The Panamanian economy has been registering an important development, with the highest growth in GDP in the Latin America region. Compared with other countries in the region, Panama has performed positively during the long years of slow economic growth that the global market has been experiencing since the global financial crisis of 2008/2009.
Panama has been an example of sustainable economic growth in the region, mainly because of the economy not being an export of raw materials and therefore is not dependent on the greater or lesser consumption of these products by large economies such as China; also has the advantage of having a fully dollarized economy which makes Panama´s financial system a safe financial center to keep foreign capital out of countries in the region that are continuously experiencing problems of devaluation of their currencies, high inflation rates as well as political instability.
Our economy traditionally has always been one of services, mainly related with the financial and maritime industry with highly specialized service providers, and continues being strong in these branches of services but successfully expanding the range of opportunities and economic growth in areas like cargo logistics, tourism and construction, based on the understanding that a healthy economy must know how to diversify its different production engines.
The creation of logistic centers of “Value Added Services” (reduction of time and costs) would take advantage of our geographic position and the higher volume of ships passing through the Canal after the end of the expansion, from a variety of activities related with the shipping industry, including traditional storage, cold storage, selection, canning and packing, labeling, personalization, and finishing and final assembly.
The establishment of these types of centers are strengthened by the existence of pro-investment laws containing various types of benefits (Multinational Companies law, Free Trade Zones law), the ever more quantity of Free Trade Agreements being enacted, and the already succesful projects such as the Colon Free Trade Zone in the Atlantic and the Panama Pacifico Business Project on the Pacific side where companies such as 3M, Caterpillar and Dell have established regional offices.
As of the present date, the five container terminals that operate in Panama are administered by four of the ten most important container terminal operators worldwide, and are considered among the most modern of Latin America and currently conform the largest logistics center of the region.
Also important for the ever increasing establishment of multinational and inetrnational companies in Panama is the air transportation hub at the Panama International Airport of Tocumen, as it has become one of the world´s largest, with top connections offering more than 65 destinations in 30 countries whithin the whole American continent and the Caribbean as well as direct flights to the Netherlands, France, Spain, and in a short time including flights also to Germany and Portugal.
Important to emphasize that as a result of our strategic geographical position, our country is connected to the world by means of five fiber optics submarine cables, this being an important reason why Panama is an ideal location for companies of telecommunications and data centers connected to North and South America, Europe, Asia and the Caribbean.
PANAMA GLOBAL LOGISTICS CENTER
Due to its privileged geographical position the Republic of Panama has become the center of multimodal logistics transport by excellence in the region, this product to be supplemented with critical infrastructure assets that enhance the logistical activities of transportation and transshipment of cargo, as well as their manufacture, assembly, consolidation and distribution.
- Panama Canal
The existence of the Interoceanic Canal makes it possible for Panama can be regarded as a huge harbor between two oceans as are the Atlantic and the Pacific. This engineering marvel is one of the most important commercial resources of the world, with an annual traffic of 195.1 million metric tons of load that is an estimate of the 5% of the world traffic. The Canal has a total length of 80 kilometers, each boat it takes to cross an ocean to the other between 8 and 10 hours, and its operation is the 24 hours a day, 365 days a year.
- Ports System
The four ports located at both entrances of the Panama Canal are managed by four of the companies most important port of the world, which offer services of a high operating performance at competitive costs.
At the inlet of the Atlantic:
- Manzanillo International Terminal (Stevedoring Services of America)
- Colon Container Terminal (Evergreen International Corporation)
- Puerto de Cristobal (Hutchinson Port Holdings)
- Colon 2000 (Cruise Ship Terminal)
At the entrance of the Pacific:
- Port of Balboa (Hutchinson Port Holdings)
- Panama International Terminal (Port of Singapore Authority)
- The Interoceanic Railway
The railway moves parallel to the Panama Canal, this important means of transporting cargo in containers offers a fast and efficient intermodal connections between the ports on both oceans very rightly called as the “dry canal”.
The main airport for passengers and cargo of Panama is Tocumen International Airport, located 15 minutes from Panama City, this by reason of a modern highway (Corredor Sur) which borders the City of Panama until you get to your center.
Panama ranks first in Latin America as the market with greater number of destinations and represents 21% of the air traffic in the continent, overcoming to Venezuela, Mexico, Argentina and Colombia, as reported by the International Air Transport Association, IATA-.
