Panama

GDP (US$ Billion)

61.84 (2017)

World Ranking 74/192

GDP Per Capita (US$)

15,089 (2017)

World Ranking 56/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(52.66%)
Industry
(29.34%)
Agriculture
(2.36%)

External Trade (% of GDP)

94.3 (2016)

Currency (Period Average)

Panamanian Balboa

1.00 per US$ (2017)

Political System

Republic

Overview

Over the past decade, Panama has been one of the fastest growing economies worldwide. Panama is a key logistics hub for the region because of its location and operation of the Panama Canal, with many international firms choosing to locate in and around Panama City. The country depends heavily on foreign investment and it has worked to make the investment process attractive and simple. Regionally high per capita income and purchasing power lend to strong domestic consumption, but weak extractive and manufacturing industries make Panama dependent on its service sector. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. The seamless use of the United States dollar lowers transaction costs and eases burdens on businesses. Over recent years, many overseas corporations have set up their regional headquarters in Panama, largely on account of the tax benefits on offer, which include a service income tax exemption for any such entity.



Source: Fitch Solutions

Major Economic/Political Events and Upcoming Elections

June 2015

Panama topped an annual ranking of well-being for the second year in a row. The Gallup-Healthways Global Well-Being Index included a person's sense of purpose, financial well-being and health in its measure.

June 2016

A Chinese container ship became the first vessel to use the newly-enlarged Panama Canal.

June 2018

Officials from Panama and China completed the first round of talks discussing a free trade agreement (FTA) between the two countries.

Sources: BBC Country Profile – Timeline, Fitch Solutions

Major Economic Indicators
Graph: Panama real GDP and inflation
 
Graph: Panama real GDP and inflation
 
Graph: Panama GDP by sector (2017)
 
Graph: Panama GDP by sector (2017)
 
Graph: Panama unemployment rate
 
Graph: Panama unemployment rate
 
Graph: Panama current account balance
 
Graph: Panama current account balance
 

e = estimate, f = forecast

Sources: IMF, World Bank, Fitch Solutions

Date last reviewed: March 21, 2019

External Trade

Merchandise Trade

Graph: Panama merchandise trade
 
Graph: Panama merchandise trade
 
 

Source: WTO

Date last reviewed: March 21, 2019

Graph: Panama major export commodities (2017)
 
Graph: Panama major export commodities (2017)
 
Graph: Panama major export markets (2017)
Note: 'Panama' is its own second-largest export partner due to its re-export activities and is, as such, not included
Graph: Panama major export markets (2017)
Note: 'Panama' is its own second-largest export partner due to its re-export activities and is, as such, not included
Graph: Panama major import commodities (2017)
 
Graph: Panama major import commodities (2017)
 
Graph: Panama major import markets (2017)
Note: 'Free zones' accounts for 12.7% of all of Panama's imports
Graph: Panama major import markets (2017)
Note: 'Free zones' accounts for 12.7% of all of Panama's imports

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 21, 2019

Trade in Services

 

Graph: Panama trade in services
 
Graph: Panama trade in services
 
 

Source: WTO

Date last reviewed: March 21, 2019

Trade Policies
  • Panama joined the World Trade Organisation (WTO) in September 1997. In addition, Panama agreed to become a full participant in the WTO Information Technology Agreement.

  • In October 2012, the Trade Promotion Agreement (TPA) between the United States and Panama came into effect and lowered import duties to zero for 87% of the products in the tariff schedule, with the exception of some food and agricultural products, on which duties will reduce gradually over the course of the next 10 years.

  • As part of the negotiations for the TPA, Panama approved a Phytosanitary Agreement that eliminated sources of discretion and abuse in the import approval process, therefore, lifting any existing phytosanitary barriers.

  • Panama's average tariff rate is 6.1%, the seventh highest in the Central and South America region (out of 20 countries).

  • In January 2018, Panama increased the applicable import duties on flowers, decaffeinated coffee, coal, certain sweets, toilet paper, certain cotton clothes, cement, towers and lattice masts, electrical transformers and boards, panels, consoles, desks, cabinets and other bases for electric control. New import tariffs range between 0% and 60%, while previously applicable duties ranged from 3% to 54%.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Agreements

Multinational Trade Agreements

Active

  1. Central American Common Market (CACM): Panama joined the CACM in May 2013, which consists of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, and is a plurilateral customs union.

