Panama: The perfect location to manufacture and distribute
Excerpt from Panama Means Business 2016/ 2017 edition, series 3
The year 1997 was a crucial year for the national manufacturing industry. That was when Panama joined the World Trade Organization (WTO) and this sector started to get stronger, becoming a significant part of the economy.
Since then, international manufacturers have chosen. Panama as their headquarters for their Central American operations, attracted by the incentives laws and the logistics facilities that the country offers.
The National Competitiveness Center (Centro Nacionalde Competitividad, CNC) stated that the manufacturing sector has the potential to become an important segment for the development of the national economy, because it is about long term investments which contribute to the development of entrepreneurial initiative and human resources.
The main activities developed by the national manufacturing industry are: food and drinks; paper, paper products and printing; mineral products (nonmetallic); metal goods; transport equipment and furniture.
Manufacturing centers of consumer goods represent 71% of production, followed by related industries such as construction with 10% and finally intermediary industries and capital goods with 6.5% and 3.5% respectively. It is estimated that with regard to the consumption of industrial goods, about 80% are imported, while 22% of the local industrial production is exported.
A great percentage of manufacturing activities are concentrated in the food and drinks sector which constitutes 22% of the manufacturing industry.
Manufacturing sector potential
The Panama Industrial Union (Sindicato de Industrialesde Panamá (SIP) has stated that the Panamanian industrial sector is dynamic and resilient, capable of again becoming one of the main pillars of the national economy, contributing significantly to the GDP and creating more employment.
Currently the Ministry of Commerce and Industry is working with SIP to create an industrial policy law with a bill that could raise the quality of national products, in an environment comparable to those of developed economies, with full incorporation of technological advances, specialized trained workers, based on the combined production chains, innovation and competitiveness.
Export and manufacturing
Exports play an important role in optimizing the sector and taking advantage of the opportunities that the country 69 has in the international market. According to the Ministry of Commerce, through Proinvex and SIP, between 2013 and 2014 total exports amounted to $818.2 million.
The majority of local industrialized goods are exported to countries in Central America and the Caribbean, followed by North and South America and Europe. However, opportunities exist to enter bigger markets. The principal category of products to be exported are: fish oil and flour, drinks in general, medical goods, condiments, minerals, precious metals, clothes, paper and its derivate and oil byproducts.
Panama could increase its existing exports of manufactured goods by taking advantage of its location and its international logistics platform services in addition to the free trade agreements the isthmus has with countries around the world.
The United States is Panama’s main commercial partner, which represents a market of 300 million consumers and is the principal destination of Panamanian exports. The trade agreement between the two countries establishes that 99.7% of industrial exports which enter the USA from Panama are free of Customs duties, with the exception of textiles and clothes. The other 0.03 % consists of canned tuna and certain types of shoes that will be tax free in ten years. On the other hand, Panama has eliminated 71.2% of Customs duties on goods from the U.S. and the remainder will be tax free in five to ten years.
Panama’s free trade agreement with the United States will give freer access to one of the biggest and richest markets of the world. The use of lands adjacent to the Canal and the logistics system could attract an Integrated Development Environment that will help support the Colón Free Zone as the logistics hub from which to export to the United States.
Law 41 provides:
Exemption of Income Taxes: Since Panama has a territorial tax system, and since the MHQ will be operating offshore (providing services to its operations outside Panama), there is no taxable income. If the MHQ provides service to its local affiliate, the MHQ will have to pay the local income tax. The law also provides exemption from sales tax for services rendered to the Corporate Group abroad. MHQ invoicing to offshore operations are not subject to the sales tax.
The Ministry of Economy and Finance, through the Revenue Office (DGI), is studying the possibility of negotiating a tax agreement with MHQs whose countries have celebrated bilateral tax agreements with Panama. Middle to top management personnel enjoy exemption from income tax, and social security and education contributions, when salaries are paid from Headquarters abroad. They will also have exemption from import tax for household items, upon arriving for the first time to the country.
- end -