Given its dollarized economy, a stable democratic government, the Panama Canal, the world’s second largest free trade zone, a network of free trade agreements, and a strategic geographical location, Panama attracts high levels of foreign direct investment from around the world and has solid potential as a foreign direct investment (FDI) magnet and regional hub for a number of sectors. Panama attracts more U.S. FDI than any other country in Central America, closing 2019 with $5.27 billion, according to the U.S. Bureau of Economic Analysis.
Over the last decade, Panama had been one of the Western Hemisphere’s fastest growing economies. However, 2020 was a difficult year for Panama, which saw a GDP contraction of 17.9 percent, 18.5 percent unemployment, government revenues down by a third, and downgrades in its investment grade sovereign bond rating. Analysts forecast 4-5 percent GDP gains for 2022-2025. The global crisis hit many of Panama’s key industries, including tourism, construction, real estate, aviation, and services ancillary to trade. However, key industries such as banking, mining, the maritime sector, and Canal operations have remained stable throughout the crisis.
Panama faces structural challenges even beyond those caused by the COVID-19 pandemic, including corruption, an inefficient judicial system, an under-educated workforce, and an inflexible labor code, which often discourage additional foreign investments or complicate existing ones. With a population of just over four million, Panama’s small market size is not worth the perceived risk of investment for many companies. The World Bank classified Panama in July 2018 as a “high-income” jurisdiction in its annual country classifications, after its Gross National Income per capita moved past the threshold for high-income classification. Nevertheless, Panama is one of the most unequal countries in the world, with the 17th highest Gini Coefficient and a national poverty rate of 18 percent, with pockets of 90 percent poverty in indigenous regions.
The Cortizo administration has addressed investment challenges by prioritizing key economic reforms required to improve the investment climate and passing a new investment incentives measure for the manufacturing industry. It also created a new Minister Counselor for Investment position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. Unfortunately, the pandemic has caused the government to pivot to crisis management and basic economic recovery, although efforts to attract investment continue. Panama also remains on the Financial Action Task Force’s grey list for systemic deficiencies that impede progress in combatting money laundering and terrorist financing.
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.
Panama does not promote or incentivize outward investment, but neither does it restrict domestic investors from investing abroad.
2. Bilateral Investment and Taxation Treaties
Panama has 21 bilateral investment protection agreements with: Argentina, Canada, Chile, Cuba, the Czech Republic, the Dominican Republic, Finland, France, Germany, Israel, Italy, the Netherlands, Mexico, Qatar, South Korea, Spain, Sweden, Switzerland, Ukraine, the United Kingdom, and Uruguay. Panama has signed two BITs that are still pending entry into force with Belgium/ Luxembourg, and the United Arab Emirates. Post is not aware of current negotiations with any other countries.
The U.S.-Panama Bilateral Investment Treaty (BIT) entered into force in 1991 and was amended in 2001. The BIT ensures that, with some exceptions, U.S. investors receive fair, equitable, and nondiscriminatory treatment and that both parties abide by international legal standards, such as those for expropriation and compensation and free transfers. Following the October 31, 2012 implementation of the TPA, the investor protection provisions in the TPA have supplanted those in the BIT. However, until October 30, 2022, investors may choose to invoke dispute settlement under the BIT for disputes that arose prior to the TPA’s entry into force, or for disputes related to investment agreements that were completed before the TPA entered into force. Panama has closely scrutinized, and in some cases disputed, which firms may qualify for preferred treatment under the BIT and TPA. Panama also has a bilateral taxation treaty with the United States.
Panama established diplomatic relations with the People’s Republic of China in June 2017. Under the then-Varela administration, the countries were negotiating a free trade agreement. However, there have been no further negotiations since July 2019, when the Cortizo administration took office.
In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Superintendency of the Securities Market is generally considered a transparent, competent, and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).
Panama has five regulatory agencies, four that supervise the activities of financial entities (banking, securities, insurance, and “designated non-financial businesses and professions (DNFBPs)” and a fifth that oversees credit unions. Each of the regulators regularly publishes on their websites detailed policies, laws, and sector reports, as well as information regarding fines and sanctions. Panama’s banking regulator began publishing fines and sanctions in late 2016. The securities and insurance regulators have published fines and sanctions since 2010. Law 23 of 2015 created the regulator for DNFBPs, which began publishing fines and sanctions in 2018. In January 2020, the regulator for DNFBPs was granted independence and superintendency status similar to that of the banking regulator. Post is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations.
Relevant ministries or regulators oversee and enforce administrative and regulatory processes. Any administrative errors or omissions committed by public servants can be challenged and taken to the Supreme Court for a final ruling. Regulatory bodies can impose sanctions and fines which are made public and can be appealed.
Laws are developed in the National Assembly. A proposed bill is discussed in three rounds, edited as needed, and approved or rejected. The President then has 30 days to approve or veto a bill the Assembly has passed. If the President vetoes the bill, it can be returned to the National Assembly for changes or sent to the Supreme Court to rule on its constitutionality. If the bill was vetoed for reasons of unconstitutionality, and the Supreme Court finds it constitutional, the President must sign the bill. Regulations are created by agencies and other governmental bodies but they can be modified or overridden by higher authorities.
