Panama as a Regional Headquarters for Multinationals

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Panama is number 10 within the 29 Latin-American economies evaluated, and the score slightly surpasses the regional. Its economy is 65.9% free and occupies position 47 of 157 countries on the level of world liberty. This is according to the Economic Liberty Index for 2007. This report was prepared jointly by The Heritage Foundation and The Wall Street Journal.

With the signature of the Free Trade Agreement between Panama and the United States, a new commercial phase after mid 2007, once the processes of legal review, signature and ratification by the congresses of both countries is completed. This commercial instrument has 23 chapters providing substantial legal security for business, trade and investments between both countries increasing opportunities to investors from the United States.

This treaty:

• Stimulates foreign investment between both countries
• Widens significantly the product market
• Increases the exportations from both countries
• Improves the free customs access of merchandises and services with few exceptions
• Provides higher levels of transparency, accountability, and legal security

The Panama-US FTA is expected to generate an increase in the exports of goods and services towards an efficient and demanding market, increasing the interest in Panama as a safe harbor for investments.

The world is becoming increasingly aware of the business opportunities in Panama and investments are rising as the potential is appreciated. Panama has always stood apart from Central and South America, with its dollar based economy and stable political situation, sustained by its Canal, Colon Free Trade Zone, and the international financial center. The economic growth for 2007 will be of 7% in comparison to the internal product of 8.1%, recorded for the first 11 months of 2006.

For several decades, Panama has been chosen by numerous Fortune 500 companies dedicated to all kinds of commercial activities as a profit center and a real base to coordinate their multinational or regional operations.

Multinational companies of some countries have established their distribution base in Panama to commercialize their products and services towards Central, South America and the Caribbean. This commercial presence is represented by sectors such as those of electronic appliances, food, wines, shoes, jewelry and jewelry, cosmetics, eyewear, furniture, pharmaceutical products, cars, tools, banking, energy, perishable goods, kitchen, etc.

In August 2007 Law 41 came into force promoting the opening of multinational corporation installations in the Republic of Panama. This area is the responsibility of the new "Licensing Commission on Multinational Enterprise Headquarters." This is chaired by the Deputy Minister of Foreign Trade. Some of its functions are establishing licensing requirements for these firms, ensuring that Panama becomes an attractive center for multinationals and creating mechanisms to facilitate monitoring. All licenses are processed by the Regional Headquarters Office at the Ministry of Industry and Commerce (MICI).

Law 41 also created a new secretariat to grant licenses to companies with the purpose of processing and granting visas to employees, in addition to imposing administrative sanctions and organizing an official record multinationals. It is a law inspired by the success achieved by Switzerland and Singapore in this sector of the economy.

Benefits granted by Law 41 to multinational companies establishing their headquarters in Panama include tax exemptions, in addition to special labor and migration status. This type of company does not pay income tax (ISR) due to the fact that their income is produced by a foreign source, and their employees don’t have the obligation to pay social security installments if their wages come from abroad nor property transfer or services taxes, for transactions executed outside the national territory, as well as taxes on import goods for personal use.

There are more than 100 Branches of Multinationals Enterprises in Panama

Requirements to apply:

• The enterprise group assets must be equal to or more than $200 millions
• In the event that a Main Office is established in Panama, it requires a minimum initial capital, no less than $2 millions.

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