Policies Toward Foreign Investment
The development of institutions to foster business activities in the Republic of Panama has been consistent with its trade and service-oriented economy, which is directly connected to the international market and is geared to exploiting Panama’s geographic position. In this context, the aim of the legal and institutional framework is to offer many facilities and incentives for the development of international commercial and service activities in Panama, with few requirements regarding the nationality of investors and no restrictions whatsoever on currency conversion or funds transfers and the remittance of dividends and royalties to and from the country by foreign or national investors.
As a result, very few limitations or restrictive practices on foreign investment exist, especially for international business operations based in Panama.
Some relevant aspects concerning Panama’s investment incentive policies are the following:
- Geographical location of the Republic of Panama
- The fact that the effective currency in Panama is the U.S. Dollar serves as a built-in guarantee against the establishment of foreign exchange regulations.
- There is no control in Panama over funds transfers, to and from the country, such as payment of capital, dividends, royalties or any other kind made to and by foreign or national investors.
- Panamanian legislation does not consider as taxable income revenues originating from transactions taking place outside the Republic of Panama (offshore), even if such transactions are managed or controlled from within Panamanian territory.
- The Corporation Law of Panama (Law No. 32 of February 26, 1927) is very flexible in several aspects, such as the number of shareholders and directors, purpose of the corporation, amount of capital, nationality and residence of shareholders and directors, duration of the corporation, form of issuance of the stocks (nominative form or to the bearer) and the geographic scope of operations.
- The existence of a new and advantageous regime of Foundations of Private Interest (Law No. 25 of June 12, 1995), which contains strict confidentiality rules that can be utilized as an effective vehicle for tax and estate planning, avoid probate proceedings and to achieve an effective separation of assets and limitation of liabilities. It also allows flexible means of operation and control through the use of a revocable and private trust and a Foundation Council that may be integrated by one (1) juridical person or three (3) natural persons. An international banking center of over a hundred banks, which operate freely in all currencies, coupled with the absence of central bank, creates a financial climate that encourages the free movement of funds to and from the country.
- Offshore banking operations and interests earned on savings and time deposits as well as on loans to the national government or to any of its autonomous institutions, are exempt from Panamanian income tax.
- Banking operations and all bank accounts in Panama are protected under a rigid banking secrecy principle and regulations.
- The existence of a strict legislation (Law No. 18 of January 28, 1959), which allows the creation and existence of numbered accounts, strengthens the banking secrecy principle in the Republic of Panama.
- Panamanian legislation offers a tax-exempt status for revenues arising from international maritime commerce and the sale or transfer (capital gains) of merchant ships legally registered in Panama, despite the fact that the transportation or sales contracts may have been legally executed or entered into within Panamanian territory. Moreover, it does not require the owner of a vessel to be, in the case of a natural person, a national of Panama or, in the case of a juridical person, an entity organized under the laws of Panama.
- The National Constitution of the Republic of Panama provides equal treatment of foreigners and nationals, with the exception that it reserves retail commerce to nationals.
- The continued stability of Panama’s banking, corporate, maritime, private foundation, trust and industrial property legislation, as well as the existence of a sophisticated service community of first rate banks, law offices, accounting firms, professional management and financing facilities with international expertise, has contributed to make Panama an attractive and secure place for private investment.