According to Panama's constitution, nationals and foreigners are treated equally under the law. Both Panamanian and foreign companies must fulfill the same basic requirements to organize and operate most types of business activities in Panama. There are restrictions on foreigners participating in retail trade and practicing certain professions. In practice, however, there are legal ways to overcome these restrictions. U.S. firms interested in retailing should consult a local attorney. Please click here for a list of qualified attorneys in Panama.
There is no law regulating the relationship between international suppliers and local agents and distributors. This relationship is only governed by the private agreements made between the parties involved. In cases of contract termination or disputes, the private contract clauses prevail over any other document or practice. U.S. companies are strongly encouraged to stipulate arbitration as the preferred mechanism for any dispute resolution, as opposed to reliance on the local court system.
Individuals may engage in business activities in their own names or through legal entities. The most commonly adopted form of legal entity is the corporation (Sociedad Anonima, or S.A.). Other types of legal entities commonly used in Panama are general partnerships, simple limited partnerships, joint stock partnerships, and limited liability companies.
To learn more about how we can assist you in securing an agent or distributor in Panama, please visit our website at http://export.gov/panama/servicesforuscompanies. You can also call us at 011-507-317-5000, or email us at firstname.lastname@example.org.
Establishing an office in Panama is a straightforward process. Local office space is plentiful, with many options on location and cost. Panama has one of the most modern and flexible corporate law frameworks in Latin America. Following are some of the advantages offered by Panamanian corporate law:
In order to form a corporation in Panama, the client must furnish the following information:
The time period usually involved in setting up a corporation is from fifteen days to two months. Attorney fees usually range from US$600 to US$1,500 per corporation.
Every corporation organized pursuant to the laws of Panama must have a resident agent within Panama, who must be an attorney. The annual fee for this service is about US$200. Approximately 400,000 corporations are registered in Panama.
In order to engage in commercial or industrial activities, all corporations, partnerships or individuals must obtain proper authorization from the Ministry of Commerce and Industry. There are three basic types of licenses involved:
Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle-, bee-, or poultry-raising, or in the manufacturing and sale of handicrafts, provided that hired workers do not perform the work. Licenses must be kept at all times in a visible and accessible place. The cost for obtaining a license ranges from US$250 to US$750. Also, an annual tax is levied based on the net worth of the company, as stated in income tax filings, plus other income taxes.
Most service providers are required to withhold a seven percent (7%) value-added tax on most services.
Panama is receptive to U.S. style franchising. The market for both specific and general franchising opportunities is attractive. Panama maintains no control on royalty payments or transfers. Recreation, entertainment services, fast food, automotive, and hotel and motel franchises are readily marketable, as the local market demands better facilities and services. The U.S. Embassy recommends consulting a local attorney for details on how to set up a franchise in Panama. Please contact us for a list of qualified attorneys in Panama.
Key factors for market success in Panama are high quality, customer service, brand-name recognition, and attractive packaging. U.S. products targeting the middle to upper-middle income market are usually competitive. Panamanians have a penchant for high quality U.S. products.
Consumers with high disposable income follow sophisticated U.S. and European consumption patterns. Many high-end U.S. and foreign brand names are represented in Panama. An aggressive marketing strategy is usually necessary to succeed in this trend-conscious market.
Local laws allow companies and individuals to import directly with no intervention from agents or distributors. This situation opens the door for a direct marketing approach, especially in certain sectors such as industrial goods, industrial machinery, agricultural equipment and other high value equipment or machinery.
Joint ventures, especially for large projects, are becoming common in Panama. Some joint ventures are formed for limited periods, such as for a specific construction contract or technology transfer contract. The profits from joint ventures can be distributed annually to each joint venture partner and are taxed in the same manner as any other income.
Panamanian law requires the registration of license agreements, although in practice few licensors and licensees do so. License agreements are frequently used to reinforce rights to registered trademarks. The agreements must be attached to the registered trademark and filed with the Industrial Property Department in the Ministry of Commerce and Industry. The agreement becomes part of the file on the trademark covered.
Panama is an interesting and potentially profitable site for licensing agreements and joint ventures as well as routine buy/sell operations. The Colón Free Zone (CFZ) offers the U.S. exporter looking for regional marketing arrangements a convenient one-stop distribution center. However, there have been instances of money laundering, intellectual property piracy and drug trafficking reported in the CFZ. All U.S. firms should perform due diligence before commencing operations there. Please contact us for assistance in identifying potential business partners in the CFZ.
The law (Law 22) regulating government procurement and other related issues went into effect at the end of 2006. It created the Direccion Nacional de Contrataciones Publicas (National Procurement Office), and was designed to streamline and modernize Panama’s contracting system. One of the highlights of the law is the establishment of an internet-based procurement system http://www.panamacompra.gob.pa. All purchases must be announced in this system, in turn providing greater flexibility, transparency, and speed in government purchases. The law also regulates the use of performance bonds, creates an administrative court to deal with procurement-related issues and an office to monitor public tenders (National Directorate for Public Tenders), allows for interest payment in the case of late payments to suppliers, and provides more expedited information access for all participants in the procurement process.
