At Mundo we are especially proud to present our Panama country focus. This country means a lot to Mundo for different reasons. Of course it is one of the best places to do business in the world, it does have a unique territorial tax system, free zone regimes with incredible advantages and the possibility of establishing a foundation similar to Lichtenstein´s but at a much lower cost.

But Panama is much more than money, although here you can make a lot and save a lot in taxes, like our friend from Canada did (see our Expat Living in section below), Panama means friendship, comradery and companionship. In Panama, no expat feels alone, because we live in an international cosmopolitan environment where nobody will look down on you because of your race or religion, and where you can always find a community that will support you and understand you. 

This amazing adventure called Mundo started in Panama, this is where some of the main members of the editorial team met for the first time and dared to dream the same dream that we are now seeing materialized before our eyes. Our dream was and is to create a web portal where experts, clients, writers, freethinkers, perpetual travelers and nomad capitalists can coexist in a friendly environment, exchange ideas and points of view and access unique business and investment opportunities through our network across the world. 

In this country focus we present our favorite country for business and for life. 

Read along and embark in this wonderful adventure with us! 

Panama is a small country of 4 million people with 1.5 million centered in Panama City, which is a modern international city similar to Miami in look and feel. The country has always been “special“due to the Panama Canal which is not only one of the wonders of the modern world but is responsible for over 5% of the world’s trade. Due to this perhaps there is an unwritten consensus that most of the world´s countries try not to interfere with Panama and Panama tries to be friendly and indeed politically neutral towards all. This makes Panama an ideal hub for establishing center of operations as it is neutral to many countries that have differing political views such as the United States, China, and Russia. Panama also does not have an army and does not involve itself in world politics or interfere in the internal affairs of other countries, this makes it similar to Switzerland.

Panama has great infrastructure, good flight connections and has a very valuable asset: the Panama Canal. All of this along with the fact that the US dollar is the main currency in this country, make Panama a key destination for international commerce. Panama´s government is aware of all these facts, therefore actively promotes business-friendly politics, which are meant to attract and stimulate foreign investments, improve the stock activity, and promote immigration.

Panama obtains revenue of about 2 billion a year from the Panama Canal alone which means that its economy is very stable considering its small population. Indeed, Panama has an AAA rating. Due to this and the revenue to related industries such as the free zone (the largest in Latin America and one of the largest in the world) Panama does not need to levy exorbitant taxation on its population to pay for its welfare programs.

It is not only because of this that Panama punches well above its weight. Over the years but especially under the rule of former president Martinelli, Panama deliberately modelled itself on Singapore and tried to emulate Singapore´s legislation and policies on foreign investment.

Consequently Panama has positioned itself as Latin America´s business, logistics and banking center with a range of investor-friendly legislation that has made it, amongst other things, Latin America´s banking hub (often called the Switzerland of Latin America), Latin America’s trading hub (with obvious transshipment and logistics advantages by air and sea) and an increasingly business-friendly environment with a free zone legislation.

Mundo´s country rating is essentially a freedom index whereby our team of specialists rate a combination of freedoms which include freedom from violence and personal attacks, financial freedom from high taxes, business freedom from government interference and especially from socialism and communism.

Panama has always been highly dependent on foreign investment. As such, the country welcomes investors with open arms as evidenced by the multitude of family offices, international banks and firms located within its borders.

Further, thanks to the fact that Panama is essentially an oligarchy of around 2,000 business families that support commerce and capitalism, the forces of socialism and communism are virtually unknown. Indeed, Panama has no really active communist party and the population generally understands that the future of Panama is tied to free market capitalism.

The recent Panama Papers scandal and the hysterical and histrionic film Panama Papers has tried to disrupt the image of a country that is in Mundo´s view simply the best destination in Latin America.

The audience that actually believe that low tax jurisdictions are “bad places“ should be forced to stay in the ghettos of Spain or Paris, or to be in these high tax socialist countries during the multiple riots and social distress these countries will soon face and are already facing.

