Incentive laws fuel foreign investment in Panama – a look at attractive options
By: Staff at Panama Offshore Legal Services / E-Mail: firstname.lastname@example.org || Phone (507) 227 – 6645
Business is big and business is booming in Panama. The country’s strategic global location and the US dollar are important factors, but legal incentives have long played a big part in warming up Panama’s economic engine.
It began over half a century ago
The oldest of these laws created the Colon Free Zone (CFZ) in 1948 and now it is the second-largest in the world after Hong Kong. More than 1,800 companies operate inside this trade zone. Companies in the CFZ must export a minimum 60% of all imported goods annually and hire five Panamanians. Benefits of being in the CFZ include no import duties, a low 5% dividend tax, and no income taxes on earned income resulting from exporting goods.
Several “Special Economic Areas” of Panama offer many tax breaks. The Panama Pacifico economic area, for example, is a 1,400 hectare mixed use community and business park built on the former US Howard Air Force Base near the Panama Canal entrance of the Pacific side. Companies wishing to operate inside this economic area must apply to London & Regional Panama and to the government’s Panama Pacifico Agency.
The benefits of being located within Panama Pacifico include exemptions from income taxes, import duties, stamp tax, real estate taxes, remittance tax, international calling tax, and dividend taxes. There are also 10 year tax exemptions for transferring goods and services between the ports, to ships and passengers, to petroleum free zones, to other companies and government agencies located in Panama Pacifico, and to the London & Regional Panama company. Labor laws regarding working hours, Sunday & holiday pay, and the right to negotiate different days of rest and vacations with employees are relaxed. Companies will also have more immigration visas and work permits for foreign workers.
Location in the Panama Pacifico special economic zone requires being engaged in industry-specific activities, including but not limited to: offshore services, call center, multimodal & logistics services, back office services, data & digital transmission, high tech manufacturing & assembly, maritime services, aviation services.
Panama created incentives for multinational corporations to establish their global or regional headquarters here. The term “multinational” means branches, offices, or subsidiaries in many countries. Proctor & Gamble, Hewlett-Packard, and Caterpillar are a few of the many multinational companies who created regional centers in Panama. Benefits include income tax exemption for work done for customers outside of Panama. This law also provides easier and faster immigration visas for foreign “key” employees in “management” positions.
Call centers enjoy a special law providing many incentives. Benefits include income tax exemption, value added tax (ITBMS) exemption, import duties exemption for all equipment used, lower 5% dividend tax, relaxed labor laws allowing flexible hours & lower overtime and holiday pay, immigration visa & work permit exemptions for foreigners and visas for all immediate family members of foreigners who relocate here. Qualifying under this law requires setting up a company in Panama which offers assistance by telephone to Panamanian or foreign companies’ customers with sales assistance, marketing services, telemarketing, customer services, product and/or services technical support or business information, or other specialized commercial activities.
City of Knowledge
The former U.S. Army Base of Fort Clayton has been transformed into the City of Knowledge (Ciudad del Saber) which contains international research, educational, and high tech companies providing services to international governments, science research centers, business and non-government organizations, and universities. The not for profit City of Knowledge Foundation administers this complex. Benefits of having a company in this complex includes income tax exemptions; import duties exemptions for all equipment, vehicles, furniture, machinery, and any other materials needed for the company’s operations; exemption from sales taxes on all goods and equipment needed for the company’s operation; property transfer tax exemption; and immigration visa and work permit quota exemptions for highly skilled foreign employees along with visas for their immediate family members who relocate here.
Export Processing Zones
Special zones solely for exporting exist in Panama called Export Processing Zones. Benefits of companies located in these zones include exemption from taxes levied on patents and licenses and capital assets; lower 5% dividend tax; exemption on duties for equipment, machinery, raw materials, semi-processed products; and all other materials for manufacturing. Additional benefits include no immigration visa or work permit quotas for hiring foreigners and all immediate family members of foreign employees moving to Panama are granted visas. Labor laws are relaxed to allow for different vacations and days off for seasonal employees.
