Panama
accession are finished with Costa Rica, Honduras, Guatemala, El Salvador and Nicaragua. Lastly, Panama has entered into negotiations for a free trade agreement with Colombia and the EFTA countries (Iceland, Switzerland, Lichtenstein and Norway). Israel and Korea have been targeted for future trade negotiations. While Panama’s merchandise trade traditionally
runs on a deficit basis, the service trade operates at a surplus. Panama’s main trading partner is the US, and accordingly the export of goods to US markets accounts for nearly one-third of the Panamanian merchandise trade (excluding re-export operations). Panama’s main merchandise exports were formerly food products, however mining has become an increasingly important source for exportation. Main service exports include transport services (including Canal operations), tourism, and financial services. Storage and re-export operations, transacted through the Colon Free Zone, also form a key service sub-sec- tor in Panama’s economy. On the negative side, the US Embassy in Panama has opined that domestic issues of which investors should be aware concern the poor rule of law, a lack of judicial independence, a shortage of skilled workers, alleged corruption, a non-transparent government procurements system, and poorly staffed government institutions that are susceptible to outside influence. Also, the current government has made several changes to the nation’s tax rules in order to fund major infrastructure proj- ects like a modern metro system, which has left the private sector uncertain as to the parameters of the legal and fiscal environment in which business is con- ducted. As a consequence of the unprecedented public
investment in major infrastructure projects, the total public debt has grown considerably over the last few years. In addition to the current state and structure of
Panama’s economy as it pertains to foreign invest- ment, there are five reasons which further highlight why Panama ought to be the target location for a for- eign investor’s business, in addition to providing some key business-formation guidelines to keep in mind. Firstly, it is easy to create and incorporate a com-
pany in Panama: Sociedades Anónimas or Panamanian corporations are regulated by Law No. 32 of 1927, which was inspired by New Jersey and Delaware corporate legislation. Corporations are the
traditional business organisation used when starting a business in Panama, although there are alternatives such as the limited liability company structure. In order to incorporate a Sociedad Anónima, you need to hire a registered agent, notarise the articles of incorporation and register them in the Public Registry of Panama. Second is the question of taxes. Registration of
the company with the Ministry of Economy and Finance to obtain a tax contribution number takes only one day. Under the Panamanian Corporate income tax regime, companies are taxed at the greater of a 25% flat rate on taxable net income, or an alternative calculation of taxable income, where- by total taxable income is reduced by 95.33% and taxed at a 25% rate. Both domestic and imported goods, as well as services, are subject to a valued- added tax (ITBMS) and a selective consumption tax (ISC). Since 2010, Panama has been actively concluding
and signing Conventions for the Avoidance of Double Taxation as a means to strengthen its posi- tion as the most ideal location in Latin America for international services. Up to the present date, Panama has already concluded 15 such Comprehensive Double Tax Conventions, and eight Treaties for the exchange of information. Third, in order to engage in business in the coun-
try, an operating permit is required (formerly known as commercial licence), which can now be obtained through a government website specifically designed for this purpose (Panama Emprende). It is important to remember that foreigners are not allowed to engage in retail business in Panama nor to render certain professional services that are specifically reserved by law for Panamanians (law, medicine, architecture, engineering and others), and therefore an online application for the permit must consider these restrictions. It should be remembered, fourthly, that it is
mandatory to register with the municipality or local government for the purpose of paying local taxes when doing business in Panama. The fifth factor is registration with the Social
Security Office: it is mandatory to register all employees in the Social Security programme, which is the public institution in charge of the administra- tion of insurance programmes for pension, health, unemployment, and occupational accidents and injuries.
“ US retailers are
now allowed to invest in Panamanian retail companies
” Each of the steps described above should take
between one and two weeks. In addition to the factors established above, there
are several further points which make Panama such an attractive place to invest today: Stability - Panama has a sustainable, prospering
economy and a deep commitment to democratic values. Accessibility - Panama is home to the Hub of the
Americas, the largest airport in the region, with daily flights to and from major US cities and direct flights to select European cities. Panama is also home to COPA Airlines, the fastest growing and most prof- itable airline in Central America and the Caribbean, and is now a home port for international cruise lines. Convenience - Panama City is the most cosmo-
politan city in Central America and offers an active nightlife along with wonderful restaurants, luxurious hotels and a safe environment. Business capital of the Americas - The
Panamanian financial centre is the largest in Latin America and is the most global economy in the region, with a legal framework that facilitates busi- ness, and professionals who understand internation- al markets. In conclusion, as Panama’s thriving and dynamic
economy embraces the challenges and vicissitudes of the 21st century, there can be no doubt that the isth- mus deserves serious consideration as the most sta- ble, most desirable, and most profitable place to do business in Latin America.
About the author Edgar Herrera has been part of Galindo, Arias & Lopez since 2006, with emphasis on tax law and international tax law. Before joining the firm he served as pro bono assistant for the General Direction of Interior Trade in the Ministry of Commerce and Industry. He is also lecturer on international taxlaw at the University of Chartered
Accountants. He has been published and is a member of the Panamanian Association of Fiscal and Financial Law, the International Tax Center of Leiden University Alumni, Panamanian Bar Association and the International Fiscal Association (IFA), as well as Secretary of the Commission of Tax Affairs, Correspondent to the International Bureau of Fiscal Documentation (IBFD)..
Contact information
Edgar Herrera Galindo, Arias & Lopez
Scotia Plaza, Floors 9, 10, 11 P.O. Box 0816-03356 Panama, Rep. of Panama T: +507 303 0303 F: +507 303 0434 E:
gala@gala.com.pa W:
www.gala.com.pa
www.iflr.com
IFLR|FOREIGN DIRECT INVESTMENT 027
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48