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Panama: Related Information

Panama Canal Silicon Valley

Offshore E-Commerce

Not a day goes by when the news isn't dominated by the tales of fast-track internet start-ups and roller-coaster Nasdaq stars. Awareness of the digital economy has pervaded our world. Yet for many entrepreneurs, it's as if there is this other world out there that we all watch, wondering how much we have to embrace it and when it will truly become part of our lives. The answer to that question is now.

The Centre for Research in Electronic Commerce of the University of Berne, Switzerland, defines it as the "purchase and payment of goods or services over networks in general or the internet in particular". If we define commercial offshore trading activities as selling products or services between at least two jurisdictions, e-commerce seems to naturally complement offshore ecommerce.

Since we are generally dealing with the purchase of goods or services, there obviously needs to be at least two parties involved: the seller and the buyer. Two different purchase scenarios are identifiable:

The seller and the buyer are a company or business: This is generally described as business-to-business e-commerce.

The seller is a company or business and the purchaser is the end consumer: this is generally described as business-to-consumer ecommerce.

Whether the buyer is a business or an end-consumer, professional e-commerce solutions usually involve complex database driven websites with the possibility to buy goods or services over the Internet and pay online by credit card.

But selling goods or services is not the only possibility available for e-commerce solutions. Another interesting option is to provide services online for certain user groups (whether individuals or companies), which also involves database driven online services.

Key Factors

Although it is impossible to draw up a comprehensive list of businesses that can benefit from offshore e-commerce, it is possible to identify key factors that facilitate such solutions.

Telecommunications infrastructure

According to the definition of e-commerce, it is absolutely essential for an offshore jurisdiction that a suitable infrastructure is available in order to attract e-commerce business. This includes a high bandwidth with internet connection with a minimum of so-called downtimes, i.e. interruptions, availability 24 hours a day and 7 days a week.

Accessibility for installation and maintenance

Although a great deal of technical maintenance work can be arranged by accessing the general technologies involved, the accessibility of the location of the server and its software leads to lower resulting ongoing costs.

Relevant technical know-how and human resources

Apart from the pure technical connection to the Internet, it is essential to keep high service reliability at all times. This means that highly qualified staff must be available at all times.

Products, services and trust

It is understandable that not every product or service is suitable for e-commerce. The product or service sold should be easy to "identify" by the business or end-consumer.

Favorable tax regime

If the operators move partly away from their original home base, it is natural that the tax regime of the chosen jurisdiction should have some sort of tax advantage. This can be a zero tax or a low tax regime, with or without a double tax treaty network.

If we look at the basic key players in an e-commerce scenario (i.e. the supplier of physical or digital products and services; the company with its primary and secondary activities, and the website and the customers) they can all be considered pieces on a board game. Depending on the arrangement of the pieces, the company can save costs in different ways:

  1. It can move the website i.e. the marketing and selling department offshore and save costs on maintaining the website, because of lower wages and save tax because of the lower or lack of corporate and individual taxation.
  2. Storage facilities can be moved into a jurisdiction having favorable tax treaties with regard to customs and transportation costs, depending on the location of the customers, and link the storage management into the ordering system and billing system via the internet.
  3. Individual activities of the company (for example online tracking systems, billing systems etc.) can be moved offshore and save costs on lower or no corporate and individual taxes.

One has to bear in mind that a simple website might not be sufficient to determine a "permanent establishment" for tax purposes. Care must be taken to structure the business activities in a way that actually creates tax advantages based on the jurisdiction of the e-commerce facility. It is therefore advisable that the server is located where the permanent establishment of the e-commerce transaction is desired.

So the key steps to analyze whether e-commerce is a viable option for a business are:

  • Define the type and location of the supplier, the primary and secondary activities and the customers;
  • Analyze whether the total costs of the business (salaries, corporate / individual / other tax, cost of primary or secondary activities) can be reduced by moving the location of individual elements into another jurisdiction, as well as linking them to the rest of the business by applying internet technology.