In general, draft bills, including those for laws and regulations on investment, are made available on the National Assembly’s website and can be introduced for discussion at the bill’s first hearing. All bills and approved legislation are published in the Official Gazette in full and summary form and can also be found on the National Assembly’s website: https://www.asamblea.gob.pa/buscador-de-gacetas.
Accounting, legal, and regulatory procedures in Panama are based on standards set by the International Financial Reporting Standards (IFRS) Foundation, including financial reporting standards for small and medium-sized enterprises (SMEs). Panama is a member of UNCTAD’s international network of transparent investment procedures. Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations, including the number of steps, the names and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing times, and legal bases justifying the procedures.
Information on public finances and debt is published on the Ministry of Economy and Finance’s website under the directorate of public finance, but it is not consistently updated: https://fpublico.mef.gob.pa/en.
International Regulatory Considerations
Panama is part of the Central American Customs Union (CACU), the regional economic block for Central American countries. Panama has adopted many of the Central American Technical Regulations (RTCA) for intra-regional trade in goods. Panama applies the RTCA to goods imported from any CACU member and updates Panama’s regulations to be consistent with RTCA. However, Panama has not yet adopted some important RTCA regulations, such as for processed food labeling.
The United States and Panama signed an agreement regarding “Sanitary and Phytosanitary Measures and Technical Standards Affecting Trade in Agricultural Products,” which entered into force on December 20, 2006. The application of this agreement supersedes the RTCA for U.S. food and feed products imported into Panama.
A 2006 law established the Panamanian Food Safety Authority (AUPSA) to issue science-based sanitary and phytosanitary (SPS) import policies for food and feed products entering Panama. Since 2019, AUPSA and other government entities have implemented or proposed measures that restrict market access. These measures have also increased AUPSA’s ability to limit the import of certain agricultural goods. The Panamanian Government, for example, has issued regulations on onions and withheld approval of genetically-modified foods, limiting market access and resulting in the loss of millions in potential investment. In March 2021, President Cortizo signed a new bill that eliminated AUPSA and replaced it with the Panamanian Food Agency (APA). The APA intends to improve efficiency for agro-exports and industrial food processes, as well as increase market access.
Historically, Panama has referenced or incorporated international norms and standards into its regulatory system, including the Agreements of the World Trade Organization (WTO), Codex Alimentarius, the World Organization for Animal Health (OIE), the International Plant Protection Convention, the World Intellectual Property Organization, the World Customs Organization, and others. Also, Panama has incorporated into its national regulations many U.S. Food and Drug Administration regulations, such as the Pasteurized Milk Ordinance.
Panama, as a member of the WTO, notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). However, in the last four years it has ignored comments on its regulations offered by other WTO members, including but not limited to the United States.
Legal System and Judicial Independence
When ruling on cases, judges rely on the Constitution and direct sources of law such as codes, regulations, and statutes. In 2016, Panama transitioned from an inquisitorial to an accusatory justice system, with the goal of simplifying and expediting criminal cases. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the United States. Judicial pleadings are not always a matter of public record, nor are processes always transparent.
Panama has a legal framework governing commercial and contractual issues and has specialized commercial courts. Contractual disputes are normally handled in civil court or through arbitration, unless criminal activity is involved. Some U.S. firms have reported inconsistent, unfair, and/or biased treatment from Panamanian courts. The judicial system’s capacity to resolve contractual and property disputes is often weak, hampered by a lack of technological tools and susceptibility to corruption. The World Economic Forum’s 2019 Global Competitiveness Report rated Panama’s judicial independence at 129 of 137 countries.
The Panamanian judicial system suffers from significant budget shortfalls that continue to affect all areas of the system. The transition to the accusatory system faces challenges in funding for personnel, infrastructure, and operational requirements, while addressing a significant backlog of cases initiated under the previous inquisitorial system. The judiciary still struggles with lack of independence, a legacy of an often-politicized system for appointing judges, prosecutors, and other officials. Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the two branches.
Regulations and enforcement actions can be appealed through the legal system from Municipal Judges, to Circuit Judges, to Superior Judges, and ultimately to the Supreme Court.
Laws and Regulations on Foreign Direct Investment
Panama has different laws governing investment incentives, depending on the activity, including its newest law intended to draw manufacturing investment, the 2020 Multinational Manufacturing Services Law (EMMA). In addition, it has a Multinational Headquarters Law (SEM), a Tourism Law, an Investment Stability Law, and miscellaneous laws associated with particular sectors, including the film industry, call centers, certain industrial activities, and agricultural exports. In addition, laws may differ in special economic zones, including the Colon Free Zone, the Panama Pacifico Special Economic Area, and the City of Knowledge.
Government policy and law treat Panamanian and foreign investors equally with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.
The Ministries of Tourism, Public Works, and Commerce and Industry, as well as the Minister Counselor for Investment, promote foreign investment. However, some U.S. companies have reported difficulty navigating the Panamanian business environment, especially in the tourism, branding, imports, and infrastructure development sectors. Although individual ministers have been responsive to U.S. companies, fundamental problems such as judicial uncertainty are more difficult to address. U.S. companies have complained about several ministries’ failure to make timely payments for services rendered, without official explanation for the delays. U.S. Embassy Panama is aware of tens of millions of dollars in overdue payments that the Panamanian government owes to U.S. companies.
Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions.
The Ministry of Commerce and Industry’s website lists information about laws, transparency, legal frameworks, and regulatory bodies.
Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45 on October 31, 2007, and modified by Law 29 of June 2008, reviews transactions for competition-related concerns and serves as a consumer protection agency.
Expropriation and Compensation
Panamanian law recognizes the concept of eminent domain, but it is exercised only occasionally, for example, to build infrastructure projects such as highways and the metro commuter train. In general, compensation for affected parties is fair. However, in at least one instance a U.S. company has expressed concern about not being compensated at fair market value after the government revoked a concession. There have been no cases of claimants citing a lack of due process regarding eminent domain.
ICSID Convention and New York Convention
Panama is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards).
Investor-State Dispute Settlement
Panama is a signatory to several agreements and Bilateral Investment Treaties (BITs) in which binding international arbitration of investment disputes is recognized. Panama has a total of 11 Free Trade Agreements (FTA), including with Singapore, Peru, Central America, Mexico, South Korea, and Israel, as well as the Trade Promotion Agreement (TPA) with the United States. Panama also has more than 20 BITs with different countries around the world, such as Germany, Italy, the Netherlands, Qatar, Sweden, Switzerland, and the United Kingdom, among others. Panama also has a BIT with the United States. There have been four claims by U.S. investors under these agreements under the ICSID.
Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into the U.S.-Panamanian trade agreement, investors have struggled to resolve investment issues in court and have often reverted to arbitration. There are frequent claims of bias and favoritism in the judicial system and complaints about inadequate titling, inconsistent regulations, and a lack of trained officials outside the capital.
There have been allegations that politically connected businesses have received preferential treatment in court decisions and that judges have “slow-rolled” dockets for years without taking action. Panamanian law firms often suggest writing binding arbitration clauses into all commercial contracts. Local courts recognize and enforce foreign arbitration awards issued against the government. Post is not aware of any extrajudicial actions against foreign investors.
International Commercial Arbitration and Foreign Courts
The Panamanian government accepts binding international arbitration of disputes with foreign investors. Private entities are increasingly reaching out for Alternative Dispute Resolution (ADR) in Panama, primarily due to a lack of confidence in the national judicial system and the attractiveness of a quick turnaround for the settlement of disputes. Two organizations handle most arbitration cases in Panama: the Chamber of Commerce of Panama and the International Chamber of Commerce, via their affiliations with the Panamanian Center for Conflict Resolution and Arbitration (Centro de Conciliación y Arbitraje de Panamá (CeCAP)).
Panama is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as well as to the similar 1975 Panama OAS Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 of 2013 regulates national and international commercial arbitrations in Panama.
The World Bank 2020 Doing Business Indicator currently ranks Panama 113 out of 190 jurisdictions for resolving insolvency because of a slow court system and the complexity of the bankruptcy process. Panama adopted a new insolvency law (similar to a bankruptcy law) in 2016, but the Doing Business Indicator ranking has not identified material improvement for this metric. The Panamanian Government has proposed a bill that would significantly improve bankruptcy proceedings. As of the writing of this report the bill was awaiting the President’s signature.
4. Industrial Policies
Panama provides Industrial Promotion Certificates (IPCs) to incentivize industrial development in high-value-added sectors. Targeted sectors include research and development, management and quality assurance systems, environmental management, utilities, and human resources. Approved IPC’s provide up to 35 percent in tax reimbursements and preferential import tariffs of 3 percent. Panama does not have a practice of issuing guarantees or jointly financing FDI projects.
Law 1 (2017) modified Law 28 (1995) by exempting exports from income tax, and exempting from import duty machinery for companies that export 100 percent of their products. Producers that sell any portion of their products in the domestic market pay only a three percent import tariff on machinery and supplies.
Law 41, the Special Regime for the Establishment and Operation of Multinational Company Headquarters (SEM), was enacted in 2007 to encourage multinational investment in Panama. The law focuses on administrative back office operations, such as payroll, accounting, and other functions. Any company that is licensed under SEM will automatically qualify for MSM.
The GoP enacted Law 159 on Manufacturing Services for Multinational Companies (EMMA) in 2020 as a special incentive law to attract Foreign Direct Investment in manufacturing, remanufacturing, maintenance and product repair, assembly, logistics services, and refurbishing. The EMMA law is a complement to the SEM law and offers tax and employee incentives, reducing import duties and fees for equipment and supplies used in the manufacturing process, to companies that qualify.
In 2012, Panama introduced a tourism incentive law to promote foreign investment in tourism and the hospitality industry. The incentives are available outside the district of Panama to companies registered through the National Tourism Registry of the Panama Tourism Authority (ATP) and provide tax incentives and exemptions on real estate, imported good, construction materials, appliances, furniture, and equipment. Panama further modified the law in 2019 to provide additional tax credits for new projects and extensions on existing projects. These tax credits must be used within ten years from the start of a project.
