The World of Business

The United States has had a positive influence on Panama’s business and communications infrastructures. In particular, Panama City’s communication and business infrastructures meet the highest international standards. Although Panama’s banking sector has a somewhat checkered past, in its current form is almost meets the highest international standards.

The Panamanian government does not exercise any controls over the exchange of foreign capital nor does it have a Central Bank. In fact, all foreign investment is welcomed and may be freely repatriated. To this end, the government offers foreign and domestic investors a wide range of incentives.

Legal System

Panama is a civil law country meaning that the organization of the legal system is derived from the Spanish Civil Code rather than English common law.

Civil law, also called Continental law or Romano-Germanic law, is the most prevalent legal system in the world. The main difference between civil and common law is that that common law draws abstract rules from specific cases, whereas civil law starts with abstract rules, which judges must then apply to the various cases before them. In other words, historically speaking, common law is based upon traditions and laws are codified following court rulings. On the other hand, in the case of civil law, laws are first codified and then applied. There are a number of civil codes besides the Napoleonic code.

Offshore Legal and Tax Regimes

Please be aware that the following is simply a brief summary of some of the more important aspects of Panamanian income tax law and should be considered only general information. Please do not substitute it for professional tax advice.

Panamanian legislation does not differentiate between onshore and offshore business entities as taxation in Panama is based on territory. In other words, regardless of the form of company or its ownership, only income earned in Panama is tax and any entity that has its assets or activities beyond the borders of Panama is exempt from taxation. The majority of the over 100,000 corporate entities in Panama are in fact “offshore”.

Blacklisting by the FATF

The Financial Action Task Force (FATF) was established in 1989 and is an inter-governmental organization designed to develop and promote international and national policies that combat money laundering and terrorist financing. In other words, the FATF is a “policy-making body” that works to bring about legislative and regulatory reforms in the financial sector.

The FATF “blacklisted” Panama and fifteen other jurisdictions in June 2000 for being a non-cooperative tax haven in the global fight against money laundering. Panama and the other offenders were given a year in which to correct their regulations and legislation

When the FATF released a new annual report in June 2001, the organization revised its list of countries and territories labeled non-cooperative. Panama was one of only four jurisdictions removed from this list. The FATF commended Panama for its significant efforts to conform to the forty recommendations set out by the FATF in a code of good practice governing money laundering.