What About Panama

If an internationally-minded ecommerce company or entrepreneurs, his bankers or brokers were to be looking for the ideal centre, it could probably come as a surprise to find that it has no strange sounding name nor is it located in a geographically unidentifiable place, and that practically any conceivable requirement can be met and satisfied by one of the most traditional and reputable sources of legal and financial services available in the world: Panama.

Following the previous key factors, let us examine why anyone should move its e-commerce activities to Panama now that we have established why companies and businesses can use e-commerce offshore.

Main Advantages

  • US dollar based economy
  • Earthquake free
  • No active volcanoes
  • No hurricanes
  • No taxes on foreign source income
  • Excellent living conditions
  • Fully bilingual certified engineers
  • Best submarine fiber optic access of the region
  • No pollution

Telecommunication infrastructure

Panama has the best access to multiple high-bandwidth continental fiber optic networks in telecommunications infrastructure. The extremely low risk of natural disasters (hurricanes etc.), gives the Panama telecom sector security and reliability of service as well as a competitive advantage over other offshore jurisdictions.

Accessibility for installation and maintenance

Panama is extremely easy to access from almost anywhere, due to its central location in the middle of the Americas. Its proximity to large cities in the US and Europe makes it relatively cost effective to bring in specialist know
how for installation and maintenance.

Relevant technical know-how and human resources

Panama's long history as a international banking and services jurisdiction, has resulted in the availability of technical know-how in internet technology and information technology as well as sufficient human resources to install and maintain e-commerce operations.


Accessing Panama is easy from anywhere in the world. Living conditions are very similar to the US, but the cost of living is one-half.

Favourable tax regime

Panama is a zero tax jurisdiction. There are no double tax treaties which can be used for commercial activities. No VAT is payable on good or services exported from Panama.

Hub for CyberCommerce

All the preceding advantages, incentives and infrastructure place Panama as an ideal location for:

  • Internet Service Providers
  • E-Commerce Providers
  • Applications Outsourcing ASP
  • Broadband Content Providers
  • New Media Content Providers
  • Exchange Traffic


Panama's Continental Fiber-Optic Network Link

The MAYA 1 and ARCOS 1 ring systems will link the continental Americas and the Caribbean Basin, when completed in December of 2000.

Total investment for the two fiber-optic trunk systems is targeted at $217 million, and is to be 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.

The MAYA-1 ring will feature relays in Florida, Mexico, Guatemala, Costa Rica, Panama, Colombia, Puerto Rico, Jamaica and Grand Cayman Island and, in addition to its own communications structure, will provide 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. These submarine networks will give Panama two international connections via high-bandwidth, fiber-optical trunk routes, superseding the current satellite link-feed system that is now in operation. This in turn will enable fast and reliable connections for B2B, banking, ecommerce and other businesses as well as additional high-speed consumer activity units.

The OXYGEN network links the US Caribbean, goes through the Panama Canal, and connects to the Pacific ocean within Colombia, Perú, Ecuador, Chile, Brazil and Europe.

The GLOBAL CROSSING project connects Asia, the US, goes through the Panama Canal, the Caribbean countries, and Europe.

Ultimately, the main benefit of MAYA, GLOBAL CROSSING, OXYGEN, PANAMERICA and ARCOS will be lower international prices for consumers. In addition, these new cables will incorporate New Wave Division Multiplexing Technology that will allow extraordinary ultra high speed bandwidth applications, such as multimedia and digital video.

The MAYA -1, GLOBAL CROSSING, OXYGEN and ARCOS-1 projects represent yet another building block in Panama's quest to become Latin America's Telecom Hub, which the United Nations Education, Science and Culture Organization (UNESCO) has predicted will occur within the next few years.


Infrastructure and Incentives

International Technopark of Panama

The Technopark is a mixture of commercial space, offices, technical facilities and ancillary residential properties. The government is supplying 20 hectares of land with complete infrastructure and buildings worth an estimated $50 MM.

Since the Technopark project was unveiled in August 1999, 20 companies have signed up as tenants and more than 40 have expressed interest including: Oracle, Cisco, Microsoft, and C&W.

The Technopark opened in January 2000 and is located on what was once the US Army Base at Fort Clayton along the Pacific side of the Panama Canal, five kilometers from downtown Panama City and a few hundred meters from the fiber optic submarine cables crossing the Panama Canal.

