About The Republic of Panama

Panama is the southernmost country of Central America. It constitutes the last part of a natural land bridge between the North American and South American continents. It borders Costa Rica to the west and Colombia to the east.

Because of its key geographic location, Panama's economy is service-based, heavily weighted toward banking, commerce, and tourism. The handover of the canal and military installations by the US has given rise to new construction projects.

Currency

The Balboa ("PAB"), the unit of currency, is at par with and equivalent to the U.S. dollar. The U.S. dollar is the circulating medium since Panama does not print any paper currency of its own. U.S. currency and coins and Panamanian coins are circulated freely at face value. There are no exchange controls, except that money-laundering laws control transactions in excess of US$10,000.

Banking and Finance

Panama issues three types of banking licenses: General Licenses for banks which engage in business both in and out of Panama; International Licenses for banks which engage in business exclusively outside of Panama; and Representation Licenses which are issued to foreign banks which establish a branch office in Panama.

Banks operating under a General License are required to keep paid-in capital of US$1 million and pay an annual tax of US$25,000, and banks operating under an International License are required to maintain assets of at least US$500,000 in Panama and pay an annual tax of US$15,000.

All banking operations are regulated by the National Banking Commission which has the power to investigate any bank to determine its solvency. There are, however, very strict safeguards against the National Banking Commission utilizing its powers to ascertain financial information about any particular client of the bank, or of any client’s particular transactions.

As a general rule, banks in Panama practice secrecy and confidentiality, which is enforced by the Panama Banking association. Panamanian banks can offer numbered accounts.

Panama’s unfortunate usage as a money haven for narcotics trafficking has given rise to several laws meant to deter and punish money laundering. There is a US$10,000 cash reporting requirement, and Panama is party to a Mutual Assistance Treaty relating to money laundering from drug-related transactions.

The Panama Stock Exchange (PSE) was created in 1988, and is regulated by the National Securities Commission. To attract foreign investment, shares traded on the PSE are exempt from income and capital gains taxes.

Taxes

Income tax is levied on all revenues generated from Panama sources. The following forms of income are not subject to income tax because they are not considered to be produced in Panama.

  • Billing the sales of merchandise or goods from an office established in Panama for an amount higher than they were billed to the office established in Panama, provided the merchandise or goods move exclusively abroad.

  • Transactions conducted from an office in Panama, but perfected, consummated, or having effect abroad.

  • Distributing dividends or partners' participations when they originate from income not produced within Panama, including income arising from the activities mentioned immediately above.

Panama is not a party to any Double-Tax Agreements (DTAs). Panama does have agreements to share information relating to tax evasion with other nations, including the United States.

Foreign Trade

Panama has been a transshipment point for world trade literally for centuries. And, the Panama Canal established Panama as the preeminent Central American trade port. Panama’s laws reflect the importance of foreign trade to her economy.

The Colon Free Zone, located on the Caribbean side of the nation, is the largest re-export center in the Western Hemisphere, reaching US$9.6 billion in 1993. Firms located within the Zone are exempt from import duties and other restrictions. There are no taxes within the zone for the export of capital or the payment of dividends, and there are reduced income tax rates imposed on re-export sales.

Panama has very few trade restrictions, except those which relate to retail trade within the country. Foreign trade is so interwoven into the fabric of Panama’s economy that there are very few differences in treatment between Panamanians and foreigners.

Exports

Panama offers three excellent tax incentives for exports:

  • Total exemption from import duties, taxes, levies, or any other charges on the importation of machinery, equipment, and spare parts to be used in the manufacturing process, as well as raw materials, semiprocessed goods, containers, packaging materials, fuels, and lubricants to be used in the manufacturing process.

  • Total exemption from income tax on profits arising from exports, with the exception of the extractive industries.

  • Total exemption from taxes on exports as well as from taxes on sales or on the capital or assets of the company, with the exception of license fees and property taxes.

Learn more about Panama