Business Opportunities

A. ARI. INTEROCEANIC REGION AUTHORITY

Under the terms of the 1976-77 Panama Canal Treaties, thousands of former U.S. military buildings, installations and other facilities, ranging from schools and hotels, to golf courses and airports, covering more than 800,000 acres of prime real estate property have been transferred to the Panamanian Government.

To administer and promote investment in the reverted areas the Panamanian Government created the "Interoceanic Region Authority" in 1993. The priorities of this body include the generation of employment, export promotion, development of new commercial, industrial and tourism opportunities, development of the maritime sector, protection of the Canal and the functional and orderly urban planning of the former military bases and all reverted areas.

Among the projects that are being currently promoted by the Interoceanic Region Authority are:

A.1. Howard Hub: Howard is located close to the Panama Canal, the Interamerican Highway and the interoceanic railroad. Due to its strategic location, Howard offers a great potential to become a Multimodal and logistic center. The design of the Howard special economic zone is being undertaken by world leading consultants, with ample experience and deep knowledge of this type of processes. Among these consultants are: International Finance Corporation, a division of the World Bank and other companies such as Leight Fisher Associates, specialists in air freight, Infrastructure Management Group, specialists in infrastructure, The Services Group with experience in regulatory norms, and White & Case LLP providing counsel as to specifications and contracts. Howard Hub is expected to be a project of major impact that will attract investment from world’s leading companies in technology and communications and information such as call centers, back offices and e-commerce, just in time manufacturing activities, warehousing and logistic, residential and commercial development as well as air freight and aircraft maintenance and repair.


A.2. Telfers “Center of Maintenance and Repair of Ships in Telfers Island The Interoceanic Region Authority seeks investors to develop a Shipyard for the repair and maintenance of ships in Telfers Island, on the east side of the Panama Canal, in the Atlantic sector. 14.8 hectares for the repair of ships of 20,000 dead weight tons (DWT-Dead Weight Tons), to provide service to the ships that transit in the north entrance of the Canal and the Caribbean area. With road access, both to the current highway and the Interoceanic Railroad, at only 10 minutes from the present Port of Cristobal and less than 2 minutes from the area of future expansion of said port. Coralliferous land, plain, with vegetation of shrubs and small trees.



B. THE CITY OF KNOWLEDGE AND THE INTERNATIONAL TECHNOPARK

To promote information technology, e-commerce and other research and development of businesses as well as educational institutions in Panama, the former Fort Clayton military base near the Panama Canal has been converted into a special business zone known as City of Knowledge. Businesses and Institutions whose projects have been approved by the City of Knowledge Foundation benefit from 25-year (renewable) exemptions of:
• Customs duties or import fees on all machinery, equipment, furniture, vehicles, appliances, or materials necessary for the development of the project.
• Sales tax on machinery, equipment, vehicles, appliances and materials acquired and necessary for the development of the project, and
• Taxes on the remittance of money abroad, when such repatriation or transfer of funds is related to the purposes of the project

One of the components of the city of knowledge is Panama’s international Techno Park, which host business projects with production and service related sciences cluster (biodiversity, environment, marine resources, forest resources, aquaculture, tropical medicine, and pharmacology), and a communication cluster (Information Technology And Multimodal Transportation).


C. PORT AND MARITIME SERVICES

Even before the construction of the Canal, Panama has been a renowned commercial transshipment point. The privatisation of ports has permitted their modernisation, increasing their efficiency and capacity to manage containers, while reducing operating costs. Both ports, one located at the Pacific-ocean entrance to the canal, and the other one at the Atlantic-ocean side, are now being operated by Hutchinson Port Holdings Group. The construction and operation of two port facilities, Manzanillo International Terminal, the largest in Latin America, managed by Stevedores Services of America, and the Colon Container Terminal Port Facility, managed by Evergreen, have also contributed to the success of this sector.

In addition, Manzanillo International Terminal has recently completed a US$100 million expansion program, which Panama to increase its container handling capability. Such capability increased from 250,000 in 1997 to approximately 1 million in 1999, and its expected to reach 2 million containers by year 2004 and continue growing over the years making Panama the largest container transshipment center in Latin America.

The restored railroad by Kansas City Southern Railways will connect the ports creating a land bridge to complement the Canal. All these activities will require additional services from the local economy such as financing, insurance, specialized maintenance and repair, electricity and water, telecommunications, trained manpower and other services.