Foreign Trade Zones/Free Ports/Trade Facilitation
Panama is home to the Colon Free Trade Zone, the Panama Pacifico Special Economic Zone, and 18 other “free zones,” 12 active and six in development. The Colon Free Trade Zone has more than 2,500 businesses, the Panama Pacifico Special Economic Zone has more than 345 businesses, and the remaining free zones host 126 companies in total. These zones provide special tax and other incentives for manufacturers, back office operations, and call centers. Additionally, the Colon Free Zone offers companies preferential tax and duty rates that are levied in exchange for basic user fees and a five percent dividend tax (or two percent of net profits if there are no dividends). Banks and individuals in Panama pay no tax on interest or other income earned outside Panama. No taxes are withheld on savings or fixed time deposits in Panama. Individual depositors do not pay taxes on time deposits. Free zones offer tax-free status, special immigration privileges, and license and customs exemptions to manufacturers who locate within them. Investment incentives offered by the Panamanian government apply equally to Panamanian and foreign investors.
Performance and Data Localization Requirements
There are no legal performance requirements such as minimum export percentages, significant requirements of local equity interest, or mandatory technology transfers. There are no requirements that host country nationals be chosen to serve in roles of senior management or on boards of directors. There are no established general requirements that foreign investors invest in local companies, purchase goods or services from local vendors, or invest in research and development (R&D) or other facilities. Depending on the sector, companies may be required to have 85-90 percent Panamanian employees. There are exceptions to this policy, but the government must approve these on a case-by-case basis. Fields dominated by strong unions, such as construction, have opposed issuing work permits to foreign laborers and some investors have struggled to fully staff large projects. Visas are available and the procedures to obtain work permits are generally not considered onerous.
As part of its effort to become a hub for finance, logistics, and communications, Panama has endeavored to become a data storage center. According to the Panamanian Authority for Government Innovation (AIG, http://www.innovacion.gob.pa/noticia/2834), most of these firms offer services to banking and telephone companies in Central America and the Caribbean. Panama boasts exceptional international connectivity, with seven undersea fiber optic cables and an eighth currently under construction.
Panama’s data protection law (Law 81, March 26, 2019) established the principles, rights, obligations, and procedures that regulate the protection of personal data. The National Authority for Transparency and Access to Information oversees the law’s enforcement, which began in March 2021. The National Authority for Government Innovation is working closely with large private sector companies to draft specific data protection regulations. The personal privacy of communications and documents is provided for in the Panamanian Constitution as a fundamental right (Political Constitution, article 29). The Constitution also provides for a right to keep personal data confidential (article 44). The Criminal Code imposes an obligation on businesses to maintain the confidentiality of information stored in databases or elsewhere and establishes several crimes for the misuse of such information (Criminal Code, articles 164, 283, 284, 285, 286). Panama’s electronic commerce legislation also states that providers of electronic document storage must guarantee the protection, reliability, and proper use of information and data stored on behalf of their customers (Law 51, July 22, 2008, article 55).
5. Protection of Property Rights
Mortgages and liens are widely used in both rural and urban areas and the recording system is reliable. There are no specific regulations regarding land leasing or acquisition by foreign and/or non-resident investors.
A large portion of land in Panama, especially outside of Panama City, is not titled. A system of rights of possession exists, but there are multiple instances where such rights have been successfully challenged. The World Bank’s Doing Business 2020 report (http://www.doingbusiness.org/data/exploreeconomies/panama) notes that Panama is ranked 87 out of 190 countries on the Registering Property indicator and ranks 141st in enforcing contracts. Panama enacted Law 80 (2009) to address the lack of titled land in certain parts of the country; however, the law does not address deficiencies in government administration or the judicial system. In 2010, the National Assembly approved the creation of the National Land Management Authority (ANATI) to administer land titling; however, investors have complained about ANATI’s capabilities and lengthy adjudication timelines. ANATI has attempted to clean up some titling issues and sought international assistance to modernize.
The judicial system’s capacity to resolve contractual and property disputes is generally considered weak and susceptible to corruption, as illustrated by the most recent World Economic Forum’s Global Competitiveness Report 2019 (http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf), which ranks Panama’s judicial independence as 129 out of 141 countries. Americans should exercise greater due diligence in purchasing Panamanian real estate than they would in purchasing real estate in the United States. Engaging a reputable attorney and a licensed real estate broker is strongly recommended.
If legally purchased property is unoccupied, property ownership can revert to other owners (squatters) after 15 years of living on or working the land, although the parties must go to court to resolve ownership.
Intellectual Property Rights
Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights (IPR). The legal structure is strong, enforcement is generally good, and infringement on rights and theft is uncommon. There were no new laws or regulations proposed or enacted in the past year, although Customs is in the process of modifying its contraband legislation. The U.S.-Panama TPA improved standards for the protection and enforcement of a broad range of IPR, including patents; trademarks; undisclosed tests and data required to obtain marketing approval for pharmaceutical and agricultural chemical products; and digital copyright products such as software, music, books, and videos. To implement the requirements of the TPA, Panama passed Law 62 of 2012 on industrial property and Law 64 of 2012 on copyrights. Law 64 also extended copyright protection to the life of the author plus 70 years, mandates the use of legal software in government agencies, and protects against the theft of encrypted satellite signals and the manufacturing or sale of tools to steal signals.