U.S. and other bidders for important government contracts continue to complain of lack of transparency, excessive delays, and bureaucracy in the bid selection process. Requirements may at times be designed to exclude competition and favor a particular supplier. Excessive bureaucracy has been also responsible for the government’s slow payment record. Typical payment schedules range from three to six months after goods or services have been invoiced.
The Panama Canal represents significant business opportunities for U.S. exporters, with annual purchases of as much as $300 million, including port and marine equipment, building materials, industrial equipment and transportation materials and equipment. Despite being a government agency, the Panama Canal Authority (ACP) is a unique organization that by constitutional law is autonomous, runs a profitable and efficient operation, has full control over its budget, and enjoys an excellent payment record.
The $5.25 billion Canal expansion program, currently underway and expected to be operational in 2016, is opening additional business opportunities for U.S. exporters in a wide range of products and services; U.S. companies considering business with the prime Canal’s contractor may want to consider building the risk of nonpayment into their proposals.
Business practices in Panama are very similar to those in the United States. Business tends to be direct and straightforward. On average, Panama City accounts for 65% of total national sales of consumer goods. The remaining 35% is distributed among the principal cities of David, Colón, Santiago, and Chitré.
Generally, the marketing channel structure in Panama is simple. Direct importers act as wholesalers and in many cases also as retailers. This situation is common in the case of apparel, automotive parts, and hardware products. In the case of consumer goods, food and medicines, the retail operation is separate from the wholesale operation. For industrial goods, sales are normally handled by local exclusive agents or distributors. In other cases, local firms order directly from U.S. brokers or the manufacturer.
Some of Panama's major importers are also regional distributors for Central and/or South America, with warehousing facilities located in the Colón Free Zone (CFZ). Generally, CFZ importers/distributors have affiliated stores in Panama City for retail sale to the local market. We encourage U.S. companies with consumer retail products to look at selling through the Colón Free Zone to the region. For more information on this option, please contact us after reading the report Sell through Panama’s Colón Free Trade Zone to the Region.
Most of Panama’s trade moves through the Atlantic ports of Manzanillo, Cristobal, and Evergreen, and the Pacific Port of Balboa. The Tocumen International Airport handles the bulk of Panama’s air cargo.
Most of the international express delivery companies have a presence in Panama as well as local companies that provide delivery services. Deliveries from U.S. cities take typically 3-5 days. Customs services for express delivery are straightforward and should pose no problem. There are no problems with de minimis amounts.)
Panama has the highest per capita income in Central America. However, the majority of income is skewed to a small, consumer goods-oriented economic class. These upper-middle and upper income class families have high levels of disposable income. They are interested in purchasing high quality, trend-setting goods. Price is less of a factor in purchasing decisions made by this class than for the middle and lower income classes. The majority of Panamanians are interested in quality, but price still plays a more important role in the purchase decision.
In recent years Panama’s growth as a passenger air hub for Latin America and its competitive consumer retail environment have contributed to a proliferation of shopping malls that promote Panama as a shopping destination for the region’s growing middle class. It is not uncommon to see Brazilians, Colombians, Venezuelans, and Central Americas flooding the malls, particularly during holidays. As a result, U.S. consumer retail and franchise companies can expect more sales opportunities than Panama’s small population would at first indicate.
The use of the U.S. dollar as legal currency and consumer preference for high quality products at competitive prices are two reasons for high acceptance of U.S. products in Panama. Overall, U.S. products are well accepted in the market and are considered to be of good quality. However, in many instances, U.S. products must compete against lower priced products, especially from Asia. For example, as in the U.S. itself, Japanese and Korean electronics dominate the market because of aggressive market entry techniques and good quality at competitive prices. Note that U.S. brands, many of whom manufacture outside of the U.S., enjoy a prominent position in the marketplace and in the Colón Free Zone. Such brands as Nike, Oakley, and Columbia sportswear fall into this category.
Law No. 112, signed on July 30, 2001, was the first law in the region to deal with e-commerce. A revised law (Law No. 55), passed in July 2008, enhanced the legal framework for developing e-commerce activities, and strengthened the institutional setting for an effective application and management of the different aspects of e-commerce defined by the law.
Basic features of the e-commerce law are the following:
The Panamanian Chamber of Commerce has promoted the increased use of e-commerce with financial assistance from the Inter-American Development Bank (IDB). A number of Panamanian firms, especially supermarkets, fast food delivery, and consumer electronic stores, offer e-commerce facilities and more firms are working on providing these facilities. However, electronic commerce is still weak in Panama.
For more information on e-commerce, please contact us at Enrique.Tellez@trade.gov.
Television and newspaper advertising are the promotion tools of choice for the majority of distributors of U.S. products. E-mail marketing is becoming increasingly popular, especially for services. Panama has a very competitive advertising market, with standardized pricing and very good production quality. Additionally, trade shows, specialized seminars, and exhibitions are effective tools for trade promotion. Special sale prices during events such as Mother’s and Father’s Day, Back-to-School, and Easter are usually advertised in newspapers during weekends.
