Investing in Panama

Many Latin American countries are competing for investors by offering attractive tax incentives in hopes of luring new money to the region, but Panama is leading the way with new incentives in many areas such as real estate, teak wood forestation and tourism as well of course as establishing many new free trade zones.

Panama’s strategy is simple; by offering to lessen the tax burdens for new investors these available dollars are now circulating through the economy, strengthening Panama’s financial viability and attracting new residents and businesses to the country.

Panama differs from many of its neighbors as the small country’s economy has remained stable with an inflation rate of only 1% over the last 30 years. Extremes in interest rates and economic activity have been avoided in Panama; this feat has been accomplished by a favorable tax structure that continually attracts foreign investors along with the canal’s vital trade economy.

Panama’s sound economy has attracted retirees and business people seeking financial stability and a safe haven in a financially challenged world economy. More importantly, retirees and new residents are attracted to Panama by a slow paced tropical paradise with a low cost of living. The government understands that a low cost of living is an important factor for many and the Panamanian government strives to provide that to residents and investors alike through tax incentives and other financial inducements, making Panama one of the top choices for a strong foreign investment.

Teak Wood

The government of Panama provides many incentives to foreign investors interested in investing in reforested timber plantations, including tax exemption and visas for these investors. Timber is one of the most important natural resources in Panama, and the region is one of the few in the world that can support high quality teak plantations. Teak can be a particularly lucrative investment, and is used in a variety of products including many veneers, and due to its high oil content is a choice wood for boat decks. Due to the relatively fast growth of teak, it is renewable and can make an ideal green investment.

Through investing in Panama’s reforested timber program, the investor is given complete tax breaks on any profits from harvested timber, a title for the timber property they own, as well as the option for a residency visa in Panama. Care must be taken though when investing in timber companies, as there have been cases of fraudulent activity in this sector. Thorough due diligence and accredited lawyers are recommended for anyone interested in these types of investments.

There are other options for investing in timber in Panama, including investing directly in timber companies. With any of these options, including the reforestation program, it is recommended that investors consider certified forestry practices to maintain and harvest their forests, such as those outlined by the Forest Stewardship Council (FSC). While becoming FSC certified can increase costs upfront, there is a payoff in the end as green certified products can be sold at a much higher market value than products without certification. With the right research and due diligence investing in Panama timber can be both a lucrative investment as well as a green investment, and can help to protect local biodiversity and sequester carbon, all while continuing to turn a profit for the savvy investor.

Tourism

In 1994, Panama passed Law No. 8—the most modern and comprehensive law for the promotion of tourism investment in Latin America and the Caribbean.

Since the law was enacted, dozens of the world's largest hotel chains have swept in to take advantage of it. But Panama's attractive tourism investment laws are not just for big business. Anyone willing to invest as little as $50,000 in a tourism project can take advantage of the enormous tax benefits and financial incentives available here.

You could build a guest house in the hills of Boquete; start a whitewater rafting outfit in Chiriqui Viejo; open a surfboard rental shop at Playa Santa Catalina; trek tour groups through the wild Darien Gap; open a marina, hotel, restaurant, or nightspot along the beaches of the Pacific coast; launch a horse-drawn carriage service on Isla Taboga, the "Island of Flowers," which has no cars; take tour groups through the historical ruins of Panama's colonial era…the opportunities are endless…

With a minimum investment of $50,000 anywhere in Panama's interior, you receive:

• A 20-year exemption of any import taxes due on materials, furniture, equipment, and vehicles
• A 20-year exemption on real estate taxes for all assets of the enterprise
• An exemption from any tax levied for the use of airports and piers
• Accelerated depreciation for real estate assets of 10% per year.

And if you start up a tourism-related business in one of the specially designated tourist zones, you can also receive a 15-year exemption on your income taxes.

Real Estate

As the American real estate market flounders more and more investors are seeking sound financial real estate investments outside the US. For these investors, Panama has never looked better, offering strong and sound equity gains, low living costs along with increasing tax incentives to attract new buyers.

Land and real estate located in Panama valued above $30,000 are all subject to real estate taxes, which is based on the value of the land plus any improvements (such as new constructions). Real estate transactions can increase the value of the land, which is appraised by the Ministry of Economy and Finances.

Simply put, building permits granted before December 31, 2009 will be exempt from property tax until the year 2030. These exemptions are transferable when the property is sold.

Preferential Interest Rates

Through to May 2009, reduced mortgage interest rates up to 6.5% below regular rates are also offered in some cases. To qualify, the home being built must become the owner's principal dwelling, and be valued below $62,500. This incentive is mostly appealing to those who want to move or retire to Panama.

Income Tax Exemption

In some cases, profits on real estate sales that are reinvested in new constructions can be exempted from income tax. In order to qualify, the re-investment must be made in housing valued at $62,500 or less.

Casco Viejo

With its Law No. 9 of Aug. 27, 1997, the Panamanian government created great incentives for property developers interested in Panama City's Casco Viejo (the old city).

For instance, any income you make from the sale or rental of your property is exempted from income tax for 10 years. You can also deduct 100% of the costs of the renovation from your income tax. Plus, you won't have to pay any duties on any materials you import to complete the renovation.

You won't have to pay any property taxes for 30 years. Nor will you have to pay any transfer taxes—providing the property costs $50,000 or more.

Signs of private investment prompted by these incentives are everywhere. You don't walk far without passing a restored building or one in process of renovation. Scaffolding seems to be on every corner. There's an almost "land rush" feel to condominium development in the area.