Tightened Substance Requirements Get Panama Off the EU List of Non-Cooperative Jurisdictions

Financial transparency has always been a key concern in the business arena, especially when it comes to cross-border operations. In the 21^st century, being compliant with international regulations and the standards of international organizations is just as important as providing favorable conditions for investors.

Ten years after the Panama Papers scandal, the country of the canal proves once again its commitment to transparency, and its efforts were recognized recently when it was removed from the EU list of non-cooperative jurisdictions for tax purposes.

At the same time, President José Raúl Mulino has been taking steps toward strengthening the construction sector and creating job positions by encouraging buyers to acquire brand-new property.

Panama as a business center: what’s the reason behind its success?

Home to the Panama Canal and boasting an unmatched location right in the heart of the Americas, Panama has long been a strategic trading destination and a magnet for expats.

Through smart policies, the government has supported business and foreign investment, establishing special economic zones and a relatively convenient taxation regime when compared to other jurisdictions.

One of the nation’s best features is its territorial tax approach. Under such a system, individuals and entities are taxed only on the income they derive or receive in Panama, while all foreign-derived income is exempt. Even though this is far from being a tax-free system, some international organizations are concerned about abuse and unfair competition.

A good turn for Panama: the country of the canal is officially off the EU blacklist

This is nothing but good news for the Central American nation, whose polemical Panama Papers were one of the reasons the list was created in the first place. Ten years after this major information leak, the country is off the blacklist again.

Complying with the EU regulations is not as easy as it sounds. They evaluate a jurisdiction by its policies and their implementation. On this occasion, the removal was approved because the country strengthened substance requirements for companies belonging to multinational groups.

This is not the end of the story, as Panama now enters a monitoring stage. In order to be considered completely white-listed, the country must pass another evaluation, which will begin early next year.

How this benefits Panama and businesspeople operating in the country of the canal

In an overly globalized world, no country can survive on its own, let alone businesses that are involved in cross-border operations. Being based in a jurisdiction that can prove its reliability and commitment to transparency is becoming increasingly necessary to avoid drawbacks and minimize issues.

Bank accounts and authorities abroad may refuse to work with players related to jurisdictions whose reputation is under scrutiny. They may, as well, ask for extensive paperwork, thus increasing bureaucracy. We can draw a natural conclusion: at the end of the day, being on the EU’s good side is always more convenient for every party involved.

With the new reforms, Panama-incorporated companies operating under a multinational group or earning passive income abroad must have a physical office in Panama with qualified employees. They must prove that they have operations in the country and that key management decisions are made within Panama. These are only some of the requirements, and whether they apply or not depends entirely on the specific case. This matter should be discussed with certified professionals during a formal consultation.

Disclaimer: The information in this article is provided only for general knowledge purposes. This article doesn't constitute legal advice. For updated information about substance requirements in Panama, businesspeople and investors should consult with certified professionals.

Why Panama?

Since Panama took over the administration of the canal, it has experienced sustained economic growth. In the past two decades, this development has been evident, especially in the real estate area. The rise of skyscrapers housing residences, offices, conference rooms, hotels, and commercial spaces is visible all around the city. They shape Panama’s skyline, contributing to its potential.

Furthermore, the construction trend continues in the 2020s with a focus on high-end residences (mainly apartments and condos) of different types, sizes, and locations, and serving different purposes.

Key amendments make Panama real estate more interesting and favor a specific economic sector

Buying real estate for the first time is more attractive thanks to Law 546

The isthmus’s real estate potential can be measured by its rising developments, which compete in quality, amenities, and services. However, other factors help fuel this trend, and government policies become vital.

Recently, the state released Law 546, under which buyers who are purchasing their first new residence are exempt from paying transfer tax. This benefits families, young couples, and individuals who are acquiring their first home, as well as investors who are starting their Panama portfolio. The exemption is only on the initial USD 120,000, but it can mean significant savings for middle-class families.

In addition, this strengthens the real estate development segment and encourages investors to choose the country of the canal for their real estate operations.

Apartment types and real estate opportunities available in Panama

At the moment of writing, Mundo can introduce you to projects with the following characteristics and advantages.

• Branded residences near the beach
• Units with flexible spaces, mainly one-bedroom apartments and studios, ideal for short-term rentals
• Premium residences in Santa Maria with a private park and a waterfall
• Elegant apartments and condos at very convenient prices in Santa Maria
• Units in apartment complexes in Playa Caracol, in quiet coastal surroundings
• Units in Ocean Reef Islands, two man-made islands with a focus on exclusivity, right across Punta Pacifica
• Apartments in Amador with views of the entrance of the canal
• Outstanding residences in a tranquil environment in Chiriquí, near Boquete
• Executive suites with short-term rental potential in Via España, in downtown Panama City
• Shares in hotel rooms, also in Via España
• High-end apartments in Costa del Mar, Costa del Este’s premium area
• Trendy apartments in Calle Uruguay and Avenida Balboa, suited to single expats, young active couples, and modern families

A change in the Qualified Investor Visa favors construction and encourages investors to choose new real estate

Another recent update shows us the administration’s clear intention to promote construction. By dividing the Qualified Investor Visa real estate requirement into two tiers (USD 300,000 for brand-new real estate, and USD 500,000 for resale property), they contribute to the above-mentioned sector.

Among other things, this aims to promote construction, the trading of materials, and the creation of job positions in those spheres. This is one of President Mulino’s priorities, and his measures reflect it.

Why Panama with Mundo: who we are and what we do?

We are a global service provider focusing on investment migration, real estate, corporate and banking services, and trusts. The services we offer can be ordered separately or combined to achieve more complex results.

Either way, we can assist investors and businesspeople in fulfilling their objectives safely because we're backed by years of experience, a solid network of partners, and a strong commitment to transparency, compliance, and observance of the rules.

Write to our experts and ask us about the projects available at the moment. With the newly released law and the recent amendments to Qualified Investor, this is an outstanding time to acquire your first real estate property in Panama. This move can also open the door to a residency application, if you want it. Click on the button below to contact us and book a private consultation.