Since the time of the Spanish conquerors trough the California Gold Rush of 1849 and then the Panama Canal, banking and services have always played an important role in Panama.
Other factors have also played a part for this service oriented economy, including the absence of any currency restrictions, the free circulation of the US dollar as legal currency, the free international movement of capital, convenient taxation law focused on the offshore businesses, and the lack of a central bank in charge of currency insurance.
Despite this unusual monetary system, foreign investors in Panama enjoy convenience of using a wide variety of currency for business. This is largely due to the international use of the canal and financial sectors, as well as a rapidly expanding tourism industry.
Long recognized as a commercial hub of the Americas since it was a converging point of world steam-ship lines, Panama has similarly developed into a banking and foreign exchange center. The Panama Banking superintendence supervises closely the banking activities in order to maintain a high rated, reputable financial center.
More than 30 countries have been represented with commercial banks in Panama due to the 1970 banking law that guarantees free movement of funds and lower taxes.
More than 6,000 Panamanian are employed by the banks, with approximately 80 foreign banks operating in Panama. Net assets of foreign banks grew by $8 billion in the last 5 years and their level of liquidity is quite high. Of all the banks officially registered, approximately 70% provide full domestic and foreign services, approximately 30% are licensed strictly to conduct international operations or are representative offices. It is important to point out that offshore banking operations are exempt from Panamanian income tax. In a world moving toward greater globalization, Panama’s flexibility in dealing and experiencing a multitude of financial factors including banking, taxes and trade, establish it as a prime location in which to conduct local as well as global businesses.
Contrary to a popular belief Panama is not a tax heaven but an international financial hub and as a result, it is especially attractive to foreign investors.
Historically, one of the major factors responsible for the thousands of holding companies operations established in Panama by the international financial community has been the relative tax freedom. Panama does not asses any income tax on income produced form sources outside the country, including the proceeds of sales made outside of Panama. This territorial method of taxation is only one of the many advantaged of incorporation in Panama.
The government of Panama welcomes foreign investment and holding companies. Since the last decade Panama has passed a series of major law reforms designed to strengthen its democratic system.
The economy of Panama has remained stronger in the last decade and inflation is one of the lowest in all of Latin America.
Tourism earnings have been also increasing. In an effort to attract foreign investors in tourism, the Government has outlined a strong development plan to improve resort facilities and infrastructure on the Atlantic and Pacific coasts.
Total annual trade passing through the Colon Free Zone exceeds 10.2 billion. The Colon Free Zone accounts for 5% of gross domestic product while Panama Canal traffic, represents 10% of GDP.
A positive attitude toward free enterprise, together with the fact that the US dollar is legal tender in Panama, has led to an increase in foreign investments.
Moreover, the development of institutions and instruments to regulate business activities in Panama has been consistent with its trade and service oriented economy, which is closely connected to the international market and geared to using Panama’s geographic position.
There are very few limitations on foreign investments as well, especially for international business operations based in Panama. To attract foreign investment into Panama, the government has developed the necessary institutional and infrastructure facilities, efficient public administrative machinery, extremely favorable and flexible policy guidelines, and attractive fiscal and non-fiscal incentives.
Historically, the policies of the Panamanian government toward foreign investment have been so open that there has never been any need for a formal statement of policy in this subject. Legislation hardly establishes any differences in treatment between nationals and foreigners. Similarly, all foreign investors regardless of their country origin are treated equally.
Panama’s legal system is based on civil law, as opposed to common law. Nonetheless, because of its traditional US ties, Panama in 1927 adopted a Corporation Code, which is similar to the old Delaware Corporation Statute.
In addition to the offshore corporations (IBC), Panama has several types of modern business structures. A Panamanian entity that has captured the attention of many investors is the Panama Private Interest Foundation, which is very similar to the Liechtenstein establishment, however, it can be formed with substantially less cost in our country.
Panama enacted in 1995, a law to govern the establishment of this entity, and it presents a serious alternative to standard offshore trust corporations. Panama Private Interest Foundations represent a practical legal tool helpful for careful and prudent family estate planning or for asset protection and privacy purposes.