  2. The FTA and Economic Integration Agreement: Between the European Union (EU) and Central America, the agreement entered into force in August 2013 and covers trade in goods and services.

  3. The United States-Panama Bilateral Investment Treaty (BIT): The agreement entered into force in 1991 and was amended in 2001. The BIT ensures that, with some exceptions, United States investors receive fair, equitable, and non-discriminatory treatment, and that both parties abide by international law standards, such as for expropriation and compensation and free transfers.

  4. The European Free Trade Association (EFTA): The agreement came into force in August 2014 and includes Panama, Costa Rica, Iceland, Liechtenstein, Norway and Switzerland.

  5. Other FTAs: Panama has FTAs for goods and services with El Salvador (2003), Taiwan (2004), Singapore (2006), Chile (2008), Costa Rica (2009), Honduras (2009), Guatemala (2009), Nicaragua (2010), Peru (2012), United States (2012), Canada (2013), and Mexico (2015).

Sources: WTO Regional Trade Agreements database

Investment Policy

Foreign Direct Investment

Graph: Panama FDI stock
 
Graph: Panama FDI stock
 
Graph: Panama FDI flow
 
Graph: Panama FDI flow
 

Source: UNCTAD

Date last reviewed: March 21, 2019

Foreign Direct Investment Policy

  1. In a move designed to facilitate foreign investment, the Panamanian government has set up Proinvex, a new agency operating under the auspices of the Ministry of Commerce and Industries (MICI). Its remit will see it promoting investment in a number of strategic sectors, including agriculture (particularly fresh fruits such as pineapples, cantaloupes and watermelons), logistics, tourism and financial services. It will also oversee the operation of a one-stop-shop integrated information system, which will allow would-be investors to identify all of the investment instruments and incentives on offer across Panama, while also assisting with due diligence procedures.

  2. Panama makes no distinction between domestic and foreign companies for investment purposes. The office of Panama’s Vice Minister of International Trade within the Ministry of Commerce and Industry is the principal entity responsible for promoting and facilitating foreign investment and exports.

  3. The Panamanian government does impose some limitations on foreign ownership in the retail and media sectors where, in most cases, ownership must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law.

  4. With the exceptions of retail trade, the media, and several professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity. Foreigners need not be legally resident or physically present in Panama to establish corporations or to obtain local operating licenses for a foreign corporation.

  5. In order to remain competitive and to be able to accommodate large modern container ships, work on a USD5.25 billion expansion of the manmade waterway began on September 3, 2007. Just under nine years later, the expanded canal went into commercial operation on June 26, 2016, with the new locks in place at both its Atlantic and Pacific access points facilitating the passage of vessels carrying up to 13,000 containers for the first time.

  6. The principal users of the canal are the cargo ships travelling between Asia and the East Coast of the United States. There is also considerable traffic between the United States East Coast and the West Coast of Central and South America, much of which had originated in West Asia before passing through the Suez Canal. The expanded Panama Canal is expected to have a significant impact on the freight flow between Asia, the United States and Central and South America, becoming an increasingly attractive alternative to the ports on either of the United States coasts for any Asian traders looking to distribute across Latin America.

  7. In addition to the expansion of the canal, the Panamanian government is also looking to enlarge the 70-year-old Colón Free Zone (CFZ). Home to more than 2,300 companies and with an annual level of trade in excess of USD30 billion, the CFZ is arguably the most important free zone in the western hemisphere.

  8. The government is also looking to further develop the Panama Pacifico Special Economic Area (PPSEA), keen to establish it as a primary hub for high-tech manufacturing and high added value services. Taken together, these moves will reinforce Panama’s standing as one of the most efficient logistic platforms in the western hemisphere in terms of regional cargo storage and distribution.

  9. In addition to enhancing its logistics facilities, Panama has consolidated its standing as an international banking centre, confirming its leading regional role in the financial services sector. Typically, the country’s banks offer a wide variety of first-world style financial products, together with competitive rates and advantageous terms. Given the country’s success in both the consumer and corporate banking sectors, it clearly has considerable scope to further develop its financial services sector, particularly with regard to savings instruments, targeted small- and medium-sized enterprises products, transactional banking, corporate loans and trade financing.

  10. Panama has rapidly developing private banking and insurance industries, two sectors that value both the confidentiality afforded by the country and its monetary stability, a consequence of its currency peg with the United States dollar at a 1:1 exchange rate.

