Panama

General Information

Panama is a country of demographic and economic contrasts. It is in the midst of a demographic transition, characterized by steadily declining rates of fertility, mortality, and population growth, but disparities persist based on wealth, geography, and ethnicity. Panama has one of the fastest growing economies in Latin America and dedicates substantial funding to social programs, yet poverty and inequality remain prevalent. The indigenous population accounts for a growing share of Panama’s poor and extreme poor, while the non-indigenous rural poor have been more successful at rising out of poverty through rural-to-urban labor migration. The government’s large expenditures on untargeted, indirect subsidies for water, electricity, and fuel have been ineffective, but its conditional cash transfer program has shown some promise in helping to decrease extreme poverty among the indigenous population.

Panama has expanded access to education and clean water, but the availability of sanitation and, to a lesser extent, electricity remains poor. The increase in secondary schooling – led by female enrollment – is spreading to rural and indigenous areas, which probably will help to alleviate poverty if educational quality and the availability of skilled jobs improve. Inadequate access to sanitation contributes to a high incidence of diarrhea in Panama’s children, which is one of the main causes of Panama’s elevated chronic malnutrition rate, especially among indigenous communities. (Source: CIA World Factbook)

Panama has historically served as the crossroads of trade for the Americas. Its strategic location as a bridge between two oceans and the meeting of two continents has made Panama not only a maritime and air transport hub, but also an international trading, banking, and services center. Panama’s global and regional prominence is being enhanced by recent trade liberalization and privatization, and it is participating actively in the hemispheric movement toward free trade agreements. Panama’s dollar-based economy offers low inflation in comparison with neighboring countries and zero foreign exchange risk. Its government is stable and democratic and actively seeks foreign investment in all sectors, especially services, tourism and retirement properties.

Panama’s economy is based primarily on a well-developed services sector, accounting for about 75% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and flagship registry. Panama is currently engaged in the Panama Canal expansion project. This project, in conjunction with the expansion of the capacities of its ports on both the Atlantic and Pacific coasts, will solidify Panama’s global logistical advantage in the Western Hemisphere.

This logistical platform has aided the success of the Colon Free Zone (CFZ), the second largest in the world after Hong Kong, which has become a vital trading and transshipment center serving the region and the world. CFZ imports – a broad array of luxury goods, electronic products, clothing, and other consumer products – arrive from all over the world to be resold, repackaged, and reshipped, primarily to regional markets. Because of this product mix, U.S. brand market share is significant, even if most of those products are made in Asia. Hong Kong is the CFZ’s biggest supplier, while Colombia and Ecuador are the two largest destinations for exports from the CFZ.

The U.S. is Panama’s most important trading partner and U.S. products enjoy a high degree of acceptance in Panama. In 2011, U.S. exports to Panama grew 36% to $8.25 billion – in no small part due to the fact that Panama’s economy grew 10.5%. U.S. goods and services enjoy a reputation for high quality and are highly competitive.

International indexes generally rate Panama as one of the best countries in Latin America for business and investment.

[Source: US Embassy in Panama]

Fast Facts

[Source: Wikipedia, CIA World Factbook, World Bank]

Market Entry Strategy

Due to its open economy, Panama has few market access problems. One of the more common market entry options is to appoint an agent or distributor. Another option is to find a local partner who can provide market knowledge and contacts. Other businesses have been successful via licenses or franchises. [Source: US Embassy in Panama]

Establishing a Business

Establishing an office in Panama is a straightforward process. There is plenty of office space available with many options related to location and cost. Panama has one of the most modern and flexible corporate law frameworks in Latin America. Below are some of the advantages offered by Panamanian corporate la:

• Two or more persons of any nationality may organize a corporation for any lawful purpose. They do not have to be domiciled in Panama. The articles of incorporation may be executed anywhere, even outside of Panama, and in any language, provided a Spanish translation is submitted for registration.
• There are no requirements regarding the amount paid in capital.
• Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian except if it is to undertake certain operations within Panama.
• There are no nationality or residence requirements for shareholders.
• Neither the directors nor the officers are required to be shareholders.
• The Board of Directors must be composed of at least three directors, but one person may hold more than one position.
• Meetings of shareholders or directors may be held outside of Panama and through electronic means. Proxies may be used by shareholders/directors.

In order to form a corporation in Panama, the client must furnish the following information:

• The name of the corporation. It may be in any language, but it must terminate in a word or abbreviation indicating that it is a corporation.
• The objectives and purposes of the corporation.
• The amount of the authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each. Shares may be nominative or bearer shares.
• Duration of the corporation, usually perpetual.
• The full names and addresses of three or more directors and/or officers.
• The domicile of the corporation.

The time period usually involved in setting up a corporation is from fifteen days to two months. Attorney fees usually range from US$600 to US$1,500 per corporation.

Every corporation organized pursuant to the laws of Panama must have a resident agent within Panama, who must be an attorney. The annual fee for this service is about US$200. Approximately 400,000 corporations are registered in Panama.

In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministry of Commerce and Industry. There are three basic types of licenses involved:

• Commercial License Class A is required for wholesale operations, commercial and mortgage banks, financial companies, international financial brokers, insurance and reinsurance companies, international transportation companies, mutual funds, public utilities, and high-technology service companies.
• Commercial License Class B is required for retail businesses, including representation agencies, service companies, bars, restaurants, drugstores, real estate agents, fuel stations, local transportation, distributors and others. This license is only granted to Panamanians or corporations owned solely by Panamanians.
• An Industrial License is required for extractive and manufacturing industries, as well as for construction companies.

Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle, bee, or poultry raising, or in the manufacturing and sale of handicrafts, provided that the work is not performed by hired workers. Licenses must be kept at all times in a visible and accessible place. The cost for obtaining a license ranges from US$250 to US$750. Also, an annual tax is levied based on the net worth of the company, as stated in the income tax return, plus other income taxes. (Source: International Trade Organization]

American Corporate Services offers experience and expertise for astute investors who wish to establish offshore businesses. Whether an investor wishes to immigrate or simply to establish a business entity, our network of professionals has the ability to advise, assist, direct and enable clients to understand and navigate the process for Panama company formation.

Our services include everything you need for starting a new business in Panama. In addition to helping to establish a Panama business bank account, helping you set up your business to conform to Panama accounting standards and to comply with Panama taxes, we also offer boutique amenities such as Panama secretarial services. We can even help you to create a Panama virtual office that will appear to others as though you are actually in Panama, even though you may be just about anywhere else on the globe at the time. Our business is making your investment a success.