Panama is a member of the Paris Convention for the Protection of Industrial Property. Panama’s Industrial Property Law (Law 35 of 1996) provides 20 years of patent protection from the date of filing, or 15 years from the filing of pharmaceutical patents. Panama has expressed interest in participating in the Patent Protection Highway with the U.S. Patent and Trademark Office (USPTO). Law 35, amended by Law 61 of 2012, also provides trademark protection, simplified the registration of trademarks, and allows for renewals for 10-year periods. The law grants ex-officio authority to government agencies to conduct investigations and seize suspected counterfeit materials. Decree 123 of 1996 and Decree 79 of 1997 specify the procedures that National Customs Authority (ANA) and Colon Free Zone officials must follow to investigate and confiscate merchandise. In 1997, ANA created a special office for IPR enforcement; in 1998, the Colon Free Zone followed suit.
The Government of Panama is making efforts to strengthen the enforcement of IPR. A Committee for Intellectual Property (CIPI), comprising representatives from five government agencies (the Colon Free Zone, the Offices of Industrial Property and Copyright under the
Ministry of Commerce and Industry (MICI), the Customs Administration (ANA), and the Attorney General), under the leadership of the MICI, is responsible for the development of intellectual property policy. Since 1997, two district courts and one superior tribunal have exclusive jurisdiction of antitrust, patent, trademark, and copyright cases. Since January 2003, a specific prosecutor with national authority over IPR cases has consolidated and simplified the prosecution of such cases. Law 1 of 2004 added crimes against IPR as a predicate offense for money laundering, and Law 14 establishes a 5 to 12-year prison term.
Various Panamanian entities track and report on seizures of counterfeit goods, but there is no single repository or website that consolidates this information. Panama’s Public Ministry has a Specialized Prosecutors Office dedicated to IPR violations, but there have so far been no criminal prosecutions for IPR violations. Panama executes search warrants on businesses that trade in counterfeit goods, but such items are usually seized administratively without criminal prosecutions.
Panama is not included in the United States Trade Representative (USTR) 2021 Special 301 Report. According to USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy, a hosting provider reportedly operating from Panama supports sites offering IPR-infringing content.
Panama has a stock market with an effective regulatory system developed to support foreign investment. Article 44 of the constitution guarantees the protection of private ownership of real property and private investments. Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. While some Panamanians may hold overlapping interests in various businesses, there is no established practice of cross-shareholding or stable shareholder arrangements designed to restrict foreign investment through mergers and acquisitions. Panama has agreed to IMF Article VIII and pledged not to impose restrictions on payments and transfers for current international transactions.
In 2012, Panama modified its securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Superintendency of the Securities Market is generally considered a competent and effective regulator. Panama is a full signatory to the International Organization of Securities Commissions (IOSCO).
Government policy and law with respect to access to credit treat Panamanian and foreign investors equally. Panamanian interest rates closely follow international rates (i.e., the U.S. federal funds rate, the London Interbank Offered Rate, etc.), plus a country-risk premium.
Money and Banking System
Panama’s banking sector is developed and highly regulated and there are no restrictions on a foreigner’s ability to establish a bank account. Foreigners are required to present a passport and taxpayer identification number and an affidavit indicating that the inflow and outflow of money meets the tax obligations of the beneficiary’s tax residence. The adoption of financial technology in Panama is nascent, but there are several initiatives underway to modernize processes.
Some U.S. citizens and entities have had difficulty meeting the high documentary threshold for establishing the legitimacy of their activities both inside and outside Panama. Banking officials counter such complaints by citing the need to comply with international financial transparency standards. Several of Panama’s largest banks have gone so far as to refuse to establish banking relationships with whole sectors of the economy, such as casinos and e-commerce, in order to avoid all possible associated risks. Regulatory issues have made it difficult for some private U.S. citizens to open bank accounts in Panama, leaving some legitimate businesses without access to banking services in Panama. Panama has no central bank.
The banking sector is highly dependent on the operating environment in Panama, but it is generally well-positioned to withstand shocks. The banking sector could be impacted if Panama’s sovereign debt rating continues to fall. In early 2021, Fitch downgraded four private banks and one state-owned bank, based primarily on concerns about Panama’s pandemic-related weakening of public finances. As of this writing, three banks have been downgraded to non-investment grade. Approximately 4.7 percent of total banking sector assets are estimated to be non-performing. The four largest banks have total assets of $54.5 billion, which represents 47.07 percent of the National Banking System.
Panama’s 2008 Banking Law regulates the country’s financial sector. The law concentrates regulatory authority in the hands of a well-financed Banking Superintendent (https://www.superbancos.gob.pa/).
Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the government and is viewed as essential to Panama’s 68 banks (2 official banks, 39 domestic banks, 17 international banks, and 10 bank representational offices).
Foreign banks can operate in Panama and are subject to the same regulatory regime as domestic banks. Panama has not lost any correspondent banking relationships in the last three years.
