Have you ever wanted to live and work in paradise? In Panama you can!

Hundreds of resident foreigners are starting up new businesses in Panama every year. The Panamanian government is keen to attract new investment and this is evidenced by a number of tax and other incentives.

Panama offers many opportunities for business entrepreneurs. You can trade using the tax free port at Colon, build property, buy, improve (or just wait) and sell existing real estate, buy and rent real estate, open a bar, restaurant, hotel or bed & breakfast. You can also provide tours (fishing, sight-seeing, bird watching, walking etc.), offer professional services or start an e-business of course. Make a note that the increasing number of cruise ships stopping at Panamanian ports will be a huge boon for those interested in making service and tourism related investments in the stop over ports.

Opening a small business in Panama entitles you to residency or what is called 'the small investor visa'. You have to start a business which involves hiring three locals for $253 a month each and invest $40,000 in the company - which would also include all start up capital costs like your car, computers, office furniture, website, etc.

Maybe you are thinking about opening a new business full time? Or, you are retired and thinking of passing the time by engaging in a part-time business.

Which ever you do, Panamanian laws must be understood and complied with. So' read on. Firstly you need to get your visa.

Visas for residing and working

The most common among business people are immigrant visas, temporary visas and special temporary visas.

An immigrant visa is recommended for those intending to reside permanently in Panama while they work or do business.

A temporary visitor's visa applies to technicians, specialists, students, and other foreigners who will have a transitory stay in Panama.

A special temporary visitors' visa, known also as the 'executive visa', is suitable for personnel of international companies and banks who have a monthly salary of at least one thousand US dollars (US$1,000) which comes from sources located outside of Panamanian territory or non-Panamanian-sourced income. Since 2005, this ultimate kind of visa is addressed to those foreigners working in Panama for an offshore business and therefore exempt from paying income tax.

The investor's visa which is a class of immigrant visa for those who wish to invest in commercial, financial and industrial activities. This is the visa we referred to above.

The type of business structure

Depending on your kind of business you intend to create your first consideration is to decide what type of business structure to use.

There are 3 normal business entities in Panama:

1. Sole Proprietor where you and your spouse & family operate a business as sole owners.

2. Partnership where you team up with one or more persons in running the business.

3. Corporation where you register with the government as a company issuing stocks, having a Board of Directors and corporate officers.

While a sole proprietorship can be an oral agreement between close family members, the other two entities need the assistance of a Panamanian lawyer. That's because legal documents need to be prepared forming a Partnership or Corporation. If they are wrongly prepared, they will be legally null and void causing a business legal nightmare for its members.

The most common type of corporation in Panama is the Sociedad Anonima. Most people think that there is a difference between onshore and offshore companies in Panama - this is a misconception. The reality is the tax system used in Panama is territorial - therefore income earned outside of Panama is not taxed. It is possible for a company to earn both onshore (Panamanian-source) and offshore income in the same company

There are many kinds of corporation in Panama and the first is the:

Sociedad Anonima (SA)

SA corporations are formed under the Law No. 32 of 1927 and the Commercial Code (Decree-Law No. 5 of 1997, Article 5). A Panamanian corporation is formed by two persons (called Subscribers) or Nominees (who act on behalf of absent foreigners) who execute legal documents called the Articles of Incorporation. Those documents are filed with the Panama Public Registry office. After the corporation is formed all shares can be transferred to one shareholder if you want. No minimum capital is required. Three directors have to be nominated, president, secretary and treasurer - these can be domiciled anywhere and of any nationality.

Corporate shares are issued which can be of various classes, can have par value or not, may be officially registered, or can be discreet Bearer shares. The corporation must have a resident Registered Agent (Panamanian lawyer). There must be at least three Directors whose names must be in the Articles of Incorporation. Any changes of Directors must also be filed with the Public Registry. Unless the Articles are changed or the corporation merges or dissolves there will be no other filing requirements.

