Panama: Offshore Business Sectors

On this Page:

- PANAMA BANKING
- PANAMA INSURANCE
- PANAMA TRADE MARKETING AND DISTRIBUTION
- PANAMA SHIP MANAGEMENT AND MARITIME OPERATIONS

Panama probably means shipping and the canal to most people, and indeed it is the world's largest shipping registry; but it is also home to a substantial number of banks, with strong North and South American connections, as might be expected. The canal, and Panama's Colon Free Zone, have established the country as a pre-eminent trading base, and an unknown but presumably high proportion of Panama's registered companies are involved in trade.

Panama has a captive insurance sector, and through its stock exchange is attempting to encourage mutual funds; but neither sector has reached a great size.

This section of the site describes the most important types of offshore business activity carried out from Panama.

Panama Banking

The Panamanian banking industry grew during the last quarter of the 20th century into a regional banking centre for Latin American and the Caribbean, due to a variety of factors including the absence of exchange controls, the rapidly increasing volume of trade being conducted through the country (and through the Colon Free Zone in particular), liberal banking legislation and tight secrecy provisions. At the end of 1997 more than 100 banks were licensed in Panama, from more than 20 countries and with assets of about USD23bn; however the country responded to international pressure by tightening up on banking regulation, and a number of banks closed their offices in 2000 and 2001. By mid-2005, 80 licensed banks remained, of which 30 had international licences. Assets amounted to USD7bn.

By 2007, the banking sector had rationalised further as foreign giants sought a piece of Panama's fast-growing services economy. Four deals at the latter end of 2006 had a major impact on the competitive environment of Panama's banking industry; these included HSBC's acquisition of Banco del Istmo - Panama's largest bank - for USD1.8 billion, and Citibank's purchase of Grupo Financiera Uno, Latin America’s largest credit card issuer, for USD1.1 billion. By the end of 2011 total consolidated assets in the banking sector reached USD82bn. The majority of assets are domestic - as opposed to offshore - as demand by wealthy expats, particularly from the US, for loans on second homes increases seemingly unabated.

Panama introduced a new and comprehensive banking law (which covers local trust companies as well) in February, 1999, replacing one that had been in place since the 1960s. The National Banking Commission that previously issued licenses has been replaced by a Superintendency which comprises a Board of 5 Directors and a Superintendent. In addition to increased investigative powers, the new law has tightened general controls and regulations and brought the country’s supervision more in line with the regulatory standards found in European and American banking centres.

There are three types of banking license:

Branches of major international banks are particularly welcome as they will be able to offer not only traditional retail banking, but also services such as investment management, back-to-back loans and documentary credit facilities, credit card services and trust management.

The 1999 law uses the guidelines of the Basle Committee on Banking Supervision. The Superintendent oversees the soundness and efficiency of the banking system and endeavours to strengthen it as part of the continuing development of Panama not only as a regional, but as an international, banking centre. The Superintendent, whose office is independent of central government, has wide powers of examination and investigation, but that authority is subject at all times to strict compliance with the country’s firm rules of confidentiality. Heavy criminal and civil sanctions can be imposed on bankers as well as the Superintendent for wrongful disclosures.

Although confidentiality is enshrined in the new law, a prima facie case proving funds are illicit will open criminals to exposure. Banks must conform with stringent monitoring and vetting procedures; each bank has a compliance officer who is responsible for ensuring that controls are applied.

Three additional laws passed in 2003 have increased Panama's defences against financial crimes, money laundering and terrorism.

Only banks with General Licenses will have any tax liability, and then only in respect of Panamanian income. See Offshore Legal and Tax Regimes for further details; and see Law of Offshore for details of the licensing and supervisory regimes.

BACK TO TOP

Panama Insurance

Insurance companies in Panama are supervised by the Superintendent of Insurance and Reinsurance at Panama's Ministry of Commerce and Industry. Licences to operate a captive are issued by the Superintendent, but only a handful of companies have taken them up.

A license application requires the following documents:

Ongoing annual license fees of USD2,000 per annum are payable, as well as the regular USD150 incorporation fee. General insurers need paid up capital of USD150,000; long-term insurers need minimum paid-up capital of of USD250,000.

Profits made from external insurance activity will not be subject to taxation; see Offshore Legal and Tax Regimes for further information.

BACK TO TOP

Panama Trade Marketing and Distribution

With NAFTA to the north, the vibrant economies of Latin America to the south, the Panama Canal, the Colon Free Zone and a tax-friendly attitude towards offshore activity, it would be surprising if Panama was not attractive to companies with American trading, marketing and distribution operations.

Since Panamanian direct corporate taxation is limited to local income, there is no need for offshore operations to use special corporate forms, and most simply adopt the basic Panamanian Corporation (Sociedad Anonima) or register locally as foreign companies (see Forms of Company).

Along with other offshore jurisdictions, Panama is a suitable place in which to base e-commerce services for retail or wholesale distribution of material or non-material goods: see Offshore-e-com.com for extended descriptions of how such businesses can take advantage of the combination of offshore and e-commerce. In fact, given the extensive trading infrastructure already present in Panama, it has an advantage over many other jurisdictions.

BACK TO TOP

Panama Ship Management and Maritime Operations

See Offshore Business Review – Shipping for a more general treatment of offshore shipping registries.

Panama has the largest merchant marine fleet in the world, whether measured in terms of total tonnage or in terms of number of vessels. The registry was founded in 1925 and has no restrictions either on the nationality or domicile of owners or on the age, size or type of vessel. In fact, it accepts many types of vessel that are not counted as such by other registries, such as drilling rigs.

As at 2011, there was a total of 8,900 vessels registered in Panama, totalling over 222.5 million gross tons, making it the world’s top ranking open registry flag.

The registry forms part of the Panama Maritime Authority, and has offices in London, New York, Houston and New Orleans. Provisional registration is effected through lawyers in Panama, but the provisional registration documents can be issued by Panamanian consuls. They are valid for sixmonths, renewable. A considerable amount of information must be supplied, comparable with other registries. Permanent registration with a renewable 4-year navigation patent will follow issue of the provisional documents and completion of documentation.

See Offshore Legal and Tax Regimes for details of fees payable on provisional registration, and fees payable annually thereafter. See Law of Offshore for details of the registration process.

Panama is a party to SOLAS 1974, the Loadline Convention, MARPOL 1973 and 1978, and the 1968 Admeasurement and Tonnage Convention, among other international agreements.

Chartered vessels may be registered on a temporary basis in Panama, and there are special rules for pleasure vessels with less rigorous procedures and lower costs. Mortgages over Panamanian vessels can be registered once the vessel itself is registered.

According to exit polls, 79% of Panamanian voters in October 2006 approved the USD5.25bn plan to expand the Panama Canal. The Panamanian legislature approved the plan in July of that year, but made it subject to the binding nationwide referendum.

Panama's then President Martin Torrijos said that the vote on expansion of the Panama Canal was the most important national vote since Panama gained its independence.

Under the expansion plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, whilst existing channels will be dredged to ensure large craft can enter the system.

The project will take about seven years and employ up to 8,000 people. Nearly five percent of total world trade transits the Panama Canal. Of this trade, 88% flows between the United States and Asia.

BACK TO TOP