Demographic and economic environment:
Panama is a Central America country, bordering the Caribbean Sea, the Pacific Ocean, Colombia and Costa Rica. It has a strategic location that works as a bridge between two oceans which serves the maritime and air transport hub, contributing to the international trading, banking, and services center in Panama. Its climate is tropical with a rainy season (May to December) and a dry season (January to May).
The population of the Republic of Panama is constituted by a diverse mixture of races. The population density is evident along the coastal region of the Gulf of Panama, particularly on the Azuero Peninsula, and in the metropolitan areas of Panama City and Colón.
A high degree of urban development in recent years has attracted a growing urban population, currently representing 59% of the total country population. The fertility rate is one of the lowest in Central America, with an average of 2.6 children per woman. The total estimate for 2010 is of 3,405,813 people.
Due to the use of the dollar in Panama, its economy offers low inflation unlike other countries of the region and no risk on foreign exchange. It is known that the government is stable and democratic which seeks for foreign investment in several sectors such as services, tourism and properties.
Panama’s economy is based on tourism, commercial and business destination, the operations of the Panama Canal, banking, the Colon Free Zone (which is the largest free trade zone in the Americas and second largest in the world after Hong Kong), insurance and ship registration, medical, health and other businesses.
Panama has also obtained substantial income through various energy projects and licensing of Panamanian-flagged ships worldwide. Another important, but small sector of the economy is the agriculture.
|Panama’s main economic facts|
|GDP (official exchange rate):||$47.47 billion (2015 est.)|
|GDP – real growth rate:||6% (2015 est.)||6.2% (2014 est.)|
|GDP – per capita (PPP):||$20,900 (2015 est.)||$19,700 (2014 est.)|
|Inflation rate (consumer prices):||0.5% (2015 est.)||2.6% (2014 est.)|
|Unemployment rate:||4.5% (2015 est.)||4.5% (2014 est.)|
Opportunities that the country offers
The economy of Panama has an Economic Complexity Index (ECI) of 0.325 making it the 44th most complex country. Panama exports 206 products with revealed comparative advantage (meaning that its share of global exports is larger than what would be expected from the size of its export economy and from the size of a product’s global market).
The expansion project of the Panama Canal contributed to maintain a stable economic growth, and with the government major projects such as the construction of Metro City, which is currently operating with 13 stations along the City of Panama, has provided jobs among others benefits to society.
With the decrease of income tax for companies and individuals, the government hopes to attract more private investment.
Foreign investment is always a target that Panama seeks. Government focuses its plan to attract foreign investment in areas such as logistics service providers of value-added hotel developers and exporters of fruits among others. The Balboa, which is the currency in Panama, is an even value and equivalent with the U.S. dollar. Therefore, it is not necessary to change control authority.
There are no registration requirements for capital and there is no tax on the transfer of funds to the country. There are no controls on the repatriation of capital or retained earnings.
The Government is encouraging foreign investment and working to position Panama as the primary destination in Latin America for foreign investors. However, the same business channels are open to domestic and foreign investors alike. There are no major restrictions on foreign investment.
Special trading rules, granting migration, labor, and tax incentives for investment and creating the PROINVEX office are among the principle ways Panama has encouraged foreign investment.
PROINVEX is a program created by the government where every investor interested in investing in Panama may obtain in a single office all the information required to achieve a successful investment. Investors can also obtain updated information on special fiscal regimens such as the Multiregional Headquarters (MHQ), Panama Pacifico Special Economic Zone (APP), The City of Knowledge (Ciudad del Saber), Colon Free Zone (ZLC), Investment Stability Law, and other Free Trade Zon
Special Economic Areas
The City of Knowledge [Ciudad del Saber] is a scientific, technological and entrepreneurial park located by the Panama Canal. It is located in the former Fort Clayton. It has become an excellent model of how to transform a military installation into a center dedicated to science, technology and education. The City of Knowledge operates within the Panamanian State by means of the Decree Law 6 of February 10, 1998.
It allows activities such as scientific, technological, human development and cultural. It offers fiscal incentives with exoneration from Income Tax, Import Tax, ITBMS [real estate transfer and service taxes], Real Estate Tax and wire transfers to foreign countries.
As Labor Incentives, International personnel can be hired as seen fit by each company to fulfill their needs. Along with Immigration Incentives as Special Visas are granted to foreign employees of affiliated companies, their spouses and dependent children.
The Panama Pacifico Special Economic Area is an area assigned for the production of goods and services with high added value and technology. It is located in the former Howard Airforce base. Panama Pacifico operates its relations with the Panamanian State by means of Law 41 of 2004.
This special economic area encourages activities for main corporate offices, back office operations, call centers, multimode and logistics services, high technology products and manufacturing processes, Aircraft maintenance, repair and reconditioning, Transfer services to the aviation industry, Offshore services, Movie making industry, transmission of data, radio, television, audio and video, Transfer of inventories between companies established in the area, Transfer of goods and services to ships, airplanes and their passengers, Sale of merchandise destined for export not manufactured in Panama Pacifico, when manufactured by multinationals or any other of its affiliates, subsidiaries or companies of the same economic group.
