Why the Rise in Foreign Direct Investment (FDI) in Panama?

Panama is one of the smaller Latin American countries, yet this has not been and should not be a deterrence to investors. Panama has always had a reliable history of constant Foreign Direct Investment (FDI) rates, and these rates are on the rise, promising highly profitable returns on future investments. Panama is one of the top recipients of FDI in Central America, reaching US$5.27 billion in 2017. Panama has a few key international players that are its main FDI partners – the US, Colombia, UK, South Africa, and Switzerland. In the first quarter of 2018, the level of FDI inflow in Panama was USD$954.9 million, increasing to USD$1365.9 million in the second quarter of 2018. There must, therefore, be several incentives as to why people would want to invest their money in Panama or incorporate a company in Panama.

The dramatic growth in the levels of FDI highlight the reasons why Panama is an attractive jurisdiction to invest in. There are many incentives that draw investors to Panama. Not only is it politically stable but it also has a stable and growing economy that is consequently receiving much greater levels of FDI. The growing Panamanian economy has had a positive effect on FDI levels, resulting in an increase in the Gross Domestic Product (GDP). Therefore, what is increasingly occurring is that businesses are experiencing growing profits, sales, and cash flows, and therefore an increase in their operational capacity. As a result, projected profits and investor confidence are increasing, which in turn encourages businesses to build more factories and install more machinery.

Investment Panama – Appealing Panamanian Sectors for Investment

There are numerous diverse sectors in Panama to invest in including construction, finance and business services, distribution agencies, real estate, software development and sales companies, wholesale and retail commerce, and import and export services in free trade zones. Currently, the two sectors with the highest levels of FDI are wholesale trade and retail and financial activities and insurance. Panama is known for being a hub for Latin American consumers looking for better prices on goods, services, and commodities. For those wishing to start trading in Panama, the opportunities are extensive. It is home to the Panama Canal which means investing in this country is, therefore, a perfect way to expand your business globally – having access to a wealth of trading channels and ports. The Financial Activities and Insurance sector has also always been a very appealing sector in terms of investment. This is due to the high-quality and reputation of the finance and banking industry. Furthermore, Panama has a very attractive taxation system that draws more and more businesses and investors to the country. 

Companies looking to expand their businesses globally should look to Panama as a country that can help them do so. Panama has the perfect trading conditions with three Free Trade Zones and Free Trade Agreements with important global powers such as the US and Canada. This trading platform will aid companies looking to expand their businesses globally and help to strengthen their business relationships with countries worldwide. 

Foreign investors are starting to turn their attention to the increasingly popular real estate sector. This up-and-coming sector is worth keeping an eye on.

The Real Estate Market in Panama

Investments in the real estate market in Panama are highly lucrative. An increase in investing in real estate here has largely been to the fact that it is a very attractive retiree destination – with the milder tropical weather and numerous incentives to encourage people to retire here. It is the perfect place to enjoy an authentic Caribbean life, combining the cosmopolitan comforts with the great historical and cultural diversity of local life. Secondly, buying a property in Panama means an investment in a fixed asset that will give you a higher return soon after purchase, due to the dramatic appreciation of real estate assets over time. Furthermore, Panama is part of an exclusive circle of developing properties and projects that offer individuals and consumers: convenience, exclusivity and service facilities in every sense. Investing a minimum of USD$300,000 confers the possibility of acquiring a Panamanian residency as an investor in real estate. It is also worth mentioning that the present corporate structure is commonly used to reduce the costs of legal expenses just after liquidating the property or real estate.

Legal Entity Structures

The main legal types of legal entities in Panama used to enable local commercial operations in Panama. 

Corporations (Sociedades Anónimas, S.A.):

This type of company will allow you to develop your business openly and securely, allowing you to present your business to clients in a more formal and credible way. Though it may be difficult to believe, many people prefer dealing with a legal representative rather than carrying out business with an individual on a more personal basis. Establishing a corporate entity in Panama will also allow you to create and market a brand image for the product or service that you offer. This structure will provide you with security and confidence as you begin to develop your commercial projects in Panama. 

Private Interest Foundation:

This legal entity will allow you to safeguard and secure all your assets under a wall of legal benefits, specifically granted by current legislation. It is the best option for Privacy, Anonymity, and Protection.

• • This entity offers many advantages for estate planning at a local and international level.
  • Assets acquired by the Foundation are separated from the personal assets of the founder, protector, and council (board) or beneficiaries.
  • These entities can be made up for the benefits of a person or persons, family or for a specific social purpose.
  • They are used to shield future acquired assets: confiscations, seizures, suing or possible legal conflicts.
  • They are used to structure the assets and estate of families for testamentary purposes.
  • A person can use a Private Interest Foundation as a company owner of bank accounts, stock exchange accounts, real estate ownership, certificates of company shareholders, or any goods or assets that you have.

Need More Information?

Panama has an abundance of potential investment opportunities, with a stable business environment and great tax advantages. If you are interested in the business opportunities available, whether it be in regards to the formation of an onshore or offshore company, if you simply need guidance on accounting and tax requirements in Panama or if you are looking to expand globally, do not hesitate to get in contact with Biz Latin Hub Panama’s Senior Lawyer, Mr. Dennis Acosta here.

Offshore companies are an efficient legal entity structure for both wealth management and asset protection.