 278 million metric tons of cargo (including containers, grains, petroleum and its derivitives among others) and serves more than 120 maritime routes to 80 different countries, complementing Panama's system of container terminals in the Caribbean and Pacific oceans. Panama also boasts an interoceanic railway system that moves approximately 100,00 containers annually from coast to coast. Efficient air service is offered by the Tocumen International Airport. From the Tocumen airport operates Copa Airline's hub of the Americas, as well as efficient service by other airlines with international flights and direct national flights to the Panamanian interior. In Panama is also found the Colon Free Trade Zone, the largest free trade zone of the western hemisphere with an annual commercial exchange of more than US$ 12 billion.
Telecommunications Hub
Due to its strategic geographic position, five underwater fiber optic cables converge to pass through Panama. This creates in Panama ideal conditions for telecomunications companies and information centers due to its advantageous connectivity with North and South America, Europe, Asia, and the Caribbean. International firms such as MCI, Cable & Wireless, and Movistar have already taken advantage of Panama as a base to offer cellular phone and internet services to local and international markets. For more in depth information about Panama's communications infrastructure click here.
Investment Opportunities
Investment opportunities in Panama range from Real Estate Development, Tourism, Colon Free Trade Zone projects (shipping and ports services, cruise ship tourism, future canal construction), Telecommunications, E-commerce, Petroleum Free Zones, and mining exploration. Click here for more information on Law 54 (Protecting Foreign Investment in Panama).
INCENTIVES AND BENEFITS FOR NEW PROJECTS IN THE REPUBLIC OF PANAMA:
Article 8. In order to motivate investment in new projects and in activities destined to offer tourist facilities, the following tax incentives are granted to natural or legal persons who accept the provisions of this Law:
Public tourist lodging service: for the constructions, equipping, rehabilitation and effective development of public lodging establishments indicated in subsection 1 of Article 6 of this Law, whose investment shall be at least Three Hundred Thousand Dollars (B/.300,000.00) in the metropolitan area and, in the rest of Panama, a minimum investment of Fifty Thousand Dollars (B/.50,000.00) excluding the value of the land, with the exception of lodges and family hostels (bed and breakfasts) whose minimum investment shall be set by the Panamanian Tourism Institute. The mentioned areas shall have the following incentives:
The mentioned areas apply to the following incentives:
Total exoneration for twenty (20) years, from import duties, tax, liens or duties of any nature or class, which may devolve upon the importation of materials, utilities, furniture, equipment, boats or automotive vehicles with a minimum capacity of eight (8) passengers. The latter must be declared to be indispensable for the development of the tourist activity by the Panamanian Tourism Institute. The materials and equipment to be exonerated must be utilised in the construction and equipping of the public lodging establishment. This incentive is granted only where these articles are not produced in the country or cannot be produced in sufficient quantity or quality. Likewise, these exonerations of all equipment imported for the purpose of saving energy or which are necessary for the security of the project area. In the case of the ecotourism activities indicated in Article 6 of this Law, the import duties exonerated shall be permitted for four-wheel drive automotive vehicles with a minimum capacity of five (5) passengers.
Exoneration from land tax, for a twenty (20) year period counted from the date of registration in the National Tourist Registry. This exoneration shall cover all real property of the company, provided that they are completely used in the tourist activities.
Exoneration of the company of all taxes or assessments of capital. Exoneration from the payment of taxes of docking and any rates of landing at docks, airports or heliports constructed on the company's property or converted by the company. These facilities may be used, without charge, by the State.
Exemption from the payment of income tax on interest paid to creditors of the investments made in operations for public lodging establishments.
For the purpose of calculating the depreciation on the real estate, a rate of ten percent (10%) per annum, shall be allowed, excluding the value of the land.
Investments in General Historic Monuments in the Republic of Panama: for the activities contemplated in subsection 5 of Article 6 of this Law, which are located in the General Historic Monuments in which the National Cultural Institute authorises project construction within its properties, whose minimum investment shall be One Hundred Thousand Dollars (B/.100,000.00), excluding the value of the land, the following incentives shall be granted:
Exoneration for a ten (10) year term of land tax, and for a thirty (30) year term taxes on the improvements.
Exoneration of income tax on the profits of the company, for the first five (5) years of the commercial activity. Upon completing this term and for the following five (5) years, the company may deduct as expenses the losses incurred during the three (3) previous years.
Exoneration, once only, of import duties on the equipment and materials used in the construction, remodelling and equipping, provided that the merchandise is not produced in the country in sufficient quantity and quality and it is not destined for sale to the general public.
Article 9. Every natural or legal person who investments in the restoration or maintenance and illumination of the General Historic Monuments, municipal parks, national parks or any other public site; as well as the promotion and capacitating of tourism, which in the opinion of the Treasury Ministry and under the management of the Panamanian Tourism Institute, may be considered as a deductible cost the investment made in such projects.
