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Doing business in Panama: 10 reasons to be there

by | Jul 2, 2023

There are numerous advantages available to companies that are doing business in Panama.  They include:

Security and Stability

Panama is widely considered a “safe haven” due to its political and socioeconomic stability. It benefits from special treaties with the United States, ensuring protection during conflict. The security of Panama is affected by its economic prosperity. Panama has experienced consistent economic growth in recent years due to its strategic location, the Panama Canal, and a well-developed service sector. The country’s relative economic prosperity has helped reduce some social and economic inequalities that can contribute to crime rates. As the safest country in Central America, it attracts a diverse expat community from around the world that enjoys the security and stability of doing business in Panama.

Ease of commercial configuration

Doing business in Panama by establishing a corporation is a simple process. Forming a corporation in Panama takes just a few business days. Additionally, a business operations permit can be obtained online with a small setup fee or tax. Establishing a sole proprietorship with a business operations permit that costs only $15 is also possible. Municipal taxes are generally low and vary depending on the nature of the business and the municipality.

A stable currency

Since its creation as a nation in 1903, Panama has adopted the US dollar along with its currency, the balboa. The balboa is linked to the US dollar, and both currencies circulate within the country.

Local bank transactions are generally quoted in balboas when doing business in Panama, while international transactions are quoted in US dollars.

Favorable tax structure

When doing business in Panama, the country offers a relatively simple tax structure for businesses. Panama imposes a low value-added tax (VAT), or sales tax, of just 7%, compared to 17-21% rates in neighboring Central American countries. Corporate income tax stands at a modest 25% on net income after expenses, and taxes on dividends range from 5-10%. Panama follows a territorial tax system, which means that the government only taxes income generated within the territory of Panama. Non-Panamanian income remains tax-free for Panamanian businesses, residents, and citizens. However, it is essential to note that US persons residing in Panama are subject to worldwide income taxes by the US.

Political and Economic Stability

Doing business in Panama benefits from the fact that it has maintained a stable democratic government since 1989 without significant political unrest. Additionally, Panama has experienced consistent annual GDP growth since 2005, along with low inflation rates. Much like the United States, the government of Panama is structured as a presidential democratic republic. Some of the key institutions that make up the government of Panama include:

The government of Panama is structured as a presidential representative democratic republic. The key institutions that make up the government of Panama include the following:

  • Executive Branch: The executive branch is headed by the President of Panama, who is both the head of state and the head of government. The President is elected by popular vote for a five-year term and exercises executive power. The President appoints ministers and officials to oversee government departments and agencies.
  • Legislative Branch: The legislative branch comprises the National Assembly (Asamblea Nacional). It is a unicameral body composed of 71 deputies elected by popular vote for five-year terms. The National Assembly is responsible for enacting laws, approving the national budget, and overseeing the executive branch’s actions.
  • Judicial Branch: The judicial branch interprets and applies the law in Panama. The Supreme Court of Justice (Corte Suprema de Justicia) is the highest judicial authority in the country. It comprises nine justices appointed by the President and confirmed by the National Assembly. The judicial system also includes lower courts, specialized courts, and tribunals.

Robust Banking System

One of the most prominent reasons there is ease of doing business in Panama is that the country’s banking system is known for its soundness and conservative lending practices, which contributes to its overall stability. The regulatory body governing banks in Panama is the Superintendency of Banks of Panama (Superintendencia de Bancos de Panamá). It is an autonomous government agency responsible for overseeing and regulating the banking sector in Panama. It works closely with other regulatory bodies, such as the Ministry of Economy and Finance, to ensure the stability and integrity of the financial system in Panama.

Advanced infrastructure and communication

High-speed Internet connections throughout the country and modern telephone equipment for international communication make doing business in Panama easy. Additionally, the nation’s roadways are in good condition. They include 4-lane highways that connect the capital with the main provincial capitals and Costa Rica. The Panama Canal allows for the efficient transportation of goods, while domestic airports facilitate fast domestic air travel.

Few natural disasters

Unlike many other regions, Panama is relatively free from natural disasters such as hurricanes, tornadoes, and tidal waves. While minor earthquakes occasionally occur, they are infrequent and pose little threat.

Bilingual environment

While Spanish is the primary language, English is widely spoken in Panama due to the significant English-speaking expat community. The involvement of the United States in constructing and maintaining the Panama Canal until 1999, when it was turned over to the Panamanian government, further contributed to the prevalence of English in the country. English is widely spoken and understood in Panama, particularly in urban areas and sectors such as tourism, hospitality, finance, and international business. The country’s education system emphasizes English language education, and many schools offer English as a mandatory subject from an early age. Panama’s universities and language institutes also provide English language programs and courses. The availability of English speakers facilitates doing business in Panama.

Proximity and Connectivity

Panama City’s Tocumen International Airport offers direct flight connections to more than 100 cities worldwide. Several international airlines serve Panama, ensuring convenient travel options for citizens of Canada, the United States, Latin America, and Europe. Tocumen International Airport is the busiest airport in Central America and is a major hub for air travel in the region.

These factors make Panama an attractive destination to live and do business, offering a safe environment, favorable tax policies, stable infrastructure, and a prosperous international community.

For more information on doing business in Panama, contact LATAM FDI.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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