Law 41 brings the big players to the isthmus
Panama has two giant international business centers, the old-established Colon Free Zone on the Caribbean side and now the new Panama Pacifico at the Pacific gateway to the Panama Canal.
Panama’s planners saw the enormous potential of the Howard Airforce Base which was handed back to Panama when the U.S.A. withdrew from Panama at the close of the last century. On 1,400 hectares of land overlooking Panama City just the other side of the Bridge of the Americas, the base was strategically placed close to the port of Balboa and with its own airport.
The Government passed a law (Law 41 of 2004) designating the base and its lands as a “Special Economic Area” and a U.K.-based company, London & Regional Properties, was appointed Master Planner.
Naming the area Panama Pacifico, the company made logistics one of its priorities of potential at the project. The response to their campaign to attract multinationals to the project _s Logistics Park has been impressive.
The International Business Center is another specific project at Panama Pacifico. Two multiple-usage buildings have been completed, offering offices and warehouse space for storage, light manufacturing, assembly or re-packing.
Another special area is the PanAmerica Corporate Center, where other dedicated buildings cater to local and transnational business to complete the logistic platform.
Singapore Aerospace Technology is one of the international companies which have found a niche in the logistics center. The Company provides services to clients in Latin America in maintenance, repair and overhaul for aircraft fleets. Among their clients are COPA, Aerorepublica, Boliviana de Aviacion and Aerolineas Argentinas. The company is required by law to hire 1,000 Panamanians, and to this end gives support to the Technological University of Panama in the training of engineers, technicians and professionals in the field.
INCENTIVES AND BENEFITS
As in the case of its cousin, the Colon Free Zone, Panama Pacifico offers incentives and benefits to its users.
Law 41 Incentives of June 20, 2004
The Panama Pacifico Special Economic Area was created by Law 41 of June 20, 2004, which formed a special regime for the establishment and operation of the Panama Pacifico Area and a new government entity, the Agency of the Panama Pacifico Special Economic Area.
Panama Pacifico incentives are directed to attract the following specific business activities:
- Corporate headquarters
- Back office operations
- Call centers
- Multimodal and logistics services
- High-tech product and process manufacturing
- Maintenance, repair and overhauling of aircraft
- Transfer of services to the aviation industry
- Offshore services
- Film industry
- Data transmission, radio, TV, audio and video
- Stock transfer between on-site companies
- Transfer of goods and services to ships, aircrafts and their passengers
MAIN BENEFITS FOR COMPANIES ESTABLISHED IN THE AREA ARE THE FOLLOWING:
All companies registered in the area will be exempt from indirect taxes. For example:
- Exemption from any tax, levy, rate, encumbrance or import duties on any merchandise, products, equipment, services and other goods in general that are entered into Panama Pacifico
- Exemption from sales tax
- Exemption from any tax, duty, rate, levy or fee with regard to the movement or storage of fuel or other hydrocarbons and their derivatives
- Exemption from any commercial or industrial licenses or registration tax
- Exemption from Stamp Tax
- Exemption from real estate taxes on land and commercial/industrial improvements as well as from the Tax on the Transfer of Immovable Goods
- Exemption from export/re-export tax of any type of merchandise, products, equipment, goods or services
- Exemption from any tax, rate, duty, encumbrance, withholding or other fees of a similar nature applied to payments to foreign creditors, for the interest, commissions, royalties and other financial fees generated by the financing or refinancing granted to the companies in Panama Pacifico and for the financial lease of equipment required for the development of the activities, business or operations carried out within Panama Pacifico.
Direct taxes are paid by all companies except those established by Law 41 of 2004 as *Specific Business Activities which will be completely exempted from all taxes. Payment of direct taxes refers to:
- Income Tax
- Dividend/Complementary Tax
- Transfer/Withholding Tax
- Special regimen of municipal taxes determined in advance by the Municipality of Arraijan for a period of ten years.
- All necessary procedures and business permits for companies registered in the area are issued onsite
- 16 government offices are represented in this Agency – saving your company time and money!