INCENTIVE FOR THOES COMPANIES DEDICATED TO TOURISM IN THE REPUBLIC OF PANAMA
Article 10. Those companies dedicated exclusively to operate as tourist reception in the Republic of Panama, shall be granted the following tax incentives: Exoneration every three (3) years from import duties on imports of microbuses, limousines, omnibuses, embarkations and spare parts for these, provided that they are declared by the Panamanian Tourism Institute to be indispensable for the adequate running of the tourist service. These vehicles may be sold upon the payment of the respective import duties.
Article 11. The natural or legal transporters who offer the collective transport services in airports, docks and hotels, are exonerated from import duties on the import of automotive vehicles used exclusively for tourist activities, provided that they are approved by the Panamanian Tourism Institute.
Article 12. Those companies dedicate to restaurant, discotheque, and night club activities, declared to be of tourist interest by the Panamanian Tourism Institute, and whose minimum investment is of One Hundred and Twenty Thousand Dollars (B/.120,000.00) in the metropolitan area and Twenty Thousand Dollars (B/.20,000.00) in the rest of the country, excluding the value of the land, are exonerated for a period of three (3) years, counted from the date of registration with the National Tourism Registry, from import duties on all materials, equipments and utensils used in the construction and equipping of the establishment, provided that they are not produced in the country or are not produced in sufficient quantity and quality and are considered by the Panamanian Tourism Institute important for the development of the activity.
Article 13. Every company that in the national territory undertakes filming activities of full-feature films of an international nature, or international artistic, sporting or other events which are transmitted overseas, which project before, during or after the event images that promote tourism in the Republic of Panama, shall have the following benefits:
Total exoneration from the payment of income tax on the profits of such event, except where the payment of such taxes is considered to be a tax credit in their respective country.
Total exoneration of any national tax applicable to such an event.
Temporary exoneration from import duties, contribution, assessment rates or rates of any kind or nature applicable to the introduction of equipment, utilities, parts, technical material which the communication company imports for the transmission to other countries and all material used during the even, which shall be removed from the country upon finishing the event.
Exoneration from import tax for the sportspersons and national and foreign artists who participate in such events.
Article 14. All publicity material is exonerated from import duties, provided that they are freely distributed, with prior verification by the Panamanian Tourist Institute.
The Panamanian Tourism Institute shall have a period of fifteen (15) working days in which to approve or object to the documents referred to in this article.
BENEFITS OF EXONERATION FROM INCOME TAX IN THE REPUBLIC OF PANAMA DERIVED FROM:
All income derived from the following is exonerated from income tax:
The operation of boats or airplanes registered overseas, if in those countries there is a reciprocal exemption on income earned by Panamanian registered boats or airplanes;
The operation of boats and airplanes of any nationality, by foreigners whether resident or not in the national territory, as long as the country of which they are nationals or in which their company is formed, grants a similar exemption to companies registered in Panama or persons domiciled in Panama in accordance with the principle of reciprocity.
INCENTIVES FOR THE CONSTRUCTION AND REHABILITATION OF THE REPUBLIC OF PANAMA:
For the construction, equipping, access infrastructure, restoration and operation of convention centres, recreational parks, zoos, specialised ecotourism centres and marinas, the following tax incentives are granted:
Exoneration for three (3) years from import duties on the import of materials and equipment to be used in the construction and equipping, provided that the merchandise is not sold, cannot be produced in the country and is considered by the Panamanian Tourism Institute as important for the undertaking of the activity.
Depreciation of the real estate for a period of ten (10) years.
Exoneration from real estate tax on the improvements for a period of twenty (20) years.
INCENTIVES FOR INVESTORS IN THE TOURISTIC SECTORS OF THE REPUBLIC OF PANAMA
Panama offers a great potential for tourism related investments and projects, coupled with an excellent international airport, local airports and deep-water ports.
Through Law No.8 of June 14, 1994, the current government has culminated one of its more important goals, to create solid and competitive foundations and rules to promote and attract tourism investments to the Republic of Panama.
Law No.8 in its Chapter 1 establishes three basic principles that provide efficient rules of the game and guarantees to investors, to wit:
- Reduction of bureaucratic procedures.
- Executive branch is obliged to support the Tourism Bureau on feasible tourism projects.
- The tourism industry is declared an industry of national interest and of public utility.
Article 4 of the law defines "touristic offer" as all activity having in objective promotion of tourism and the permanence of tourists in the country. It then proceeds to enumerate the touristic enterprises, as follows:
- Hotels
- Motels
- Aparthotels
- Cabins
- Time share projects
- Condominiums for tourism
- Camping sites
- Restaurants and Discotheques
- Thematic Parks, including zoos and other related business
- Family hotels
- Lodges
- Convention centers
Total exoneration for a period of twenty (20) years from the payment of land tax on the land and the improvements, for those properties used in the tourist development activities.
Total exoneration for a period of fifteen (15) years from the payment of income tax on the company's income.
Total exoneration for a period of twenty (20) years from import duties, contribution or assessments, as well as chattels transfer tax (ITBM) which may be due upon the import of materials, equipment, furniture, accessories, or spare parts which are used in the construction, rehabilitation and equipping of the establishment, provided that the merchandise is not produced in Panama or is not produced in sufficient quality and quantity. For the purposes of this Law, vehicles with a minimum capacity of eight (8) passengers, airplanes, helicopters, boats, ships or sports gear, dedicated exclusively to tourist activities shall be considered to be equipment.
