Explaining How the Panama Pacifico Zone Works

The Panama Pacifico Zone is located in the Arraiján district, in the province of Panama. This special economic area aims primarily to attract investments and generate employment.

In this article, we explain how this important Panama free zone works, focusing on its tax exemptions, immigration and labor regulations, work incentives, as well as the services offered by the Panama Pacifico Agency.

Panama Pacifico Area Beginning

The Panama Pacifico Zone was established in 2004 under Law No. 41, transforming the former U.S. military base of Howard into a special economic zone located in the Arraiján district, province of Panama. This base, which was returned to the Panamanian government in 1999 as part of the Torrijos-Carter Treaty, is now dedicated to promoting the country’s economic development by attracting foreign investment and creating jobs.

With quality infrastructure designed to attract international businesses, the Panama Pacifico Zone has generated more than 8,500 direct jobs and 2,500 indirect jobs since its inception in 2004, significantly contributing to the country’s economic growth.

Panama Pacifico’s Role as a Free Zone

The Panama Pacifico Agency provides a supportive environment for free trade through its regulations in different areas. This Panama free zone plays a fundamental role, allowing local and foreign companies to establish and operate their businesses with ease.

Operational Functions and Advantages for Businesses within Panama Pacifico.

The Panama Pacifico functions include the creation of a special regime with legal, fiscal, customs, labor, and immigration regulations that facilitates the free flow of goods, services, and capital.

Free zone companies that establish themselves can engage in various commercial and industrial activities, as long as they are not prohibited by national health, safety, and public order laws.

Special Economic Area and Its Regulations

Panama Pacifico is recognized as a special economic zone. This allows free zone companies to benefit from tax exemptions and other advantages.

Additionally, the area implements specific regulations in labor and immigration sectors to support the hiring of foreign personnel and meet business needs. This combination of benefits and favorable regulations creates an environment that supports investment and sustainable economic development.

Happy manager handshaking with a candidate after successful job interview in the office

Tax Exemptions in Panama Pacifico

Tax exemptions in Panama Pacifico cover both direct and indirect taxes on the import and export of goods, as well as on transactions and services within the zone. These benefits include the exemption from the Transfer Tax on Movable Goods and Services (ITBMS), which applies to any merchandise, product, equipment, and service brought into the zone.

Moreover, properties are not subject to property tax, applicable to both land and commercial and industrial improvements. Companies established in the zone also benefit from a reduced dividend tax rate of 5% on profits derived from exempt income and foreign or export sources, in contrast to the standard rate of 10% for Panamanian-source income.

Labor Regulations and Incentives

In Panama Pacifico, the regulations and incentives establish fixed rates of 25% for overtime and 50% for work on free days, along with special permits for expatriate employees. Payment for night and mixed hours is also allowed according to the hours worked, and there is the possibility of establishing a different weekly rest day other than Sunday.

The zone facilitates the hiring of a higher percentage of expatriate employees without considering their salary and simplifies immigration and labor procedures. Additionally, a single window is available for the management of all necessary permits, which speeds up administrative processes. These conditions create a dynamic business environment that stimulates investment and economic development.

Immigration Regulations for Investors and Workers

The immigration regulations of this zone are designed to facilitate the acquisition of work permits and visas for workers and their families. The Panama Pacifico Agency, utilizing quality infrastructure, centralizes the management of these processes to guarantee fast and efficient procedures.

One of the main benefits of these immigration regulations is the Panama Pacifico Area Worker Visa, granted to foreign workers as long as they remain within ten percent (10%) of the total ordinary employees of a company, developer, or operator. This temporary residence permit is valid for up to five years, after which workers can opt for permanent residence in Panama. These labor incentives not only simplify international labor mobility but also attract global companies and qualified professionals.

Services Provided by the Panama Pacifico Agency

The Panama Pacifico Agency is the entity responsible for implementing and supervising the special regime of the zone.

This agency provides a wide range of services that benefit free zone companies, including a unified service point that represents more than 17 government agencies, such as the Ministry of Economy and Finance or the Ministry of Commerce and Industries. This arrangement makes it easier for companies in the Panama free zone to obtain permits and complete any necessary procedure.

This entity is also in charge of providing a quality infrastructure suitable for all companies, including roads, public services, and highly efficient telecommunications. This setup improves the daily operations of free zone companies and creates a favorable environment to attract and retain talent. Labor incentives, such as training programs and attractive benefits, play a very important role in maintaining competitiveness in the global market.

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The Future of Business in Panama Pacifico

The future of business in the Panama Pacifico special economic area looks promising, with a continued focus on attracting high-quality investments and promoting sustainable development.

The services in Panama Pacifico continue to evolve, adapting to global market needs and offering a competitive business environment for both locals and foreigners. Notable companies include Dell, 3M, BASF, and Caterpillar, operating in sectors such as technology, manufacturing, and logistics.

Request Legal Assistance for Operations in Panama Pacifico

If you are considering establishing your company in Panama Pacifico or need assistance with immigration and labor regulations, or any other aspect related to the operation of free zone companies in Panama, our experts are here to help.

Contact us today to learn more about how we can support your business and ensure your success in this special economic area. Email us at info@kraemerlaw.com to receive the appropriate legal advice.

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Published May 31st, 2024, as Commentary on Business by Johana Sum