Panama Business Investment: Opportunities and Challenges

Panama has become one of the top destinations for foreign direct investment (FDI) in Latin America over the last decade. Before the COVID-19 pandemic, Panama business investment was thriving. 

Not only is it easy to register a company in Panama, but its GDP was also growing at four times the rate of the Latin and Caribbean (LAC) region. 

Yet, no country in this part of the world was more affected by the pandemic than Panama. Its GDP declined by 17.9 percent in 2020 due to construction halting and the international airport closing for several months. 

Despite these difficulties, Panama’s economy improved in 2021 and grew by 15.3%. Experts predict that it will continue to grow between 4% and 6% in 2023.

This continued economic growth in an uncertain global market makes Panama an attractive location for business investment today and in the future. Let’s take a look at what opportunities and challenges lie ahead for Panama business investment.  

What are the Panama business investment opportunities?

Panama’s government is very open to foreign business investment. They are focused on making it the primary destination in Latin America for foreign investors.

There are no major restrictions on foreign investment. For example, there are no registration requirements for capital and the transfer of funds to the country is not taxable. 

Here are some key Panama business investment opportunities:

1. Tourism – Panama’s tourism sector offers many investment opportunities ranging from building hostels, resorts, and hotels to establishing charter dive operations and guided tours. 
2. Real Estate – Panama offers several benefits for construction projects. Residential projects valued under $120,000 receive a 20-year exemption on property taxes for the improvements made. For construction projects ranging from $120,000 to $300,000, the exemption period is 10 years. And for those exceeding $300,000, the exemption is for five years.
3. Special Economic Area Panama Pacifico – The government established this entity as an independent and accountable organization responsible for managing, promoting, developing, regulating, and ensuring proper use of the Panama Pacifico region. It offers exceptional tax, labor, and legal benefits to companies that base themselves within its boundaries, making it a desirable destination for multinational corporations to establish regional headquarters. Global companies, such as 3M, DELL, and Caterpillar, have already set up operations here. 
4. Energy – In 2016, the National Energy Plan was passed by the government which proposed a goal of sourcing 70 percent of the country’s energy from renewable sources by 2050. To encourage the construction of natural gas, wind, and solar power facilities, the government created tax credits and incentives. 

What challenges are there in Panama business investment?

Like any new business market, investing in Panama does come with its challenges. 

Here are some important factors to consider when doing business in Panama. 

• Inflation 
• Corruption 
• Language 
• Tax system

Below we explore each of these points in more detail:

• Inflation – While Panama currently has a low inflation rate compared to other countries in the region, it is expected to grow by as much as 5 percent this year. The economy is not exempt from external global factors affecting its inflation rate.

• Corruption – Panama remains on the Financial Action Task Force ‘Grey List’. This list refers to countries identified with anti-money laundering and financial terrorism deficiencies. Hector Alexander, Panama’s minister of economy and finance believes they could be off the list by the end of 2023.

• Language – To succeed in conducting business in Panama, it is crucial to have a basic understanding of the Spanish language. Those who don’t speak Spanish may struggle to communicate effectively and establish new commercial relationships in the country. Partnering with a multilingual business associate can aid in entering the market, as well as growing connections with local suppliers, distributors, and partners. 

• Tax system – Understanding the local tax system is key to success in any location. Panama’s territorial tax system only taxes income generated within its borders. Foreign income is only taxed in the other country, making it helpful for companies and investors based in Panama. Businesses should seek professional support from local accountants. 

Is Panama good for investment?

There are many compelling reasons why Panama is an enticing country to invest in. From its strategic location, improving infrastructure and talent pool to its economic growth.

Let’s focus on some of its leading investment benefits. 

• Stable political system – Panama is well-known for its robust political system, earning consistent recognition from the World Bank as one of the most politically stable nations in Latin America. It boasts the title of the second safest country in Central America and ranks fifth in the entire American continent. The government’s focus on public-private partnerships, like the successful Panama Pacífico initiative, underscores its commitment to development and investment in the country. 

• Location, location, location – Panama serves as a vital connection point between the Americas, linking the East and West as well as the North and South by sea, land, and air. With over 1,100 international flights per week, Tocumen International Airport boasts 83 direct destinations and accommodates 40 airlines. 

• Tax incentives – Thanks to the government’s tax incentives, already over 140 multinational companies reside in Panama. As mentioned earlier, Panama is an appealing choice for multinational corporations due to its policy of not imposing taxes on foreign-earned income that is brought into the country and deposited in its banks.

• Growing economy – Panama boasts an annual economic growth rate of 6%, which is among the highest in Latin America. Additionally, it has achieved the best credit rating in all of Central America, surpassing Costa Rica, Honduras, and El Salvador. The Panamanian government has been instrumental in creating laws that encourage investment and offer tax incentives. These laws also provide legal certainty, attracting foreign investors with promising returns.

How Biz Latin Hub can support you and your business?

Biz Latin Hub offers a fully integrated, multilingual team of legal, accounting, and company formation services for your business plans in Latin America, and the Caribbean. 

With wholly-owned subsidiary offices located throughout the region, including Panama we have the expertise to answer your questions and help you achieve your business goals. 
To learn more about how we can assist you in doing business in Panama and the rest of Latin America, talk to our experienced team today.