Other investment opportunities in this sector include:

• The future construction of the Panama Canal’s third set of locks, which will require additional water resources and expanded hydroelectric power generation.
• The development of a intermodal transportation center at Colon and at the Howard/Farfan complex on the Pacific, including the construction of a new container port at Farfan
• The one billion capital investment program to improve and modernize the Panama Canal. The investment package was approved by the Canal commission in July 1996 after a review of the Canal’s physical plans by a U.S. Army Corps of Engineers.
• The relocation of approximately 8 to 10 thousand persons, as a result of the canal expansion, requiring housing and infrastructure
• Concessionary services to the ports: power, water, fuel, material, food, banking services, telecommunications, maintenance and repair, dredging, estimated at between US$47 million and US$60 million per year.
• Services to passengers and crewmembers transiting the Canal, which in 1999, numbered 255,571 and 458,134 respectively.
• Services to smaller ships, such as yachts and motor cruisers.


D. TELECOMMUNICATION SECTOR

On January 1, 2003, basic local and international telecommunication services as well as public and semi-public terminals services and voice circuits rental services in Panama were fully opened to competition, and unlimited licenses may be issued.

The increased future competition will provide a myriad of business opportunities for investors. There are also an ongoing sector demand for PABX system, radio trunk systems, satellite-based telecommunications facilities and paging systems.

E. ELECTRIC POWER GENERATION

In 1998 the electric sector was restructured, following the privatization of the Instituto de Recursos Hidráulicos y de Electrificación (IRHE), which until that year controlled the generation, transmission and distribution of electricity in Panama. The Government of Panama only retained ownership and control of the transmission company. A regulatory body (Ente Regulador ) was also created to regulate the electric sector as well as the telecommunications and water sectors.

Panama’s demand for electricity increases approximately by 45 MW per year. New investment is necessary to meet this demand. The law allows for private sector participation in power generation. A number of new projects have been undertaken for thermo and hydroelectric generation. Also, a new 230 KV transmission line project that will cover the entire Central American region is about to be implemented. This transmission line will open up the possibility of larger power generation project because of the large regional market soon to be available.

The planned expansion of the Panama Canal watershed will also allow for increased availability of water resources that are envisioned to be utilized for power generation.


F. WATER SECTOR
The National Water and Sewage Company (IDAAN) is the only utility owned and operated by the government. However, the government plans to develop alternatives for private sector participation in the water and sewage sector.

Panama has a total population of 2.8 million, and only 1.7 million have access to IDAAN services. Multimillion-dollar investments are needed to modernize and upgrade the country’s water and sewage system.

In 1998 the Government passed a General Environmental Law and created the National Environmental Authority (ANAM). The law established controls and regulations regarding the use of natural resources and set forth measures to protect the environment. As a result, industrial establishments, municipalities, hospitals, hotels, etc will have to implement a number of measures in order to comply with regulations aimed at protecting the environment. This includes wastewater treatment procedures.

Investment opportunities are in the construction of new water plants, rehabilitation and expansion of existing infrastructure, and the construction of new water waste collections and treatment facilities in Panama’s metropolitan area (Panama City, Colon and surrounding areas).

Another large project, the cleaning of the Panama bay, will offer commercial opportunities for foreign investors.

G. BANKING AND FINANCE

In June 1998, Panama’s banking sector enacted new legislation that provides for a strong, well-financed superintendent. Some salient aspects of the new law are: Basel Accord standards for capital adequacy, enhanced authority to liquidate banks, higher minimum capital requirements, and limits on lending to related parties. Three types of licenses are permitted: a “general license” with the right to conduct offshore transactions only; and a “representational license” to handle the interests of foreign institutions without conducting banking operations.

Banking secrecy is firmly established in Panama’s financial center, where banks understands that banking secrecy is the foundation of international banking and fully observe this principle, handling client’s matters with the utmost discretion.

Banks in Panama pay no tax on interest or other income earned outside Panama and withhold no tax on savings or fixed time deposits in Panama.

Early 1999 Panama passed a new securities law that established a National Securities Commission to regulate brokers, fund managers, and all matters related to the securities’ industry. The Commission began to function in early 2000, with financing from the Inter American Development Bank.

H. INSURANCE AND REINSURANCE
The Panamanian insurance industry is one of the most developed and dynamic in the region. In 1996, the Panamanian Government passed three new insurance-related laws to allow companies to offer innovative insurance products and insurance-related services. The new legislation allows for more flexibility and incentives, which facilitates the investment in this sector.

The following legislation currently governs the insurance industry in Panama:
• Title XIX (Insurance) of the Panamanian Code of Commerce: provide the legal framework for the interpretation of insurance policies.
• Insurance Act (Law 59 of 1996): created the Superintendency and established the requirements to register and operate Insurance Company or an Insurance Company Manager. The law also regulates the licenses for Insurance Brokers, Insurance Brokers Administrators and Independent Adjusters.
• Reinsurance Act (Law 63 of 1996): established the requirements to register and operate Reinsurance Company, a Reinsurance Company Manager and to obtain a Reinsurance Broker License.
• Captive Insurance Act (Law 60 of 1996): established the requirements to register and operate a Captive Insurance Manager.


I. COLON FREE ZONE
There are significant opportunities for wholesaling, warehousing and distribution in the Colon Free Zone (CFZ), the largest free zone in the Western Hemisphere and second in the world to Hong Kong.

The Colon Free Zone (“CFZ”) offers to investors a wide range of incentives such as free movement of goods and complete exemption from taxation on imports and re-exports. There are no taxes on the export of capital or the payment of dividends. In addition, there are reduced income tax rates on earnings from re-export sales. Furthermore, companies located in the Colon Free Zone are exempt from import duties as well as from guarantees, licensing, and other requirements and limitations on imports.

Due to its geographic location, the Colon Free Zone offers exporters looking for regional marketing arrangements, the perfect manufacturing, trade and distribution location, adjacent to ports and with modern telecommunication infrastructures, and a sophisticated financial system.

Companies operating in the CFZ can engage in four types of sales operations:
• Re-export of goods from CFZ warehouses
• Sales to clients located within Panama’s custom territory
• Direct sales to foreign clients in which goods are shipped from a third country
• Manufacturer without physically arriving in the CFZ; or
• Transfer in which sales are made to other CFZ firms

Companies operating from the CFZ enjoy numerous trade advantages along with special tax incentives such as tax credits, depending on the number of Panamanian employees, and special income tax rates on foreign trade operations. Companies in the free trade zone pay no corporate income tax. Dividends paid on profits from foreign trade operations and from direct sales are not subject to the dividend tax. Merchandise arriving at, stored in, or leaving the CFZ destined for a subject to any type of national or municipal tax.


J. EXPORT PROCESSING ZONES
On 30 November 1993, enacted Law No. 25, allowing for the establishment and development of Export Processing Zones (EPZ) within the country.

EPZs are well-defined areas for the establishment of industrial, commercial and service facilities, in which imported materials undergo some processing before being exported again. A range of generous incentives have been established to attract companies into EPZs.

Companies allowed to establish operations in EPZ are those engaged in manufacturing, assembly, high technology, and specialized and general services, e.g. computer data entry, reinsurance.

The Panamanian Government offers the investors the following tax incentives:

• Exemption during the life of the contract (the maximum is 20 years), from the taxes, duties and other charges related to the importation of machinery, equipment, accessories and material used in the construction of the facilities.
• Exemption from property and income, taxes, and taxes on capital or assets for the first ten years of operation. From the 11th year until the end of the contract, the developer is exempt from income tax on net earnings reinvested in the development and expansion of the EPZ, provided that the amount reinvested exceeds 20 percent of the net taxable income for fiscal year the reinvestment is made.
• The developer may carry over losses from the year in which the loss take place.

The tenant companies exporting from an EPZ are offered the following benefits:

• Exemption from taxes, duties and other charges related to the importation of machinery, equipment, raw materials, semi-processed goods and other materials such as packaging, fuel, and lubricants used in the manufacturing process.
• Exemption from income tax on profits arising from exports, and exemption from export sales taxes, as well as from taxes on capital and assets of the export industry.

The EPZ law also includes specific labor and immigration provisions for employees of EPZ firms, which are more favorable than those established by the current Panamanian labor Code.

K. PETROLEUM EXPORT ZONES (PEZ):
The Government of Panama enacted Decree No. 29 (Executive Decree) dated July 14, 1992, allowing the establishment of Petroleum Export Zones (PEZ) in specially designated areas in Panama.

Decree No. 29 allows any foreign or national company to establish operations in a PEZ to produce, refine and export petroleum products. It also permits direct sales to foreign vessels transiting the Panama Canal, and to foreign airlines.

To date the Government of Panama has authorized seven Petroleum Export Zones.