Other participants include the Smithsonian Tropical Research Institute (STRI), and a special Technical Cooperation Agreement has been negotiated with the European Union, through which the organization has assisted in Technopark project development, strategic plan definition and in identifying those niches in which Panama has a "comparative advantage".

Additionally, a growing number of companies are signing up for the "Hi-Tech Incubator" program which has been established with the intention of accommodating and stimulating the creation of technology start-ups. The new entrepreneurs would receive seminars and workshops covering the development of business plans, thus attracting venture capitalists to finance their operations.

The Technopark is attracting interest from a diverse group of businesses which may be divided into three separate, but inter-connected areas:

  1. Biotechnology, Marine Resources, Reforestation, Tropical Medicine and Aquaculture.
  2. Information Technology, Telecommunications, Geographic Research and Data Transfer.
  3. Multimodal Transport, Automobile, Aviation and Marine Technology.

A special legislation applies to all businesses operating within the Technopark. This legislation includes significant fiscal benefits, immigration advantages, and an established infrastructure requiring reduced start-up investment. However, it is important to present the specific benefits that the Technopark offer.

The Panamanian Government granted the Technopark and all entities established therein, the following benefits for an extendable 25 year period:

  • Exemption of all taxes, contributions, duties or import fees on all machinery, equipment, furniture, vehicles, appliances, or materials necessary for the development of the project.
  • Exemption of the movable property transfer tax (VAT) on machinery, equipment, vehicles, appliances and material acquired and necessary for the development of the project.
  • Exemption of any tax duty, or lien imposed on the remittance of money abroad, when such remittance or transfer of funds takes place in relation to the purposes of the project.

In addition, special immigration rules are in place to promote the installation of hi-tech business in the Technopark. Special visas will be granted to expatriates who may enter the country with the purpose of participating in the development of listed projects.

Private Hi-Tech Parks

By means of Law 25 of 1992, the Export Processing Zones ("EPZ's") were created promote foreign investment by establishing a special regime to those companies exporting goods or services produced or processed within said zones.

EPZ's can be created as Private Hi-Tech Parks to host an array of diverse companies. One important highlight is the granting of exclusive rights to EPZ developers to provide their own telecom and energy allowing the possibility of 24 hours redundancy and related services.

The most relevant incentives granted to Export Processing Zones are:

  • Exemption of all taxes, contributions, duties or import fees on all machinery, equipment, furniture, vehicles, appliances, or materials necessary for the development of the project.
  • Exemption of any national direct tax on capital.
  • Exemption of income taxes.
  • Exemption of any national direct tax on dividends and interests originated from securities issued by the company and traded in local or international markets.
  • Special immigration and labor regime.


Panama Taxation

The Republic of Panama is especially attractive to foreign investors for its tax benefits, particularly those referring to income tax.

Income tax is not applicable to foreign source income. This concept of territoriality is one of the determining factors making Panama a center of international operations.

For ecommerce, this is extremely important for companies planning where to set up a permanent establishment for their sales and payments for future tax planning.



Panama motivates potential investors to base their ecommerce operations in Panama as a virtual nation with an environment where international business is welcomed. Panama continues to encourage foreign capital to enter its domain. Of course, this imperviousness to change cannot be attributed to accident or chance, and there are, indeed, several most solid reasons on which the extraordinary stability of Panama as ideal basis for foreign investment continues to rest.

For example, a company can have its headquarters in the US, its manufacturing facility in Mexico, its distribution from the Colon Free Zone of Panama; its ecommerce and payment transactions out of Panama and its customers in North and South America, Europe, and Asia.

The extraordinary facilities afforded to any foreign investor for various hi-tech industries including the immigration of technical and professional people, as well as in a wide variety of other activities from high-tech parks to continental fiber-optic networks can be envisaged under investment incentives designed to prevail in a very competitive regional environment.

This, together with the strong growth of its international maritime and financial centers, can be seen as heralds of a second Singapore in the middle of the American continent, a point of reference not to be ignored in the conceptions of the new economy of the 21st century.



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