The Panamanian airline Copa Airlines, said that the keys that make successful the Panamanian hub are its geographic location, the complete network of paths, world-class products and services at competitive costs.
Tocumen international airport has unveiled the Master Development Plan 2006-2030, which is located in the phase II with the construction of the North dock that will allow the airport increase its capacity by 50 %, driving up to 10 million passengers per year and has an investment of $100 million.
The second airport in importance is the Marcos A. Gelabert, also called Airport in Panama city – Paitilla (Albrook) or Albrook Airport, also in the capital city offering services to domestic and international flights; it is located 1.5 km west of the center of the city of Panama, which has had a large boom owing to the development of tourism throughout the Republic of Panama.
Among others, it is worth mentioning to The Enrique Malek International Airport is located 6.5 km east of the center of the city of David, being the third airport of Panama in air traffic of passengers carried and the recently opened International Airport Scarlett Martinez, in Rio Hato, Province of Cocle for “charter” flights with direct access to the best beaches on the Pacific Ocean.
SPECIFIC AREAS FOR LOGISTICS ACTIVITIES
- LOGISTICS AREAS – AIR TRANSPORT
As a result of the expansion of the Tocumen International Airport are developing three logistic centers, storage, and offices, located in neighboring areas close to the main air hub in all of Latin America, which are:
GLOBAL BUSINESS TERMINAL
Project only 90 minutes away from the Colon Free Zone and 20 minutes from Panama City, it will have a Corporate Area with offices from 30 to 1600 square meters; counting of an area of permanent exhibition, conference center, area of showroom and hotel with 300 rooms, restaurants with capacity for 100 people and six meeting rooms.
Draft 8.5 million square meters, with a capacity for 200.000 inhabitants, commercial and residential areas, International Business Center, Industrial and Logistics Park and green areas.
multipurpose project that combines logistic activities, commercial and industrial. The first phase of the project has a field of 25 hectares, that account with the option to rent or to build warehouses for the same customers, buildings and wineries adjustable to the need of the user, as well as green areas, banks, petrol stations and restaurants including.
- COLON FREE ZONE
The Colon Free Zone was established in 1948 and today it is internationally recognized as the second free zone in the world, only surpassed by Hong Kong, and the first in importance of the western hemisphere.
The Colon Free Zone is located at the Atlantic entrance of the Panama Canal, which gives you quick access to the Channel, the three loading ports in the Atlantic sector, as well as the cargo railroad. In this area is segregated allows you to perform business operations, mainly import operations, des-consolidation, re-packing, consolidation and re-export, all kinds of goods.
- BUSINESS FROM COLON FREE ZONE
The Colon Free Zone has two tax regimes, one for those sales to buyers within the Republic of Panama, and the other for foreign sales from the Colon Free Zone (re-export of goods).
The Colon Free Zone offers the mobilization of goods to and from any part of the world from its privileged geographical location close to the Atlantic entrance of the Panama Canal, to the ports of loading, the atlantic-pacific railway, and to the Tocumen International Airport.
The tax advantages and operational that offers the Colon Free Zone for a company based in it can be summarized in the following:
– Transfer Tax of movable property and services (SALES TAX): The foreign operations that are considered exempt from the income tax also will be exempt from payment of the sales tax to their buyers.
– Notice of Tax operation (Business License): companies established in the Colon Free Zone are exempted from payment of this tax.
– Import tariffs and export: those goods which are not introduced and/or sold within the Panamanian territory, will be exempted from payment of these fees.
– Do not cause income tax: The amounts received or accrued by people outside of it in the concept of royalties from people based in the Colon Free Zone. It is understood by royalty payments, fees, percentages or compensation in any form granted to third parties for the right to use patents, inventions, formulas, processes, techniques, trade marks, or any other property that the right is registered or reserved.
For sales to buyers within the Panamanian territory from the Colon Free Zone, shall apply the income tax system and normal exposed previously analyzed, because these sales are considered to be of Panamanian source. In the same way at the time that the goods enter Panamanian territory from the Colon Free Zone you will have to pay for the corresponding import tariff.
However, those sales that are made from the Colon Free Zone toward the foreign (export) are not subject to the payment of income tax on the profits from such sales, nor of the transfer tax of movable property and services (SALES TAX), or municipal taxes, tariffs or import and export of such goods to or from the Colon Free Zone respectively.