The S.A. has many features, of which the most important are:

No restrictions on nationality No requirements to disclose ownership No restrictions on foreign owned investments (with few exceptions) No restrictions concerning ownership of shares No residence requirements for Directors/Officers No paid-in capital requirements No income tax, if income is produced outside Panama Total tax exemption on all and any business activity or transaction carried on outside the jurisdiction No exchange controls No restrictions on Mergers, Acquisitions or Joint Ventures No requirements to file annual Financial Statements No requirement to hold annual General Meetings of Shareholders or Directors Total Secrecy and Anonymity Reasonable Annual Registration Tax and Resident Agent Fees Articles of Incorporation may be done in any part of the world in any language The accounting books for the corporation could be kept in any part of the world and in any language

Foreign Corporation

If you already have a corporation in another country, it can do business in Panama by filing the following documents at the Public Registry Office:

1. A notarized Spanish translation of the Articles of Incorporation;
2. Board of Directors minutes authorizing the Panamanian registration;
3. Copies of the most recent financial statements;
4. A certificate from a Panamanian Consul confirming that the company is organized according to the laws of its place of incorporation;
5. Notification of the transfer of capital to the Panamanian operation.

General Partnership

General Partnerships are permitted in Panama. As with most countries, the partners have unlimited civil liability. That means every partner can be sued even if only one of them commits an error in the course of business. Scary!!

Limited Partnership - Sociedad de Responsibilidad

Limited Partnerships are also permitted in Panama. They are governed by the Commercial Code and Law No. 24 of 1966. There may be from 2 to 20 partners with no restrictions as to their nationalities or domicile. Their Capital must be at least $2,000 up to $500,000. The names of the partners must be registered with the Public Registry Office including the amount of Capital each contributed. Each partner's civil liability for the Partnership's debts is limited to the amount subscribed to but unpaid. If the Partnership appoints an independent administrator, his/her name must also be registered. No meetings are required if the Partnership has 5 members or less. Otherwise, a meeting must be held at least once a year. There are no requirements for annual returns or filing of any accountings.

An alternative to a Sole Proprietorship is to create an:

Individual Limited Proprietorship - Empressa Individual de Responsibilidad Limitada

This is set up in the same manner as a Limited Partnership except having only one member. The individual transfers his/her assets to the business. Business civil liability is limited to the amount of the committed assets.

Civil Partnership - Sociedad Civil

A Civil Partnershp is allowed by the Commercial Code and Law No. 24 of 1966. The liability of the partners is unlimited. This type of partnership is often selected by professionals such as lawyers and accountants.

Steps of forming a company in Panama

Once you decide what kind of company structure is right for your business a lawyer will do everything you need to do to form a company and the process will take at least a week and will cost you between $1,000 to $1,500. These however are the steps that they (and you) will have to complete.

Procedure 1: Hire a registered agent i.e. a lawyer

Time to complete: 1 day

Cost to complete: USD 150

Procedure 2. Notarize articles of incorporation

Time to complete: 1 day

Cost to complete: USD 75

Comment: The articles of incorporation to be notarized must include (a) the name and domicile of each subscriber to the articles of incorporation; (b) the domicile of the company and of the resident agent, who must be a lawyer or law firm in Panama; (c) the names and addresses of the directors and the officers; (d) the name of the corporation, set out in such a way to distinguish it from other registered names already registered with the Public Register; (e) the company purpose or general objectives; (f) the name of at least the president, the secretary, and the treasurer, who may or may not be the same as the directors and need not to be shareholders and who may hold more than one office or title; (g) details about the capital and the type and number of shares into which it is divided; (h) the company duration, which may be perpetual; and (i) any other provision the subscribers may wish to include.

