1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Panama depends heavily on foreign investment and has worked to make the investment process attractive and simple. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy, and a government that consistently supports trade and open markets and encourages foreign direct investment.
Prior to the pandemic, Panama had the highest level of Foreign Direct investment (FDI) in Central America. Through the Multinational Headquarters Law (SEM), the Multinational Manufacturing Services Law (EMMA), and a Private Public Partnership framework, Panama offers tax breaks and other incentives to attract investment. The Ministry of Commerce and Industry (MICI) is responsible for overseeing foreign investment, prepares an annual foreign investment promotion strategy, and provides services required by investors to expedite investments and project development. MICI, in cooperation with the Minister Counselor for Investment, facilitates the initial investment process and provides integration assistance once a company is established in Panama.
Panama’s Attraction of Investment and Promotion of Exports (PROPANAMÁ) program, which operates under the auspices of the Ministry of Foreign Affairs (MFA), provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other conditions are met. The Government of Panama (GoP) proposed a bill in February 2021 to make PROPANAMÁ an independent agency with its own budget (http://propanama.mire.gob.pa/sobre-propanama).
In 2020, the United States ran a $5.1 billion trade surplus in goods with Panama. Both countries have signed a Trade Promotion Agreement (TPA) that entered into force in October 2012. The U.S.-Panama TPA has significantly liberalized trade in goods and services, including financial services. The TPA also includes sections on customs administration and trade facilitation, sanitary and phytosanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protections.
Panama is one of the few economies in Latin American that is predominantly services-based. Services represent nearly 80 percent of Panama’s GDP. The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO members under the General Agreement on Trade in Services. All services sectors are covered under the TPA, except where Panama has made specific exceptions. Under the agreement, Panama has provided improved access to sectors like express delivery and granted new access in certain areas that had previously been reserved for Panamanian nationals. In addition, Panama is a full participant in the WTO Information Technology Agreement.
Panama passed a Private Public Partnership (PPP) law in 2019 and published regulations for the program in 2020, as an incentive for private investment, social development, and job creation. The law is a first-level legal framework that orders and formalizes how the private sector can invest in public projects, thereby expanding the State’s options to meet social needs. Panama’s 2021 budget included funding to implement PPP projects.
Limits on Foreign Control and Right to Private Ownership and Establishment
The Panamanian government imposes some limitations on foreign ownership in the retail and media sectors, in which, in most cases, owners must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances). There are also limits on the number of foreign workers in some foreign investment structures.
In addition to limitations on ownership, more than 200 professions are reserved for Panamanian nationals. Medical practitioners, lawyers, engineers, accountants, and customs brokers must be Panamanian citizens. Furthermore, the Panamanian government instituted a regulation that ride share platforms must use drivers who possess commercial licenses, which are available only to Panamanians.
With the exceptions of retail trade, the media, and many professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity, and the Panamanian government does not screen inbound investment. Foreigners do not need to be legally resident or physically present in Panama to establish corporations or obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.
Other Investment Policy Reviews
Panama has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization in the past three years. Panama does not have a formal investment screening mechanism, but the government monitors large foreign investments, especially in the energy sector.
Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found on the Ministry of Commerce and Industry’s website (https://www.panamaemprende.gob.pa/), where one may register a foreign company, create a branch of a registered business, or register as an individual trader from any part of the world. Corporate applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Commerce and Industry, and the Social Security Institute. Panamanian government statistics show that applications from foreign businesses typically take between one to six days to process.
The process for online business registration is clear and available to foreign companies. Panama is ranked 51 out of 190 countries for ease of starting a business and 88 out of 190 for protecting minority investors, according to the 2019 World Bank’s Doing Business Report: https://www.doingbusiness.org/en/data/exploretopics/starting-a-business#close
Other agencies where companies typically register are:
Panama does not promote or incentivize outward investment, but neither does it restrict domestic investors from investing abroad.