While Panama has a strange history and unique manifestation stemming from its American interests over the years, it has also been seen historically as something of a gateway to deeper South America, states Thomas Hughes.

 

he country has enjoyed an industry level the envy of its neighbours, based largely on American influence over the Panama Canal. The canal facilitates a massive amount of daily traffic, and enables innumerable dollar-backed shipments to float on into the wider ocean. Apart from the logistical value and investment centered thereon, the country is also attractive to investors for a host of other reasons.
 

PANAMA FACTS AND FIGURES

A Central American nation, Panama is bordered to the north by the Caribbean Sea and the Pacific Ocean on its south side. Costa Rica sits to the west, with Colombia defining the eastern boundary. The capital is Panama City, whose metropolitan area is home to nearly half of the country’s four million people. 
 

As per the World Economic Forum’s Global Competitiveness Index, Panama has been the region’s second-most competitive economy since 2010. The country has always benefited from canal revenue, and is thus somewhat shielded from the numerous economic woes that play out in the region as a whole. 
 

As a special upshot of this revenue, for the last 80 years or so, Panama has built and established the biggest regional financial center in Central America, with consolidated assets now worth over three times the nation’s GDP. The Panamanian banking sector is a direct employer to over 24,000 people, and the county’s fintech arena typically accounts for some 10 percent of annual GDP. When seen against the backdrop of productive logistics and agricultural sectors, it is clear that the country has not been idle in putting its canal revenues to good use. Investors looking for a stable and yet dynamic space in which to shop for bargains would do well to include the country in their appraisal.
 

OFFSHORE IN PANAMA

Well established as a safe Caribbean tax haven, the Republic of Panama is on a par with others like the Isle of Man and smaller principalities who have survived and thrived by offering tax incentives to a global population looking to safeguard their wealth. 
 

After the failed attempt to complete the canal by Suez canal builder Ferdinand de Lesseps, the USA took over the project - and American cash flow, profit and expansion have dominated the country’s thinking ever since. Presenting a polished fintech arena and dynamic business activity, Panama has the added benefit of its peculiar tax structures and concessions that enable businesses both local and foreign to thrive.
 

For foreign investment, tailored offshore banking, company incorporation and trust formation are all presented seamlessly for prompt uptake. Other benefits many American and other citizens enjoy include the registration of ships in Panama, something that carries down line benefits aplenty for foreign freight carriers. 
 

Offshore companies pay no tax if their business pursuits are externally focused. In other words, if an American company registers in Panama yet does the bulk of its business with the Eastern seaboard, for instance, they will incur no tax liabilities. Really defining what a “tax-free” structure means, foreign companies that incorporate in Panama, as well as the owners, pay no capital gains tax, income tax, corporate tax, withholding taxes, estate or inheritance tax or even local taxes.
 

In a nutshell, companies can uproot and incorporate in Panama yet conduct business as usual with American or other clients, all the while paying zero taxes. If legitimate local business is pursued and conducted, local taxes are levied, but the majority of offshore entities in the country structure things to avoid paying any tax at all.
 

PANAMA PRIVATE FINANCES

Having had over a century to define and tweak the legislation that enables business and investment so capably in Panama, extensive laws now exist that protect corporate and individuals’ financial privacy. Although the world is currently abuzz with constant amendments to consumer privacy legislation - largely on the back of the emergence of blockchain fintech - it’s old hat in Panama. Very strict confidentiality laws apply to the details of offshore companies, foundations and trusts. In contrast to most other countries, compromise of this confidentiality carries stiff criminal penalties, with the strong prospect of civil action arising from such disputes. 
 

As a case in point, it is not required to list the names of corporate shareholders in order to become publicly registered. Panama’s banking secrecy laws are also comprehensive and onerous. Simply put, Panamanian banks are prevented from sharing information concerning offshore bank accounts and account holders. Indeed, the only circumstances under which this is flouted is a direct instruction from a court of law, in a bid to facilitate criminal investigations, something that seldom happens. 
 

Another uniquely Panamanian stance is reflected in the fact that the country has very few tax treaties with the countries most involved with it economically. Where typically, trading partners tend to homogenise their tax structures to facilitate trade, Panama has somehow remained aloof on the issue, possibly due to its tremendous clout of the canal. This too goes to the anonymity and protection of offshore interests.

There are no exchange controls in Panama. On a par with other tax havens like Bermuda, any offshore entity bringing forex into the country or shipping it out for that matter, faces no reporting obligation. With no exchange controls, moving any currency in and out of the country is unfettered and requires no permissions, nor does it attract any fees. Moreover, money transfers effected by offshore entities have no cap - companies or individuals can transfer as much as they like in and out of Panama.
 

The Panamanian service sector represents around 75 percent of Panama’s economy, based as it is on mining, tourism, banking and commerce industries. The city of Colón also has a “free zone,” an economically nominated and exempt zone that generates around 10 percent of the country’s GDP. As so many other countries around the world bemoan economic hardship and stagnant growth, between 2011 and 2014, the country posted GDP growth of around 10 percent. As everyone looks at China’s phenomenal growth that habitually sits at around 8 percent, Panama is quietly upping the economy while avoiding dismantling any tax concessions for foreign investment.
 

That said, current rates hover around 5 percent, yet the figure remains respectable indeed and one that many other nations can only dream of. One small niggle in the country, however, is a rising unemployment rate which has grown to a current 6.1 percent, with 2018 figures only due in later this year.
 

OECD AND FATF BLACKLISTING

Although alongside many other offshore locales, Panama published a letter of commitment to the Organisation for Economic Co-operation and Development (OECD) in 2001. After consensus was reached on the implications of the EU’s Savings Tax Directive in 2003, Panama subsequently complained to the OECD about the absence of a “level playing field,” saying that it no longer felt bound by its previous commitments to accommodate others’ wishes on financial matters. Panama is a model hard to argue with, with a robust economy and many happy offshore companies. 
 

In April 2009, the OECD placed the country on its “gray list” of territories that have shown acceptance of the internationally agreed-upon standards of tax transparency and information sharing, yet not implemented any legislative changes. Panama has since signed a number of other agreements on the issues of tax and transparency, yet continues to trade with a strong hand, still largely unaffected by other nations’ demands.

Panama has also been targeted by the Financial Action Task Force on Money Laundering (FATF) and labeled a “non-cooperative tax haven.” As a result thereof, June 2000 saw Panama added to a list of 14 other tax jurisdictions negatively listed by the FATF. All offenders were given a year to remedy their structures at the time. 
 

In its release of an annual report in June 2001, the FATF removed Panama from its blacklist. Remarkably, although this occurred because of Panama’s attempts to meet a set of 40 criteria for improvement, somehow the country has managed to maintain is wholesale freedom for offshore interests. The agency wholly removed Panama from the list in 2016.
 

Investors justifiably still view Panama as a legitimate, unfettered tax haven. Notwithstanding the tremendous increase in privacy and other consumer protection legislation across the globe, Panama’s core offering remains unchanged. Of some 100 registered banks, around 30 have international licenses, further aiding global business. Panama is also distinguished by having the world’s largest shipping registry. Where once upon a time it might have been fair to caricature Panama as a drug-riddled dark spot, rife with money-laundering and other illicit activity, modern Panama is a far cry from that depiction. Dynamic, proactive and dripping tax benefits, any investor or venture capitalist would do well to analyse Panama’s overall offer, as the merits are pronounced.   EG