Let us first start with the good reasons to do business in Panama. Scroll down to learn about the risks of investing in Panama.
1. Banks in Panama are the best capitalised banks in the world
Panama has no Central Bank. Banks in Panama are responsible for their own actions, and cannot count on a government to bail them out if they fail. As a consequence, they are far more capitalised than banks in the US or Europe.The United States has a reserve requirement of less than 10%, in Germany it is only 2%. But in Panama the reserve ratio of independent banks is hovering around 60%. Together with some Islamic banks Panamanian banks are the safest in the world!
Having no Central bank does not mean there are no rules: Panama’s banking authorities provide a legal framework under which banks operate. Laws to prevent money laundering are far more comprehensive than in the US. Since the enactment of the 1971 Banking Law, not a single Panamanian bank has gone bankrupt.
2. Panama uses the dollar
Ever since its founding, Panama has been using the US dollar as means of exchange. The official currency is the virtual Balboa, which is tied one on one with the Dollar. It has served Panama well: where Central and South-American neighbours often inflated their currencies and destroyed their economies, Panama has been relatively stable.
Should the US dollar itself drop in value to unacceptable levels, the Panamanian government can untie the Balboa overnight and save al bank deposits.
3. Strict banking secrecy
Privacy laws are strictly enforced in Panama. Financial privacy is no exception. In the last 5 year Panama did sign a number of tax -and information exchange treaties, but foreign and national governments still have to prove just cause in court before banking data can be disclosed.
4. Territorial tax system
Panama has a unique tax system that only charges citizens and businesses who reside within its territory. This kind of ‘fiscal neutrality’ used to be the norm 50 years ago, but nowadays most countries tax their citizens on world-wide income. Not Panama, here government still has its limits.
5. Low taxes
While tax rates are not extraordinary low, there are far fewer taxes in Panama and many exemptions available.Here is an overview of taxation.
6. Clear company law
Panama has one of the most successful company and shipping registrars in the world. This is because Panama’s companies’ law has been modelled after the equally successful companies’ law of Delaware.
7. No standing army
Panama has been a neutral country for all its history. After the negative experience under the Noriega regime, the army has been abolished. It saves the government valuable resources as well.
8. Low crime rates
Panama has been named the safest country in Central America by Lonely Planet. Panama City’s poorer neighbourhoods do suffer from drug-related crime, but ordinary citizens have little to fear.
9. No socialist government
Socialism has destroyed many economies in Central and South America, but Panama was and will not be one of them. Current President Carlos Varela comes from an entrepreneurial family, Hnos. Varela distillery famous for its Abuelo Rum. While he does support some populist socialist pet projects, it is unlikely Panama will run out of toilet paper soon like Venezuela.
10. The Panama Canal
For a country with only 3.5 million residents, being in charge of one the world’s most important shipping lanes provides a huge boost to the economy, as well as much welcomed income for the treasury. The Panama Canal is currently being expanded and will have double capacity by 2014. There are many indirect positive effects as well:
11. World class financial hub
Panama’s number one source of income is financial services. Some 92 banks are located in Panama City plus countless law firms and affiliated businesses such as mine.
13. Well connected airport
Tocumen Airport is the largest and busiest airport in Central America. With low landing fees and more expansions under way it will attract more airlines in the years to come.
14. Open immigration policy
Panama is welcoming to foreigners. There are many visa programs, and with a little effort anybody can get in. There are no racial tensions either.
15. Booming economy
- 2013 – 8.4%
- 2012 – 10.3%
- 2011 – 10.6%
- 2010 – 7.6%
- 2009 – 3.9%
- 2008 – 10.1%
This is all great BUT…
Risks of investing in Panama
Now lets show you a side you won’t read on most web sites. The rules below must be seen as guidelines and will probably apply to most Central and South American countries.
1. Panama is not (yet) a modern country
When landing in Panama City you will be amazed to see the glittering skyscrapers and all the modern infrastructure that comes with it. But underneath the shiny modern façade is a developing country both in technology and in business ethics. Keep your eyes open or you might quite literally fall in a manhole.
2. Panama is filled with crooks, conmen and scam artists
Taking advantage of people is more the norm rather than the exception. Foreigners with respectable balance sheets are a walking target. Do not expect local ex-pats to be any different: many will exploit your misguided trust. Do not blindly believe anything written on the internet, do your own research. When initiating a new business relationship, take baby-steps at a time.
3. Everybody will overcharge you
Taxi’s, lawyers, real estate agents, accountants, construction foremen etc.: the majority of people will try to overcharge you. People in Panama take the expression “Honesty doesn’t pay” very seriously. Short term gains take precedence over long term business relationships.
4. You are a money tree
Whether you are a successful entrepreneur or a poor student backpacker, as a white faced foreigner people will assume you have endless means. To a certain extent this observation makes sense, but it certainly doesn’t entitle poorer people to your hard earned wealth simply for the fact that they are poor. Nothing in life comes for free.
5. A promise is a way to make you feel good
When someone makes you a promise, you should not perceive it as a verbal agreement. Rather, your conversation partner was merely trying to make you feel good. If you want an agreement, make a contract.
6. Be careful with contracts
All contracts in Panama have to be written in Spanish to be legal in court. Do not let your business interest compose the contract unless your Spanish is of advanced level. Contracts will often be used against you, and it is better to write them yourself or have your lawyer write them for you.
7. Find a good lawyer
This is one of the hardest things to do as there is no way to measure a good lawyer. Certainly not in Panama. Trying out references of other foreigners is a good start, but do not take their word for it.
8. Do not trust the legal system
In any country it is always best to avoid court cases, but in Panama an ounce of prevention is worth a ton of cures. Remember you are a walking target and a money tree, and there is certainly no mercy for you in court.
9. Do not pay anything upfront
When fulfilling a contractual obligation, always pay in terms. If the other party fails to keep their promise, little to nothing will be lost. Of course this rule is reversed if you are the receiving party. In that case do not do anything before you get paid.
10. Do not expect expertise
Be it white collar or blue collar workers, you will encounter few skilled workers or companies. Cherish the ones that do posses serious skills, but be careful not to be too generous or rule number 3 will apply. (As Wikipedia puts it: shortage of skilled labor, but an oversupply of unskilled labor.)
11. Keep your business below the radar
Whether you are considering a business in Panama or simply construct your retirement home, keep it below the radar. Do not be too eager to comply with government regulations or you’ll end up paying more than you legally should. In most cases, it is better to wait for the government to come to you.
12. Be a good neighbour
If you choose to live in Panama, then take full responsibility. Be grateful for the good and try to tolerate and improve the bad. Learn Spanish, act generous but not foolish and be the change you like to see in this world. Panama is not a perfect paradise but there are plenty of opportunities to realize your dreams.
Contact us if you like to know more about doing business in Panama.