Procedure 3: Register at the Mercantile Division of the Public Registry

Time to complete: 7 days

Comment: Registration fee schedule: - First USD 10,000: fee is USD 60. - Each USD 1,000 up to USD 100,000: USD 0.90. - Each USD 1,000 from USD 100,000 to USD 1,000,000: USD 0.60. - Each USD 1,000 above 1,000,000: USD 0.12.

Procedure 4: Secure a commercial license (patente commercial) at Ministry of Commerce and Industry.

Time to complete: 7 days

Cost to complete: between USD 250-750

Procedure 5: Register for taxes

Time to complete: 1 day

Cost to complete: USD 250, Corporation's Annual License tax

Comment: Panamanian companies operating off-shore pay only an annual license tax of USD 300, but companies operating in the territory of the Republic of Panama are subject to income tax on profits derived from Panamanian sources. Some exceptions may apply. Among other issues, Law 6 of 2005 modifies Article 318-A of the Fiscal Code, on annual tax payment for corporations (sociedades an'nimas) and private interest foundations. The law was published in the Official Gazette and became effective on February 3, 2005. Under the new system: 1. After a corporation or private foundation is registered, the first annual tax installment of USD 250 will be paid with the registration fees. 2. The second and subsequent annual tax installment will be USD 300. This represents an increase of USD 50 over the former annual tax of USD 250. The increase to USD 300 for the second and subsequent annual taxes came into force January 1, 2006. Go to the govt. website at: www.dgi.gob.pa

Procedure 6 - Register with municipality; get a 'paz y salvo municipal'

Time to complete: 1 day

Cost to complete: USD 5

Comments: Following submission of the registration papers, inspectors will visit your offices to verify the location and the type of business. At this stage they will set the monthly/yearly municipal taxes

Procedure 7. Request an employers' inscription number from the Social Security Administration

Time to complete: 1 day

Cost to complete: no charge

Comment: The Social Security Administration manages insurance programs for pension, health, unemployment, and occupational accident and injury.

ealth Certificate

If your business deals with food or beverages, you will need to get Permisos Sanitarios with the Ministerio de Salud. That translates as a Health Certificate from the Ministry of Health for permission to operate a sanitary business.

Every employee (including owners & management) who prepare or serve food or beverages (or are in the vicinity of food or beverage preparation or service) must obtain two different Permits. One requires a medical & dental examination at a public hospital. The other is issued after attending a two day health & safety course.

Fumigation Certificate

Every business which is open to the public must be fumigated. You will need to hire a private fumigation company every four months to fumigate against ants, roaches, and other bugs. You must then present a receipt from the fumigation company and obtain a Fumigation Certificate from your local municipality. This must be publicly displayed at your business entrance.

Hiring Employees

Now that you have obtained all of the required government permits and licenses, you are now ready to hire employees. For those of you thinking of hiring your ex-pat friends, Panama limits a company's work force to a maximum of 10% foreigners (non-Panamanian). Panamanian laws require that 90% of a company's employees be Panamanian citizens, or married to a Panamanian, or foreign persons residing here for at least 10 years. But, there are exceptions: Required technical or specialized staff unavailable in Panama increases your quota to 15% foreigners. You can also petition the Ministry of Labor for a higher quota. Companies having less than 10 employees can employ 1 foreigner. Companies can employ foreign Managers and Supervisors when the company does business abroad from Panama with prior approval by the Ministry of Labor. You must obtain a work permit from the Ministry of Labor for every foreign worker. Panama.

Finding Staff

Several employment recruitment agencies offer their services in Panama City. English is the second language. Potential candidates for middle to upper management should have fair to good English language skills. Wages may be paid according to units of time (monthly, weekly, daily or hourly), by task or by contract. Employees must be paid at least twice per month (every fortnight). Minimum wages in the metropolitan areas are between US $1.10 and US$1.26 per hour (industry and manufacturing). The construction industry averages $1.56 as minimum wage. Wages for commerce, services, banks, insurance, real estate, transport and recreational activities, on average, are $1.00 per hour. However, the average wage for a skilled labourer in Panama City and Colon may exceed this figure.

