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LOWTAX OFFSHORE

PANAMA: E-COMMERCE


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BACK TO PANAMA INFORMATION: BUSINESS, TAXATION AND OFFSHORE

On this Page:

- PANAMA INTRODUCTION
-
PANAMA FACILITIES
-
PANAMA LEGISLATION
- PANAMA OFFSHORE ACTIVITIES
- PANAMA CASE STUDIES


Panama Introduction

http://www.businesspanama.com/investing/opportunities/telecommunication.php

Panama, which has the ambition of becoming an e-commerce hub for the Central American region, is beginning to make progress towards this goal, with its Internet user base increasing monthly.

The Government has established the City of Knowledge Technopark in the former Ft. Clayton US Military base. The Tecnopark is a mixture of commercial space, offices, technical facilities and ancillary residential properties. The Government supplied 20 hectares of land with complete infrastructures and buildings worth an estimated $50m for the project. The Tecnopark project was unveiled in August, 2002. By 2008, 45 companies had signed up as tenants and more than 40 were expressing interest including Oracle, Cisco, Microsoft, and C&W.

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Panama Facilities

The telecommunications market was privatized in 1997, and in 2003 it was de-regulated. Although many of the changes that were brought about as a result of these two processes have not been entirely positive, many of changes have been beneficial to both individuals and businesses.

Since the opening of the fixed telephony market in Panama, the number of service lines in the country has increased 70% while international long distance call costs have dropped by about 50%. There are 10 companies providing local telephone services, 15 for long distance national calls and 16 for long distance international calls. Cable & Wireless Panama is the dominant operator with 90% of fixed lines in the country.

The telecommunications infrastructure has greatly improved. As a result telecommunication companies are installing Network Operation Centers in Panama, taking advantage of the geographical location and the abundant supply of submarine fiber optic communications circuit on both coasts which makes possible interconnection to north and Latin America, Asia, Europe, Africa and the world, over redundant routes.

These submarine networks give Panama four international connections via high-bandwidth, fiber-optical trunk routes. In addition, these new cables incorporate New Wave Division Multiplexing Technology that will allow extraordinary ultra high-speed bandwidth applications, such as multimedia and digital video. This in turn is already enabling fast and reliable connections for B2B, banking, e-commerce and other businesses as well as additional high-speed consumer activity units.

The MAYA-1 ring features relays in Florida, Mexico, Guatemala, Costa Rica, Panama, Colombia, Puerto Rico, Jamaica and Grand Cayman Island and, in addition to its own communications structure, provides a restoration path for the Pan-American cable. The ARCOS-1 trunk spans Florida, Mexico, Belize, Guatemala, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Aruba, Puerto Rico, the Dominican Republic and the Bahamas. The GLOBAL CROSSING project connects Asia, the US, goes through the Panama Canal, the Caribbean countries, and Europe. The MAYA and ARCOS ring systems link the continental Americas and the Caribbean Basin.

Total investment for the two fiber-optic trunk systems was targeted at $217 million, divided between a mainly 14-member consortium, including world-class carriers such as AT&T, CTC Mundo, France Telecom, MCI, SPRINT, Star Telecom, Swisscom, TelMex WorldExchange and Cable & Wireless.

Since the telecommunications market was opened in 2003, the Ente Regulador de los Servicios Publicos has granted more than 1,422 licenses to 182 operators. The primary objective for most of the new players is international long distance and the use of services such as VOIP and VON.

In January, 2004, the National Assembly approved Law No 98 to eliminate a $1.00 tax on every International Call and replace it by a 12% tax on all International Calls using any technology. Demand for licenses for Call Centers increased following the elimination of the $1 tax on international calls.

Total cellular phone users reached 1.352 million by 2005 with good chances for continued growth in the future, especially in pre-paid services.

In 2003, Cable & Wireless launched an aggressive campaign to penetrate the Internet market with ADSL technology. The Kilobyte price for dedicated Internet access dropped significantly, as the main providers such as Cable & Wireless, Telecarrier and Cable Onda lowered their rates. The new pricing structure benefited both residential and corporate markets, reaching a level of $39 per month for a dedicated 128K connection. Internet access, hosting and first tier IP services represented approximated a US$27 million market, showing an increase of 18 % over the prior year.

