Starting a Business in Panama

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Starting a Business in Panama

While Panama may be most famous for its massive Canal, tropical beaches, and favorable banking industry, Panama is also an international business hub, and there are many favorable reasons to start a business and make investments there.

Economy of Panama

The economy of Panama is based mainly on the services sector, which accounts for nearly 80% of its GDP and accounts for most of its foreign income. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health and tourism. The country’s industry includes manufacturing of aircraft spare parts, cement, drinks, adhesives and textiles. Additionally, exports from Panama include bananas, shrimp, sugar, coffee, and clothing. Panama’s economy is a fully dollarized, with the US dollar being legal tender in the country. Panama is a high-income economy with a history of low inflation.

Panama has a substantial financial services sector and no central bank to act as a lender of last resort to rescue banks that get in trouble

The expansion project on the Panama Canal is expected to boost and extend economic expansion for some time. Panama also signed the Panama–United States Trade Promotion Agreement which eliminates tariffs to US services.

Even though Panama is regarded as a high-income country, it still remains a country of stark contrasts perpetuated by dramatic educational disparities. Between 2015 and 2017, poverty at US$5.5 fell from 15.4 to an estimated 14.1 percent.

Panama has a substantial financial services sector and no central bank to act as a lender of last resort to rescue banks that get in trouble. As a result, Panamanian banks are very conservatively run, with an average capital adequacy ratio of 15.6% in 2012, nearly double the legal minimum.

Panama GDP
Panama GDP

Panama Economic Indicators

Panama GDP Growth Rate

Panama is one of the fastest growing economies in the Americas, greatly influenced by the famous canal connecting Atlantic and Pacific Ocean and business-friendly regulations. As a result service sector with insurance, finance, legal industries and flagship registry accounts for 80 percent of GDP.

Panama GDP Growth Rate
Source: Instituto Nacional de Estadística y Censo – Panamá
Panama Inflation Rate

In Panama, the most important categories in the consumer price index are Food and Non-Alcoholic Beverages (22.4 percent of total weight) and Transport (16.8 percent). Miscellaneous Goods and Services account for 9.8 percent; Recreation and Culture for 9.7 percent; Housing and Utilities for 8.5 percent and Furniture, Household Goods and Maintenance for 7.8 percent. Clothing and Footwear; Restaurants and Hotels; Communication; Health; Education and Alcoholic beverages and Tobacco account for the remaining 25 percent of total weight.

Panama Inflation Rate
Source: Instituto Nacional de Estadística y Censo – Panamá
Panama Unemployment Rate

In Panama, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

Panama Unemployment Rate
Source: Instituto Nacional de Estadística y Censo – Panamá
Panama Government Dept to GDP

Panama recorded a government debt equivalent to 39.48 percent of the country’s Gross Domestic Product in 2018.  Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.

Panama Government Debt to GDP
Source: Ministry of Finance, Panama
Panama Currency Balboa

Panamanian Balboa

Panama Stock Market

The Panama Stock Exchange BVPSI Index is a major stock market index which tracks the performance of the biggest companies listed on the Panama Stock Exchange. The BVPSI Index has a base value of 100 as of December 3 1, 2002.

Panama Stock Market

Panama Ease of Doing Business

Panama is ranked 86 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Panama deteriorated to 86 in 2019 from 79 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Panama Ease of Doing Business
Source: World Bank
Panama Corruption Rank

Panama is the 101 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.

Panama Corruption Rank
Source: Transparency International
Panama Credit Rating

Standard & Poor’s credit rating for Panama stands at BBB+ with negative outlook. Moody’s credit rating for Panama was last set at Baa1 with negative outlook. Fitch’s credit rating for Panama was last reported at BBB with negative outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Panama thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for Panama as reported by major credit rating agencies.

Panama Canal
Panama Canal

Taxation in Panama

Taxation in Panama, which is governed by the Fiscal Code, is on a territorial basis; this is to say, that taxes apply only to income or gains derived through business carried on in Panama itself. The existence of a sales or administration office in Panama, or the re-invoicing of external transactions at a profit, does not of itself give rise to taxation if the underlying transactions take place outside Panama. Dividends paid out of such earnings are free of taxation.

In February 2005, Panama’s unicameral legislature approved a major fiscal reform package in order to raise revenues from new business taxes, and increases the country’s level of debt. The legislature voted 46 to 28 in favour of the measures, which include a new 1.4% tax on companies’ gross revenues, and a 1% levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas.

Corpo-rate tax Perso-
nal income
tax
VAT or
sales tax
Social
Security Rate for Companies
Social
Security Rate for Employees
25% 25% 7% (standard rate)
15% (tobacco)
10% (alcohol and hotels)
5% (essential goods)
12,5% 9,75%

How to Start a Business in Panama

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