Intelligent people with money from Europe, South Africa, America, Canada, China, Mexico, Venezuela, and Ecuador, and in fact all the places plagued by the cancer of socialism, are running to Panama and this trend will continue.

Mundo is bullish on the future of the Panamanian economy for several interconnected reasons. Recently a number of events have occurred that have started to turn Panama back to its former glory, and most experts and financial analysts predict that this economic renaissance will strongly continue over the next ten years.

John is a Canadian investment banker who moved to Panama with his family (wife and two children) for personal tax reasons. Before he moved, he was about to make around USD 10 million in personal income form an IPO he launched.

Due to giving up Canadian tax residency prior to moving, John was able to save himself around 60% tax on the personal gains he made from the deal, which in his case was around 6 million dollars. This is a typical story of many who wisely move to Panama to take advantage of the tax optimization.

John was also able to reinvest much of this in the bonds and stocks, but because he was now a Panamanian tax resident, he further saved himself many more millions in taxes on his personal gains from passive investing.

John´s family was initially unhappy about moving to Panama because they faced various inconveniences such as heavy traffic and extremely poor service in Panama City. However, his wife soon found the benefits outweighed by cheap domestic help which saved her significant time and allowed her to fully enjoy her new life.

The costs of living were about 30% higher than in Canada but, when you save so much on taxes, who really cares. Further, the price of real estate they found was so much cheaper that they were able to buy a huge 400 square meter apartment in the best part of the city, with ocean views from around 700,000 which would have cost them around 5 million in Canada.

Panama has been consistently voted as the best retirement and lifestyle destination in Latin America by various international agencies and publications. The factors that have contributed to this assessment include the following: Panama is by far the safest country in Latin America with a very low crime rate in Panama city and almost no violent crime; Panama has diverse living from mountains and cooler climate to tropical Caribbean beach paradises at very affordable prices, there are over 30 international schools, medical facilities are first-world-class and on par with the United Sates, the city is considered an international first class city with close access to the rest of the world. This is the reason why many businessmen are choosing to leave the United States, Europe, China, and Latin America and move their families to Panama. Indeed, Panama is extremely multicultural and extremely tolerant to foreigners. In any night you will see Jews, Arabs, Italians, Germans, Russians, Chinese and people of all races, cultures and religions mixing in the restaurants and nightclubs. There is no religious intolerance, racial discrimination, nor terrorism here. Sounds like paradise? Well, it is.

Income tax is only levied on income derived from operations within Panama. This is true of both individuals and corporations.

This means that there are considerable advantages for a Panamanian individual or corporation to establish tax residency in Panama. In terms of a corporation:

A Panama business entity can direct its offshore activities from Panama without becoming liable for tax. The Fiscal Code (Article 694) excludes the following types of income from taxation:

The profits of reinvoicing external goods or services;

The profits of operations that are directed from Panama but carried out externally.

The distribution of dividends derived from external income, including the above types of income.

Interest on deposits with Panamanian banks is exempt from taxation whatever the source of the cash.

An entity with both external and Panamanian business activities is taxed only on the Panama-derived income and is subject to withholding tax only on that income.

Panama business entities with only external operations are exempt from dividends (withholding) tax, undistributed profits tax, business tax and from stamp duty on contracts executed in Panama to be performed elsewhere.

An individual wishing to obtain tax residency in Panama must first obtain residency. After this he must establish significant economic and social ties to the country sufficient to be granted a tax residency certificate. The granting of such a certificate depends on the assessment by the authorities as this his tax residency status at a particular time and is renewed each year. Of course, it is better to give up an existing tax residency before applying for Panamanian tax residency.

From 2006 until 2016, real estate in Panama City was appreciating in value at a rate of around 10% a year. This rate was not even affected by the global financial crisis. The investment came from all over the world but especially from Latin American buyers, who saw Panama City as a Miami in Latin America, with safety, good schooling and a great lifestyle, but at the fraction of the price.