- Civil Aviation Authority, Ministry of Agriculture, Comptroller’s Office, Customs National Authority, Environmental National Authority, Fire Department, Government Ministry, Health Ministry, Housing Ministry, Immigration Office, Labor Ministry, Municipality of Arraijan, Public Works Ministry, Social Security Office, Transport and Transit Authority, Water Supply and Sewage, System Authority.
SPECIAL LABOR INCENTIVES
While the Panama Labor Code is adhered to in principle, employers enjoy expanded benefits which positively impact onsite operations including:
- Fixed rates for overtime (25%) and work on employees’ day off (50%)
- Flexibility to assign employees’ day off
- Companies may remain open on Sundays and holidays
- Foreign worker: possibility of exceeding Labor Code’s percenage rule. Companies may apply for additional expat employees beyond 15% if workforce does not exist locally.
- Higher Education Training Center
- Justified cause for termination for market losses and/or fluctuations
- Ministry of Labor onsite in the One-Stop Shop
SIMPLIFIED IMMIGRATION BENEFITS
- Onsite one-stop shop handles all visa and work permit procedures for your employees
- Special investor and worker visas available (3 to 5 years is the standard time frame)
- Visa benefits extend to worker’s immediate relatives: spouse, dependent children up to 25 years old, dependent parents over 62 years old
- Tax-free, one-time importation of any personal and domestic belongings (up to US $100,000)
LEGAL STABILITY FOR ONSITE COMPANIES
Law 41 is supplemented by Panama’s Investment Stability Law
- Onsite companies are automatically covered (elsewhere this benefit must be applied for)
- Guarantees no business impact from government changes for ten years after registering company here, including:
- Company national tax structure.
- Company benefits
- The 10-year period begins the date the company is registered at Panama Pacifico
- Higher Education Center for training workers
- AAEEPP’s technical training for onsite companies that request special curriculums for programs to train future workforce
- Agreements with Technological University and other educational institutions for training programs and special training for skilled labor with the One-Stop Shop
- Main objectives are:
- Meeting the educational needs of area businesses
- Providing educational assistance to develop Panamanians for onsite technical and professional positions
- Specialized training for new types of industries not previously existing in Panama
Making the move to Panama
Retirees, investors and second-home seekers are the new-style immigrants to Panama
The trend to seek a retirement or alternative home abroad seems to be growing among people from many countries around the globe but especially among North Americans and Europeans. And Panama is becoming popular with these new-style immigrants.
“International Living”, the re-nowned magazine and recognized expert for promoting U.S. expatriate lifestyles publishes a Global Retirement Index where Panama ranked as number one for six consecutive years. In the 2009 Index it ranked as number three.
ACOBIR announces 2011 real estate fair
The Panamanian Association of Realtors and Real Estate Promoters (ACOBIR) has announced its big real estate fair for 2011. “ExpoInmobiliaria ACOBIR 2011 will be held from February 2 to 6 next year at the ATLAPA Convention Center. Developments in the city, beach and countryside will be on display as well as real estate companies representing their portfolio of properties, including resale options.
Banks will be on hand to pre-approve financing. For more information visit www.acobir.com or call 228-7884.
There are now any number of real estate land developments ideal for retirees, some reasonably close to Panama City, some on the Pacific beaches with access to the city on a fast four-lane highway, some in the interior provinces and the Azuero Peninsula and many in the mountains of Chiriquí province.
A retirement visa for Panama brings with it the privilege of importing personal and house belongings with you tax-free up to US$10,000 and a new car (for private use).
Making the most of their money is, of course, a prime concern for retirees. The U.S. dollar has always been the republic’s currency. Panama is known for its banking center, which hosts branches from nearly all of the international banks. The cost of living is reasonable and is much less than in the States and Europe.
Reasons for coming
Some of the reasons for foreigners to obtain a second home in Panama according to law firm Panama Offshore Legal Services are:
- To have a “safe haven” to escape to in the event of any type of unrest.
- To live in Panama permanently, perhaps after retirement.
- To be in a “tax friendly” country where foreign earned income, capital gains and interest income is not taxed.
