Panama’s status as a premier IFC was confirmed earlier this year with its removal from the OECD Gray List now, Amauri Batista Arias considers Panama’s place in the International Financial Community.
The Republic of Panama is an isthmus of 75,517 square kilometers, uniting South America on one side and Central and North America on the other. It has an estimated population of 3.5 million inhabitants and a gross domestic product of approximately US$20.86 billion (according to 2010 statistics).
Since colonial times, Panama has played a pivotal role on the continent´s trade and commerce. Due to its unmatched location in the region, it was the preferred path of crossing between the Atlantic and the Pacific Ocean, and an obligatory stop for all businessmen looking to do business in the American continent. During the 19th century, the first inter-oceanic railroad was built crossing the Isthmus of Panama; and during the early 20th century, the Panama Canal was finished, starting its operations in 1914.
From then on, and quite early after its voluntary separation from Colombia in 1903, Panama started on its path to becoming one of the world’s most important financial centres and has since serviced the international community through its services infrastructure.
Besides adopting the US dollar as the currency of circulation in the country after separation from Colombia, in 1927 Panama enacted its corporation’s law. In 1948, the Colon Free Zone was established and in 1970 the Banking Law was passed, which gave way to the growing Panamanian International Banking Centre.
Furthermore, Panama has also established the largest registry of ships in the world, has effectively developed its trust business, adopted International Private Foundations, and enacted key benefits programs that have resulted in growing foreign direct investment into the country.
The Panamanian Mercantile Registry is the second or third largest company registry in the world. Although, the country allows for the formation of several types of companies, it is the Panamanian corporations which are most widely used across the globe. These companies are commonly used for such small things as owning a bank account or shares of a small corporation in an emerging economy, to much bigger purposes, like owning an oil well or developing multimillion dollar projects in major economies. Although share ownership of corporations is a private matter of the company, foreign owned and controlled Panamanian registered companies are estimated to be a large percentage of the total registered companies in the Panamanian Public Registry.
Very similar to the use of corporations, the international community has also made extensive use of the Panamanian International Banking Centre. With very clear advantages such as the free use of the US dollar, the free movement of funds in every currency, banking confidentiality and the physical presence of close to 100 banks representing more than 20 countries; approximately 75 per cent of the funds deposited in Panama are foreign owned deposits, originated out of the country
Trust businesses and their uses among the international community have also grown in quantity, quality and size in Panama. Based on the Corporations Law, the Trust Law and the Private Foundations Law, a large number of companies, trusts and foundations are administered from Panama to the world. Being a civil law based country, but largely influenced by common law principles, Panamanian trust services sit among the top of the trust practices in Latin America and are commonly sought by foreigners seeking internationally qualified administration of its funds and assets.
Securities related services are another area where Panama has developed an international services oriented infrastructure. With the creation of the Panamanian Securities Commission (recently changed to Superintendency of Securities), and the enacting of the related regulations, administration of securities from Panama has expanded geometrically. Panamanian mutual funds, fund administrators, investment advisory companies and securities brokerage houses have progressively incremented in numbers.
The above are not the only ‘internationalised’ services in Panama. The Panamanian maritime industry is also a big player in international circles and so it is the Colon Free Zone. More recently, foreign investment in Panama has also taken a big step.
Besides the immense role of the Canal in maritime transportation and the logistic advantages related to it in sea travel, the maritime industry has also recognised Panama as its preferred port for registration. With approximately 10,000 vessels and close to 200 million tons, the Panamanian merchant marine is currently the largest in the world. Created in 1925, ship registration in Panama is considered an open type registry, making no distinction between local or foreign owned vessels and making its emphasis in the management, control and security of each registered vessel. The ship registry in Panama, which was recently included in the white list of the Paris Memorandum of Understanding (MOU), is substantially used by the international community, outweighing its use by locals, by far in all aspects.
The Colon Free Zone, located on the Atlantic coast of Panama, is the second largest free zone in the world. Created in 1948, functioning today as a commercial hub for international trade in the region, and with an approximate commercial activity of US$20,000,000 per year, it has outgrown its physical capacity, requiring several additional investments to accommodate the commercial activity and trade going on in the area.
Regarding the country as an International Financial Centre, Panama has started to sign Double Taxation Avoidance Agreements (DTAs), hence complying with the international tax standards established by the OECD during their last meeting. Panama has already signed more than 12 DTAs, including among those, countries such as Mexico, Spain, France, Italy, Luxembourg, Portugal, Singapore, Barbados, Holland, South Korea, Qatar and a Tax Information Exchange Agreement (TIEA) with the United States of America. With the successful negotiation and signing of these agreements, Panama was also been taken off the grey list and included on the white list of OECD in July this year.
Following the same approach, countries such as Spain, France and Mexico, have already taken Panama out of their own unilateral discriminatory lists, making Panama a very interesting and convenient option for international investments.
During 2007 and 2008, Panama’s economy grew in double digits (12.6 per cent and 11 per cent respectively) and although 2009 was a year of world economic turbulence, our country also grew by a ‘mere’ 3.4 per cent. Last year (2010) Panama was awarded a positive ranking and investment grade from the three most recognised classification agencies. Investment in Panama has been growing exponentially since, growing 7.5 per cent in 2010 and this is expected to increase in 2011.
Besides the economic well being of the country, Panama has adopted several special regimes for attracting foreign investments into the country. Special programs such as the City of Knowledge, the Panama-Pacifico development, the Multinational Headquarters Initiative and a few others - foreign investors are blanketed with possible benefits when establishing their businesses in or from Panama.
Panama, therefore, is not only a geographical isthmus, uniting the American continent, but also an isthmus uniting the world through its international services infrastructure.
Amauri Batista Arias, Associate, Mossack Fonseca, Panama