Companies established in the Colon Free Zone, should retain the tax of dividend or share, about 5% of profits distributed to shareholders from their revenues from “foreign operations”. However, we must point out that those dividends from “internal operations” (sales within the territory) will be encumbered in the manner prescribed for local activities.
There is no distribution of dividends, or that the total amount distributed is lower than 20% of the net profit for the relevant fiscal period, you must cover 10% of the difference.
- PANAMA PACIFIC SPECIAL ECONOMIC AREA
Special Economic Area Panama Pacifico is a designated area for the production of goods and high value added services and technology. It is located in the old Howard air base. Panama Pacific governed their relations with the Panamanian State by Act No. 41 Of the 2004.
The main purpose of this special area, is to offer you a value-added in the field of processing and logistics to the processing or assembling products for export and not for the mere re-export of products, with some exceptions.
- 1 Activities encouraged
- corporate headquarters operations of administrative functions (back office)
- call centers
- multimodal and logistics services
- products of high technology and manufacturing processes by
- Maintenance, repair and overhaul of aircraft
- Transfer service to the aviation industry
- offshore services
- film industry data transmission, radio, television, audio and video transfer
- inventories between companies of the place
- Transfer of goods and services to ships, aircraft and their passengers
- sale of goods not manufactured in Panama Pacific, destined for export, when is made by multinational companies and/or any of its affiliates, subsidiaries or companies of the same economic group
- 2 Tax Regime
- Income Tax: The main purpose of this special area, is to offer you a value-added logistics and fiscal to the preparation or assembling products for export and not for the mere re-export of products (with certain exceptions).
Except situations specifically referred to in the law, shall be exempted from income tax the following activities: (1) provision of services to the outside, (2) sale of all types of goods produced in the area toward the outside, other zones (with certain exceptions), and to the vessels transiting the Canal or berthing to Panamanian ports, as well as the sale or services to the passengers of those ships, (3) sale of products and services to the domestic airports as well as to the aircraft, (4) manufacturing and export of high-technology products, or products in which processes are used in high technology, (5) multimodal logistics services, (6) call centers, (7) development of related technologies With digital information and intranets and the internet, (8) link of transmission signals.
- Dividends Tax: dividends distributed profits from some ofthe activities described above, shall be exempt from payment of tax on dividends.
The dividend tax will apply only on those utilities from provision of services or sale of products that will provide or sell to companies established within the Panamanian territory, in which case should withhold dividend tax or share on the 5% of profits distributed to shareholders.
To apply the income tax by exist of Panamanian source, before the non-distribution of dividends, or that the total amount distributed is lower than 20% of the net profit for the relevant fiscal period, it must cover 10% of the difference by applying the aforementioned rate (complementary).
- Transfer Tax of movable property and services (SALES TAX): The sales invoices for products or services (including leasing) of any of the activities described above, shall be exempt from payment of SALES TAX tax.
- Tax on Business License: Under the law that creates this special area, businesses located within the same do not require this Notice of operation, and therefore did not pay the tax caused by this.
- Import and export tariffs: exemption from import tariff on all raw materials or prefabricated, machinery, materials, packaging, materials, fuels, final products, vehicles, supplies and spare parts entered the area; as well as exemption from the export duties on any type or class of goods, products, equipment, goods or services within the activities described above.
- Do not cause tax: Tax on remittances or transfers abroad, as well as the import tariffs in those activities that are considered “foreign operations,” tariffs of export, the Property Tax, imposed on international calls, Property Tax, among others.
- 3 Work Incentives
- fixed rates over time (25 %) and work on days free of employees (50 % ).
- Flexibility to allocate days free to employees.
- Businesses can be open on Sundays and holidays.
- Foreign Workers: possibility of exceeding the rule percentage of the Labor Code. Companies may request additional expatriate employees beyond the 15% if labor does not exist locally.
- Training Center of Higher Education.
- Just Cause for dismissal due to losses and/or fluctuations in the market.
- 4 Migratory Incentives:
- The single window of the site handles all of the procedures of visas and work permits for their employees.
- Available special visas for investors and workers (3 to 5 years is the period of time standard).
- The benefits of visas extends to the immediate relatives of the worker: spouse, dependent children up to 25 years of age, dependent parents older than 62 years of age.
- Import once and tax-free for any personal belonging and home (up to $100,000).
- HEADQUARTERS OF MULTINATIONAL COMPANIES
The Government together with the private sector, they said the conditions in order to allow our country to become a destination of multinational companies, through the Act 41 of 2007, were framed various incentives and benefits. The function of a headquarters of multinational company will be providing services only to the corporate group to which it belongs, in attention to the activities permitted.
