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Panama escaped the world economic crisis with relatively minor repercussions. Elements like port activity and Panama Canal cargo volume dropped in line with international business but the effects were light and the economy grew by nearly 7 percent in 2010.
Big investments, not to mention the $5.2 billion enlargement of the Canal, have been causing a snowball effect, reaching down into nearly every economic activity. Panama is also experiencing demand for immigration, both from retirees and others mostly from North America and Europe and from neighbouring countries, but the financial and housing crisis in the U.S.A. has slowed many residential housing projects.
Panama’s greatest asset, perhaps equal to the Canal, is the fact that the American dollar is in practice the currency of the country. Officially Panama’s currency is the Balboa which exists in coinage form only, identical in size to U.S. coinage.
The country uses American paper currency, and therefore the Balboa is automatically at par with the U.S. dollar.
This situation derives from the unique association between the U.S.A. and Panama as a consequence of the Canal.
In 1959, Panama’s legislators paved the way for the exploitation of this fiscal legacy and passed Law 18 making provision for numbered bank accounts. Further stimulation came in 1970 with Decree Law 238 providing both more incentives and controls for growth.
At that time there were 10 banks in Panama. Today the count is about 80.
The growth of the banking sector has made Panama the financial capital of Latin America – a safe international haven for money attracted by tax exemptions and the absence of exchange restrictions or controls.
The regulating agency is the Superintendencia de Bancos, which studiously applies the laws to all financial institutions.
THE SERVICE ECONOMY
Another of Panama’s assets is its geographical position, where world trade routes converge.
This has nurtured the Colon Free Zone, unchallenged hemisphere champion, and has made Panama prime head office or regional H.Q. choice for multinationals covering Latin America and the Caribbean. Panama’s international ship registry, with the largest fleet in the world, also adds boom and brass to Panama’s commercial orchestra.
This diverse activity has spawned a lucrative infrastructure supporting business and service organisations. Insurance, re-insurance, legal, accounting, trust services, business and tax consultancy all add to the harmony of Panama’s bustling business community.
A PANAMANIAN COMPANY
Part of Panama’s success as a haven for private business can be attributed to the country’s attractive corporate legislation, modeled on that of the State of Delaware. It is relatively easy to establish a corporation in Panama.
Those who wish to form a Panamanian corporation can benefit from the vast pool of experience and the international reputation of the many firms of lawyers and accountants established in Panama.
Panamanians and foreigners are equal before the law. There is no distinction between foreign and Panamanian companies regarding the formalities for their constitution. Neither are foreigners restricted in the type of business they enter, except for retail business, which is limited to Panamanian nationals, and the local communications media in which the capital must be entirely Panamanian.
Two persons or more, although they need not be Panamanians or residents of Panama, can form a “sociedad anonima” (corporation). Paid-up capital or minimun capital is not required and shares can be issued “to bearer”. The cost of forming a “Sociedad anonima” varies between $450 and $1,000. There is an annual tax of $300 and only companies which receive income from within the national territory are subject to income tax.
PRIVATE INTEREST FOUNDATION
A Panaman Corporation, in conjunction with a Panama Private Interest Foundation is a dual tool which very weathly and also only moderately wealthy people protect their assets and is one of the reasons why Panama’s banks hold total assets of over $55 billion.
The country’s unique laws allow the strongest asset protection in the world, together with strict bank secrecy and anonymous legal entity laws, Panama being one of the few countries allowing “bearer shares”.
The Private Interest Foundation law is modelled on similar laws in Switzerland, Liechenstein and Luxembourg. The foundation can be used as a holding company for a corporation or corporations which hold the assets.
Most offshore tax haven banks around the world require knowing the true owner of an account. A Panamanian foundation may open a bank account using nominee council members and keeping the true owners anonymous. The only exception is if a foundation is involved in terrorism or money laundering, in which case a Panamanian judge can sign a court order requiring the bank to disclose records of the account.
Legacies and bequests can be handled within the foundation, avoiding probate, gift taxes, estate taxes, inheritance taxes or legal delays.
As is well known, Panama is a tax haven because of its income tax structure, founded on the concept of taxing income only if it is earned within the national territory. Transfers of funds for any purposes in and out of the country from abroad are completely free of tax.
Investors who wish to establish an industrial enterprise can benefit from various incentives if they sign a special contract with the Ministry of Commerce and Industry. This “Contract with the Nation”, as it is called, can be for ten or 15 years and is renewable.
COLON FREE ZONE
The Colon Free Zone is one of Panama’s greatest areas of investment opportunity. Over the years it has manifested a steady, heavy growth which has been further stimulated by port expansion, coast-to-coast railway and a new Panama Colon freeway.
Among advantages enjoyed by companies in the Colon Free Zone is that for the first five years of operation, they enjoy a 95% discount on income tax on foreign trade operations, providing that 80% of their revenues are from foreign trade operations and that they hire a minimum of 5 employees.
Also worth noting is the increasing number of retirees from North America and Europe who are investing in small hotels and bed & breakfast and other establishments.
Useful sources of information about business and investment in Panama are the following:
Chamber of Commerce, Industry and Agriculture of Panama • Tel: (507) 227-1233 • Fax: (507) 225-3653 • Website: www.panacamara.com
Ministry of Commerce and Industry • Tel: (507) 227-4222, (507) 227-1222 • Fax: (507) 227-5604 • Website: www.mici.gob.pa
American Chamber of Commerce and Industry of Panama (AMCHAM) • Tel: (507) 269-3881 • Fax: (507) 223-3508 • Website: www.panamcham.com