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Panama''s investment climate is generally good but faces increasing levels of uncertainty due to a March 2024 loss of investment grade, fiscal challenges, instances of social unrest in 2022-2023, and a new government that took office on July 1, 2024.
As the home of the Panama Canal, a dollarized economy, the world''s second largest free trade zone, and sophisticated maritime, logistics, and finance operations, Panama attracts billions of dollars in foreign direct investment (FDI) annually. However, deficiencies such as corruption, insufficient transparency and judicial capacity, government arrears and non-payment, and an undereducated workforce have either precluded additional FDI or complicated existing investments. To its credit, Panama has undertaken efforts to counter money laundering and terrorist financing in the past five years, leading the Financial Action Task Force to remove Panama from its grey list in October 2023 after initially listing the country in June 2019.
Two of the three major rating agencies rate Panama''s sovereign debt at investment grade as of March 31, 2024, with Moody''s at Baa3 (the lowest level within investment grade) and Standard & Poor''s at BBB (two notches above investment grade). Fitch downgraded Panama''s credit rating to BB+ (speculative, also known as non-investment grade or "junk") on March 28, noting the downgrade reflected fiscal and governance challenges aggravated by the closure of the Minera Panama copper mine. A tense social backdrop and party fragmentation would likely constrain the new administration''s ability to promptly address fiscal challenges, according to Fitch. Government debt stood at $50.5 billion as of April 2024 representing nearly 61 percent of 2023 GDP.
Panama is at the nexus of both global and regional trade, thanks to the Panama Canal and its strategic geographic location in the center of the hemisphere. The Panamanian government is eager to attract FDI, with several policies in place to encourage multinational companies to establish regional offices in Panama. As such, Panama continues to attract one of the highest rates of FDI in the region, including $3.8 billion in FDI stock from U.S. sources in 2022, according to the U.S. Bureau of Economic Analysis. Building on Panama''s existing strengths as a logistics hub, the Panamanian government and civil society are focused on supporting U.S. supply chain diversification priorities in pharmaceuticals and semiconductors, with several feasibility studies underway.
Panama''s investment climate, however, suffers from unemployment and high levels of labor informality and income inequality. Unemployment was 7.4 percent as of August 2023. Unemployment among Panamanian youth – defined as 15-29 years old – represented 54 percent of total unemployment as of August 2023, per INEC''s findings. As of August 2023, nearly 48 percent of the workforce was employed in the informal sector. Labor informality rates in many indigenous communities were greater than 70 percent. Panama is also one of the most unequal countries in the world in terms of income distribution, with the 14th highest Gini Coefficient and a national poverty rate of 13 percent according to the World Bank.
Panama welcomes foreign direct investment (FDI) and relies heavily on the private sector and FDI to fuel its economy. With few exceptions (described below), Panamanian law makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade, open markets and FDI.
Panama has had one of the highest levels of FDI in Central America. Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and the Private Public Partnership Law (PPP), Panama offers tax breaks and other incentives to attract investment. Executive Decree No. 722 of October 2020 created a new immigration category: Permanent Residence as a Qualified Investor, after an initial investment of $300,000. The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development (for more details, please visit: https://digesi.mici.gob.pa/ ).
The Cortizo administration created a Minister Counselor for Investment cabinet position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.
Law 207 created the Export and Investment Promotion Authority “PROPANAMA” () on April 5, 2021. It provides investors with information about doing business in Panama, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices work with investors to ensure both parties are properly complying with regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions. Entities that carry out a minimum investment of $2 million in Panama enjoy the benefits of legal stability and investment protection, with national, municipal, and customs tax incentives and legal stability in the labor regime for a period of 10 years.
The Organization of American States (OAS) selected Panama to host the Americas Competitiveness Exchange (ACE) from January 29 to February 2, 2024. ACE is the premier economic development, innovation, and entrepreneurial network of the Americas, coordinated with the U.S. Mission to the OAS and the U.S. Department of Commerce.
The Panamanian government imposes limitations on foreign ownership in the retail, maritime, and media sectors. In most cases, owners of firms in these sectors must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail outlets within the confines of Panamanian law. Under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances. There are also limits on the number of foreign workers in some foreign investment structures.