The combination of the Panama papers and a government lead by President Varela, who tried to actively stop many investment projects started by Martinelli, essentially dampened foreign investment into the real estate sector and the sales in this area decreased.

It is no secret that the world has changed during the last decade, increasing international regulations and making it harder for international businesspeople to create an asset-protection structure. The word “offshore” does not exist anymore, at least not in the same way it used to exist.

But this doesn’t mean that there´s nothing we can do in order to protect our assets and increase our wealth; it is all about finding the right jurisdiction and setting up the right structures.

Panama, for example, offers a unique solution in today´s world corporate arena as it has all the benefits of an onshore territory but with incredible tax benefits and incentives, comparable to the old “offshore” concept. This, of course, must be carefully structured and tailored by a highly experienced expert in order to avoid possible problems in the future. If this structure is not properly set up, then the person risks having trouble with governments or international regulating organs and may risk losing it all in the long (or even short) run. Let´s get into detail in our corporate section.

The primary company vehicle is the Panama SA or Sociedad Anonima (literally: anonymous society). This is basically a company limited by shares and can be used for all offshore and international transactions without any tax consequences whatsoever as Panama does not impose worldwide taxation.

In order for the company to be considered one of substance under the BEPS requirements Panama grants an operating license or “visa de operaciones” for most activities. This, plus an office and the filing of regular accounts, makes the company effectively tax resident of Panama and thus subject to Panamanian taxation system.

The company, of course, still does not pay tax on worldwide income.

There are 12 Free zone regimes in Panama, the largest of which is the Colon free zone. The Colon free zone has over 800 acres of warehouses and stores and is the second largest free zone in the world. Noteworthy are also Ciudad del Saber (city of knowledge) free zone and the Panama Pacifico free zone, both located within minutes’ drive from Panama City.

Panama law also allows companies to buy land and obtain permission from the government to establish their own free zone regimes.

Each free zone has its own specific features; however, the general free zone laws have the following common legislative framework:

• A Panamanian company (SA) or entity can apply for a free zone license at a very reasonable cost by simply registering its activities in the particular free zone and having an office and staff there.
• There are banks operating inside the free zone and, in most cases, Panamanian banks will automatically accept that a company in the free zone is an operating company due to its activities and therefore the company will be deemed a tax resident of Panama. This means under CRS there is only reporting to Panama. Under the free zone all goods and services sold outside Panama are automatically excluded from all taxes including profit taxes. (there is currently only 1% turnover tax, however this does not apply in all cases). This is because a free zone company is automatically treated as having its income from sources outside Panama.

In Panama, the financial sector presents a very interesting option for every investor or entrepreneur who wants to operate from and within Panama.

This country offers a variety of financial and banking licenses.

Financial licenses

If you are looking to establish a company to operate inside or outside of Panama, is it necessary to obtain a financial license. This is the case for the following activities: loans, leasing, factoring, credit card issuing, fiduciary activities and others. For this reason, operating without the corresponding license presents an unnecessary risk as this is strictly penalized.

The general requirements for these licenses are:

• Registering a Sociedad Anonima.
• The minimum paid up capital must be USD 500, 000.00.
• Certificate issued by an authorized public accountant, that states that the paid-up capital has been fully paid and every share has been registered and paid.
• A USD 1,750.00 check for the Commerce and Industry Ministry in order to cover the authorization fee and the tax fee of the current year.
• Resume, police record and apostilled copy for each director, shareholder, signatory and legal representative.
• Business plan according to the law requirements.

There are currently two precious metals storage facilities in Panama.

One of these is located in the free zone of Panama and allows for the import and export of precious metals bullion without any taxes, duties or VAT including capital gains taxes.

The facility is fully insured by Lloyds and certified by brinks so in effect your metal is secured from the point of sale to the delivery.