  11. Over recent years, many overseas corporations have set up their regional headquarters in Panama, largely an account of the tax benefits on offer, which include a service income tax exemption for any such entity. In addition, a number of legislative changes, such as 2012’s amendment to Law 45, have created a more conducive environment for the development of new businesses. This has resulted in the introduction of specific tax incentives relating to all such regional headquarters, as well as advantageous tax and immigration terms for all overseas executives operating within such establishments.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Panama has 19 'free zones' which have special tax and other incentives for manufacturers, back office operations and call centres - Companies in the CFZ pay basic user fees and a 5% dividend tax (or 2% 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 operate within them.



- Investment incentives offered by the Panamanian government apply equally to Panamanian and foreign investors.

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 7%
  • Corporate Income Tax: Greater of 25% or 1.17% of gross income

Source: Direccion General de Ingresos Ministerio de Economia y Finanzas

Important Updates to Taxation Information

Value-added tax (VAT) is charged on the supply of goods and services at a standard rate of 7%, although some goods are subject to higher rates and others are exempted.

Business Taxes

Type of Tax Tax Rate and Base
Corporate Income Tax Greater of 25% or 1.17% of gross income
Withholding Tax Royalties: 12.50%

Interest: 12.50%

Dividends: 10%


 
Social security contributions 12.25% on gross salary (all employers)
ITBMS (VAT/GST) - 7% (standard)

- Pharmaceuticals are exempted from the 7% VAT

- Alcohol and hotel accomodation has a 10% ITBMS rate applied

- Tobacco and tobacco-related products have a rate of 15% appled to them
Annual Licence Tax 2% of the company’s net worth
Real Estate Transfer Tax; levied on the acquisition of real estate - 2% transfer tax

- 10% income tax on the net profit

Source: Direccion General de Ingresos Ministerio de Economia y Finanzas

Date last reviewed: March 21, 2019

Foreign Worker Requirements

Localisation Requirements

Companies are required to have 90% 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 labourers and some investors have struggled to staff large projects fully.

Worker Quotas

In addition to limitations on ownership, the exercise of approximately 55 professions is reserved for Panamanian nationals. Medical practitioners, lawyers, accountants, and customs brokers must be Panamanian citizens. The Panamanian government also requires foreigners in some sectors to obtain explicit permission to work.

Sources: Government websites, Fitch Solutions

Localisation Requirements

Companies are required to have 90% 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 labourers and some investors have struggled to staff large projects fully.

Risks

Sovereign Credit Ratings


 
Rating (Outlook) Rating Date
Moody's
 
Baa1 (Stable) 08/03/2019
Standard & Poor's BBB (Positive) 02/07/2018
Fitch Ratings
 
BBB (Stable) 13/02/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
70/190 79/190 79/190
Ease of Paying Taxes Index
 
170/190 180/190 174/190
Logistics Performance Index
 
N/A 38/160 N/A
Corruption Perception Index
 
96/180 93/180 N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank,Transparency International

Fitch Solutions Risk Indices


 
World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 41/202 48/202
Short-Term Economic Risk Score
 
62.3 62.3 63.3
Long-Term Economic Risk Score 66.6 67.0 67.3
Political Risk Index Rank N/A 76/202 77/202
Short-Term Political Risk Score
 
69.8 69.8 69.8
Long-Term Political Risk Score 69 69.0 69.0
Operational Risk Index Rank N/A 73/201 79/201
Operational Risk Score 56.2 54.3 53.9

Source: Fitch Solutions

Date last reviewed: March 21, 2019

Fitch Solutions Risk Summary

ECONOMIC RISK

Panama has a high level of security, stability and policy continuity and the country’s household consumption will remain the primary driver of growth in the years ahead, averaging approximately 49.4% of GDP over the next decade. A 2013 fiscal responsibility law will continue to constrain government expenditure at least through to 2021. The Panama Canal's increased capacity and a strengthening global economy will increase shipping volume, underpinning economic activity in Panama. Construction and infrastructure investment will support growth as several big-ticket projects continue in 2018. Increased diplomatic ties with China offer upside potential for foreign investment.

OPERATIONAL RISK

As the home of the Panama Canal, the world's second largest free trade zone, sophisticated logistics and finance operations, Panama attracts one of the highest level of foreign direct investment from the region and from around the world. Panama boasts one of the western hemisphere’s fastest growing economies, good credit, a strategic location, and a stable, democratically elected government. Panama's ease of doing business and dollarisation continue to make it attractive to international investors.

