Investing In Panama: Panama as a Regional Headquarters for Multinationals

Panama is number 10 within the 29 Latin-American economies evaluated, and the score slightly surpasses the regional. Its economy is 65.9% free and occupies position 47 of 157 countries on the level of world liberty. This is according to the Economic Liberty Index for 2007. This report was prepared jointly by The Heritage Foundation and The Wall Street Journal.

With the signature of the Free Trade Agreement between Panama and the United States, a new commercial phase after mid 2007, once the processes of legal review, signature and ratification by the congresses of both countries is completed. This commercial instrument has 23 chapters providing substantial legal security for business, trade and investments between both countries increasing opportunities to investors from the United States.

This treaty:

• Stimulates foreign investment between both countries
• Widens significantly the product market
• Increases the exportations from both countries
• Improves the free customs access of merchandises and services with few exceptions
• Provides higher levels of transparency, accountability, and legal security

The Panama-US FTA is expected to generate an increase in the exports of goods and services towards an efficient and demanding market, increasing the interest in Panama as a safe harbor for investments.

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 by numerous Fortune 500 companies dedicated to all kinds of commercial activities as a profit center and a real base to coordinate their multinational or regional operations.

Multinational companies of some countries have established their distribution base in Panama to commercialize their products and services towards Central, South America and the Caribbean. This commercial presence is represented by sectors such as those of electronic appliances, food, wines, shoes, jewelry and jewelry, cosmetics, eyewear, furniture, pharmaceutical products, cars, tools, banking, energy, perishable goods, kitchen, etc.

More than 100 multinational companies have offices in Panama, including:

USA - Coca Cola, FedEx, Continental Airlines, PriceSmart, Citibank, ExxonMobil, ChevronTexaco, Radisson, 3M, AES, Avaya, Caterpillar, Dell
Spain -Telefonica
Japan - Sumitomo, Itochu, Mitsui, Sony, Matsushita
UK - HSBC, Cable & Wireless,
Canada - Petaquilla Minerals, Teck, Inmet
Korea - Samsung

Among important considerations to justify choosing Panama as a Regional Headquarters for a Multinational Company 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 Colón 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 telecommunications 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.

On the tax side, 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 the territory of the Republic of Panama is subject to income tax. The income tax of Panama is levied only upon net income derived from operations within the territory of the Republic of Panama. Foreign source income, in other words income generated outside the Panamanian jurisdiction, is 100% exempted.
Specifically, income derived from the following activities is not considered as produced within the territory of the Republic of Panama, and 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 treat 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 charges.

In the Business Panama Group, our team of experienced lawyers, real estate agents, insurance experts and other professionals will assist your company and its expat executives in setting up operations, living and relocation.

Besides our own lawyers, for complex cases, we have an alliance with a 25 year old leading Panama law firm that represents many large, medium and small foreign multinationals.

We can help you with:

• Locating office and living premises in Panama City for the company and its executives
• Forming a company or branch
• Legal services for setting up all operations, contracts, permits, etc.
• Accessing special tax incentives depending on the activity
• Applying for visas, work and residence permits
• Relocation services
• Others

Once we start, we will be glad to provide you our “List of Recommended Professionals” formed by first class auditors, architects, environmental consultants, builders and others, as needed.

If you are interested in setting up operations in Panama, please click here to contact us.