This is a quick rundown on Panama investment incentives, one of the world's most attractive programs for foreign investors.

Foreign Investor Protection (Law No. 54)

Issued on July 22nd, 1998, this law grants foreign investors and their enterprises within the country the same rights and freedoms enjoyed by Panamanian investors and enterprises. It has no other limitation than those established in the Political Constitution and the law. This includes the references to freedom of trade and industry, import and export. They are also given the right to dispose of their investment profits and repatriate their interest, profits, and dividends.

1. Panama Real Estate Laws

Real estate in Panama features exquisite natural settings, including Caribbean and Pacific waterfront and beachfront, highlands, rainforests, islands and mountains. Panama properties are affordable and located in well-known locations, and there are always excellent options to choose from. Additionally, investment in a Panama property receives considerable attention from the Panamanian government, resulting in a number of incentive regulations.

1.1 Private Property (Article 44)

This section of the constitution of Panama guarantees the protection of the rights of property owners for both Panama nationals and foreigners.

1.2 Reforestation Investment (Law No. 24)

This law grants benefits including a 25-year income tax exemption to investors who purchase property for the reforestation purposes. Issued by the Legislative Assembly on November 23rd, 1992, the law regulates everything concerning reforestation.

Note: Investors interested in this enterprise can enter the country with a specific reforestation-related visa. There are two types:

• Panama Reforestation Residency Visa: This visa requires an investment of over $100,000 in a government-certified reforestation project and after a few years, you will have the right to permanent residence and eventually citizenship.
  

1.3 Island Property and Concessions (Law No. 2)

This law grants foreigners the right to purchase island property as long as it is used for the purpose of tourism and that certain conditions are met. This had never happened before in Panama's law history. Concessions or lease agreements for the state-owned land can also be granted for the purpose of tourism. Law No.2 was issued by the National Assembly on January 7th, 2006.

1.4 Casco Viejo Development (Law No. 9)

This decree which established incentives special rules for the purpose of restoration of the Casco Antiguo of Panama City, was issued on August 27, 1997. Thereby, certain tax reductions and exemptions were created for this purpose. Renovation costs are 100% tax deductible while property sale or rental income is exempt for 10 years. The property itself is subject to 30 years of tax exemption. Note that the former laws enforced in Casco Antiguo have been modified so that additional areas are added for protection. This includes part of the neighborhood of Santa Ana, Salsipuedes, and part of the Terraplén.

2. Panama laws on Incentives for Tourism-related Investment

Recent years have seen a boom in the tourism sector, accompanied with the development of economic regulations which promote investment across the nation.

Up to date, there are policies which encourage foreign investment in Panama's tourism sector. According to the website of the Tourism Authority of Panama, law No. 80 of November 8th, 2012 gives definition of all the incentives for foreign investments while other laws complement these incentives with the main goal of giving tourism development a boost in Panama.

2.1 Tourism investment (Law No. 8, 1944)

With an investment of $500,000 ($300,000 in metropolitan areas), interested investors who wish to start a tourism-related business can benefit from an array of tax exemptions. These incentives includes import and property taxes, airport or docks usage related taxes, and in some cases even income tax.

2.2 Promotion of tourism activities (Law No. 80)

In order to qualify for Panama's incentives to develop tourism activities, interested entrepreneurs must submit to the Directorate General of Revenue (Direccion General de Ingresos) a certificate from a competent authority to clarify that they have made an investment related to tourism.

Law No. 80 only includes incentives for the interior of Panama and provides full exemption from import duties for five years in building materials and 10 years for the introduction of furniture, materials, fittings and equipment, among other items. Law No. 80 also provides incentives for the buildings of marinas and tourist docks.

2.3 Streamlining starting up a company (Law No. 5)

The Article 1 reads that any natural or legal person may perform commercial or industrial activities within Panama's territory and is subject to what established in this Law and its regulations and with the limitations that establishes the Political Constitution. Therefore, no public servant may oppose the operation of a business which has complied with all legal requirements.

2.4 Regulation of concessions and alienation of land for tourism investment (Law No. 2)

According to Article 1, the Ministry of Economy and Finance (Ministerio de Economia y Finanzas) which dictates that concessions can be granted up to forty years, which can be extended to an additional term of up to thirty years in the areas located in geographic extensions that are specifically designed for tourist development. This must be in accordance with the tourism policies approved by the Panamanian Institute of Tourism: island territories, coastal zones and land owned by the state.

2.5 Hotel investments (Bill No. 481)

This incentive is aimed mainly at hotel investments over $250,000 and include no import tax of building materials and no tax on land and improvements for a period of five years.

3. Outside developments (Law No. 58)

This law provides incentives for the construction or renovation of lodging facilities that are outside of Panama's Special Tourism Zones. Investments in regions such as mountainous areas or islands can benefit from tax-free importation of materials, equipment, and vehicles. A 20-year tax exemption on property taxes also applies.

4. Panama Investment Incentives in Other Businesses

Panama uses the U.S dollar as its currency, hence there is no exchange controls in place to limit the amount of currency that can traded.

4.1 Colon Free Zone (Law No. 18)

Located at the Atlantic entrance to the Panama Canal, the Colon Free Zone is a free port home to over 2,500 companies, employs more than 28,000 persons, and ships over $16 billion annually. Companies operating within this zone are both foreign and domestic, mostly enjoy tax exemption, with the condition that they meet a certain set of requirements. These include employing at least 5 Panamanian local workers, maintaining certain reporting criteria, and exporting a minimum of 60% of their merchandise.

4.2 Comprehensives and Simplified Regime of Free Zones (Law No. 32)

This act authorizes the establishment of tax free zones anywhere in Panama, provided that they do not interfere with the local ecosystem. To date, there are 14 free zones registered and nine of them are already under operation.

4.3 Panama Pacifico (Law No. 41)

This law establishes a special regime for the establishment and operation of a Special Panama-Pacifico Economic Area and a government-autonomous entity called the Panama-Pacifico Special Economic Area Agency. Formerly Howard Air Force Base, this free-tax zone attracts certain categories of business. To name a few: corporate headquarters, call center, film industry, distribution and logistics centers, technology manufacturing, and naval and aircraft goods and services. The area also has a one-stop shop that is home to 12 governmental agencies under one roof for ease of conducting business, obtaining permits, and so on.

4.4 Manufacturing and processing industry (Law No. 3)

Manufacturing and processing companies which export all their products receive exemption from most direct taxes and from import duties on equipment and machinery. To be eligible for these incentives under Law No. 3, a company needs to register with the Official Registry of National Industry, (Registro Oficial de la Industria Nacional), a department of the Ministry of Commerce and Industry.

For more information, please contact us.