Source: Fitch Solutions

Date last reviewed: March 12, 2019

Fitch Solutions Political and Economic Risk Indices

 

Graph: Panama short term political risk index
 
Graph: Panama short term political risk index
 
Graph: Panama long term political risk index
 
Graph: Panama long term political risk index
 
Graph: Panama short term economic risk index
 
Graph: Panama short term economic risk index
 
Graph: Panama long term economic risk index
 
Graph: Panama long term economic risk index
 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Economic and Political Risk Indices

Date last reviewed: March 21, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Panama Score 53.9 47.1 56.3 67.2 44.9
Central and South America Average 45.0 48.2 46.0 47.0 39.0
Central and South America Position (out of 20) 3 10 4
 
1 6
Latin America Average 47.8 50.2 49.4 44.8 46.7
Latin America Position (out of 42) 11
 
28 12 1 23
 
Global Average 49.6 49.7 49.9 49.0 49.8
Global Position (out of 201) 79
 
117 81 41 112
 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: Panama vs global and regional averages
 
Graph: Panama vs global and regional averages
 
Country
 
Operational Risk Index
 
Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Chile 64.3 61.3 68.5 62.7 64.7
Uruguay 54.3 48.7 52.0 55.4
 
61.1
Panama 53.9 47.1 56.3 67.2 44.9
Costa Rica 53.2 49.8 60.3 53.2 49.7
Mexico 51.3 58.6 58.3 57.7 30.7
Peru 48.8
 
59.7 51.5 47.1 36.8
Colombia 48.4 54.4 54.5 50.1 34.6
Argentina 47.8 51.4 42.6 50.6 46.7
Brazil 47.4 46.7 48.4 50.7 43.6
Ecuador 45.8 54.0 37.3 52.1 40.0
Suriname 44.1
 
47.1 35.4 43.3
 
50.7
Belize 42.7 52.2 38.2 42.4
 
38.2
El Salvador 41.5 42.0 44.6 51.1 28.3
Paraguay 39.7 41.8 44.0 36.6 36.3
Nicaragua 39.1 40.6 38.8 37.1 39.9
Guatemala 38.1 41.8 44.7 41.3 24.6
Honduras 37.3 38.0 47.0 39.4
 
24.6
Guyana 36.7 41.7 38.3 34.3 32.8
Guyana
 
35.3 42.4 28.7 37.8 32.2
Venezuela 30.8 44.1 30.0 30.0 19.2
Regional Averages 45.0 48.2 46.0 47.0 39.0
Emerging Markets Averages 46.7 48.1 45.5 47.4 46.0
Global Markets Averages 49.6 49.7 49.9
 
49.0 49.8

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 21, 2019

Hong Kong Connection

Hong Kong’s Trade with Panama

Graph: Major export commodities to Panama (2018)
 
Graph: Major export commodities to Panama (2018)
 
Graph: Major import commodities from Panama (2018)
 
Graph: Major import commodities from Panama (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Panama (by consignment)

Date last reviewed: March 21, 2019

Graph: Merchandise exports to Panama
 
Graph: Merchandise exports to Panama
 
Graph: Merchandise imports from Panama
 
Graph: Merchandise imports from Panama
 

Note: Graph shows Hong Kong exports to/imports from Panama (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Source: Hong Kong Census and Statistics Department

Date last reviewed: March 21, 2019


 
2017
 
Growth rate (%)
 
Number of Panama residents visiting Hong Kong 2,574
 
-4.8
 

Source: Hong Kong Tourism Board


 
2017
 
Growth rate (%)
 
Number of Latin American residents visiting Hong Kong 195,854
 
1.8
 

Sources: Hong Kong Tourism Board, Fitch Solutions

Date last reviewed: March 21, 2019

Commercial Presence in Hong Kong


 
2016
 
Growth rate (%)
 
Number of Panama companies in Hong Kong N/A
 
N/A
 
- Regional headquarters
- Regional offices
- Local offices



Chamber of Commerce (or Related Organisations) in Hong Kong

Consulate General of Panama in Hong Kong

Address: Room 1008, Wing On Centre, 111 Connaught Road, Central, Hong Kong

Tel: (852) 2545 2166

Fax: (852) 2543 4614

Source: Consulate General of Panama in Hong Kong

Visa Requirements for Hong Kong Residents

Effective February 10, 2019 HKSAR passport holders can enter Panama without a visa for up to 30 days.

Source: Visa on Demand

Date last reviewed: Februray 10, 2019

 

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