There are no restrictions on, nor practical measures to prevent, hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control, or other practices that restrict foreign participation. There are no government or private sector rules that prevent foreign participation in industry standards-setting consortia. Financing for consumers is relatively open for mortgages, credit cards, and personal loans, even to those earning modest incomes.
Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics hub, and favorable corporate and tax laws make it an attractive destination for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds in Panama. Criminals have been accused of laundering money through shell companies and via bulk cash smuggling and trade at airports and seaports, and in active free trade zones.
In 2015, Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a law on anti-money laundering/combating the financing of terrorism (AML/CFT). Panama also approved Law 18 (2015), which severely restricts the use of bearer shares; companies still using them must appoint a custodian and maintain strict controls over their use. In addition, Panama passed Law 70 (2019), which criminalizes tax evasion and defines it as a money laundering predicate offense.
In June 2019, the Financial Action Task Force (FATF) added Panama to its grey list of jurisdictions subject to ongoing monitoring due to strategic AML/CFT deficiencies. FATF cited Panama’s lack of “positive, tangible progress” in measures of effectiveness. Panama agreed to an Action Plan in four major areas: 1) risk, policy, and coordination; 2) supervision; 3) legal persons and arrangements; and 4) money laundering investigation and prosecution. The Action Plan outlined concrete measures that were to be completed in stages by May and September 2020. Due to the COVID-19 pandemic, FATF granted Panama two extensions, pushing the deadline to January 2021. At its plenary in February 2021, FATF left Panama on the grey list and noted its progress so far, but also pointed to Action Plan items that still need to be addressed.
Panama is only beginning to accurately track criminal prosecutions and convictions related to money laundering and tax evasion. Law enforcement needs more tools and training to conduct long-term, complex financial investigations, including undercover operations. The criminal justice system remains at risk for corruption. However, Panama has made progress in assessing high-risk sectors, improving inter-ministerial cooperation, and passing (though not yet implementing) a law on beneficial ownership. Additionally, the GoP and the United States recently signed an MOU to provide training to combat money laundering and corruption, through judicial investigations, prosecutions, and convictions.
Foreign Exchange and Remittances
Panama’s official currency is the U.S. Dollar.
Panama has customer due diligence, bulk cash, and suspicious transaction reporting requirements for money service providers (MSB), including 18 remittance companies. Post is not aware of any time limits or waiting periods for remittances. In 2017, the Bank Superintendent assumed oversight of AML/CFT compliance for MSBs. The Ministry of Commerce and Industry (MICI) grants operating licenses for remittance companies under Law 48 (2003). There have not been any changes to the remittance policies in 2020.
Sovereign Wealth Funds
Panama started a sovereign wealth fund, called the Panama Savings Fund (FAP), in 2012 with an initial capitalization of $1.3 billion. The fund follows the Santiago Principles and is a member of the International Forum of Sovereign Wealth Funds. The law mandates that from 2015 onward contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP must be deposited into the Fund. In October 2018, the rule for accumulation of the savings was modified to require that when contributions from the Canal exceed 2.5 percent of GDP, half the surplus must go to national savings. At the end of 2020 the fund had $1.38 billion in equity, compared to $1.39 billion at the end of 2019, with less than 3 percent invested domestically. Panama withdrew $105 million from the FAP in 2020 for pandemic relief. The fund had a gross income of $96 million in 2020.
7. State-Owned Enterprises
Panama has 16 non-financial State-Owned Enterprises (SOE) and 8 financial SOEs that are included in the budget and broken down by enterprise. Each SOE has a Board of Directors with Ministerial participation. SOEs are required to send a report to the Ministry of Economy and Finance, the Comptroller General’s Office, and the Budget Committee of the National Assembly within the first ten days of each month showing their budget implementation. The reports detail income, expenses, investments, public debt, cash flow, administrative management, management indicators, programmatic achievements, and workload. SOEs are also required to submit quarterly financial statements. SOEs are audited by the Comptroller General’s Office.
The National Electricity Transmission Company (ETESA) is an example of an SOE in the energy sector, and Tocumen Airport and the National Highway Company (ENA) are SOEs in the transportation sector. Financial allocations and earnings from SOEs are publicly available at the Official Digital Gazette (http://www.gacetaoficial.gob.pa/). There is a website under construction that will consolidate information on SOEs: https://panamagov.org/organo-ejecutivo/empresas-publicas/#.
Panama’s privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations. The law calls for pre-screening of potential investors or bidders in certain cases to establish technical capability, but nationality and Panamanian participation are not criteria. The Government of Panama undertook a series of privatizations in the mid-1990s, including most of the country’s electricity generation and distribution, its ports, and its telecommunications sector. There are presently no privatization plans for any major state-owned enterprise.
8. Responsible Business Conduct
Panama maintains strict domestic laws relating to labor and employment rights and environmental protection. While enforcement of these laws is not always stringent, major construction projects are required to complete environmental assessments, guarantee worker protections, and comply with government standards for environmental stewardship.
The ILO program “Responsible Business Conduct in Latin America and the Caribbean” is active in Panama and has partnered with the National Council of Private Enterprise (CoNEP) to host events on gender equality. Panama does not yet have a State National Action Plan on Business and Human Rights.