Labor Laws

The Labor Code of 1971 deals with Labor Relations including the rights and duties of employers and employees. "Subordination" is the key concept of the law. Any relationship where one person is subordinate to another falls within the law. It makes no difference whether the relationship is or is not described as "employment". There are certain basic employee rights which must be followed:

1. Written Employment Contract
2. Minimum Wage
3. Maximum Hours
4. Paid Vacation Time
5. Firing Employees

Employee Contracts

You must have your employees sign a written employment contract called an Inscripcion Contratos con trabajadores. You must file two copies of the contract with the Ministerio de Trabajo y Desarrollo Laboral.

Employers can easily terminate the employee during the first two years. After that, employees have greater protection under the law. The law lists "just causes" for dismissal. Unlawful dismissals can result in minimal compensation payments. Both parties can contract for "fixed terms".

Minimum wage levels vary according to the employee's seniority.

Vacations

There are 11 paid public holidays per year. In addition, employees are entitled to a 30 day vacation every year. Paid sick leave is up to 18 days a year. Maternity leave is 16 weeks and the employer has to make up the difference between the social security maternity payment and the normal salary.

13th Month

The law also requires a 30 day paid bonus every year which is known as "the 13th month". This bonus is estimated at one-salary day for every 11 days of work. The 13 month bonus is paid in 3 equal installments: April 15th, August 15th, and December 15th every year.

Unions

Unions are allowed in Panama. Unions can collectively negotiate on behalf of the employees. Strikes are lawful under defined circumstances after a majority vote of the member employees. Conciliation is mandatory before a strike can occur. However, only around 11% of the private sector employees are unionized.

Social Security Levies

The social security system in Panama replaces many of the employee's benefits usually provided by private insurance in other countries.

'Management of the system is provided by the Social Security Administration ('Cajade Seguro Social'). It not only provides retirement benefits, but also health, dental, maternity, disability, and death benefits. Therefore, the cost of employee's benefits may be reduced, yet the same coverage is provided as would be by private insurance.

For workers, there are two legal regimes: the mandatory enrollment and the voluntary enrollment.

All employees working for the Government, individuals or enterprises operating in the national territory, including foreigners, are subject to the mandatory system of social security. The social security system grants benefits to the insured and their dependents.

This mandatory enrollment includes dependent workers as well as independent workers with a gross income over $9,600 a year.

Employees pay 8% of their salary. From 2011 it will be 9% and then 9.75%from 2013.

For the employer, it is 11.50% going up to 12% from 2011. Employers should pay.

Self-employed workers pay a quota based upon 52% of their annual gross fees as follows: 11% from 2008, 12.5% from 2012, and 13.5% from 2013.

The employer must pay contributions every month (both on behalf of the employee and the company). Late payment could result in a 15% penalty, plus one percent interest charge for every month late.

The action for the collection of premiums from employers has a 20-year statute of Limitation hence having to keep social security documentation for 20 years!

Accounting Requirements

All companies operating in Panama are required by law to maintain accounting records according to generally accepted accounting principles in the Republic of Panama. Basically get your self an accountant but the following is good to know!

The following books are required for corporations operating in Panama: a general journal, a general ledger, a minute book, and a stock register. Only two are mandatory for merchants: a journal and a ledger.

When a computer based accounting system is used for tax purposes, specific authorization is required.

All accounting records must be kept in the Spanish language.

Accounting records, supporting documents and correspondence must be kept in Panama, as long as the operations are carried on locally. They must be up to date and ready for inspection at any time by the authorities.

Countersigning by a certified public accountant is required when capital is higher than US$100,000 or sales volume is over US$50,000.

For companies that exclusively performs offshore operations, the books, accounting documents and correspondence may be maintained anywhere in the world.