- Frivolous law suits are not recognized by courts in Panama and assets can be truly protected through a corporate shield without the risks of “piercing the corporate veil”
- Businesses can be started economically and without heavy restrictions, regulations or punitive taxes.
- Real estate in Panama is still affordable for purchasing homes in the city or land at the beaches, mountains or lakes.
How to do it
While there are several ways to immigrate to Panama, the most popular methods are the Retiree and Investors type Visas. Panama Offshore Legal Services provides the following information.
Retiree (Pensionado) Visa:
Having a lifetime, minimum monthly $1,000 foreign govern ment or private entity pension (additional $100/month per spouse and dependants) qualifies for a Pensionado visa. There is no minimum or maximum age requirement. Alternatively a person who buys a $100,000 property and can show a pension of $750 will also qualify for this visa. If a couple both receive pensions the sum of which is $1,000 they also qualify.
The benefits include a one-time exemption from duties when importing household goods (up to $10,000) and a tax-exempt car.
In addition, a Pensionado is able to get discounts in restaurants, movie theaters, hotels, and many other products and services in Panama. You will receive permanent residency within three months, but you will not be able to become a Panamanian citizen.
Self-Economic Solvency Visa:
This type of visa allows anyone with a minimum of $300,000 to obtain permanent residency and become a full Panamanian citizen. There are three options available:
(1) Purchase a minimum value of $300,000 real property in your personal name.
(2) Purchase a two year $300,000 CD at a Panamanian bank.
(3) A combination of the above – a Panamanian bank CD plus a real estate purchase with both totaling $300,000.
Business Investor Visa:
The Panama Business Investor Visa requires an investment of $160,000 in a new business, or a new corporation. A commercial business license must be obtained. The business must be registered with Social Security. Five Panamanian employees must be on the payroll and their social security must be paid. Three temporary two-year resident visas will be issued before permanent residency is acquired.
There are two options available to anyone wishing to invest in a Panamanian government certified reforestation project:
(1) Panama Reforestation Small Investment Visa requires $60,000 minimum investment plus the purchase of at least 3 hectares in a government certified reforestation project. This is a six year temporary resident visa only, extendable every 2 years and cannot be converted into a permanent residency visa leading to Panama citizenship.
(2) Panama Reforestation Large Investment Visa requires a minimum $80,000 investment plus the purchase of 5 hectares in a Panama government certified reforestation project. This visa can lead to permanent residency after two years and eventual Panama citizenship.
For this visa a foreigner must invest a minimum of $60,000 in a Panama agribusiness or a Panama aquaculture business. Investors will have temporary resident status for six years, renewable every two years.
Short stay visa
This visa is designed for those who need to stay up to 9 months in order to visit relatives, have medical attention etc. It requires payment of $100 to the National Service of Immigration for migratory services plus a guarantee deposit of $500. Other documentation is required depending on the reason for seeking the visa. It is best to consult a lawyer on this. Conditions for stays of longer than 90 days to complete business transactions are more stringent. Again it is best to consult a lawyer.
Other visas include Tax-free Processing Zone Visa, Student Visa, Specialist Worker Visa, Domestic Worker Visa. For more information on what is required for these visas it is best to consult a lawyer.
Retirement-related reading includes: “Panama Now”, a comprehensive and beautifully illustrated yearbook; “Getting to Know Panama”; “The Visitor” and “Focus on Panama”, all published by Focus Publications (Int), S.A. - Email:.
“Panama Now” and Getting to know Panama” are available from Amazon.com.
Also useful is: “Living in Panama” from the American Chamber of Commerce and Industry of Panama ().
Americans may want to contact the American Society of Panama (). There are a number of organizations for foreigners and of interest to foreigners and expatriates. These are listed in the book “Panama Now”. Check our website:
Doubletree Hotel opens soon
The Doubletree Hotel, soon to be open on Via España at Ave Federico Boyd, is named such, not Doubletree Inn, as was published in part of the extensive report on Hilton Hotels’ return to the Panama City market in last week’s edition 16#41 of The Visitor.