Panama Business Investment: Opportunities and Challenges

Panama has become one of the top destinations for foreign direct investment (FDI) in Latin America over the past decade. Before the covid-19 pandemic, corporate investment in Panama was booming.

Not only that easy to register a company in Panamabut its GDP also grew four times as much as the Latin and Caribbean (LAC) region.

Yet no country in this part of the world was more affected by the pandemic than Panama. Its GDP fell by 17.9 percent in 2020 due to construction halting and the international airport being closed for several months.

Despite these difficulties, Panama's economy improved in 2021 and increased by 15.3%. Experts predict that it will continue to grow between 4% and 6% in 2023.

This continued economic growth in an uncertain global market makes Panama an attractive location for business investments today and in the future. Let's take a look at the opportunities and challenges ahead for Panama business investment.

What are the investment opportunities for Panama business?

The Panamanian government is very open to foreign business investment. They are focused on making it the primary destination in Latin America for foreign investors.

There are no major restrictions on foreign investment. There are, for example no registration requirements for capital and transfer of funds to the country is not taxable.

Here are some key investment opportunities in Panama:

1. Tourism – Panama's tourism sector offers many investment opportunities, everything from building hostels, resorts and hotels to establishing charter diving operations and guided tours.
2. Real estate – Panama offers several advantages for construction projects. Housing projects valued under $120,000 receive a 20-year property tax exemption for the improvements made. For construction projects ranging from $120,000 to $300,000, the exemption period is 10 years. And for those above $300,000, the exemption applies for five years.
3. Special Economic Area Panama Pacifico – The government established this unit as a independent and responsible organization responsible for managing, promoting, developing, regulating and ensuring proper use of the Panama Pacifico region. It offers exceptional tax, labor and legal benefits to companies based within its borders, making it a desirable destination for multinational companies to establish regional headquarters. Global companies, such as 3M, DELL and Caterpillar, have already established themselves here.
4. Energy – In 2016, the National Energy Plan was adopted by the government, which proposed a goal of obtaining 70 percent of the country's energy from renewable sources by 2050. To encourage the construction of natural gas, wind and solar power plants, the government created tax credits and incentives.

What challenges are there in business investment in Panama?

Like any new business market, investing in Panama comes with its challenges.

Here are some important factors to consider when doing business in Panama.

• Inflation
• Corruption
• Language
• The tax system

Below we explore each of these points in more detail:

• Inflation – While Panama currently has low inflation compared to other countries in the region, it is expected to grow by as much as 5 percent this year. The economy is not exempt from external global factors that affect the rate of inflation.

• Corruption – Panama remains on the Financial Action Task Force “grey list”. This list refers to countries identified with anti-money laundering and financial terrorism deficiencies. Hector Alexander, Panama's Minister of Economy and Finance believes they may be off the list at the end of 2023.

• Language – In order to succeed in conducting business in Panama, it is crucial to have a basic understanding of the Spanish language. Those who do not speak Spanish may struggle to communicate effectively and establish new commercial relationships in the country. Partnering with a multilingual business partner can help with market entry, as well as growing connections with local suppliers, distributors and partners.

• The tax system – Understanding the local tax system is the key to success anywhere. Panama's territorial tax system only taxes income generated within its borders. Foreign income is taxed only in the other country, making it useful for companies and investors based in Panama. Companies should seek professional support from local accountants.

Is Panama good for investment?

There are many compelling reasons why Panama is an attractive country to invest in. From its strategic location, improved infrastructure and talent pool to its economic growth.

Let us focus on some of its leading investment advantages.

• Stable political system – Panama is well known for its robust political system, consistently earning recognition from the World Bank as one of the most politically stable nations in Latin America. It boasts the title of the second safest country in Central America and ranks fifth in the entire American continent. The government's focus on public-private partnerships, such as the successful Panama Pacífico initiative, underscores its commitment to development and investment in the country.

• Location, location, location – Panama serves as an important connection point between the Americas, connecting East and West and North and South by sea, land and air. With over 1,100 international flights per week, Tocumen International Airport has 83 direct destinations and accommodates 40 airlines.

• Tax incentives – Thanks to the government's tax breaks, there are already over 140 multinational companies in Panama. As mentioned earlier, Panama is an attractive choice for multinational companies due to its policy of not taxing foreign earnings brought into the country and deposited in its banks.

• Growing economy – Panama has an annual economic growth of 6%, which is among the highest in Latin America. In addition, it has achieved the best credit rating in all of Central America, surpassing Costa Rica, Honduras and El Salvador. The Panamanian government has been instrumental in creating laws that encourage investment and offer tax incentives. These laws also provide legal certainty and attract foreign investors with promising returns.

How can Biz Latin Hub support you and your business?

Biz Latin Hub offers a fully integrated, multilingual team of legal, accounting and business formation services for your business plans in Latin America and the Caribbean.

With wholly owned subsidiary offices throughout the region, including Panama, we have the expertise to answer your questions and help you achieve your business goals.
To learn more about how we can help you do business in Panama and the rest of Latin America, talk to our experienced team today.