For all companies operating in the Republic of Panama, tax regulations require taxpayers to maintain at the disposition of the Directorate General of the Revenue financial statements attested by certified public accountants according to generally accepted auditing standards in Panama.

Although not required, financial statements can be inscribed in Public Registry of Panama.

There is statutory audit requirement in Panama for banks, insurance companies and reinsurance companies. For companies registered under the National Securities Commission and for companies operating in a free trade zone, the financial statements must be certified annually by independent auditors.

Keeping records

You are required by law to keep company records for a certain time. For instance you must keep social security records for 20 years, taxation records for 15 years and real estate taxation records for 10. Income tax collections and refunds have to be kept for 7 years and income tax assessments for 3. ITBMS (VAT) and commercial matters must be stored for 5 years along with accounting records and auxiliary records.

Leasing Office or Business Premises

Panama's laws regarding leasing commercial space is similar to most English speaking countries.

1. It needs to be in writing.
2. It needs to properly describe the location of the premises.
3. It needs to address the amount and frequency of the lease payments, length of the lease period, whether there is a Security and/or Damage deposit, who pays for gas, water, electricity, and repairs. It will also contain provisions for late rent payments, tenant property damage, and renewal of the lease term.
4. It must be signed by the property owners (or legally authorized representatives) and the tenants.
5. All signatures must be notarized before a Notary Public.

There are many more terms and conditions which should be included in a standard commercial lease which is why you should consult with a Panamanian attorney before signing one prepared by your landlord.

Setting up a Business Bank Account in Panama

Even if you are a sole proprietor, you should never co-mingle your personal funds with business monies. That is why you'll need to open a bank account for your business. Partnerships and Corporations definitely need to open separate When you open an account for a corporation, partnership, or a business most banks require the following information and documentation:

1. Most banks require a personal interview, while some banks may allow a telephone interview.

2. A clear copy of the account's Signatory and each corporate Director's Passport (must include the photo & personal information page, and Panama entry stamp page).

3. A clear copy of a second photo id (such as a driver's license or national id card).

4. Two bank references for each Director and account Signatory. These references must entail the satisfactory conduct of the account holder and that the banking relationship had been ongoing for a minimum of 2 years. It would be helpful if the references also confirm the person's residential address. Many Panamanian banks require the references be specifically addressed to that bank's branch. Some banks may accept only one bank reference letter (especially if you have done all of your banking with only one bank).

5. Two professional references for each Director and account Signatory. These references may be written by one's accountant, lawyer, stock broker, insurance broker, real estate broker, or employer. They should be written on their company letterhead. These must include the duration and nature of their business relationship with the applicant. Only an Original letter will be accepted.

6. Proof of Address: You must provide a copy of a utility bill (phone, water, electricity, cable TV, or Internet service) which contains your name and address.

7. A "Company Profile" letter must be submitted which briefly describes the type of business the account holder will engage in. This will include the location of the business, the products or services you are selling, the nature and expected volume of business, the origin of the funds to be deposited, an estimate of the monthly or annual amount of funds to be deposited, and the reason for opening a bank account in Panama. It will help if your Panamanian lawyer accompanies you to the bank in order to make sure the process goes smoothly. Once all of these documents have been received, they will be forwarded to the bank's Compliance Officer who reviews the entire application to insure no money laundering will occur.

This process will go smoother and may have less required documents if you first go to the Panamanian bank where you already have a personal account as they already know you.

Now that you are licensed, moved into your commercial space, hired employees and have a bank account; you need to worry about taxes.

Taxation

Every Panamanian corporation has to pay an annual tax, imposed by law. The law requires corporations to pay tax in order to remain registered at the Public Registry of Panama. All annual fees and taxes must be paid promptly every year to maintain the company in good standing. Late payment will produce high penalties and strike off from the Register. An additional penalty caused by non-payment is that documents subject to registration will not be recorded nor will any certification of good standing or others be issued, except when requested by a competent authority.

