Panama ranks number 10 on economic freedom, from a list of 29 Latin-American economies evaluated, and this score slightly surpasses the regional. Its economy is 65.9% free and occupies position 47 of 157 countries on the world liberty level. This is according to the Economic Liberty Index for 2007, a report that is prepared jointly by The Heritage Foundation and The Wall Street Journal.
The world is becoming increasingly aware of the business opportunities in Panama and investments are rising as the potential is appreciated. Panama has always stood apart from Central and South America, with its dollar based economy and stable political situation, sustained by its Canal, Colon Free Trade Zone, and the international financial center. The economic growth for 2007 will be of 7% in comparison to the internal product of 8.1%, recorded for the first 11 months of 2006.
For several decades, Panama has been chosen as a profit center and a base to coordinate their multinational or regional operations by numerous Fortune 500 companies dedicated to all kinds of business activities.
Some multinationals have established their distribution base in Panama to commercialize their products and services towards Central, South America and the Caribbean. This commercial distribution includes electro domestics & furniture, food & wine, garment & accessories, jewelry, perfume & cosmetics, pharmaceutical products, cars & tools, and, many others.
Some of the multinational companies with strong presence in Panama include:
- USA: Coca Cola, FedEx, Continental Airlines, PriceSmart, Citibank, ExxonMobil, ChevronTexaco, Radisson, , AES, Avaya, Caterpillar, Dell;
- Spain: Telefonica;
- Japan: Sumitomo, Itochu, Mitsui, Sony, Matsushita;
- UK: HSBC, Cable & Wireless;
- Canada: Scotiabank, Petaquilla Minerals, Inmet;
- Korea: Samsung, LG.
During 2008, the following companies have established Latin American Headquarters in Panama - Hewlett Packard, Procter Gamble, 3M
Panama tax laws establish different considerations depending if the source of the income is generated within or outside Panamanian territory. Income produced from any source within Panama is subject to income tax. Panama's income tax is levied only upon net income derived from operations within its territory. Foreign source income is 100% exempted.
Specifically, income derived from the following activities is not considered produced within Panamanian territory, therefore is tax exempt:
- Invoicing, from an office established in Panama, the sale of merchandise or products for an amount greater than that for which said merchandise or products had previously been invoiced against the office established in Panama, provided the goods transit solely outside Panama.
- Directing from an office established in Panama, transaction, which are executed, completed or effected outside Panama.
- Distributing dividends or participations, when such are derived from income not produced within the jurisdictional territory of the Republic of Panama, including the activities producing income in parts a) and b) above.
In practical terms, a Panama Regional Headquarters with an office and employees based in Panama does not pay any income tax, if the office merely directs operations from Panama; in other words, if it only performs international operations from Panama.
For manufacturing or assembly operations, the existing law
about industrial parks better known as Export Processing
Zones treats them as 100% tax-free areas. As a consequence,
both the developer and the export industries as well as any
activity, operation, transaction, license, procedure, transfer
of movable goods and real estate, purchase and importation of
all equipment, spare parts, raw materials, and all goods and
services required for its operations will be 100% exempted from
national direct and indirect taxes, duties, levies, right and
On August 2007, the Panamanian government enacted Law 41, which promotes the establishment of Multinational Regional Headquarters in Panama, promoting investment, technology transfer and job opportunities within Panama.
The new law does not create new benefits regarding tax or foreign investments; however, it has unified criteria for setting up multinational regional headquarter by creating a single office at the Ministry of Commerce that will exclusively manage the procurement of operation license.
In this new legal framework, multinational corporations are defined as enterprises that manage production establishments or delivers commercial and financial services to several Countries. This definition also includes corporations that, without having an international activity, have strong operations in the country of origin.
According to Law 41, a multinational regional headquarter is considered as such if it operates within the following activities:
- Global or Regional management from main headquarters or holdings to sister companies
- Logistic and/or storage of components, parts required for the manufacture or assembling of products
- Technical support to sister companies or clients who have purchased services or products and therefore bind to provide an after sale support service
- Financial management including treasury management
- Accounting management
- Surveys and construction designing that constitute as a common activity of the main headquarter
- Electronic network processes of any activity including consolidating company's operation
- Guidelines and coordination for marketing and advertising of company's products
- Research and operational supports
- Any other related services, previously approved by the Panamanian government
Benefits afforded by the new Law:
1. The application process is now centered in a single office at the Ministry of Commerce and Industry -
- Multinational Operation license approval
- Immigration (Visa and Residence) for foreign staff
- Procurement of benefits derived upon law No. 41
2. Income tax exemption of foreign members of multinational regional headquarters (as long as their salaries come from abroad)
3. Unlike other investments incentive law, multinational regional headquarters office can be set in any location of the Republic of Panama.
4. Income generated outside the Panamanian jurisdiction is 100% exempted
Additional Country benefits are:
1. Freedom from exchange controls and monetary restrictions, and use of the US$ dollar as currency.
2. Political stability and respect to the principles and application of the laws.
3. International banking, insurance and financial center.
4. Excellent legal framework allowing 100% foreign owned investments.
5. Strategic geographical location with top container ports at both the Pacific and Atlantic oceans .
6. Proximity to Colon Free Trade Zone ("CFZ") is the largest free zone in the Americas and the second largest in the world.
7. Special laws for industrial parks, call centers, ecommerce and others facilitating trade and investment.
8. Abundance of international transportation services and excellent telecommunication services .
9. Availability of office, commercial, industrial and housing space.
10. Cosmopolitan city offering excellent living conditions
11. Simple visas, residence and work permit requirements.
12. Availability of bilingual education.
13. Availability of skilled, multilingual office and staff employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.