Economic growth in Panama prompts updating of legislation

Due to its central location, Panama’s economy is primarily based on a well-developed services sector, which accounts for nearly 83.4% of GDP. Services include the Panama Canal and its associated logistics hub, the Colón Free Trade Zone (CFTZ), banking, insurance, tourism and the international ship registry, health care and other economic sectors.

Some of the main reasons for Panama’s success as a financial centre include the free circulation of the US dollar, the absence of monetary controls on remittance of capital investments or foreign exchange, a tax exemption on interest earned on time deposit and savings accounts, a territorial tax system (only transactions carried out within Panama incur taxes), and tax incentives for a considerable number of other activities. The existence of strong bank laws that protect users’ rights to privacy (except in cases of criminal investigations, including drug trafficking and money laundering), and the country’s democratic regime and political stability are other central factors contributing towards Panama’s status as a regional financial centre.

The Panamanian economy grew in the three years from 2010 to 2012 at an average annual rate of 9.7%, earning its place as the most dynamic economy in Latin America. This growth, driven mainly by the construction and mining sectors, has promoted the adaptation and updating of national legislation.

Panama’s legal system is founded on civil law; however, certain legal instruments originating from foreign laws are incorporated into the legal system, such as corporations, private foundations, trusts and other negotiable instruments.

The legal system is based on the formal sources of law, derived from the Constitution, which secures the right to private property, economic freedoms and the respect of individual rights, guaranteeing legal security to nationals and foreigners.


Recently, banks in Panama have begun to meet the demand for loans to foreigners looking for real estate opportunities in the country or wanting to live there. Most loans will require a debt-to-income ratio of no more than 40%, a proven source of income and a good credit history. Panamanian banks undertake credit requests based on foreign sources of income at very competitive interest rates.

Local Finance Companies

The Ministry of Commerce and Industry authorises the operation of finance companies, which must obtain a commercial licence and have minimum paid-in capital of $500,000. Although few in number, finance companies contribute to the economic development of the country by providing financing to individuals and small businesses. These types of companies are authorised to lend funds but may not accept deposits.

Financial Leasing

These activities are conducted by licensed banks or companies authorised by the Superintendence of Banks. Some of the benefits granted to these services include the deductibility of expenses inherent to the leasing contract, such as insurance premiums.

For vessels registered in Panama and engaged in international trade, the income from the lease is not considered taxable income; the value of the lease is considered a deductible expense for the lessee, as long as he or she uses the leased asset in the production or maintenance of the source of his or her taxable income. Seeing as this activity is considered a financial contract, the amounts paid by the lessee are not subject to sales tax.

Securities Market

Decree No. 1 of 1999 was the basis for creating the National Securities Commission, which regulates the securities market in Panama and the activities of security brokers. It allows licensed brokers to deal with accounts on custody, to act as consultants for investments and as administrators of mutual funds, and to grant securities loans (margin). Decree No. 1 also provides improved legislation by:

• Allowing stock exchange houses to contract debts, as long as their own securities are sufficient to guarantee their assets to investors under the National Securities Commission;

• Regulating all securities representation by means of accounting annotations, compensation and liquid assets. Allowing securities to be issued in nonmaterialised form, as long as the securities are represented by means of a recorded account. The recording of the account may be done physically or by means of mechanic and electronic equipment; and

• Granting special treatment for stockowners and other property rights over financial assets on custody accounts but managed through an intermediary. Furthermore, some of the fiscal incentives granted by Decree No. 1 include:

• Income tax and complementary taxes may not be assessed on profits resulting from the transfer of securities issued by the state; and

• Profits from the sale of securities registered with the National Securities Commission are not subject to taxes if sold through an organised securities exchange, as a result of the acceptance of a public tender offer to purchase securities, or as a result of a corporate merger, consolidation or reorganisation, as long as the compensation for the shareholders of the entities consists of stocks of the surviving or new entity. Stock exchanges are required to have paid-up capital of no less than $1m, free of encumbrances, and the confidentiality of their operations must be assured. In addition, stock exchanges have to post reports of all transactions, stock transfers, prices, volumes and any other statistical data of interest to investors and the general public at the end of each day. An independent certified public accountant must certify the financial statements. For this purpose, a detailed and systematic registry must be kept. Corporations and businesses with listed securities on any exchange have to submit, among other reports, annual audited reports to the National Securities Commission.