- 1 Permitted Activities
- Address and/or administration for operations in a specific geographic area or a company’s overall business of the group.
- The logistics and/or storage of components or parts required for the manufacture or assemble products that manufacture.
- Technical assistance to companies in the business group or to customers who have purchased a product or service from the company.
- The accounting of the business group.
- Development of drawings that are part of designs and/or constructions, or part of them, constituting part of the typical turn of the business activity of the parent company or any of its subsidiaries.
- The consulting services, co-ordinating and monitoring the lines of marketing and advertising of goods or services produced by your business group.
- The electronic processing of any activity, including the bindings of the business operations of the business group.
- Financial management (treasury), the corporate group.
- Support for operations and research and development of products and services of the business group.
- Any other similar service previously approved by the Executive.
- 2 Tax Regime of Multinational Companies
- Income Tax Exemption: For the companies registered in Panama as multinational corporations, shall be exempt from the payment of income tax for those services that lend themselves to entities outside of Panama or which do not produce taxable income in Panama.
- Exemption from Dividends Tax: The distribution of dividends by the above-mentioned activities also will be exempt from the Tax on Dividends.
- Exemption from the Tax on Transfer of movable property and services (SALES TAX): This tax is commonly known in other jurisdictions with the acronym VAT or VAT, and will not be subject to pick it up in their billing those multinational companies for the provision of the services mentioned above.
- 3 Work Incentives
- The SEM may recruit foreign executives high levels and means that it deems necessary for the carrying out their activities.
- 4 Migratory Incentives
- Permanent Visas:
For the executive and their dependents for a term of five years, renewable.
- Temporary Visas:
For technical staff that the company needed temporarily.
LOCAL COMMERCIAL ACTIVITY IN PANAMA
TAX REGIME FOR LOCAL ACTIVITY:
Income Tax: The activities of trade that perform a Panamanian company within the national territory, shall be subject to an income tax of 25% on the net taxable income.
However, those companies with annual taxable income exceeding US$1,500,000.00 , will pay tax on income based on the sum that is greater between:
- The net taxable income, or
- The 4.67 % of taxable income.
Dividends Tax: companies should withhold the tax of dividend or share, 10% of profits distributed to shareholders from Panamanian income source, and 5% of profits distributed from income exempt from, as well as income from foreign sources and/or export (if you only have foreign source income does not apply this tax).
If there is no distribution of dividends, or that the total amount distributed is less than 40% of the net profits of the relevant fiscal period, it must cover 10% of the difference by applying the aforementioned rate (complementary dividend tax).
Transfer Tax of movable property and services (SALES TAX): This tax is commonly known in other jurisdictions with the acronym VAT or VAT, and applies to the sale of products and services. The rate of this tax is 7% on the amount by which you subscribe to the service or the product is bought, with a rate of 10% when involving the sale of liquor and 15% when involving the sale of cigarettes. There are exceptions to the collecting of this tax some of which are the sale of agricultural products, food products, export and re-export of goods, petroleum products, certain pharmaceuticals, health services, certain types of leases, insurance, gambling, among others.
Tax on Business License: an annual tax of 2% on the capital of the company, which annually may not be less than US$.100.00 and may not exceed USS.60,000.00.
The authorities of the Municipality of Panama, also have the power to charge a tax which will vary depending on the total value of gross sales that the company carries out monthly.
This tax is not very expensive, the same is set in a table of values of staggered gross sales per month, to give one example that those months that are separately invoiced between US$200,000.01 US$300,000.00 and the tax payable would be US$75.00, US$450,000.01 and US$600,000.00 will be paid a tax of US$100.00.
In the case of taxes by label, label it is understood by the name of the establishment or description, distinctive, the form or title as is described in the Municipal Land Registry or any other way as distinguish the respective contributors, whether natural or juridical persons that are set or has any business, company or activity subject to municipal tax, paid by label as well:
- When the labels are distinctive physical and placed in any of the facades of the building, they will pay US$. 1500 Annual.
- When the label is a distinctive physical resting on the ground inside the property will pay US$. 30.00 Per year.
- When the label is a distinctive physical height with no more than 5 mts. Outside of the property, pay US$. 40.00 Per year.
To place the label outside of the line of construction, requires the prior permission of the Directorate of Municipal Works, and may not be at a lower height of 3 meters. On the level of the floor.