Most foreign manufacturers of consumer products maintain a high profile presence in the country through newspaper ads, large billboards, sponsored sports events, and TV advertising. Web-based advertising and company promotion is gaining popularity. Radio advertising is mainly used outside of the Panama City metropolitan area.
Business Web Sites:
The price structure for imported goods in Panama depends on the level of competition. The costs of transportation and import duties vary from item to item. Local prices can be higher or lower than world average depending on local competitive conditions. For the sake of illustration, the calculation below demonstrates average costs added to a product before it reaches the consumer. Import duties from non-FTA countries average 10% over cost, while insurance, and freight (CIF) value and wholesale and retail markups are about 25% each.
Average Pricing Schedule
Note: A 7% value-added tax on CIF value plus the import duty is assessed at the time of customs liquidation. Since this value-added tax is payable on all goods, domestic and imported and is passed through to the consumer, it is not included in this calculation.
Note that goods made in the U.S. qualify for preferential treatment under the U.S. – Panama Trade Promotion Agreement (TPA). For 87% of U.S.-made goods, there are no longer any duties. For a significant percentage of the remaining goods, including agriculture, there is a sliding scale for reduced duties over time. As the TPA recently went into effect in October 2012, we believe that Panamanian buyers are particularly interested in carrying more U.S. brands.
For more information on whether or not your goods qualify for preferential treatment under the TPA, please visit our website at http://export.gov/panama/u.s.-panamafreetradeagreement.
Success among distributors is often decided by quality of the training, counseling, and support they receive from their principals. U.S. companies should focus on providing U.S.-level training and technical assistance to their distributors and making sure they have the resources to provide after-sales support, including spare parts, service equipment, and quality service to the customers. Note that U.S. companies enjoy a clear advantage over foreign competitors in this area. U.S. products are highly regarded and a pricing strategy should include explicit consideration of presenting the products as a lower cost-of-ownership solution that includes U.S.-caliber aftermarket servicing and maintenance. In doing so U.S. providers may be able to better counter lower cost competitors from China, for instance.
Several general principles are important for effective management of intellectual property (“IP”) rights in Panama. First, it is important to have an overall strategy to protect your IP. Second, IP may be protected differently in Panama than in the United States. Third, rights must be registered and enforced in Panama, under local laws. For example, your U.S. trademark and patent registrations will not protect you in Panama. There is no such thing as an “international copyright” that will automatically protect an author’s writings throughout the entire world. Protection against unauthorized use in a particular country depends, basically, on the national laws of that country. However, most countries do offer copyright protection to foreign works under certain conditions, and these conditions have been greatly simplified by international copyright treaties and conventions.
Granting patents registering are generally is based on a first-to-file [or first-to-invent, depending on the country], first-in-right basis. Similarly, registering trademarks is based on a first-to-file [or first-to-use, depending on the country], first-in-right basis, so you should consider how to obtain patent and trademark protection before introducing your products or services to the Panamanian market. It is vital that companies understand that intellectual property is primarily a private right and that the U.S. government cannot enforce rights for private individuals in Panama. It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. Companies may wish to seek advice from local attorneys or IP consultants who are experts in Panamanian law. The U.S. Commercial Service can provide a list of local lawyers upon request [If this list is available on embassy website, hyperlink here].
While the U.S. Government stands ready to assist, there is little we can do if the rights holders have not taken these fundamental steps necessary to securing and enforcing their IP in a timely fashion. Moreover, in many countries, rights holders who delay enforcing their rights on a mistaken belief that the USG can provide a political resolution to a legal problem may find that their rights have been eroded or abrogated due to legal doctrines such as statutes of limitations, laches, estoppel, or unreasonable delay in prosecuting a lawsuit. In no instance should U.S. Government advice be seen as a substitute for the responsibility of a rights holder to pursue its case promptly.
It is always advisable to conduct due diligence on potential partners. A good partner is an important ally in protecting IP rights. Consider carefully, however, whether to permit your partner to register your IP rights on your behalf. Doing so may create a risk that your partner will list itself as the IP owner and fail to transfer the rights should the partnership end. Keep an eye on your cost structure and reduce the margins (and the incentive) of would-be bad actors. Projects and sales in Panama require constant attention. Work with legal counsel familiar with Panamanian laws to create a solid contract that includes non-compete clauses, and confidentiality/non-disclosure provisions.
It is also recommended that small and medium-size companies understand the importance of working together with trade associations and organizations to support efforts to protect IP and stop counterfeiting. There are a number of these organizations, both Panama or U.S.-based. These include:
A wealth of information on protecting IP is freely available to U.S. rights holders. Some excellent resources for companies regarding intellectual property include the following:
It is important to conduct due diligence in order to assess the credibility/background of a business prospect. In certain instances we can assist you with conducting due diligence by conducting a background check through our Business Facilitation Service. For more information on this service, please contact us at +507-317-5000, or via email: email@example.com.
The following websites can be useful in obtaining information on corporations and individuals: