Panama Enterprise Funding: Alternatives and Challenges

Panama has change into one of many prime locations for overseas direct funding (FDI) in Latin America during the last decade. Earlier than the COVID-19 pandemic, Panama enterprise funding was thriving. 

Not solely is it straightforward to register an organization in Panama, however its GDP was additionally rising at 4 occasions the speed of the Latin and Caribbean (LAC) area. 

But, no nation on this a part of the world was extra affected by the pandemic than Panama. Its GDP declined by 17.9 % in 2020 on account of building halting and the worldwide airport closing for a number of months. 

Regardless of these difficulties, Panama’s economic system improved in 2021 and grew by 15.3%. Specialists predict that it’s going to proceed to develop between 4% and 6% in 2023.

This continued financial progress in an unsure international market makes Panama a lovely location for business investment at this time and sooner or later. Let’s check out what alternatives and challenges lie forward for Panama enterprise funding.  

"The benefits of investing in Panama" infographic by Biz Latin Hub for an article on "Panama business investment"
These are the advantages of a potential Panama enterprise funding, that are necessary to think about when weighing the return on funding.

What are the Panama enterprise funding alternatives?

Panama’s authorities may be very open to overseas enterprise funding. They’re centered on making it the first vacation spot in Latin America for overseas traders.

There are not any main restrictions on overseas funding. For instance, there are no registration requirements for capital and the switch of funds to the nation just isn’t taxable. 

Listed below are some key Panama enterprise funding alternatives:

  1. Tourism – Panama’s tourism sector affords many funding alternatives starting from constructing hostels, resorts, and resorts to establishing constitution dive operations and guided excursions. 
  2. Actual Property – Panama affords a number of advantages for building initiatives. Residential initiatives valued below $120,000 obtain a 20-year exemption on property taxes for the enhancements made. For building initiatives starting from $120,000 to $300,000, the exemption interval is 10 years. And for these exceeding $300,000, the exemption is for 5 years.
  3. Particular Financial Space Panama Pacifico – The federal government established this entity as an independent and accountable organization accountable for managing, selling, growing, regulating, and making certain correct use of the Panama Pacifico area. It affords distinctive tax, labor, and authorized advantages to corporations that base themselves inside its boundaries, making it a fascinating vacation spot for multinational companies to determine regional headquarters. World corporations, similar to 3M, DELL, and Caterpillar, have already arrange operations right here. 
  4. Power – In 2016, the Nationwide Power Plan was handed by the federal government which proposed a purpose of sourcing 70 % of the nation’s power from renewable sources by 2050. To encourage the development of pure gasoline, wind, and solar energy services, the federal government created tax credit and incentives. 

What challenges are there in Panama enterprise funding?

Like several new enterprise market, investing in Panama does include its challenges. 

Listed below are some necessary elements to think about when doing enterprise in Panama. 

  • Inflation 
  • Corruption 
  • Language 
  • Tax system

Under we discover every of those factors in additional element:

  • Inflation – Whereas Panama presently has a low inflation price in comparison with different nations within the area, it’s anticipated to develop by as a lot as 5 % this 12 months. The economic system just isn’t exempt from exterior international elements affecting its inflation price.
  • Corruption – Panama stays on the Monetary Motion Job Drive ‘Gray Listing’. This record refers to nations recognized with anti-money laundering and monetary terrorism deficiencies. Hector Alexander, Panama’s minister of economic system and finance believes they could possibly be off the list by the end of 2023.
  • Language – To achieve conducting enterprise in Panama, it’s essential to have a fundamental understanding of the Spanish language. Those that don’t converse Spanish might battle to speak successfully and set up new business relationships within the nation. Partnering with a multilingual enterprise affiliate can support in coming into the market, in addition to rising connections with native suppliers, distributors, and companions. 
  • Tax system – Understanding the native tax system is vital to success in any location. Panama’s territorial tax system solely taxes revenue generated inside its borders. International revenue is just taxed within the different nation, making it useful for corporations and traders primarily based in Panama. Companies ought to search skilled assist from native accountants. 

Is Panama good for funding?

There are lots of compelling explanation why Panama is an attractive nation to put money into. From its strategic location, bettering infrastructure and expertise pool to its financial progress.

Let’s deal with a few of its main funding advantages. 

  • Steady political system – Panama is well-known for its sturdy political system, incomes constant recognition from the World Financial institution as some of the politically steady nations in Latin America. It boasts the title of the second most secure nation in Central America and ranks fifth in the whole American continent. The federal government’s deal with public-private partnerships, just like the profitable Panama Pacífico initiative, underscores its dedication to improvement and funding within the nation. 
  • Location, location, location – Panama serves as an important connection level between the Americas, linking the East and West in addition to the North and South by sea, land, and air. With over 1,100 worldwide flights per week, Tocumen Worldwide Airport boasts 83 direct locations and accommodates 40 airways. 
  • Tax incentives – Due to the federal government’s tax incentives, already over 140 multinational corporations reside in Panama. As talked about earlier, Panama is an interesting selection for multinational companies on account of its coverage of not imposing taxes on foreign-earned revenue that’s introduced into the nation and deposited in its banks.
  • Rising economic system – Panama boasts an annual financial progress price of 6%, which is among the many highest in Latin America. Moreover, it has achieved the most effective credit standing in all of Central America, surpassing Costa Rica, Honduras, and El Salvador. The Panamanian authorities has been instrumental in creating legal guidelines that encourage funding and supply tax incentives. These legal guidelines additionally present authorized certainty, attracting overseas traders with promising returns.
"Panama main export partners" infographic by Biz Latin Hub for an article on "Panama business investment"
A Panama enterprise funding will entail an export partnership with Ecuador, Guatemala, China, the US, and the Netherlands.

How Biz Latin Hub can assist you and what you are promoting?

Biz Latin Hub affords a completely built-in, multilingual staff of authorized, accounting, and firm formation providers for what you are promoting plans in Latin America, and the Caribbean. 

With wholly-owned subsidiary places of work positioned all through the area, together with Panama we have now the experience to reply your questions and assist you to obtain what you are promoting targets. 
To be taught extra about how we will help you in doing enterprise in Panama and the remainder of Latin America, speak to our skilled staff at this time.

The main services offered by BLH include legal services, accounting and tax, contracting and PEO, due diligence, tax advice and visa processing.
Key providers provided by Biz Latin Hub