The positive trends I see in Panama

June 8, 2010
Panama City, Panama

I’ve been pleasantly surprised this week by some recent changes in Panama that continue to demonstrate this country’s positive momentum.

Yes, there is still corruption, squalor, pollution, and traffic amidst the soaring condominium towers and luxury car dealerships. But the larger point to capture is that Panama is clearly on an upward trend– month by month, it becomes better, nicer, more modern.

In contrast, the dying behemoths of western civilization are on an accelerating downward trend. Sure, Spain may be a nicer place than Panama at the moment, but given Panama’s steep rate of growth and Spain’s steep rate of collapse, it won’t be too many years before the two cross.

So how is Panama able to maintain its steady growth? By adhering to some core principles:

First, it continually improves and reinvests in its staple industries. For example, Panama’s major cash cow is its revenue from the Canal. Rather than suck out all the revenue and let the Canal go to waste, however, the country is currently undergoing an ambitious expansion project to modernize the waterway and keep up with industry demand.

Furthermore, the Canal authority is making constant investments in its efficiency in order to reduce transit times through the Canal. This provides substantial value to shippers worldwide.

Contrast this with a country like Mexico, which has substantial oil wealth but has failed year after year to make adequate investments in new exploration and extraction technology. Consequently, Mexico’s oil production is on a major slide, and it won’t be too long before the country becomes a net importer.

The second component of Panama’s success is its friendliness to foreigners– the government makes it easy for foreign businesses and individuals to relocate and invest in the country.

For individuals, there are a variety of simple programs whereby a foreigner can establish residency, ranging from the Italian bilateral treaty to the $1,000/month retirement program to the $80,000 reforestation investment to the $200,000 economic solvency visa.

Many of these residency programs lead to Panamanian citizenship after a five-year period. Furthermore, since the Panamanian government does not tax income earned outside of the country, it is an excellent place to plant a ‘tax residency’ flag for permanent travelers.

It’s also possible to live in the country without having to ever declare official residency. Panamanian immigration authorities grant extendable 90-day tourist visas to nationals of North America, Europe, and Oceania among others, which means you could stay indefinitely in the country on a tourist visa.

Once the 90-days is up, you could either extend the visa or leave the country for a short trip. The government recently made this practice even easier by dropping the requirement to purchase a $5 ‘tourist card’ at the border.

Lastly, one of the big keys to Panama’s success is its friendliness to business. In Panama, a business can be created almost instantly, and one can even purchase a shelf corporation with an existing bank account. In many other countries, this registration process can take weeks.

The government even has an English-language website to simplify the registration process of new corporate entities. (note: consult with a qualified tax advisor before undergoing a step like this)

For registered companies without income from Panamanian sources, there are no local taxes due and no reporting requirements. For Panamanian sourced income, the corporate tax rate was just reduced from 30% to 27.5%, and will be further reduced to 25% in 2011.

While there are some loopholes available, labor laws can be cumbersome for employers in Panama… regardless, though, there are still a few businesses that I would be interested in owning down here, and I will be discussing one of them tomorrow.

Lastly, I should mention that foreigners are given full consideration for government contracts in Panama, including for the Canal expansion project. The government recently introduced a new Spanish-language procurement website which includes bid solicitations for upcoming projects. Some of these may be of interest to you.