Development Activities Generate New Business Opportunities in Panama

Find out how new development initiatives and activities offer new business opportunities in Panama. The Panamanian economy recently has experienced significant growth, which is related to diverse development strategies within the country.

As Panama was the first Spanish colony on the Pacific in 1501, the country went through a long history of development since then. After the independence of Spain in 1821, Panama became part of Gran Colombia. In 1903, Panama gained its final independence with the help of the United States. 

Being the bridge between North and South America, Panama is moving towards fostering a high-income economy. As part of that, the gross domestic product (GDP) per capita has grown at an average rate of almost 6% annually. Furthermore, the multi-dimensional review of Panama (MDCR) considers the country one of the most dynamic economies in Latin America. New business opportunities in Panama are emerging as a result of a focus on human and social development, sustainable development, tourism and exports.

Human Development agenda to drive business opportunities in Panama

According to the Ministry of Economy and Finance (MEF), Panama ranks fourth in the Human Development Index in Latin America. Due to increased life expectancy, average number of years spent in schooling and gross national income (GDP), Panama is considered a high development country

This economic growth has contributed to a reduction of Panama’s poverty. Despite that, the OECD Development Centre reports a a remaining inequality in society. Particularly, inhabitants of indigenous areas – ‘comarcas’ – are affected by poverty. Therefore, ensuring a consistent and sustainable development strategy is essential to Panama’s business growth.

In order to improve the Panamanian society’s welfare, the government has created several fundamental objectives, such as: 

  • creating more formal jobs, improving the skills of the workforce and fostering development in all regions to decrease poverty and consolidate the middle class 
  • promoting foreign direct investment
  • constitute a more efficient and effective tax system to provide necessary resources and increase redistribution
  • improving secondary education, technician and vocational training in order to adapt the education system to the labor market’s demand.
a building in Panama
The cooperation set up a 2030 Sustainable Development Agenda.

UNESCO promotes the development of public policies on culture in Panama

UNESCO and the Panamanian Ministry of Culture (Ministerio de Cultura) agreed upon cooperation to establish a framework of public policies on culture in terms of sustainable development. Both UNESCO and the Ministry of Culture have recognized that culture is a facilitator and promoter of sustainable development in Panama’s economic, social and environmental dimensions.  

The Ministry of Culture was established in 2019 to develop and implement public policies based on human rights and sustainable development. For this reason, Panama highlighted the need for UNESCO’s guidance in the preparation of the country’s First National Cultural Plan. Furthermore, the cooperation set up a 2030 Sustainable Development Agenda.

Development of Panama’s tourism sector

Panama has recently recognized its potential in the tourism sector. In order to exploit its potential for new business, Panama aims for a development strategy in its tourism market. 

The formulation of the 2007-2020 sustainable tourism development master plan was presented to the country as a comprehensive strategic planning instrument. The objectives of this strategy are:

  • promoting sustainable tourism development through the improvement of institutional capacity at the national and regional level (human resources development, research development, and better sector and government planning), as well as local (community development)
  • ensuring that benefits of economic growth reach all sectors of the country
  • strengthening and rationalizing the tourism sector in 2020
  • generating a substantial increase in income and employment in tourism.

As part of the development strategy in the Panamanian tourism sector, the government enacted a law in 1994. As a result, anyone who invests at least US$ 50.000 in Panama’s tourism, can take advantage of some tax incentives and other benefits.

ship in the Panama canal
The Panama Canal is a key route in global shipping.

Panama Canal – a tale of growth and development

The famous Panama Canal can be described as the country’s real treasure. On the one hand, it helped Panama to gain its final independence but on the other hand, it contributed enormously to Panama’s economic growth.

The Panama Canal is a key route in global shipping. The waterway connects the Atlantic and Pacific oceans, and thus facilitates global trade enormously. Therefore, more than a million ships have passed through the 50 miles canal in the past century. Its traffic amounts to 5% of the global trade.

In order to increase the efficiency of the Canal, Panama has introduced a huge construction project to expand the width of the Canal. 

Why should you do business in Panama? 

  1. Political stability: Since 1989, Panama has had a stable, democratically elected government without any corruptions or civil uprisings.
  2. Economic growth: Despite the global economic crisis, Panama’s economy has been growing steadily since 2005 with low inflation, low unemployment and constant growth of the gross domestic product (GDP). The consistent growth and its economic stability even exceed the United States in regard to GDP. 
  3. Close to the US: Panama is only a 3-5-hour flight away from the biggest cities in the USA. Furthermore, non-stop flights are available from many airports, such as Atlanta, Chicago, Miami and even Toronto in Canada. 
  4. Protected foreign investments: Panama’s civil code, its constitution and its law of foreign investment guarantee the same rights as the Panamanians’ for foreigner in terms of ownership, investments and trade.

