Overview of the country and its economy

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.


Investment climate:

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).

Foreign Investment

  • Investment opportunities

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.


  • Regulation

With the decrease of income tax for companies and individuals, the government hopes to attract more private investment.

  • Limitations on foreign 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.


  • Restrictions on foreign investment

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.


  • Foreign investment mechanisms

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

  1. City of Knowledge (Ciudad del Saber)

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.

  1. The Panama Pacifico Special Economic Area

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:

  • Exemption of any tax, levy, rate, encumbrance or import duties on any merchandise, product, equipment, service or other goods in general that are introduced into Panama Pacifico.
  • Exemption of Real Estate transfer Taxes and Services Taxes (ITBMS).
  • Exemption from any tax, duty, rate, levy or fee with regard to the movement or storage of fuel or other hydrocarbon and its byproducts.
  • Exemption on any commercial or industrial license or registration tax.
  • Exemption from the Stamp Tax.
  • Exemption on the Real Estate Tax on lands and commercial/industrial improvements, as well as Real Estate Transfer Tax.
  • Exemption of the export/re-export tax of any merchandise, product, equipment, goods or services.
  • Exemption of any tax, rate, duty, encumbrance, withholding or other charges applied to foreign creditor payments including, interests, commissions, royalties and other financial charges generated by the financing or re-financing granted to companies of Panama Pacifico and for the financial lease of the equipment necessary for the development of the activities, businesses and operations that take place within Panama Pacifico.


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.

  • Special visas are available for investors and laborers (Aprox. 3 to 5 years).
  • Visa benefits are extended to immediate relatives: spouse, dependent children up to 25 years of age and dependant parents over 62 years of age.
  • One time tax-free import of any personal and domestic belongings (up to US $ 100,000).


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.

Corporate Law

  • Legal entities

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.



  • Juridical Stability unless causes are related to public utilities or social interest,
  • Tax Stability in the national order,
  • Tax Stability in the Municipal order,
  • Stability in the customs regimes that are derived from the Special Laws.


Investors Obligations:

  • Submit to the competent entity for regulating the investment, an investment plan that includes the obligation to invest the minimum sum of two-million US$ (B/.2,000,.000.00), that shall be executed within a term established by the Law that regulates the activity, or in the rest of the cases within a minimum term of two (2) years.
  • To be registered in the entity in charge of promoting and verifying the aforementioned investment.
  • Once the term expires for carrying out the investment, the amount of the investment shall be accredited and the activity developed.



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.


Activities Permitted:

  • Research and Development
  • Management and Quality Assurance Systems and of Environmental Management.
  • Investments and Reinvestments of Utilities.
  • Training and Coaching in the Human Resources.
  • Increment in the Employment Associated to the Production


Benefits of the Certificate:

  • The agricultural-industrial companies will benefit with the reimbursement of 35% of the payments made.
  • The other industrial activities will benefit with 25%.


Other Benefits:

  • The option to import, at a preferential tariff of 3%, the raw material, semi-elaborated or intermediate products, machinery equipment and spare parts thereof, canning, packing and other inputs that are a part of the composition or in the process of elaboration of their products.


Use of the Certificate:

  • The company that has the aforementioned certificate may use it for the payment of the national taxes, fees and their own contributions.



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.

Securities Market

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.


Direct taxes

  • o Income tax: Personal income tax in Panama is based on a sliding scale, ranging from a minimum of 7% after the first $9,000 to a maximum rate of 27%. For temporary residents, the tax is only applied to Panamanian-sourced income.
  • o Capital Gains Tax: Capital gains should be included in the annual tax return, and are taxed at whatever levels the individual is being assessed for income tax. Unless you have owned the property for a minimum of two years and are not in the business of selling and buying property, you may choose to pay a flat 10% of the gross profit.
  • o Panama Social Security Tax: Employers and employees pay social security taxes when the employee is paid. Currently, employers pay 12.25% and the employee pays 9.75%. Employers are required to withhold a percentage from each employee’s pay for income tax and for social security tax.  Failure to withhold and make payments to the Social Security Office will result in surcharges, fines, and even criminal prosecution.  There is also a professional risk premium paid to the Social Security Office corresponding to a perceived risk the work entails which is withheld from an employee’s salary.


Indirect taxes

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.

  • Tax year: The tax year ends on 31 December in Panama and tax returns are due by 15 March of the following year. This filing deadline can be extended until 15 April. However, individuals whose only taxable income comes from employment don’t have to file a tax return at all. The amount of tax due is withheld at source by the employer.
  • Double taxation treaties:

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

Mexico – Law 24 of 31/05/2010 – G.O. 26,548 of 04/06/2010

Mexico – since 30/12/2010 *Provisions taken  since 01/01/2011

Barbados – Law  5 of 8/02/2011 – G.O. 26,720-B of 10/02/2011

 Barbados – since 18/02/2011 * Provisions taken  since 01/01/2012

Portugal – Law 7 of 8/02/2011 – G.O. 26,720-C of 10/02/2011

 Qatar – -since 06/05/2011 * Provisions taken  since 01/01/2012

Qatar– Law 20 of 29/03/2011 – G.O. 26,754-A of 31/03/2011

 Spain – since 25/07/2011

Luxembourg – Law 21 of 29/03/2011 – G.O. 26,754-A of 31/03/2011

 5. Luxembourg – since  01/11/2011 * Provisions taken since 01/01/2012
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


  • Main regulations

o   Constitution of Panama

o   Labor Code of Panama Cabinet Decree No. 252 of March 30, 1971

  • Employment agreement

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.

  • Is there any probation time?

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.

  • Working hours

o   The working hours can be of 3 kinds:

  • The day shift is an 8 hour schedule, and the work week is 48 hours.
  • The night shift cannot be over 7 hours and 42 hours per week.
  • A mixed shift of 7 hours and a half and 45 hours per week
  • Overtime payments

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.


  • Termination of employment agreement

Article 210 of the Labor Code of Panama establishes several causes for termination:

      •  Mutual agreement, as long as it it written and does not imply a right loss
      • The finished time of the agreement
      • The finished project or construction
      • Death of the employee
      • Death of the employer (an exceptional clause)
      • If the suspended effects of the contract are extended beyond legal limits
      • Justified termination
      • Unjustified termination (with restrictions)
      • Resignation of the employee
  • Part-time employment:

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.

  • Holidays

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.

  • Absences:

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.

  • Wages:

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.

  • Sick and maternity leave and pay

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.

Working Visas

  • Is there a working permit for foreigners holding tourist or students visa?

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.


Foreign Trade

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).

Environmental Law

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.


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