Panama Enterprise Funding: Alternatives and Challenges

Panama has turn out to be one of many high 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 instances 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 p.c in 2020 as a result 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’ll proceed to develop between 4% and 6% in 2023.

This continued financial development in an unsure international market makes Panama a beautiful 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 essential to contemplate when weighing the return on funding.

What are the Panama enterprise funding alternatives?

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

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 presents many funding alternatives starting from constructing hostels, resorts, and resorts to establishing constitution dive operations and guided excursions. 
  2. Actual Property – Panama presents a number of advantages for building initiatives. Residential initiatives valued underneath $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 guaranteeing correct use of the Panama Pacifico area. It presents distinctive tax, labor, and authorized advantages to firms that base themselves inside its boundaries, making it a fascinating vacation spot for multinational companies to ascertain regional headquarters. International firms, similar to 3M, DELL, and Caterpillar, have already arrange operations right here. 
  4. Vitality – In 2016, the Nationwide Vitality Plan was handed by the federal government which proposed a aim of sourcing 70 p.c of the nation’s vitality from renewable sources by 2050. To encourage the development of pure fuel, wind, and solar energy amenities, 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 essential elements to contemplate when doing enterprise in Panama. 

  • Inflation 
  • Corruption 
  • Language 
  • Tax system

Beneath we discover every of those factors in additional element:

  • Inflation – Whereas Panama at present has a low inflation price in comparison with different international locations within the area, it’s anticipated to develop by as a lot as 5 p.c this yr. The economic system just isn’t exempt from exterior international elements affecting its inflation price.
  • Corruption – Panama stays on the Monetary Motion Job Power ‘Gray Record’. This checklist refers to international locations 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 primary 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 help 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 simply taxed within the different nation, making it useful for firms and buyers based mostly in Panama. Companies ought to search skilled help from native accountants. 

Is Panama good for funding?

There are lots of compelling the reason why Panama is an attractive nation to put money into. From its strategic location, enhancing infrastructure and expertise pool to its financial development.

Let’s concentrate on 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 one of the politically secure nations in Latin America. It boasts the title of the second most secure nation in Central America and ranks fifth in your complete American continent. The federal government’s concentrate on 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 a significant 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 – Because of the federal government’s tax incentives, already over 140 multinational firms reside in Panama. As talked about earlier, Panama is an interesting selection for multinational companies as a result 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 development price of 6%, which is among the many highest in Latin America. Moreover, it has achieved the perfect 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 provide tax incentives. These legal guidelines additionally present authorized certainty, attracting overseas buyers 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, america, and the Netherlands.

How Biz Latin Hub can help you and your enterprise?

Biz Latin Hub presents a totally built-in, multilingual group of authorized, accounting, and firm formation providers for your enterprise plans in Latin America, and the Caribbean. 

With wholly-owned subsidiary places of work positioned all through the area, together with Panama now we have the experience to reply your questions and allow you to obtain your enterprise objectives. 
To be taught extra about how we are able to help you in doing enterprise in Panama and the remainder of Latin America, discuss to our skilled group 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 supplied by Biz Latin Hub