How can trading businesses profit from Panama’s free trade agreements?

Colon Free Trade Zone

Created in 1948, the Colon Free Trade Zone is the second largest in the world. More than 1,800 companies operate within the zone, whereas most of them are involved in the exporting and importing industry having warehouses, factories and re-packaging various products. The semi-independent governmental agency administers the Colon Free Trade Zone granting operational permits and leasing spaces. In order to operate in that zone, a minimum of 60% of the imported products to be exported annually is required. In addition, the operating business must hire 5 Panamanians. The free trade zone consists of a port and transit system designed for export, re-export, imports, manufacturing, warehouses and processing goods. 

Benefits include:

  • no import duties
  • only 5% dividend tax
  • no tax on income derived export activities
  • no tariffs and quotas on imports and exports to foreign countries.

Panama Pacifico Special Economic Zone

The Panama Pacifico Special Economic Zone is a huge free trade zone constructed on an almost 1.400-hectare site with an 8.400-foot runway jet airfield. Created as a small city, the zone includes bank offices, corporate offices, call centers, high tech manufacturers, logistics services, aircraft maintenance and repair services, a film industry, and much more.

In order to get allowance to operate within this free trade zone, the business must operate in one of these following industries:

  • call centers
  • offshore services
  • back-office services
  • multimodal & logistics services
  • data and digital transmission
  • maritime services
  • aviation services
  • high tech manufacturing & assembly

In addition, an application procedure is required with London and Regional Panama, and the government agency Panama Pacifico.

Tax Incentives of which operating businesses can take advantage of are:

  • import duties
  • income taxes
  • stamp tax
  • international phone call tax
  • remittance tax
  • dividend taxes
  • sales taxes (ITBMS)
  • real estate transfer tax
  • real estate property tax
  • licensing tax
  • export/re-export tax
  • tax exemptions for services and goods transfers
  • 10 year consistency of tax benefits.

The Panama Pacifico Special Economic Zone offers apart from tax incentives also immigration and labor benefits.

Immigration benefits include:

  • companies get more immigration visas and permits for foreign workers
  • one-stop immigration office to handle all visas and work permits
  • family visas, which extends to financially dependent parents and spouse
  • 3-5 year special visas for investors and laborers
  • tax-free importation of personal effects up to US$ 100.000.

Labor benefits include:

  • labor laws regarding working hours
  • fixed rates for holidays (50%) and overtime (25%)
  • flexibility by allowing companies to be open on Sundays and holidays
  • allowance to fire employees for the cause of market fluctuations.

City of Knowledge

The City of Knowledge, known as an attractive business opportunity in Panama
An estimated capitalization rate of 8%-10% with local bank financing of 4.5% makes real estate an attractive investment in Panama. 

The City of Knowledge has been a US army base of Fort Clayton before when it was converted into a free trade zone. It contains high tech companies providing services to international governments, international research, educational science research centers, universities, and profit- and non-profit organizations. The City of Knowledge is specialized in businesses in science, technology, human development and culture.

Tax benefits include:

  • import duties exemptions for any company’s operations materials, such as machinery and furniture
  • income tax exemptions
  • property transfer tax exemptions
  • quota exemptions for immigration visas and work permits for foreign workers and their families. 

Real estate in the Panama Pacifico Especial Economic Trade Zone

As the free trade zone was just recently created, there is a shortage of houses new the new town. The Panama Pacifico project near the Panama Canal is developed by the renowned company London and Regional Properties, which is the largest real estate developer in Great Britain. The residential investment in Panama consists of houses with 3 to 4 bedrooms and apartments. An estimated capitalization rate of 8%-10% with local bank financing of 4.5% makes this an attractive property investment in Panama. 

Take advantage of business opportunities in Panama

Take advantage of opportunities for business in Panama by joining the fast-developing market. In order to expand your business efficiently, and in full compliance with local law, you’ll need to engage with local experts who can guide you through bureaucratic procedures.

At Biz Latin Hub, our multilingual team of legal, accountants, and payroll experts has comprehensive experience in company formation, accounting and finance, market entry support and more.

To learn more about the Panamanian Economy, the business opportunities to form a company in Panama, and how you might take advantage of these political shifts, please contact us today.

Learn more about our team and expert authors.

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