The benefits of doing business in Panama

Panama has firmly established itself as one of the leading countries in the Americas in which to do business. It has, in fact, served as the region’s crossroads throughout history, its favourable geographical location making it one of the most connected nations in the world.

The country has now evolved from being an important maritime trading hub to becoming a top international banking and professional services centre. It boasts a strong economy, which has been pegged to the US dollar since 1904, and world-class infrastructure.

As a result, there are many advantages to setting up a company in Panama. It has a stable, democratically-elected government, which is keen to attract foreign companies. It also has a skilled local workforce, low crime rate and a relatively low cost of living. In fact, the country has all the necessary ingredients to help create a successful business:

A progressive government

Panama’s government has been actively pursuing free trade agreements and a policy of economic liberalisation in recent years. To this end, it has enacted a series of laws to establish Special Economic Zones (SEZ) across the country. SEZs are segregated areas located in different strategic locations, and companies that set up within them benefit from a range of tax, migratory and labour incentives.

The aims of a SEZ are to increase foreign investment, provide better job opportunities for local workers and encourage digital innovation. The focus is on sectors such as information technology, telecommunications, biosciences, business management, entrepreneurship, professional development and environmental protection.

SEZs have been a major success story for Panama, driving multinational growth by helping foreign businesses reduce their operational costs and maximise efficiency.

A robust banking sector

Due to its openness to foreign financial institutions, the decision to peg its currency to the dollar and low inflation, Panama is a highly attractive regional financial hub. For more than 40 years, it has been recognised for its sound banking system. The country’s modern banking facilities have led to nearly 90 national and international banks setting up there.

Panama’s International Banking Center is considered the most influential in the region, working transparently within international regulations and the principles of the Basel agreement. In 2017, the Center, which offers businesses a wide range of off-the-shelf and customised, cutting-edge technology products and services, recorded profits of US$1.8 billion.

The Center was established in 1970 through the country’s first banking law in the shape of Cabinet Decree 238. This legislation created the National Banking Commission as a regulator, which helped shape the sector’s rapid growth.

In 2008, an updated banking law strengthened the Panama Banking Authority (PBA), an institution with complete autonomy, independence and strict supervisory powers. The PBA and Banking Association are currently in the analysis and discussion phase of adopting new regulations in the form of the Capital Agreement of Basel II. 

The country has also approved a series of laws, decrees, agreements and regulations to prevent money laundering, and its strict regulations serve as a model for other countries.

An advantageous tax system

Panama offers numerous tax advantages for international businesses operating there. The country has a territorial system of taxation, which means that companies are only subject to corporate income tax on their locally-sourced income.

Therefore, if doing business from Panama, your organisation’s income is not taxable as long as that income comes from abroad. Such a scenario offers myriad opportunities for companies with international operations to reduce their tax burden and minimise corporate tax leakage.

The General Revenue Office (DGI) also looks to negotiate tax agreements with organisations from countries that have signed bilateral tax agreements with Panama.

Nedelka Quintero is country manager for TMF Group in Panama. She has worked for the company since 2006 and has more than 16 years of experience of assisting multinational companies in areas such as finance, accounting, tax and labour compliance. Nedelka has a Master's Degree in Comptroller and Management Audit, a post-graduate in Management Accounting from the Universidad Latina de Panama and is an Authorised Public Accountant, with a Bachelor's Degree in Accounting from the University of Panama.

Panama has firmly established itself as one of the leading countries in the Americas in which to do business. It has, in fact, served as the region’s crossroads throughout history, its favourable geographical location making it one of the most connected nations in the world.

The country has now evolved from being an important maritime trading hub to becoming a top international banking and professional services centre. It boasts a strong economy, which has been pegged to the US dollar since 1904, and world-class infrastructure.

As a result, there are many advantages to setting up a company in Panama. It has a stable, democratically-elected government, which is keen to attract foreign companies. It also has a skilled local workforce, low crime rate and a relatively low cost of living. In fact, the country has all the necessary ingredients to help create a successful business:

A progressive government

Panama’s government has been actively pursuing free trade agreements and a policy of economic liberalisation in recent years. To this end, it has enacted a series of laws to establish Special Economic Zones (SEZ) across the country. SEZs are segregated areas located in different strategic locations, and companies that set up within them benefit from a range of tax, migratory and labour incentives.

The aims of a SEZ are to increase foreign investment, provide better job opportunities for local workers and encourage digital innovation. The focus is on sectors such as information technology, telecommunications, biosciences, business management, entrepreneurship, professional development and environmental protection.

SEZs have been a major success story for Panama, driving multinational growth by helping foreign businesses reduce their operational costs and maximise efficiency.

A robust banking sector

Due to its openness to foreign financial institutions, the decision to peg its currency to the dollar and low inflation, Panama is a highly attractive regional financial hub. For more than 40 years, it has been recognised for its sound banking system. The country’s modern banking facilities have led to nearly 90 national and international banks setting up there.

Panama’s International Banking Center is considered the most influential in the region, working transparently within international regulations and the principles of the Basel agreement. In 2017, the Center, which offers businesses a wide range of off-the-shelf and customised, cutting-edge technology products and services, recorded profits of US$1.8 billion.

The Center was established in 1970 through the country’s first banking law in the shape of Cabinet Decree 238. This legislation created the National Banking Commission as a regulator, which helped shape the sector’s rapid growth.

In 2008, an updated banking law strengthened the Panama Banking Authority (PBA), an institution with complete autonomy, independence and strict supervisory powers. The PBA and Banking Association are currently in the analysis and discussion phase of adopting new regulations in the form of the Capital Agreement of Basel II. 

The country has also approved a series of laws, decrees, agreements and regulations to prevent money laundering, and its strict regulations serve as a model for other countries.

An advantageous tax system

Panama offers numerous tax advantages for international businesses operating there. The country has a territorial system of taxation, which means that companies are only subject to corporate income tax on their locally-sourced income.

Therefore, if doing business from Panama, your organisation’s income is not taxable as long as that income comes from abroad. Such a scenario offers myriad opportunities for companies with international operations to reduce their tax burden and minimise corporate tax leakage.

The General Revenue Office (DGI) also looks to negotiate tax agreements with organisations from countries that have signed bilateral tax agreements with Panama.

Nedelka Quintero is country manager for TMF Group in Panama. She has worked for the company since 2006 and has more than 16 years of experience of assisting multinational companies in areas such as finance, accounting, tax and labour compliance. Nedelka has a Master's Degree in Comptroller and Management Audit, a post-graduate in Management Accounting from the Universidad Latina de Panama and is an Authorised Public Accountant, with a Bachelor's Degree in Accounting from the University of Panama.