Incentives & Investments

Panama encourages investment from both foreign and national investors, offering numerous tax and financial advantages to firms involved in manufacturing, export, tourism and other activities. The government encourages foreign trade by promoting and diversifying exports. The objectives of this promotion are to identify new products for export markets, to promote non-traditional exports and to recommend export incentives.

Under Law 26 of November 26, 2009, there is a mandate on the promotion and development of the industrial sector by means of an Industrial Promotion Certificate. Law No. 8 of June 16, 1987 further promotes and regulates the exploration and exploitation of oil fields, asphalt, natural gas and other hydrocarbons activities, their refining and transportation by pipelines, and the storage, marketing and export of the exploited or refined substances.


The Tourism Master Plan of Panama was established in 1993, recognising the preponderant role that tourism could play within the country’s economy, as well as the impact it could have on the national workforce. Tourism legislation has been updated to take into account changes carried out worldwide, and to provide investors with more adequate incentives for tourism development.


Mining in Panama began during the colonial period. Gold, silver, zinc, lead, manganese, iron and copper are some of the minerals that have been found in the country. The Department of Mineral Resources of the Ministry of Commerce and Industries is the governmental agency responsible for formulating mining policies, overseeing mining operations, performing geological studies, preparing geological maps and statistics, and maintaining a file of all the country’s mining concessions.


Law No. 6 of 2005 grants income and dividend tax exemptions to revenues from reforestation activities such as the sale of trees. Law No. 24 of November 23, 1992 provides incentives in reforestation, including exemption from import taxes and other fees for goods and supplies; exemption from real estate taxes; and tax exemptions on the transfer of property for a piece of land dedicated to reforestation on 75% of its surface and registered with the national environmental authority.

Real Estate

In the past few years, Panama has become a popular destination for investment in real estate. Decisive factors for investing in the country include the dollar-based economy, the stable political situation, the beautiful landscape and the reasonable price level of the country. Furthermore, Panama offers some valuable incentives to investors: new properties can be tax-exempt for up to 20 years and income transferred abroad is not taxable.

Free Trade Zones

Established in 1948, the CFTZ is located at the Atlantic entrance to the Panama Canal. There are no consular fees or any other charges levied on shipments destined for the CFTZ or on shipments from this area to consignees abroad. A surveillance service fee is charged by the Customs authorities for the custody of re-exported goods.

A special simplified regime for the establishment of free zones is applicable to every natural or juridical person, including manufacturers, assembling companies, semi-processed or finished products that involve local added value from service companies, high-technology companies, higher education centres, health research centres, scientific research, logistics services, environmental services and general services companies.

Special Economic Zones

In addition to the CFTZ, there are other specific economic zones, such as the Panama Pacific Special Economic Area (PPSEA) and the City of Knowledge. The PPSEA aims to encourage and ensure the flow and free movement of goods, services and capital to attract and promote investment and job creation, and to raise Panama’s competitiveness in the global economy.

The City of Knowledge is a platform for knowledge management, focused on enhancing the innovative and competitive capacities of users sharing the campus. In order to be granted access, an application must be completed by interested businesses and evaluated by the city’s board of directors. The state awards special permits for foreign personnel to assist in the development of the City of Knowledge project. This includes researchers, educators and technicians, with their spouses and dependent children. Affiliated companies may hire international staff as necessary to carry out their duties.

Regional Hqs

The requirements for obtaining a licence for a multinational company headquarters is established by the Licensing Commission for Multinational Corporations. A multinational company must apply for a licence and meet the following requirements: disclosure of assets, places and sites of operation, activities and transactions carried out, the price of shares traded, local or international securities, as well as any other items or information advised by the commission to establish and evaluate the company. Multinational companies operating in Panama and providing services to businesses outside Panama are eligible for these benefits.

Migration Benefits

The multinational company headquarters are responsible for managing their employees’ visa applications, namely the permanent personnel visa for multinational company headquarters or the clerk permanent staff for multinational company headquarters. Foreign personnel have the right to work in Panama, under the provisions of the act governing multinational company headquarters.