Panama has already 3 world class internet data centers. The first one is Altec1, the only independent organization, and the other two are from Cable & Wireless and TeleCarrier. They all provide basically the same quality of services including redundant access to several submarine fiber optic networks, security, fire detection and fire suppression system, access control, CCTV, electrical generator and UPS, co-location space, rack, cabinet and private suite, scalability, reliability and convenience for companies looking to reduce their IT cost in 24 x 7 secure facilities.

To see an article by Pardini and Associates describing the prospects for Panamian e-commerce called The Panama Canal Silicon Valley, CLICK HERE

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Panama Legislation

An e-commerce bill was signed into law by Panama's then President, Mireya Mosocoso in July 2001. Believed to be the first of its kind to be implemented in Central Amercia, the new law provided a much needed boost to Panama's e-commerce industry.

The bill established a certification procedure and penalized the non-compliance of contracts. It also envisioned the creation of an e-commerce and data center to be managed by the National Secretariat of Science, Technology and Innovation (Senacyt) and the Ministry of Commerce and Industry, which is also responsible for authorizing certification entities.

In February, 2003, Panama introduced legislation covering on-line gambling operations. Resolution 065 was enacted by the Gaming Control Board and published on February 3, 2003. Under the Constitution gambling is a state monopoly, but local cases have upheld the power of the State to grant gambling concessions to private companies.

The Regulation only allows online transactions with users from outside of Panama, so that their income would be tax-exempt. Online gambling operations must prove economic solvency and previous related experience. There is a initial fee of US$10,000 fee and a yearly US$20,000 license fee. Operators must comply with money-laundering regulations and notify the Financial Analysis Unit of any suspicious transactions above US$10,000. An account must be maintained to guarantee payment to winners.

In February, 2004, Panama's legislature approved rules to tax telephone calls made over the internet (known as Voice over Internet Protocol, or VoIP) at the same rate as traditional phone calls. The tax imposed a 12% levy on all international calls, regardless of how they are made, in place of the previous $1 levy per international call. The move came in response to a revenue drop of around $12 million for the Panamanian government which has resulted from the increasing use of VoIP technology.

The announcement received a mixed response from the broadband industry in Panama, however. Bryan Weiner, president of the jurisdiction's largest VoIP provider, Net2Phone, expressed support for the government's "one law covers every technology" approach, observing that: "Some might say it's bad news, because it's a tax. As long as it's a level playing field, we're happy."

However, Huw Rees, spokesman for broadband phone service provider, 8x8, condemned the new approach as "confusing and convoluted", adding: "We're not trying to break the law. But some of them are pretty foolish."

In August 2008, the National Assembly passed Law 59, which sets a target of providing internet access to 100% of the country's population. It is estimated that this target will be achieved in 2012. The new legislation requires companies in this sector to invest 1% of their annual gross income into building up infrastructure in rural areas. A total of USD8m was invested in 2009. according to government estimates.

Just over one-quarter of Panama's population has internet access. This equates to 116,000 subscribers out of a population of 3.3 million.

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Panama Offshore Activities

The natural bonding of the Internet and Offshore stems from the fact that both, of their nature, manage to avoid tax. Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore jurisdictions; while businesses that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.

By locating websites in offshore jurisdictions to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.

As a major 'low-tax' jurisdiction with tens of thousands of enterprises already installed, including many collective investment funds, banks and other financial institutions, Panama certainly has the opportunity to become a centre of e-commerce activity. There are already a number of Internet Service Providers in Panama, and this sector can be expected to grow rapidly. The country's geographical location, its good telecommunications links and its sophisticated business infrastructure add to its suitability as an e-ntrepot.

No one particular sector dominates the growth of e-commerce applications in Panama, which are quite diverse.

Important players like Global Crossing, MCI, Sky Online, new world communication, Cable & Wireless, Nautilus and Telefonica have decided to install Network Operation Centers in Panama, taking advantage of the geographical location providing an abundant supply of submarine fiber optic communications circuit on both coasts and which makes possible interconnection close to North and Latin America, Asia, Europe, Africa and the world over redundant routes

For information about the impact of e-commerce on a number of the main offshore activities which take place in Panama, click on a link below to go to our specialist E-commerce site Offshore-e-com.com

Sales and Distribution of Physical Products
Sales and Distribution of Digital Products
Banking and Financial Services (including Investment Funds)
Corporate Support Functions

To see an analysis of the current state of legal and tax issues surrounding offshore e-commerce, click here.

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Panama Case Studies

This section will contain case studies of e-commerce solutions applied to offshore business activities carried out from Panama.To be kept updated as to our progress click here.

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