Panama has created a simplified and efficient business environment, propelled by its interoceanic canal, which allows the establishment of various special economic zones, each designed to facilitate trade, encourage investment and stimulate the economy. These zones provide companies with the opportunity to participate in a multitude of commercial and industrial activities while enjoying tax exemptions and other benefits. Each free trade zone Panama has been instrumental in consolidating the country as an international investment destination, attracting a large number of multinational corporations.
The Special Economic Zones Operating in Panama in 2024
Currently, there are 16 free trade zones Panama and 6 under development, focused on various industries. Their legal framework is based on Law 32 of April 5, 2011 and regulated by Executive Decree No. 62 of April 11, 2017, which establishes a special regime with tax exemptions, migratory and labor incentives that encourage the development of these zones and their contribution to the country’s economic growth.
While all free trade zones in Panama are classified as Special Economic Zones (SEZs), not all SEZs are free trade zones. A clear example is the City of Knowledge, which, although offering similar incentives, focuses on innovation, science, and technology rather than the trade of physical goods.
In other words, while free trade zones in Panama promote international commerce, SEZs also encompass other activities such as research, development, and innovation. In this sense, there are three major SEZs in the country: Panama Pacífico, the Colón Free Zone, and the City of Knowledge. Each of these zones offers tax exemptions and many advantages that suit the different needs of businessmen and companies.
Free trade zones Panama facilitate B2B activities and international trade, especially in industries such as logistics, technology, manufacturing, and research. The government agencies responsible for overseeing these zones guarantee proper operation by providing the necessary permits and support for businesses to prosper.
The General Benefits of a Free Trade Zone in Panama
Establishing a business within a free trade zone Panama offers numerous advantages, primarily centered around tax benefits and regulatory relief, such as:
- Reduced import tariffs
- Tax exemptions on income, as well as on sales of goods and services used in operations.
Additionally, companies in these free trade zones Panama can freely repatriate profits without facing restrictive regulations. The special regime governing these zones also provides corporate persons with simplified processes for obtaining business permits and fulfilling legal requirements.
Another benefit of setting up a company in a Panama free zone is the emigration flexibility offered to foreign workers and corporate persons. Government agencies such as the Migración Panamá accelerate the process of getting visas and work permits for companies, allowing them to hire skilled foreign professionals. The autonomous entity responsible for each special economic zone assures that the labor laws are aligned with the needs of multinational businesses, providing flexibility in work hours and conditions.
Moreover, free trade zones in Panama provide connections between local and international companies, which can engage in manufacturing, distribution, and other commercial activities without the usual financial and legal barriers that would typically be present in a non-free zone environment. These tax free zones allow businesses to scale their operations while benefiting from the favorable regulatory scene.
The Three Most Important Trade Zones and their Characteristics
While the country has many free trade zones, the three most important in terms of economic impact are Panama Pacifico, Colon Free Zone, and the City of Knowledge Panama, each one has different characteristics:
Panama Pacifico
Panama Pacifico is one of the most prominent free trade zones in Panama, specifically designed to attract high-tech manufacturing, logistics, and service companies. Located near the Panama Canal and with over 600 hectares, it provides corporate persons and businesses with easy access to international trade routes. The business regime of Panama Pacifico offers attractive tax exemptions, including deduction from income tax, import duties, and real estate taxes.
In addition, companies in Panama Pacifico enjoy relaxed labor laws, allowing them to hire foreign workers more easily and operate with greater facility regarding working hours. This free trade zone Panama also offers businesses access to a well-developed infrastructure that supports industries such as aviation, technology, and logistics. With over 200 national and multinational corporations working in Panama Pacifico, it is one of the most sought-after special economic zones for corporations looking to expand their global operations.
Colon Free Zone
With over 1,000 hectares and 1,800 companies, the Colon Free Zone is the largest international trade center in the Americas. Since its creation in 1948, and located at the entrance of the Panama Canal, it has functioned as a dynamic import and export platform, contributing significantly to the economic development of Panama and the region.
The Colon Free Zone provides businesses tax exemptions on imported and re-exported goods, allowing companies to increase profits by reducing operational costs. In addition, the companies functioning within this free trade zone Panama are mainly involved in industries such as pharmaceuticals, textiles, and electronics.
The Colon free zone services offered include warehousing, logistics, and product distribution, making it an attractive option for companies looking to accelerate their supply chains. The free trade zone Panama is also home to numerous corporate persons who benefit from its business regime, benefiting from tariff and tax benefits that encourage investment and overseas trade, as well as a great deal of operational freedom that allows them to adapt quickly to market demands.
City of Knowledge Panama
Although not designated as a free trade zone Panama, this is one of the main special economic zones. Located in the former U.S. Army base at Fort Clayton, on an area of 120 hectares and more than 200 buildings, the City of Knowledge Panama is a free trade zone that houses universities, research institutes, and multinational corporations. The special regime governing this zone offers important tax exemptions, such as exclusions on income tax, import duties and sales tax on goods used for investigation and development.
The City of Knowledge Panama is particularly attractive to businesses involved in scientific studies, technology, and higher education. The autonomous entity that oversees this special zone works closely with government agencies to guarantee that companies have access to the resources and support needed to operate effectively.
In addition, the City of Knowledge offers businesses access to a highly skilled workforce, being home to several universities and research institutions, and generating around 8,000 jobs.
The Best Way to Access a Free Trade Zone
To access a free trade zone Panama, businesses must:
- Register as a corporate person and apply for the necessary permits through the appropriate government agencies. Each free trade zone Panama has its own registration process, but in general, companies must provide documentation such as a business plan, proof of financial stability, and a description of the activities they intend to carry out within the zone.
- Businesses must also comply with labor and immigration regulations, which are typically more relaxed within the special economic zones.
- Once registered, businesses can begin to participate in B2B activities and operate within the free trade zones and take advantage of the different tax exemptions and benefits offered by the special regime.
In conclusion, tax-free zones offer unique opportunities for businesses to develop in a competitive international market. In Panama Pacifico, Colon Free Zone, and the City of Knowledge Panama companies can benefit from tax exemptions and relaxed regulations as well as access to strategic trade routes and logistical ease.
For more information on how to register your company in a free trade zone Panama or for legal assistance with the formalities, contact us. At Kraemer & Kraemer, we have ample experience and in-depth knowledge of local standards to support you throughout the process.