Foreign individuals who have worked for any multinational company’s headquarters can opt to apply for permanent residence after a period of five years, counted from the date of approval of the permanent personnel visa for multinational company headquarters. Once the final permanent residence staff for multinational corporations visa has been granted, the holder is not required to perform additional procedures to reside in Panama.

Maritime Registry

The Panamanian Maritime Registry continues to be the world’s leader in ships registered by tonnage. The National Merchant Marine was created by Law 8 of 1925, when the open register system was adopted and restrictions concerning nationality and residence were eliminated. The Panamanian Maritime Registry accepts ships owned by nationals and foreigners alike, provided that all legal provisions in force are complied with, especially those relating to the administration of vessels, safety, pollution control standards, technical criteria and fiscal matters.

The Panamanian Maritime Registry offers ship owners the following advantages:

• An open registry: any person or company, regardless of nationality or place of incorporation, is eligible to register ships under the Panamanian flag;

• Manning officers and seafarers can also be of any nationality, as long as they possess valid certificates issued or endorsed by Panama’s Maritime Authority;

• Low registration fees compared to other countries;

• Total exemption from taxes on income derived from the operation of vessels engaged in international trade;

• No minimum tonnage requirements;

• A provisional ship registration valid for six months may be obtained with limited formalities in Panama through an attorney, or in ports abroad where there is an authorised Panamanian consul; and

• Registration of ship mortgage extracts accompanied by mortgage contracts and schedules in the English language. The registry is also a member of the International Maritime Organisation Executive Council Category “A” and signatory to all major maritime conventions on safety of life at sea, seafarers and labour issues.

Legal Instruments

According to Panama’s constitution, nationals and foreigners are equal under the law. Therefore, both Panamanian and foreign companies must fulfil the same basic requirements to operate in Panama. However, there are restrictions on foreigners operating retail trade activities and practising certain professions.

Individuals may engage in permitted business activities in their own names or through legal entities. The different types of legal entities that exist in Panama include corporations, partnerships, trusts and private foundations. Law 32 of 1927 regulates Panamanian corporations, which are the most commonly adopted form of legal entity in Panama. There are more than 300,000 Panamanian corporations registered at the Public Registry and engaged in all kinds of legal business enterprises all over the world, including finance, banking, insurance, agribusiness, tourism, trade, transport, consumer goods and warehousing, among other things.

Business Licences

With regards to partnerships, the responsibility of the partners is unlimited unless the partnership instrument provides that the partners will be liable only for a sum that cannot be lower than their contribution to the partnership.

Trusts in Panama are regulated by Law No. 1 of January 5, 1984, which provides added flexibility in the creation and management of trusts following modern concepts derived from Anglo-Saxon law. This makes Panamanian trusts different from those that exist in other civil law jurisdictions. Private foundations, the fourth type of legal entity, are regulated by Law 25 of June 12, 1995 and Executive Decree 417 of August 5, 1995, which provide a flexible vehicle for asset protection and estate planning.

Accounting & Auditing

The following records are required for corporations operating in Panama: general journal, general ledger, minute book and stock register. When a mechanised accounting system is used, a specific authorisation is required. Legal accounting records, documents and correspondence must be kept in Panama if the company performs local taxable operations. Such records must be up to date and ready for inspection by the tax authorities. If the company exclusively performs offshore operations, the legal accounting records, documents and correspondence may be maintained abroad.

There are statutory auditing requirements in Panama for banks, trust companies, insurers and reinsurance companies, as well as for companies registered with the National Securities Commission and companies operating in the country’s free trade zones. Their financial statements must be certified annually by independent auditors.

Tax & Fiscal Year

The tax year is normally the calendar year that begins on January 1 and ends on December 31. However, the tax authorities can approve a different period that may begin in any month of the year and end 12 months later.

Any person, individual or legal entity liable to pay taxes for themselves or on account of others must file a tax return each year on or before March 15 in the case of individuals, and March 31 in the case of legal entities, or 90 days after closing its fiscal period. Prior to the expiration of the term for filing tax returns, taxpayers may request from the tax authority an extension of up to one month to file their return; then, the taxpayer must pay the income tax it estimates. The taxpayer must pay the corresponding interest and surcharges if there is a balance due at the moment of filing the tax return.

Tax returns must be prepared using the statutory forms provided by the income tax authorities. Failure to secure such a form on time does not relieve the taxpayer from his or her obligation to present a return. Tax returns must be prepared and filed electronically with special software provided by the tax authority via the internet.