It is interesting to note that should you decide to have a farm in Panama there is no tax (and no tax return necessary) if you earn less than $150,000 pa. Also, there is no property tax on farms below 150,000 in value. When you sell the farm though there is a 5% capital gains tax at that point.

If you are thinking of going into the tourism sector - hotels, bars, restaurants, ecotourism etc. - there is a 20 year exemption for tax on land and any improvements you make to it as well as 15 years exemption on tax for all income from the business as well as a host of other benefits. Cool!

If you are planning on going into the property business in Casco Viejo it is good to note that there is a ten year exemption from income tax on the sale or rental of property here. You also pay no real estate tax here currently. Anyone renting in this area can also deduct the cost of their rent from their income return for 5 years after moving in.

How much Tax?

The income tax of Panama is levied only upon net income derived from operations within the territory of the country. Income obtained from operations outside Panama is not income obtained from 'sources within the jurisdiction' and, therefore, is not taxable under local law.

Every year every corporation has to pay a basic $300 tax to the treasury plus any due income tax. Regardless of whether it trades or not. If this is not paid for 10 years the company is dissolved.

The normal fiscal year for companies declaring taxes in Panama goes from January 1 to December 31 of each year; filings can usually be made until the end of March of the following year. A different fiscal year can be authorized for companies that are fully owned or related to foreign entities that have a different term in their countries of registration.

Taxation for individuals

There is no income tax for individuals earning less than $9,000 per year and no income tax on employees earning less than $10,400 as long as the average income is not more than $800. Between $10,400 and $15,000 it is 16.5%, between $15,000 and $20,000 it is 19%, between $20,00 and $30,000 it is 22% and 27% over 30%. Over $60,000 per year there is an option to pay 6% on total income.

Benefits to employees which are personally taxable include:

• Food and fuel allowances.
• Club memberships and subscriptions to publications.
• Car for personal use.
• School tuition and educational allowances.
• Housing and utilities allowances.
• Personal debt payments.
• Insurance premiums.
• Non-business mobile phone.
• Clothing allowances.
• Reimbursements of taxes.
• International service premiums.

Individual tax payers are entitled to the following deductions from taxable income:

• Each single person, US$800 annually.
• Each married couple filing jointly, US$1,600 annually.
• US$250 for each of the taxpayer's dependents.
• All medical expenses incurred in Panama, such as medical insurance premiums and the sums paid for hospital and medical expenses not covered by insurance.

Interest paid on mortgage loans for acquiring, constructing, or improving the principal dwelling of the taxpayer in the Republic of Panama, up to a maximum of US$15,000 per year.

' Interest on loans for the education of the taxpayer or her/his dependents within the Republic of Panama, or on loans granted by the Institute for Education and Improvement of Human Resources (IFARHU), a governmental entity.

• Educational taxes paid or withheld.
• Donations to qualified institutions (according to legal amount limits).
• Dues paid to non-profit organizations, associations, or societies.
• A deduction of one percent of the total sum received by the worker as the result of

the termination of the labor relationship, for each complete period of 12 months, worked with the same employer. Plus a basic deduction on the first US$5,000 of the balance resulting. The sums received by this means must not be added to the salary or any other kind of income of the taxpayer for tax purposes.

In the case of employees they must present her/his employer with a declaration of personal deductions in order to claim more than the basic $800 tax exemption.

Taxation for Corporations

Taxable income of corporations is the balance of gross income less deductible expenses. Expenses and cost of doing business necessary to generate taxable income in Panama is deductible if based in proper evidence. Expenses are only deductible in the tax year in which they are actually paid.

Salaries are of course deductible as is up to 10% of the value of a salary paid into a private pension fund. Employees can also be given up to $100 food vouchers per month and this is deductible but the employee does not get taxed on it. Profit bonuses to employees are also deductible. Note that tax on any type of income paid to employees must be withheld by the employer and paid to the National Treasury.