As Fiscal Incentives, it offers:
Among the labor incentives that offer this special economic area are: Fixed rates for overtime (25%) and holidays (50%), Flexibility in assigning employees holidays, the companies can be open on Sundays and holidays, foreign laborers: possibility of exceeding the percentage rule of the Labor Code. The companies can request additional expat employees in excess of 15% if local labor is unavailable, Training Center for College level education, justified cause for dismissal due to losses and/or market fluctuations.
The investors have for migratory incentives the one-stop-shop handles all the procedures related to visas and work permits for their employees.
Important: Panama Pacifico`s One-Stop-Shop help`s expedite the establishment of companies. This process coordinates over 15 government entities in one location. Services include visas and labor benefits which save companies time and money.
o The Investment Stability Law
Its objective is to promote and protect the investment carried out in the sectors of economic activity in the country. It was created by means of Law 54 of July 22, 1998, it establishes that the foreign investors and the companies where they participate, have the same rights and obligations that the national investors and companies have, without more limitations than those established in the Political Constitution and the Law, including what is referred to the commerce and industry freedom, and the exportation and importation.
It allows different activities such as: Tourism, Agricultural Exports, Mining, Commercial and Oil Free Zones, Constructions, Electric Energy Generation, Industrials, Forestry, Export Processing Zones, Telecommunications, Ports and Railroads Development, Irrigation and efficient use of the hydraulic resources Projects.
The benefits shall be granted for a period of 10 years and these are applied to natural and corporate persons of private right, national or foreign, that carries out investments within the national territory.
Industrial Promotion Certificate (CFI)
Its object is to incentivize the industry’s development in Panama, by means of the promotion and execution of actions, oriented towards the incorporation of technologies of high value added, attract FDI and encourage the local investment for incentivizing the efficiency within the national production channels, contribute to the innovation and to the Research and Development (R&D), and guarantee the stability in all the productive sectors, among others.
Benefits of the Certificate:
Use of the Certificate:
The certificate cannot be used for paying taxes fees or contributions caused in fiscal periods previous to their emission, excepting those caused during the fiscal period that generated the right to the certificate of industrial promotion; payment of the minimum complementary taxes or dividends; payment of consumption taxes of fuel and petroleum byproducts; Payment of taxes subject to the retention system.
The securities market in Panama is regulated by Law Decree 1 of 1999 as amended by Law 67 of 2011 (together known as the Securities Act), and the entity charged with the supervision and enforcement is the Superintendency of the Securities Market. The Superintendency has the added duty of regulating the market within the general parameters of the Securities Act. The Superintendency regulates the Securities by means of issuing Agreements (Acuerdos), the purpose of which is to regulate particular aspects of the Securities Act, and by means of Opinions (Opiniones), which are position statements, whereby the Superintendency formally adopts an administrative position regarding the meaning, interpretation and applicability of particular parts of the Securities Act and/or its own Agreements.
o Panama Sales Tax:
The Panama Sales Tax is known as the “ITBMS”. This tax applies to imported goods, products sold or services rendered in Panama. The importer, seller, or service provider pays this tax whereby most simply add this tax to be paid by the consumer. Since July 1, 2010 the ITBMS increased from 5% to 7%. Higher rates exist for the sale of alcoholic drinks (10%), tobacco products (15%), and specific services such as housing services (10%). Exceptions to paying this tax include free trade zone transactions, power generation & distribution services, cargo and passenger transportation by sea, air, or land. Most businesses pay the tax monthly.
Here are the Double taxation treaties ratified by Panama and the treaties into force
|Treaties to avoid Double Taxation ratified by the National Assembly of Panama||Treaties to avoid Double Taxation currently valid|
|Spain – Law 22 of 30/03/2011 – G.O. 26,754-B of
|Netherlands – since 01/12/2011 * Provisions taken since 01/01/2012|
|Netherlands– Law 23 de 30/03/2011– G.O. 26,754-B of 31/03/2011||Singapore – since 19/12/2011 * Provisions taken since|
|Singapore– Law 24 de 30/03/2011 – G.O. 26,755 of 01/04/2011||France – since 01/02/2012 * Provisions taken since 01/01/2013|
|South Korea – Law 25 of 30/03/2011 – G.O. 26,755 of 01/04/2011||South Korea – since 01/04/2012 * Provisions taken since 01/01/2013|
|Italy – Law 50 of 10/05/2011 – G.O. 26,784-B of 13/05/2011||Portugal – since 10/06/2012 * Provisions taken since 01/01/2013|
|France – Law 78 of 18/10/2011 – G.O. 26,896-B of 19/10/2011||Ireland – since 19/12/2012 * Provisions taken since 01/01/2013|
|Ireland – Law 59 of 04/10/2012 – G.O. 27,137-A of 08/10/2012||Czech Republic– since 25/02/2013 * Provisions taken since 01/01/2014|
|Czech Republic – Law 5 of 18/02/2013 – G.O. 27,230-A of 21/02/2013||United Arab Emirates – since 23/10/2013 * Provisions taken since 01/01/2014|
|United Arab Emirates – Law 13 of 11/03/2013 – G.O. 27,244-A of 13/03/2013||United Kingdom– since 13/12/2013 * Provisions taken since 01/01/2014|
|Israel – Law 14 of 11/03/2013 – G.O. 27,244-A of 13/03/2013||Israel – since 30/6/2014 * Provisions taken since 1/1/2015|
|United Kingdom – Law 83 of 24/10/2013 – G.O. 27,406-A of 30/10/2013|
o Constitution of Panama
o Labor Code of Panama Cabinet Decree No. 252 of March 30, 1971
o Employment contracts should always be executed in writing. The parties to the contract shall sign three copies, of which one shall be kept by the employer, one shall be delivered to the employee, and one shall be submitted for registration with the Ministry of Labor. In the absence of a written contract, facts and circumstances alleged by the employee that should appear in said contract will be presumed to be true.