In February 2012, Panama adopted ISO 26000 to guide businesses in the development of corporate social responsibility (CSR) platforms. In addition, business groups, including the Association of Panamanian Business Executives (APEDE) and the American Chamber of Commerce (AmCham), are active in encouraging and rewarding good CSR practices. Since 2009, the AmCham has given an annual award to recognize member companies for their positive impact on their local communities and environment.
Panama has two goods on the U.S. Department of Labor’s (DOL) “List of Goods Produced by Child Labor or Forced Labor”: melons and coffee. DOL removed sugarcane from the list in 2019. Child labor is also prevalent among street vendors and other informal occupations.
There have been several disputes over the resettlement of indigenous populations to make room for hydroelectric projects, such as at Barro Blanco and currently in Bocas del Toro. The government mediates in such cases to ensure that private companies are complying with the terms of resettlement agreements. An indigenous population in Bocas del Toro province is currently dissatisfied with the terms of a resettlement agreement and occasionally holds protests that close down the access road to a hydroelectric dam.
Despite human resource constraints, Panama enforces its labor and environmental laws effectively relative to the region and conducts inspections in a methodical and equitable manner. Panama encourages adherence to the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and supports the Kimberley Process. Panama is not a government sponsor of either the Extractive Industries Transparency Initiative (EITI) or the Voluntary Principles on Security and Human Rights.
The National Council of Organized Workers (CONATO) and the National Confederation of Trade Union Unity (CONUSI) are the most active labor organizations advocating for worker rights in the private sector. They enjoy access to and dialogue with key decisionmakers. CONATO is currently participating in a nationwide dialogue to defend the sustainability of the workers retirement fund. CONUSI is focused on labor rights in the construction sector.
Panama is a signatory of the Montreux Document on Private Military and Security Companies. Panama follows the standards set by the International Standards Organization (ISO) and certifies security companies in quality management and security principles consistent with ISO standards.
Corruption is among Panama’s most significant challenges. Panama ranked 111 out of 180 countries in the 2020 Transparency International Corruption Perceptions Index (CPI), with its CPI Index score falling from 39 in 2015 to 35 in 2020. High-profile alleged procurement irregularities in 2020, including several related to pandemic response, contributed to public skepticism of government transparency. U.S. investors allege that corruption is present in the private sector and at all levels of the Panamanian government. Purchase managers and import/export businesses have been known to overbill or skim percentages off purchase orders, while judges, mayors, members of the National Assembly, and local representatives have reportedly accepted payments for facilitating land titling and favorable court rulings. The Foreign Corrupt Practice Act (FCPA) precludes U.S. companies from engaging in bribery or other similar activities, and U.S. companies look carefully at levels of corruption before investing or bidding on government contracts.
The process to apply for permits and titles can be opaque, and civil servants have been known to ask for payments at each step of the approval process. The land titling process has been troublesome for many U.S. companies, some of which have waited decades for cases to be resolved. U.S. investors in Panama also complain about a lack of transparency in government procurement. The parameters of government tenders often change during the bidding process, creating confusion and the perception that the government tailors tenders to specific companies. Panama passed legislation in 2019 to modernize its procurement system and address some of these concerns.
Panama’s government lacks strong systemic checks and balances that incentivize accountability. All citizens are bound by anti-corruption laws; however, under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges, and only the Supreme Court may initiate investigations against members of the National Assembly, which has led to charges of a de facto “non-aggression pact” between the branches. Another key component of the judicial sector, the Public Ministry (Department of Justice), has struggled with a historical susceptibility to political influence.
In late 2016, Brazilian construction firm Odebrecht admitted to paying $59 million in bribes to win Panamanian contracts worth at least $175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the Martinelli administration; however, former President Juan Carlos Varela (2014-2019) is also under investigation on charges of corruption related to Odebrecht. The scandal’s full reach is still undetermined, and Odebrecht’s activities in Panama continue, including construction on a second metro line and an expansion of Tocumen airport.
Panama has anti-corruption mechanisms in place, including whistleblower and witness protection programs and conflict-of-interest rules. However, public perception is that anti-corruption laws are weak and not applied rigorously, and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption. The lack of a strong professionalized career civil service in Panama’s public sector has also hindered systemic change. The fight against corruption is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws, which can be used to punish whistleblowers. Acts of corruption are seldom prosecuted and perpetrators are almost never jailed.
Under President Cortizo, Panama has taken some measures to improve the business climate and encourage transparency. These include a new public-private partnership (APP) law that covers construction, maintenance, and operations projects valued at more than $10 million. The law is designed to implement checks and balances and eliminate discretion in contracting, a positive
step that will increase transparency and create a level playing field for investors. In addition, the public procurement law that was approved in May 2020 is aimed at improving bidding processes so that no tenders can be “made to order”.
Panama ratified the UN’s Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama should more effectively implement both conventions.