Capital Gains

The sale of bonds, stocks, participation quotas and other securities and chattels of corporations is taxed as follows: profit from the sale of such negotiable documents and personal property shall be subject to income tax at a flat rate of 10%. There is an option to pay only 5% of income tax. The exemption over the profit or deductibility of losses incurred in the purchase of bonds, stock and other securities in a public bid was abolished.


has experienced an immigration boom over the past few years, mainly due to several mega infrastructure projects, such as the Panama Canal expansion as well as the Panama City Metro and the implementation of new laws to encourage international companies to establish their regional headquarters and logistic centres in the country. More recently, due to the increasing demand for skilled and qualified labour, a number of new laws have been enacted to open the doors to foreigners and help fill these labour gaps.

Foreigners entering Panama on an occasional basis and unwilling to take up residency in the country or to abandon residency in their country of origin will be classified under the Non-Resident Category as tourists, transit passengers, temporary workers, short-stay visas (visiting family, medical treatment, traders and investors, banking sector) and sailors.

They must rely on their own economic resources or their work activity, which should be sufficient to finance their stay, and leave at the expiration of the authorised period. The length of stay for these categories of foreigners is between 30 and 180 days.

To enter Panama every visitor requires a passport valid for at least six months after the return date. The most common category of visitor is the tourist category, clearance for which can be acquired through a tourist visa or card. This allows a person to remain in the country for a period of 90 days, with the possibility of extending to a total of 180 days, depending on the visitor’s citizenship. Almost all Latin American, some European, Canadian, Australian and US citizens are allowed to enter Panama with only a tourist card, which can be obtained through almost all airlines that fly into Panama.

There are some countries that require stamped tourist visas, which are issued by Panamanian consulates. Citizens from countries that require tourist visas to enter Panama and have a valid tourist visa from the US, Canada, Australia or the European Community, and have used it at least once, will be allowed to enter Panama without applying for a tourist visa.

Residence Permits

There are different types of residence visas recognised under Panamanian immigration law that authorise foreigners to reside in the country on a temporary or permanent basis. Temporary resident permits for labour and special policy reasons allow a foreigner to stay for a period up to one year, and can be extended for similar periods of time. Permanent resident permits are authorised for foreigners who come to Panama with the intention of staying permanently.

There is also the permanent resident permit for retired bondholders. In order to apply for this permit, a foreigner must have a time deposit with National Bank of Panama or Panama State Savings Bank, earning minimum interest of $850 per month. The time deposit must be unencumbered and unpledged for a minimum period of five years. The amount to be deposited will depend on the interest rate at the time the time deposit is opened.

This permit is granted for a renewable term of five years, provided that the time deposit is maintained with the abovementioned institutions. The foreigner who is granted this permit shall receive a special Panamanian passport, which may be used for travelling (it is not a Panamanian citizenship passport). He or she will also receive a migratory card as a permanent resident, which is valid for five years.

For permanent residence as a pensioner, a foreigner must have a minimum retirement lifetime pension of $1000 per month. The source may be any foreign government, international organisation or public company. Furthermore, for permanent residence for those who are economically self-sufficient, the applicant must invest a minimum of $300,000 in Panama. In the case that the applicant has dependents, he or she must prove an additional source of funds of $2000 for each dependent.

The investment may consist of a time deposit under the applicant’s personal name with any general-licence bank operating in Panama for the minimum amount of $300,000, and for a minimum term of three years. Alternatively, the purchase of real estate to the minimum amount of $300,000, which must be in the name of the applicant or a private interest foundation, is also acceptable.

In this case, the applicant must prove that he or she is the foundation founder, and that his or her dependants are the beneficiaries thereof. The time deposit and real estate property used for this programme must be free of encumbrances. A combination of both the time deposit and the property with a total value of $300,000 may also be considered for permanent residence as a pensioner.

Other Visas

Other permits include the permanent resident permit as a foreign professional and the permanent resident permit as a citizen of countries with friendly, professional, economic and investment relations with Panama. The former is a permit granted to foreign professionals that have a university degree, masters or doctorate degree, in a profession that is not reserved under the constitution for Panamanians. It is granted in two stages: a temporary resident permit for a period of two years, and, upon expiration of the two years, the applicant may apply for a permanent resident permit.

