Panama is fast emerging as a business hub in Latin America with many incentives for companies to set up in the region, says Michael Hatchwell.
The growth of Latin American business is flourishing. Panama has emerged as a desirable jurisdiction for many companies operating in Latin America due to its low crime rate and easy access to visas and land grants for company headquarters. Wealth from the Panama Canal also contributes to the area’s rapid growth and thriving economy.It is in the best interest of foreign and domestic-owned businesses doing business in the region effectively to structure themselves and to capitalise on such local advantages and incentives. The allowances available in Panama give businesses the opportunity to establish themselves and flourish within the marketplace. Eventually, these companies will become the model for other businesses establishing themselves in the region.
Panama is an attractive jurisdiction for foreign investments due to its variety of incentives to industries such as transportation logistics, real estate, tourism, trade, and banking, amongst others. One of the leading economies in the region, Panama has the unique advantage of structuring a diversity of services oriented to multinational operations. It continues to expand its infrastructure, the Panama Canal, Ports and the Metro, along with many other projects, all of which positively contribute to efficiency and promote growth, and benefit investors.
The Colon Free Zone, the Panama-Pacific Special Economic Area, and the Multinational Entities Regime are leading with offers for companies on the lookout for incentives and operational conveniences. The Colon Free Zone, a port area intended for re-exporting merchandise to Latin America and the Caribbean, is the second largest free zone in the world and has played an important role in the global economy. Due to Panama’s strategic geographical location, varied maritime routes and fiscal benefits, the Colon Free Zone has become a hub for importers and exporters. Companies established within the Zone are exempt from taxes on re-export of capital, on income tax from profits arising from overseas operations, and all Municipality taxes on goods entering or departing the Zone. The Colon Free Zone is a valuable resource to the region due to its ability to help drive trade and attract new businesses, whilst also creating new jobs vital to the local economy.
The Panama-Pacific Special Economic Area
Former Howard U.S. Air Force Base has been transformed into the specialised Panama-Pacific Special Economic Area (PPSEA). The PPSEA is a zone developed specially for the establishment of Multinationals. Amongst the incentives offered by the governmental agency regulating the area, companies are granted fiscal benefits on income tax, dividend tax, withholding tax, import tax and VAT; in addition to other labour and immigration incentives.The activities that benefit from said incentives include services provided outside the Republic of Panama, transfer of stock from companies in the PPSEA, transfer of goods and merchandise and services that may be provided to other parties in other special economic zones, to vessels crossing the Panama Canal with foreign ports as their destinations, and to vessels navigating between any Panamanian port and a foreign port. All of these incentives make for a region ripe with opportunity for new businesses which will subsequently also lead to a more diverse and profitable local economy.
Special regime for multinationals
In 2007, Law 41 established a special regime for multinationals seeking to conduct operations from Panama. This regime was meant to attract and promote investments, generate employment, encourage the transfer of technology, and establish Panama as a key player in the global economy. Regional Centres for Multinationals are offered fiscal incentives such as exemption on the payment of income tax in Panama, for services rendered to entities of its same economic group domiciled abroad that do not generate taxable income in Panama.
Income of Regional Centers for Multinationals will be deemed produced in Panama when services rendered are incidental to the production of Panamanian source income or its conservation, and its value has been considered as a deductible expense by the person that received them. In such cases, Regional Centers for Multinational Entities will pay their Income Tax at a 50 per cent of the 25 per c rate established by the Panamanian Fiscal Code. Furthermore, Multinational Entities are granted labour and immigration incentives including the possibility of obtaining a Permanent Personnel Visa and a Temporary Personnel Visa, for up to three months, for personnel rendering technical or training services, without having to obtain any other working permit from any government authority.
The growth of Latin American business is significant. Understanding the local legal landscape, cultural norms and the region’s best practices enables businesses to adopt more streamlined and thorough processes and in Globalaw's experience, there are numerous opportunities for businesses to increase their trade thoughtout the region, particularly through the Colon Free Zone, the Panama-Pacific Special Economic Area, and the Multinational Entities Regime.
MIchael Hatchwell is the immediate past president of Globalaw, which is an international network with 118 firms globally. Its Panamanian member is Arias, Aleman & Mora. The organisation celebrates its 20th year during 2014.