o The first three months of a contract are considered the probation time. Under the probation time any of the parts can finish the labor agreement without any responsibilities or indemnifications.
o The working hours can be of 3 kinds:
o The law forbids, except for some exceptions, to work overtime. However, if an employee has to work on a Sunday or on his rest day, and this day is a holiday or mourn day, the employer has to pay 150% over the salary of that day.
Article 210 of the Labor Code of Panama establishes several causes for termination:
Part-time agreements are determined by an inferior number of hours than the normal agreement. Overtime work is not allowed and, if needed, it cannot be over 15% of the established hours on the agreement.
o If a holiday or a national mourning previously provided for in the law falls upon a Sunday, the following Monday is qualified as a mandatory weekly and paid rest day for all those employees that enjoy their rest day on Sundays. If it falls upon other day than Sunday that happens to be the employee’s rest day, then employee is entitled to an additional rest day during any day of the corresponding week, as compensation.
o There is also a remunerated annual leave (vacation), which consists of 30 calendar days after each eleven continuous months of work.
o If an employee is absent from work on three following days, two Mondays in a month or six Mondays in a year, the employer could end the employment agreement, due to the unjustified absences.
o The minimum wage is established by a Cabinet Decree every year. Other wages can be fixed by unit of time (month, fortnight, week, day or hour), task, or by piece of work. In no case may base salary be less than the legal minimum, which varies depending on the specific activity and geographical area where the work is performed.
o The Labor Code establishes that a woman is entitled with a maternity leave of between six and eight before and after labor. The labor code establishes a paid maternity leave and forbids the woman to work extra time.
To hire a foreign employee you require a work permit issued by the Ministry of Labor and Labor Development. 90% of the ordinary workers must be Panamanian citizens or a foreign individual married to a Panamanian, or foreign individuals that have resided in the country for ten or more years. The employer may hire technical or specialized staff not exceeding 15% of all the company’s employees. The Ministry of Labor and Labor Development, upon a previous recommendation by the relevant Ministry, may authorize a higher proportion of technical and specialized foreign labor. Those companies with less than ten employees are allowed, at least one foreign employee. The percentages above mentioned do not include employees that perform positions of responsibility in those companies whose corporate purpose is solely to handle and manage, from Panama, transactions that will perfect, complete or yield their legal effects abroad, with the prior authorization of the Ministry.
An important part of Panama’s trade transactions are carried out in the Colón Free Trade Zone, which is one of the biggest free trade zones in the world. According to estimates by the Colón Zone Management, the region accounted for about 64% of Panama’s imports and 92% of its exports during 2007.
· Main import
o The top exports of Panama are Blank Audio Media ($960M), Refined Petroleum ($888M), Passenger and Cargo Ships ($646M), Packaged Medicaments ($355M) and Petroleum Gas ($319M), using the 1992 revision of the HS (Harmonized System) classification.
· Main exports
o Its top imports are Special Purpose Ships ($5.83B), Refined Petroleum ($4B), Crude Petroleum ($3.01B), Passenger and Cargo Ships ($2.09B) and Sulfonamides ($1.87B).
· Opportunities that the country offers
o The economy of Panama has an Economic Complexity Index (ECI) of 0.325 making it the 44th most complex country. Panama exports 206 products with revealed comparative advantage (meaning that its share of global exports is larger than what would be expected from the size of its export economy and from the size of a product’s global market).
There is a General Law of the Environment from 1998. This law provides the principles and basic regulations for the protection, preservation and the recovery of the environment, and promotes the sustainable use of natural resources.
According to the law, the National Environmental Authority (ANAM) is the autonomous public entity of the State, who exercises power, authority and specialized tasks related to the environment and the sustainable management of natural resources.