With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. However, if a corporation is engaged in retail trade (i.e., not wholesale operations), foreigners cannot serve on the board of directors. Business visas and citizenship are readily obtainable for significant investors.
Law 419 of February 1, 2024, modernized Panama''s pharmaceutical sector regulations for medicines, medical supplies, devices, and equipment, and other health products. The new regulations grant local companies a five percent price advantage compared to foreign products in public tenders and supply contracts with the government.
Panama generally allows private entities to establish and own businesses and engage in remunerative activities. It does not have a formal investment screening mechanism, but the government monitors large foreign investments through the President''s Cabinet Council.
Panama does not currently impose any sector-specific restrictions or limitations on foreign ownership or control. There are no licensing restrictions, although Executive Decree 81 of May 25, 2017, established controls over dual-use goods for reasons of national security. Panama does not currently have any requirements for controls over technology transfers, but there are limitations on data storage (see data protection law below).
On February 10, 2023, the International Monetary Fund published Panama''s Technical Assistance Report on Macroprudential Policy Frameworks (available at https://). Otherwise, Panama has not undergone any third-party investment policy reviews through a multilateral organization in the past three years.
The WTO conducted a "Trade Policy Review" of Panama as of December 2021. Trade Policy Reviews are an exercise mandated in WTO agreements in which member countries'' trade and related policies are examined and evaluated at regular intervals: WTO | Trade policy review -Panama2022 .
Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry''s website ( https://mici.gob.pa/). Applicants may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world through the website. Corporate applicants must submit notarized supporting documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between five business days to process. Panama is a party to the WTO Investment Facilitation for Development Agreement.
Historically, government procurement procedures have presented barriers to trade with Panama as investors viewed them as opaque and influenced by corruption. The Cortizo administration publicly committed to ensuring greater transparency in the award of government tenders. Law 153, officially passed in May 2020, provides greater transparency in public procurement by mandating that all public entities use an electronic procurement system https://#!/ . While a step in the right direction, the system can be manipulated by competitors of U.S. firms by protesting bids, delaying procurement processes, or requesting the disclosure of certain proprietary information.
Micro, Small and Medium Business Authority: https://ampyme.gob.pa Tax Administration: Dirección General de Ingresos (mef.gob.pa) Corporations, Properties, and Mortgages: https://registro-publico.gob.pa/consulta-registral.php Social Security: Index – Caja de Seguro Social (css.gob.pa) Municipalities: https://mupa.gob.pa
Panama does not incentivize outward investment, nor does it restrict domestic investors from investing abroad. According to the U.S. Bureau of Economic Analysis, the United States received $1.9 billion in FDI from Panamanian sources in 2022.
Panama has 21 bilateral investment protection agreements with: Argentina, Canada, Chile, Cuba, the Czech Republic, the Dominican Republic, Finland, France, Germany, Italy, Mexico, the Netherlands, Qatar, Spain, Sweden, Switzerland, South Korea, Ukraine, the United States, the United Kingdom, and Uruguay. Panama has signed two bilateral investment treaties that have still not entered into force, one with Belgium and Luxembourg, and another with the United Arab Emirates.
Panama established diplomatic relations with the People''s Republic of China in June 2017. Under the then-Varela administration, the countries were negotiating a free trade agreement and several other infrastructure projects, many of which were subsequently canceled or assigned to other developers. There have been no further formal negotiations regarding a free trade agreement since July 2019, when the Cortizo administration took office.
Current cultural, scientific, and educational cooperation agreements can be found under the Ministry of Foreign Affairs website: https://mire.gob.pa/acuerdos/.
Panama does not have a bilateral taxation treaty with the United States but has tax agreements with other countries. Bilateral taxation treaties can be found under the Tax Administration website of the Ministry of Economy and Finance: https://dgi.mef.gob.pa/Internacional/TInterna.php.
Panama is not an OECD member, but it is the 87th country to join the OECD Inclusive Framework on Base Erosion and Profit Shifting, and it is one of the 137 Members who joined the October 2021 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy.
The Panamanian legal, accounting, and regulatory systems are generally transparent and consistent with international norms.
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