Holding such precious metals in a trust or foundation, further protects the safety of your assets. It is also possible in some cases to organize a loan over the gold to reinvest on high yielding bonds, so that your precious metals´ holdings generate income.

There are over 60 banks in Panama because Panama is the top banking and financial center in Latin America. The reasons go back to Panama´s friendly taxation system, i.e. banks do not pay any tax on their international profit from foreign sources. This means that, of course, banks can invest worldwide and not pay local tax. This has firmly placed Panama as a Banking hub of Latin America. In fact, Panama has been called the Switzerland of Latin America.

I had a friend who used to say: better be safe than sorry. At Mundo, we completely share this philosophy, and that is why we recommend our readers to use asset protection structures.

In Panama, you can set up a very efficient structure using all its tools like Sociedad Anonima, freezone companies, you can create branches of your company so that you can optimize your tax burden and grow your business. These are undoubtedly all great things but what would happen if, god forbid, you find yourself going through a nasty divorce or suddenly chased by creditors over false charges.

Nobody likes to think about these things, but the truth is that they might happen, and you may find that you have lost in one week everything you worked so hard to build for decades. Luckily, Panama offers one of the best asset protection tools in the world: The Panama Foundation.

Don´t be sorry. Be safe with a Panamanian Foundation and read along to find out more about this structure.

Panama modelled its Foundation law exactly on the laws of the Lichtenstein Foundation, except that Panama is far cheaper and does not levy any form of inheritance taxes. The foundation is the perfect asset protection vehicle and, so far, no Panamanian court has ever set aside a properly established foundation.

Assets held by a foundation, including real estate, shares, bonds, precious metals and other property, cannot be seized by creditors, governments or even spouses in divorce proceedings.

For all the reasons mentioned in this Country Focus, establishing a family office or multifamily office in Panama or shifting your Family office to Panama is a good idea. There are already numerous multifamily and Family offices located in Panama, due in large part to the zero tax on foreign sourced income Policy.

Indeed, Panama has a multitude of Swiss, German, Italian and foreign wealth advisers who have relocated here to look after Family assets. 

Panama has virtually full employment for skilled professionals due to the fact that there are more business opportunities than there are skilled professionals to fill them. This is because Panama is a growing economy and there are huge opportunities in almost any sector whether it is large, medium or small business. Although it is impossible to cover all the possibilities, we will try below to address the major ones.

Panama has an abundance of wilderness and coastline equal, and indeed in some cases superior, to Costa Rica. This ranges from the Caribbean-type island of Bocas del Toro, with its amazing sea beach and island experiences, to the unexplored jungles of Darien, where you can live with Indians and catch giant prehistoric-sized fish in untouched waters. Yet, despite having the biggest biodiversity on earth, Panama´s tourism sector is virtually virgin. As an example, only two hours by boat from Panama are the Pearl Islands and yet there are almost three hundred untouched pristine islands ready for development and eco-tourism. The country abounds in tourism and eco-tourism opportunities and in fact the government has deferred tax incentives for tourism operations. Whether you wish to establish a game fishing lodge or develop an island eco-tourism activity, tourism in general will be a booming industry in the years to come, with low prices of land and readily available tourism licenses.

Panama is crypto friendly, indeed it supports several crypto exchanges and dealing in crypto is tax free. The free zones, including Ciudad de Saber (city of knowledge) contain a number of high tech and crypto and blockchain incubation startups, and even several home-grown crypto investment funds. The opportunity for entrepreneurs to establish blockchain and crypto related businesses is immense. Moreover, Panama is expected to enact soon crypto friendly regulation, allowing companies to apply for licenses to trade in crypto.

In the crypto world, the huge volatility of prices and the huge risks and rewards mean that traditional investors have steered away from the blockchain. 

Investment advisers who have remained in the industrial age, or some would argue unkindly, in the stone age, have advised middle income to stay away from digital assets because of their spectacular rises and falls.

However, those who understand wave theory and cycles also understand that this is a crypto era that will see the continuous rise of digital assets as a class.