SOCIAL SECURITY REGIME IN PANAMA:
- A) registration of the company in the entire Social Security company that carries out activities for profit, in Panama, you have to register with the Social Security, and shall report monthly to the Social Security Fund worker-employer contributions for purposes of the various programs provided by the institution.
The part of the share of workers, shall be retained by the employer with the obligation to deliver the same to the Social Security Fund.
The distributions of the quotas between employers and workers are in the following proportion:
- share of their employer: twelve point is equivalent to twenty-five percent (12.25 %) of the wages paid by the company monthly.
- share of the Worker: Equivalent to the nine point seventy-five percent (9.75 %) of the wages earned by employees or workers.
- 1) Occupational Hazards
Every company should pay a minimum amount by occupational hazards in accordance with a set fee after an inspection of the company. The premium may vary between 0.42 % and 7.00 % of the total wages paid to workers, in accordance with the activities carried out by the same.
- 2) Educational Insurance
Every company should pay a educational insurance as follows:
- a) workers must pay the 1.25 % of the wages received;
- b) The company will pay a 1.5 % of the wages paid.
LABOR REGIME IN THE REPUBLIC OF PANAMA:
1) Rights of the worker
To the Panamanian law, workers in a company established in Panama enjoy certain rights which may not be waived under any circumstances.
These rights are the following:
(a) Annual Leave: The Labor Code of Panama establishes a vacation leave per year, at a rate of one (1) day for each holiday eleven (11) working days;
(b) Tenth Third Month: Consists of a special compensation equivalent to one (1) day per eleven (11) days worked or fraction, continuous or interrupted. This compensation is paid by the company in three (3) items in the months of April, August and December;
(c) seniority bonus: at the termination of the employment contract, regardless of the grounds for termination, a worker who is hired for an indefinite period of time shall be entitled to receive compensation equivalent to a week’s salary for each year worked since the beginning of the employment relationship. If you have worked less than a year at the time of be terminated the relationship of work, the worker will have the right to share;
(d) Minimum Wage: Every worker has the right to earn a minimum wage that varies depending on the region where is set the company and the activity that takes place the same.
2) Types of Labor Contracts
- a) Contract for Definite Time Period: The duration of this type of contract may not exceed one (1) year, and that period must be explicitly stated in the contract;
- b) Contract for an Indefinite Time Period: The duration of the employment relationship is not established by the parties to sign the contract. The law allows the inclusion of a three (3) month trial period clause, in order to test the ability, skill, and functionality of the worker;
- c) Contract for Specific Work: The duration of this type of contract will be determined by the term of duration of the work.
3) Foreign personnel
Companies can only recruit and retain foreign workers in the following cases:
- Worker (a) married foreigners with Panamanian national (or)
- Worker (a) aliens within 10 % of the regular staff of the company
- Worker (a) foreigners within the 15 % of the specialized personnel or technical of the company.
- Worker (a) foreigners with more than 10 years of residence in the country or an indefinite period.
- Worker (a) foreigners trusted employee of companies that produce their effects on the outside.
- Worker (a) low foreign Marrakesh agreement. (Special Agreement that allows for every 3 panamanian legally employed, it allows the recruitment of 1 foreigner)
Employers needing occupy foreign workers will get an authorization to be issued by the Ministry of Labor and Social Welfare, subject to the verification that it is not altered the percentages of national required, that the qualified staff meets the respective quality and perform the functions inherent in their specialty.
Notwithstanding the foregoing, it may be allowed a greater proportion of foreign specialists or technicians by defined time, upon the recommendation of the respective ministry and approved by the Ministry of Labor and Social Welfare.
4) Regulation of work
in any company where they work ten (10) or more employees is required to adopt a regulation of work.
1) Commercial License
Either the type of service to be provided by a company, any company you need to obtain a Notice of Operation (old business license) issued by the Ministry of Commerce and Industries in order to carry out trade in legitimate way in Panama.
2) Registration of companies in a Technical Board of Engineering and Architecture of Panama
Companies that run engineering and architectural works, they will have the obligation to register with the Board of Engineering and Technical Architecture of the Republic of Panama.
Companies may enroll throughout the year, and this may be obtained in a period of 5 working days.
It is important to note, that the company at the time of applying for your registration you must have a suitable technical professional who will have to endorse the request, you must also submit a contract with the qualified professional.