L. FORESTRY
For investors interested in forestry, the Government of Panama is leasing for commercial purposes, under 20 year contracts, renewable for 20 additional years, over 20,000 acres of land in the water shed of the Panama Canal and also in the central provinces. Private forestry projects may be combined with fruit production and eco-tourism.

The size of parcels vary from 250 to 4,000 acres, with no limit to the total amount of land which can be rented by a single individual or concern. Rental prices range from $8.00 to $16.00 per Acre per year.

Panamanian Legislation offers to the forestry activity many tax incentives, including import tax exemptions (for equipment), and income tax exemptions.

J. TOURISM
Despite its enormous potential this sector had not been fully developed until recently. Until 1990, the Panamanian economy had been focused on the development of the service sector, and particularly in the development of International Commerce, Insurance and Banking.

Panama possesses a very diverse geography, enhancing its potential for tourist activities. The country has 1,800 miles of beaches on both the Atlantic and Pacific side, and a rich fauna which includes 1,000 birds species, more than the total number in all North America combined, 2200 different mammals, and more than 350 kind of reptiles. It also boasts one of the most important ecological rain forests in the world, after the Amazon region.

Through the enactment of Law 8 of 1994 and Decree No. 26 of 1995, the Government has created numerous incentives to promote this sector, focusing mainly on eco-tourism activities.

Some of the general incentives granted by the tourism law to the individuals or companies registered that are engage in tourist activities, are as follows:

¸ Complete Exoneration for Twenty-Year (20) period of the import tax due on the introduction of materials, equipment, fixtures, furnishings, and vessels and automotive vehicles with a minimum capacity of eight passengers. The panama government tourist bureau must have declared the latter as indispensable for the normal development of the tourist activity.

¸ Twenty (20) years exoneration from real property tax, starting on the date of registration of the company at the National Registry of Tourism (Registro Nacional de Turismo). This exoneration shall cover all real property owned by the company, provided it is used in its entirety for tourist activities.

¸ Exoneration from any tax or assessment on its capital

¸ Exoneration from any fee for landing on piers, airports, or heliports owned, built, or repaired by the company. The Government of Panama may use these facilities free of charge

¸ Exemption from payment of income tax on any interest earned by creditors in operations for investing in public lodging establishments

¸ An annual rate of ten per cent (10%) shall be for allowed real property depreciation, not including the cost of the land.

The law also offers incentives for the development of tourist projects within historic landmarks. Such projects must be authorized by the National Institute of Culture, and shall have a minimum investment of hundred thousand dollars (US$ 100,000.00), not including the cost of the land.

Those investing in areas declared by the government as Tourism Development Zones, enjoy the following benefits:

¸ Total exemption for twenty (20) years from tax over real estate property situated on the land and surrounding areas and over any improvements made to the same.
¸ Total exemption for fifteen (15) years from the payment of income tax
¸ Total exemption for twenty (20) years from import tax and from tax levied on the transference of property (ITBM) such as materials, equipment, accessories and spare parts used in the construction, renovation and setting up of the establishment, so long as the same is not produced in Panama or is not produced in sufficient quantity or quality necessary for the operation of the business.
¸ Total exemption for twenty (20) years from duties, contributions, taxes or fees on the use to piers or airports built by the company.
¸ Total exoneration for twenty (20) years from income tax levied upon loans provided by creditors for the purposes of investment in Tourism activities.

The law allows for government, through the Treasury, to grant concessions, up to a period of twenty years over the islands, surrounding lands and land requiring re-fills, such as areas designated for the construction of marinas and docks for the purposes of promoting tourism.

The fiscal incentives intended by Law no. 8 of 1994, will be in force until the 31st of December of 2005 in the case of those areas not declared as National Tourism Development Zones and until the 31st of December of 2015 in the case of such Zones.

(Top)



NEWS

Ley 41 2007 - MEMORANDUM - SEM

(En Español) - (In English)

Sucre, Arias & Reyes - Legal Advisors to Issuer as to Panamanian Law



(Top)




LINKS


PANAMANIAN TOURISM BOARD (IPAT)
Photos courtesy IPAT

http://www.ipat.gob.pa


PANAMA CANAL AUTHORITY (ACP)
Photos courtesy ACP

http://www.pancanal.com


(Top)




Credits


Andrés García
Page Designer

andy@cuartoestudio.com


Luis A. Harris
Webmaster

lharris@ayayai.com



(Top)