Panama flag Panama: Investing in Panama

Foreign direct investment (FDI) in Panama

FDI in Figures

Panama is the country receiving the most FDI in Central America. According to UNCTAD's World Investment Report 2021, FDI flows fell by 86% to USD 589 million in 2020 (compared to USD 4.3 billion), the lowest level in almost two decades, as a result of the economic crisis triggered by the Covid-19 pandemic. To counter the economic impact of the pandemic, the government launched several highway, railway and bridge construction projects and approved a new investment incentive scheme, mainly in the form of tax benefits, aimed at multinational companies that conduct operations from Panama and provide manufacturing services. Despite the rather unfavourable economic environment, M&As increased from USD 175 million to USD 480 million, mainly due to the purchase of Multibank (Panama), a commercial bank, by Leasing Bogota (Colombia). A rebound in global trade will support flows going forward, but the recovery is likely to be slow, as indicated by the slump in announced greenfield projects (-26% in number).  Panama's main FDI partners are the US, Colombia, Canada, the UK and Switzerland. There are many sectors in Panama in which to invest, especially construction, financial and business services, distribution agencies, real estate, software development and sales companies, wholesale and retail businesses, and import and export services in free zones. To date, the two sectors with the highest levels of FDI are wholesale and retail trade, financial activities and insurance.

According to the World Bank's last Doing Business report, which was released in 2020, Panama ranks 86th out of 190 economies - a seven-spot decline from the previous year. Panama enjoys important financial and investment freedoms: commercial operations are, in general, subject to the rules of transparency. In addition, the tax rate for households and businesses is moderate, and there are many tax and duty advantages in the Colón Free Zone (CFZ). The strategic geographical position of the country, its dollar-driven economy and the specialisation of its economy in strategic sectors (banking and maritime traffic) are all factors that attract FDI. The country also has a modern infrastructure, strong political stability, and highly developed real estate, tourism, and banking sectors. However, Panama still faces a high level of corruption - particularly in the public service - a slow judicial system, and is subjected to its neighbours economic and political situations. Still, the government actively encourages FDI, and do not legally differentiate between national and foreign companies. Additionally, the country also encourages multinational companies to open regional headquarters in Panama, through a variety of tax incentives. Panama is known to be a hub for Latin American consumers looking for competitive prices on goods, services and commodities. The financial and insurance sector has always been a very attractive sector in terms of investment. This is due to the quality and reputation of the financial and banking sector. In addition, Panama has a very attractive tax system, which gives it a clear advantage in attracting foreign investment. Among the major investments the country has seen in recent years is the acquisition of the Multibank Financial Group by the Colombian Grupo Aval Acciones y Valores SA in 2020.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 4,0636071,844
FDI Stock (million USD) 57,37457,98159,825
Number of Greenfield Investments* 312314
Value of Greenfield Investments (million USD) 1,6891,296209

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Panama Latin America & Caribbean United States Germany
Index of Transaction Transparency* 4.0 4.1 7.0 5.0
Index of Manager’s Responsibility** 4.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 8.0 6.7 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Panama

Strong Points

The economy of Panama attracts FDI and its main strengths are:

  • Its strong political stability
  • Privileged diplomatic relations with the United States
  • Its economic dynamism: estimated growth of 4% in 2021, a controlled inflation level of 1.5% in 2020 (IMF) and a stable currency (in parity with the USD)
  • Reduced taxes, including VAT (IVA) of 0% in the real estate sector
  • Credit facilities: mortgage credit up to 30 years; credit up to 80% of the property value
  • Real estate and tourism sectors in great development
  • The ease of creating tourism projects, including tax exemptions
  • The ease of creation of manufacturing industries
  • A regional hub of international trade including free zones (including the free zone of Colón, 2nd world import-export platform) and modern infrastructure with the Panama Canal
  • Quality finance and banking sectors, stable and attractive FDI
Weak Points

Panama's economy presents some obstacles to FDI attraction, including:

  • Sensitivity to the North and South American economic and political situations
  • Irregularities concerning property rights
  • Application of the law below the regional average
  • High risks of corruption and patronage, particularly in the public service
  • Very slow judicial system
  • Weaknesses in terms of education and vocational training
  • Strong income inequalities across regions that can generate social and political tensions
  • Labour market informality
Government Measures to Motivate or Restrict FDI
The Panamanian government and the business milieu actively encourage direct foreign investment. In general, the laws do not make any difference between national and foreign companies. In 1998, the government enacted the law of investment stability, which guarantees foreign investors who invest at least two million dollars in Panama equal treatment under the law and not by their domestic competitors. Under law No. 41 of 2007, Panama has encouraged multinational companies to open their regional headquarters on its territory through a variety of different tax incentives.

40% of incoming products enjoy an ad valorem customs duty of 4%, only 23% of products are subject to a tax higher than 15% and the country grants exemptions to certain high-technology capital goods and certain information technology products.

Panama has also adopted laws related to general or specialised free trade zones (representing 2% of exports). Panama features the Colon Free Trade Zone, the Panama Pacifico Special Economic Zone and 16 other "free zones" (11 active and 5 under development). For example, companies located in the free trade zone of Colón benefit from exemptions from taxes on imports, re-exports and manufacture of products.

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Latest Update: November 2022

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