As for depreciation, the minimum is 3 years for movable goods and 30 years for non-movable goods.

As a general rule, income tax for companies is a flat rate of 30%.

On paying share dividends 10% tax is payable by the company (within 10 days) to the National Treasury. Undistributed profits, in any given fiscal year, may be capitalized in any subsequent fiscal period without being subject to income tax on dividends. However corporations carrying out this capitalization cannot acquire their own shares.

Net operating losses for a given fiscal year can be carried forward to each of the next five taxable years, deducting a maximum of 20% of the loss per year. The deduction cannot reduce the net taxable income for that year, by more than 50%.

Capital gains derived from the sale of either tangible property or securities are taxed at a fixed 10% rate.

Gross income from rental activities includes rents received in either cash or in kind, including the value of any improvements made by the tenant to the property, and left for the benefit of the landlord. Apartment building owners bear the burden of proof to show that empty apartments were not rented throughout the entire taxable year. Not sure how you do that but '..

There is a 2% transfer tax on the sale of real estate. This is deductible from income tax if it is paid at the normal 30% rate.

ITBMS (VAT) in Panama

There is a 5% VAT payable on all services and products except for medicine and food as well as books and newspapers which have none, alcohol is 10% with 15% on cigars and tobacco.

Taxpayers, class one, with an average monthly gross income over $5,000 are required to file their ITBMS tax returns on a monthly basis. Taxpayers class two, with an average monthly gross income over US$3,000 but under $5,000 must file their ITBMS tax returns on a quarterly basis.

An individual offering professional services does not have to charge and pay VAT if their average monthly income in the previous year was less than US$36,000.

There is no VAT on rental of homes.

Selective Tax or Luxury Goods Tax

In 2005 a selective consumption tax came into being (ISC as per its abbreviation in Spanish)which is an excise tax on the importation of specific goods (such as luxury vehicles, motorcycles, jewelry, and firearms), alcoholic beverages/liquors and all tobacco derivative goods (cigarettes and cigars) or on the first transfer or sale by local manufacturers of these products (such as sodas, wines, and beers).

License Tax

This is an annual license tax of 2% of the net assets of a company and ranges from a minimum amount of $100 up to a maximum of $40,000.

Education Tax

Both employees and employers must pay a tax assigned for educational purposes. Employers must deduct 1.25 percent from their employees' salaries, and pay for their own account an additional 1.50 percent.

Self-employed individuals must pay the total 2.75 percent of their annual income subject to income tax.

Real Estate Tax

All land and real estate improvements thereon located in Panama are subject to real estate tax unless of course on certain properties and improvements which are exempt or can obtain exemption according to special incentive tax laws.

The tax base depends on the total value of the land plus all improvements. Real estate transactions at prices above the appraisal value automatically increase the value of such properties for tax purposes. The real estate is appraised by an agency of the Ministry of Economy and Finances.

Real estate properties with assessed value of less than US$30,000 are exempt from this tax. Between $30,000 and $50,000 it is 1.75%, between $50,000 and $75,000 it is 1.95% and over $75,000 it is 2.1%.

Real estate tax has priority over all encumbrances on the property, and can be paid in three installments, by April 30, August 31, and December 31.

A tax clearance certificate must be obtained before any real estate transaction can be completed.

Colon Tax Free Zone

The Colon Free Zone, established in 1948, is located in the city of Colon, near the Atlantic entrance to the Panama Canal. With a total area of 400 hectares, it is the second largest duty-free zone in the world after Hong Kong. Major CFZ customers include: Xerox, Sony, SamSung, Land Rover and others. The CFZ is a much bigger market than the country of Panama. Re-export figures for 2006 are US$ 7,688 million and import US$ 6,992 million. These were mostly consumer goods, electronic products, clothing and other similar products. Hong Kong is the Zone's biggest supplier, while Colombia and Ecuador are the major final destinations for Zone re-exports.