Executive Decree 416 of June 13, 2012 created the permanent resident category for persons who wish to carry out economic or professional activities of any kind in Panama, subject to the legal restrictions and regulations. This programme applies to citizens of North American countries, some South and Central American countries, some Asian countries, as well as Australia, New Zealand and South Africa.


Salaries in Panama can be fixed by unit of time (month, fortnight, week, day or hour), task or specific job. Salaries include any money, gratuities, and payments in kind, as well as bonuses, premiums, commissions, profit sharing and any other income or benefits employees receive as payment for their work. Employees must be paid at least twice a month. Panama’s criteria for determining the minimum wage is based on geographical territory and economic activity, the lowest wage being $1.68 per hour.

For the metropolitan area, the highest minimum wage paid is $2.75 per hour for activities such as financial services. The maximum number of work hours per week is 48, with eight hours of work daily. Therefore, the minimum monthly salary for these activities is $572. Furthermore, since 1970 every employee working on Panamanian territory is entitled to a 13th month of payment, an additional month of salary to be paid in three parts during April, August and December each year.

For payroll costs, employers are required to pay 12.3% above the monthly salary for social security, plus 1.5% for educational security. Additionally, Panama’s labour laws stipulate the obligation to establish a fund for seniority to be paid at the end of the labour relation, totalling 1.9% of the monthly salary. There is also the obligation to save in the fund every three months the equivalent of 5% of the monthly quota of the severance payment the employee would be entitled to in the event of a justified resignation or an unjustified dismissal.


Panama does not follow the contractual theory for labour contracts. A labour agreement is between whoever renders a service and the beneficiary thereof. Legal subordination and economic dependency (Article 62 of the Labour Code) are the two factors that determine an agreement. One of the two is sufficient. Labour relations are considered disguised when professional service contracts are signed with a subordinate worker or with a person who depends solely on the income received from the entity benefitting from their services.

Panamanian labour law allows for verbal labour contracts in some cases, such as for domestic employees. However, we do not recommend use of such verbal contracts, since the law establishes the presumption in favour of the employee in cases of conflict with regard to the contents of the verbal agreement, giving the employer the burden of having to prove the contrary.


With only a few exceptions, such as in the case of domestic employees, it is mandatory to dismiss an employee in writing when terminating a labour contract. If the dismissal is justified, the letter should express the date of the fault, as well as a summary of the employee’s actions that justify the dismissal. Article 213 of the Labour Code contains a limited list of reasons for dismissal, which include not only disciplinary but also economic reasons.

Employees who have not completed two years of continuous labour can be dismissed without cause, but the employer must notify the employee in writing one month in advance (or pay that month) and pay a severance payment equivalent to 3.4 weeks of salary for every year worked.

The termination of a labour contract can also be by resignation or by mutual consent. To be valid, a letter of resignation is required to be previously sealed by the Labour Department.

All acquired rights such as vacation, salary bonus and seniority payments must be paid upon termination of the labour contract, without any exception including justified dismissal. At the termination of indefinite duration of labour relations, the employee is entitled to a seniority payment equivalent to one week of salary per year of effective labour.

Holiday & Overtime Entitlements

Employees are normally entitled to 30 days of annual paid leave per year. Annual paid leave is accrued at the rate of one day for every 11 days of work. Working during public holidays is not permitted, except in certain listed economic activities, including staff at hotels, restaurants and public services. A surcharge of 150% above the normal hourly rate is to be paid to employees in the case of worked holidays.

National holidays and mourning days are indicated in Article 46 of the Labour Code. These amount to 11 days of the year, plus the day on which the president takes office every five years. Moreover, every hour worked on a Sunday must be paid at 50% overtime. If the employee has a different weekly day of rest assigned and is asked to work that day, then overtime must also be paid with the same surcharge. Article 200 of the Labour Code establishes that employees have 18 days of paid leave of absence, which can be accumulated for up to two years.

For the maritime industry, however, Law 8 of February 26, 1998 regulates maritime labour in a specific manner, distinct from the general laws of the Labour Code and expressly excluding stevedores, apprentices and employees of the Panama Canal.


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The Report: Panama 2015

Legal Framework chapter from The Report: Panama 2015

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