Exoneration for twenty (20) years from taxes, contributions, assessments or rights of any sort or type which may apply to the use of docks or airports constructed by the company. These facilities may be used, gratuitously, by the State and in accordance with the corresponding rules.
Exoneration for twenty (20) years from the payment of income tax which may apply to creditors' interest from investments made in tourist activity operations.
Should a tourist company of public lodging or restaurants, choose not to accept the exonerations which are granted in the previous articles, the company whose only activity is tourism as established in this Law and whose place of business is outside the metropolitan area, may receive a Certificate of Tourism Employment (CET) which shall be equivalent to twenty one and a half percent (21.5%) of the gross monthly salary of the employment generated as of the promulgation of this Law, provided that said gross monthly salary shall not exceed Four Hundred Dollars (B/.400.00).
For those restaurants to which this applies, they shall be valid for a period of three (3) years.
The Certificates of Tourism Employment (CET) referred to in this Law, shall be issued by the Ministry of exchequer and Treasury, in national currency and shall serve to pay the taxes which may apply to income, dividends, complimentary, land, imports and the transfer of chattels.
These instruments shall be registered, transferable by endorsement, and shall be exempt from all class of taxes and shall bear no interest.
Those companies eligible to receive the Certificates of Tourism Employment (CET), shall fulfil all the requirements established in this Law and may used these within six (6) months of their issuance, but may not be used in the same year in which they are issued. The period for which a Certificate of Tourism Employment shall be valid shall be three (3) years from the date of their issuance.
For the purposes of the Certificate of Tourism Employment (CET), mentioned in this Law, no consideration shall be given where an employee is a foreigner or where a labour relationship is for less than twelve (12) months.
Procedures of control shall be established to verify payrolls.
Those natural or legal persons who undertake tourist activities may use their vehicles to transport their own materials, furniture and equipment. Likewise, they may offer transport services to tourists, to or from their installations to airports and docks.
In order to sponsor the investment and financing of the development of the tourist industry and the construction of hotels outside the metropolitan area, the tourist companies of public lodging, may issue registered instructions of tourist investment until the 1st of January of the year 2000. The following incentives shall be granted to investors in these instructions, who may be be directly or indirectly related to the tourist company of public lodging, and which may not be the result of the fractioning of a single company into various legal persons, nor be affiliates of subsidiaries of the tourist companies.
For the purpose of income tax, fifty percent (50%) of the amount investment by natural or legal persons in the purchase of bonds, shares and other registered instruments issued by a tourist company shall be considered deductible expenses. The Ministry of Exchequer and Treasury shall regulated the application of this article.
The bonds, shares and other financial instruments must be registered with the National Securities Commission and shall be issued by the companies which are registered in the National Tourism Registry within the first three (3) years of their registration.
The company which issues said bonds, shares and other registered instruments may not redeem, in any way, said investment for a period of ten (10) years. The bonds or financial instruments which the tourist company issues must have a lifespan of at least ten (10) years, and may not be prepaid. Said companies may not acquire their own shares or participation quotas or convertible bonds, nor may they grant loans to holders of such bonds, shares or registered instruments, nor make use in any other way of purchase or payment of such financial instruments in the period of ten (10) years.
Article 24. Tourism yachts which visit Panamanian ports and whose stay shall not exceed a period of Ninety (90) days shall be exonerated from the payment of any kind of appraisals, taxes and services for arrival or anchorage, even those usually paid by local custom.
Customs authorities shall only complete their routine inspections and registration. It shall not be necessary to process documentation in this agency. The Executive Branch shall regulate this provision
INCENTIVES FOR THE OWNER, PROMOTER OR INVESTOR:
Article 25. The total sums invested by any person or company in the construction, rehabilitation, restoration, expansion, maintenance, lighting or improvement or parks, walls, green areas, churches, or any other site destined for public use within the Old Panama City Historical Complex, will be recognized as an expense deductible for income tax purposes, as long as they are carried out in accordance with Historical Heritage laws in force.
Article 26. The owner of a building located within the Old Panama City Historical Complex that has been rebuilt or restored, in part or wholly, will be exempt from the payment of Income Tax over the utilities received from the lease, sale or transfer of part or the whole building, for a period of ten (10) years starting from the date of issuance of the occupancy permit for the whole building or the restored part.
INCENTIVES FOR THE LEASEHOLDER:
Article 31. The leaseholder of a constructed, reconstructed or restored building, destined for housing, and located in Panama City’s Old Quarter, may deduct their lease payments from their gross or general income for a period of five (5) years starting from the date of issuance of the occupancy permit for the leased building.
INCENTIVES FOR BUILDINGS AND PARKING AREAS:
Article 32. Companies that own, promote or lease buildings or lots located in Panama City’s Old Quarter to serve as public vehicle parking areas will be exempt from the payment of Income Tax over the utilities produced by this activity, for a period of ten (10) years starting from the date of issuance of the occupancy permit for the building or lot, as the case may be.