1. Panama has excellent incentives for companies and investors:
- Equal treatment for foreign and local citizens. The Investment Stability Law (Law 54 of July 22, 1998) guarantees equal rights to all foreign and domestic investors with respect to investments and businesses, as per the policy that the country has sustained for a long time to provide an environment for foreign investment that requires no special authorizations, permits or prior registration.
- Panama is politically stable. The Political Risk Services institution has placed Panama in the top three in the hemisphere on investment-risk relation. Both Moody’s Investor Service and Standard & Poors have given high marks to the Panamanian financial instruments. (Baa2 and BBB, respectively).
- Low cost of living. According to a CNN publication dated March 4, 2014, The Economist Intelligence Unit has ranked Panama among the ten (10) less expensive countries to live in. In previous years, a study that analyzed the cost of living, employment and operational costs (labor) by the Tripartite Committee composed of the Economic Commission for Latin America and the Caribbean, the Organization of American States and Inter Development, placed Panama as one of the countries with the lowest cost of living in Latin America.
- A high percentage of the workforce in Panama is bilingual. Approximately eight out of ten Panamanians who work within the City of Panama in the banking and related sectors are bilingual in English and Spanish.
- The economic opening in Panama offers the lowest rates in the region, which has helped increase foreign investment in the public and private sector. There are more than 40 laws and decrees that offer investors tax exemptions and privileges, and operational incentives. The sectors that include these incentives are construction, tourism, export processing zones, mining, forestry, insurance and reinsurance
- Agribusiness and infrastructure
- Tax advantages: Corporations and Private Interest Foundations do not pay income tax on income derived from foreign income.
- Panama uses the US dollar as its currency, possessing fiscal and monetary discipline while keeping low inflation low – lower than two percent for the last forty years.
- Panama is home to the second largest distribution and corporate transactions center (Free Zone) in the world after Hong Kong. The Colon Free Zone has more than 1,500 import/export businesses trading within it; it receives more than 300,000 visitors annually and generates exports and re-exports valued at over 10 billion dollars annually.
- Panama has agreements for the protection of investments with a dozen countries including the United States, Canada, United Kingdom, Spain, Germany and France.
2. Corporations Act
• The Panamanian corporations have a variety of advantages, especially for companies operating abroad.
• Our corporate legislation was introduced in 1927; therefore, our legal system is based on a law that has over 50 years of proven effectiveness, something not many can boast about. Among the most important aspects, we must consider the following:
Tax Benefits: Any income from activities outside the territory of Panama is not taxable under Panamanian law. Foreign source income is also exempt from tax on dividends and capital gains, as well as the interest earned on deposits in local and foreign banks. Panamanian tax income does not apply to income generated by transactions outside of Panama even when a company has an office and employees in Panama.
There are no registration requirements or income statement: There is no need to file tax returns or annual reports to the government of Panama if the company conducts its operations outside the territory of Panama, i.e., offshore.
Asset Protection: Panamanian corporations may keep assets internationally under a favorable tax regime. There is no need to have assets or bank accounts in Panama.
Shares: The shares must be nominative, but the Law does not requires the registration of the shares before the Public Registry, this constitutes one of the main advantages of the Panamanian corporation, since the shareholders of a company will remain unknown for public entities. Also, the law does not specify a minimum number of shareholders, although it requires two subscribers in the Articles of Incorporation of the Company, which can be provided by WILLIAMS & ASSOCIATES. A person can, therefore, be the sole owner of all the shares, being kept by the bearer or placing it in the hands of a private foundation as the shareholder of the company.
Meetings of Board of Directors and Shareholders: There are no specific rules regarding the frequency of such meetings, which can be conducted anywhere in the world. Any minutes, records or contracts of directors, shareholders, directors or liquidators made by telephone, facsimile or other electronic means are considered legal among people with direct contact. These will be valid even if they were signed on different days and different locations (such as a ´round robin’ resolution). There is no need to be in Panama or come to Panama.
Commercial Activities: Companies may perform all activities allowed by law, such as investments, project contracts or sale of goods and services. Contracts, invoices and corporate documents may be maintained in any language and records of these transactions that take place outside Panama can be held in any country.
Corporate Officers and Directors or Nominees: It is common practice for Panamanian corporations and corporate officers to have directors or corporate officers or nominees and these can be provided by our firm, WILLIAMS & ASSOCIATES. It is not necessary for the corporate officers and directors to be Panamanian citizens, nor is it necessary for the corporate officers to be directors of the company. Three directors are needed at least.
Currency and Exchange Controls: There are no restrictions or controls on the exchange of currency in Panama. The US dollar is in free exchange with the local currency, the balboa.
Registration Requirements: Reports are not required to be filed before the Panamanian government regarding any offshore activity.
Limited Liability: The liability of shareholders is limited to any unpaid capital in shares that have been issued.
Transfer of Shares: The shares of a Panamanian corporation, whether bearer´s or registered, are freely transferable. This facilitates the transfer of goods in confidence through the simple exchange of bearer or registered shares, rather than through an exchange of the underlying property.
Taxes: The tax system of Panama is governed by the principle of territoriality. Therefore, the income received by social activities outside Panama is not subject to income tax or any other tax in Panama.
3. Law of Private Foundations
In 1995, Panama’s Legislative Assembly approved Law No. 25, the introduction of the Private Interest Foundation (PIF) as a legal entity. Panama designed the Private Interest Foundation with the intention of creating a flexible and affordable vehicle for estate planning. The Panamanian PIF is an excellent means for the preservation of assets, with the flexibility to be used for protection of family assets or religious, public or charitable purposes or to manage, invest or retain assets in favor of the beneficiaries of PIF.
The possible uses of Panamanian PIF are:
• Asset Protection – to protect assets against excessive taxation, claims from creditors, political instability or forced heir ship rules
• Business – to manage profit sharing plans or pensions for employees who hold shares, participation or interests in public or private companies to collect royalties
• For charity – to conduct scientific, philanthropic, religious, humanitarian or educational purposes, or to manage funds or assets for such purposes
• Family – to protect companies with few shareholders, continuing on to future generations by preventing property division; to protect children, disabled or those unable to manage their own assets; to manage rent payment or distribution of assets to family members or to provide for their education, housing or maintenance
• Investment – investing in stocks, bonds, mutual funds, bank deposits and other assets; own real estate or other property of considerable value, such as art collection.
A foundation cannot be established for commercial purposes or profit. When a business is to be carried out, it is better for the Foundation to hold the shares of the company that runs the business. The Foundation does not own and operate the business directly. A PIF may, however, receive passive income – such as rental properties or dividends.
4. Benefits and Tax Incentives
According to the latest assessment by the International Monetary Fund (IMF), the country’s economy by Gross Domestic Product (GDP) reached 8.5% in 2013. This growth is based on infrastructure investments as well as state policy which include a number of tax incentives, among which we can mention:
- Investment Stability Law (Law No. 54 of 1998)
- Tourist Activities
- Multinational Corporations – SEM
- Colon Free Zone
- Export Processing Zones
- Call Centers
- Special Economic Area: Panama – Pacifico
- City of Knowledge
- Petroleum Free Zones
- Certificate of Industrial Promotion
The incentives vary by industry or sector; they include exemptions on various taxes such as income, real property, import, value added or transfer of personal property. There are also associated labor and immigration benefits, which make it attractive for foreign investment; this was the reason for the entry of 105 multinational companies from the enactment of the law in 2007.
For any questions or concerns regarding how to establish your business or make investments in the Republic of Panama, you can contact us.