Resources to Report Corruption
ELSA FERNÁNDEZ AGUILAR
Autoridad Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Ave. del Prado, Edificio 713, Balboa, Ancon, Panama, República de Panama
Olga de Obaldia
Fundacion Para el Desarrollo y Libertad Ciudadana (Panama’s TI Chapter)
Urbanización Nuevo Paitilla. Calle 59E. Dúplex Nº 25. Ciudad de Panamá. PANAMÁ
10. Political and Security Environment
Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive issues, especially those that involve development in designated indigenous areas called Comarcas. One U.S. company has reported not only protests and obstruction of access to one of its facilities, but expensive acts of vandalism against its property. The unrest is related to disagreements over compensation for affected community members. The GoP has attempted to settle the dispute, but without complete success..
In May 2019, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth. Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and disrupt commerce in order to force the government or private businesses to agree to their demands.
Strife between rival gangs and turf battles in the narcotraffic trade led to a rising homicide rate through the first seven months of 2020, although early indications suggest the wave of gang homicides is receding. The 2020 homicide rate of 11.62 per 100,000 people is still among the lowest in Central America. Crimes other than homicides and cattle rustling were significantly lower in 2020, most likely due to pandemic-related movement restrictions and increased police presence to enforce the restrictions.
11. Labor Policies and Practices
According to official surveys carried out in October 2020, Panama’s unemployment rate was 18.5 percent, a significant increase from 7 percent in 2019 and an obvious consequence of the 2020 COVID-19 economic crisis. Panama’s non-agricultural labor force is nearly 1.6 million people, and around 53 percent of workers are employed in the informal sector (an increase from 45 percent in 2019). The rate of informal labor is higher in indigenous communities, including the Comarcas of Kuna Yala, Embera, and Ngabe Bugle, where 83 percent of jobs are informal.
There is a shortage of skilled workers in accounting, information technology, and specialized construction, and also a dearth of English-speaking workers. Panama spends approximately 13 percent of its budget, or 3 percent of GDP, on education. While Panama has one of the highest minimum wages in the hemisphere, the 2018-2019 World Economic Forum Global Competitiveness Report ranked Panama 89 out of 141 countries for the skillsets of university graduates.
The government’s labor code remains highly restrictive. The Panamanian Labor Code, Chapter 1, Article 17, establishes that foreign workers can constitute only 10 percent of a company’s workforce, or up to 15 percent if those employees have a specialized skill. By law, businesses can only exceed these caps for a defined period and with prior approval from the Ministry of Labor.
Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers, are covered by their own labor regimes. Employers outside these zones, such as those in the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The Panamanian government has issued waivers to regulations on an ad hoc basis to address employers’ demands, but there is no consistent standard for obtaining such waivers.
While most public-sector employees can strike and organize professional associations, they cannot organize unions. Private sector unions are required to register with the Ministry of Labor. If the Ministry does not respond to a private-sector union registration application within 15 calendar days, the union automatically gains legal recognition, provided the request was submitted directly, with all the documentation required by law. There are unions in many sectors, but less than 15 percent of the workforce is organized. The most politically active and influential union is in the construction industry.
The Ministry of Labor’s Board of Appeals and Conciliation has authority to resolve certain labor disagreements, such as internal union disputes, enforcement of the minimum wage, and some dismissal issues. The law allows arbitration by mutual consent, at the request of the employee or the ministry, and in the case of a collective dispute in a privately held public utility. It allows either party to appeal if arbitration is mandated during a collective dispute in a public-service company. The Board of Appeals and Conciliation has exclusive competency for disputes related to domestic employees, some dismissal issues, and claims of less than $1,500.
The Ministry of the Presidency’s Conciliation Board hears and resolves complaints by public-sector workers. The Board refers complaints that it fails to resolve to an arbitration panel, which consists of representatives from the employer, the professional association, and a third member chosen by the first two. If the dispute cannot be resolved, it is referred to a tribunal under the Board. Observers, however, have noted that the Ministry of the Presidency has not yet designated the tribunal judges. The alternative to the Board is the civil court system.
Severance payments to workers upon termination are significant in Panama. These take the place of unemployment insurance, which does not exist in Panama. During the COVID-19 pandemic, employers have been permitted to furlough workers for longer than normally permitted, without paying severance. Law 201 of February 2021 requires companies that have been permitted to re-open to begin reinstating employees’ contracts in phases over a period of eight months; according to the law, no extensions will be granted beyond November 2021. If an employer opts to terminate a contract instead, it can extend severance payments over a period of eight months. The law also requires businesses to pay maternity leave to workers on suspended contracts. These are temporary measures for 2021, after which time furloughs are expected to return to a maximum period of four months.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
The United States and Panama signed a comprehensive agreement with the Overseas Private Investment Corporation (OPIC, now DFC) in April 2000. However, the World Bank classified Panama as a high-income country in July 2018, and as such Panama no longer qualifies for support under DFC. Panama has ten active projects under DFC that were initiated prior to 2018. The projects are valued at $220.85 million in the financial sector, $45.5 million in the energy sector, and $7.5 million in the real estate sector. Panama has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1996. There will be more potential for DFC activity in Panama if the country loses its high-income country designation.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
Panama reports its GDP numbers as compared to a benchmark of $21.296 million from 2007. The 2019 figures from the table are measured from this benchmark and correspond to a 3 percent increase from 2018.
Table 3: Sources and Destination of FDI
Outward Direct Investment data is not available. No countries designated as tax havens are sources of inward FDI.
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)