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Selling U.S. Goods and Services in Panama

May 2013

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Using an Agent or Distributor

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.

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 enrique.tellez@trade.gov.

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Establishing an Office

Establishing an office in Panama is a straightforward process. There is plenty of office space available with many options related to location and cost. Panama has one of the most modern and flexible corporate law frameworks in Latin America. Below are some of the advantages offered by Panamanian corporate law:

  • Two or more persons of any nationality may organize a corporation for any lawful purpose. They do not have to be domiciled in Panama. The articles of incorporation may be executed anywhere, even outside of Panama, and in any language, provided a Spanish translation is submitted for registration.
  • There are no requirements regarding the amount paid in capital.
  • Ownership of a Panamanian corporation may reside in a single individual or corporation and no part of the capital needs to be held by a Panamanian except if it is to undertake certain operations within Panama.
  • There are no nationality or residence requirements for shareholders.
  • Neither the directors nor the officers are required to be shareholders.
  • The Board of Directors must be composed of at least three directors, but one person may hold more than one position.
  • Meetings of shareholders or directors may be held outside of Panama and through electronic means. Proxies may be used by shareholders/directors.

In order to form a corporation in Panama, the client must furnish the following information:

  • The name of the corporation. It may be in any language, but it must terminate in a word or abbreviation indicating that it is a corporation.
  • The objectives and purposes of the corporation.
  • The amount of the authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each. Shares may be nominative or bearer shares.
  • Duration of the corporation, usually perpetual.
  • The full names and addresses of three or more directors and/or officers.
  • The domicile of the corporation.

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:

  • Commercial License Class A is required for wholesale operations, commercial and mortgage banks, financial companies, international financial brokers, insurance and reinsurance companies, international transportation companies, mutual funds, public utilities, and high-technology service companies.
  • Commercial License Class B is required for retail businesses, including representation agencies, service companies, bars, restaurants, drugstores, real estate agents, fuel stations, local transportation, distributors and others. This license is only granted to Panamanians or corporations owned solely by Panamanians.
  • An Industrial License is required for extractive and manufacturing industries, as well as for construction companies.

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 the work is not performed by hired workers. 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 the income tax return, plus other income taxes.

Most service providers are required to withhold a seven percent (7%) value-added tax on most of their services.

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Franchising

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.

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Direct Marketing

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.

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Joint Ventures/Licensing

Joint ventures, especially for large projects, are becoming common in Panama. Some joint ventures are formed for limited periods of time, 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 Colon 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 good business partners in the CFZ.

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Selling to the Government

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 2015, is opening additional business opportunities for U.S. exporters in a wide range of products and services; the prime contractor for the Canal Expansion has announced over $450 million in U.S. purchases. However, some U.S. suppliers have reported problems with getting paid and the prime contractor is currently suing the ACP for as much as $800 million in contracting disputes and changes in scope. U.S. companies considering business with the prime contractor may want to consider building the risk of nonpayment into their proposals.

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Distribution and Sales Channels

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, Colon, 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 Colon 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 Colon Free Zone to the region. For more information on this option please contact us after you read our report at

http://export.gov/panama/doingbusinessinpanama/exportingtolatinamericathroughpanama.

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.

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Selling Factors/Techniques

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 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 Colon Free Zone. Such brands as Nike, Oakley, and Columbia sportswear fall into this category.

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Electronic Commerce

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:

  • It gives legal force to any transaction or contract completed electronically.
  • It makes electronic signature a legal instrument except for real estate transactions and succession purposes.
  • It creates the National Directorate of Electronic Commerce (Direccion Nacional de Comercio Electronico) as part of the National Commerce Directorate of the Ministry of Commerce and Industry to oversee the application of the law and act as a regulator.
  • It defines certification organizations, which will issue signature certificates and define operating procedures. A certificate will allow any person or organization to claim legitimacy.
  • It establishes that certification entities will register on a voluntary basis.

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.

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Trade Promotion and Advertising

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.

Major Newspapers:

Business Web Sites:

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Pricing

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

  • CIF Panama $100.00
  • Import Duty (+10%) +10.00
  • Total Landed Cost 110.00
  • Wholesale Price (+25%) 138.00
  • Retail Price (+25%) $172.00

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.

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Sales Service/Customer Support

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.

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Protecting Your Intellectual Property

Several general principles are important for effective management of intellectual property rights in Panama. First, it is important to have an overall strategy to protect IPR. Second, IPR is protected differently in Panama than in the U.S. Third, rights must be registered and enforced in Panama under local laws. Companies may wish to seek advice from local attorneys or IP consultants. Please click here for a list of qualified attorneys in Panama.

It is vital that companies understand that intellectual property is primarily a private right and that the U.S. Embassy generally cannot enforce rights for private companies 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. While we are willing to assist you, there is little we can do if the rights holders have not taken these fundamental steps necessary to securing and enforcing their IPR in a timely fashion. Moreover, in many countries, rights holders who delay enforcing their rights in the mistaken belief that the US Embassy can provide a political resolution to a legal problem may find that their rights have been eroded or abrogated due to doctrines such as statutes of limitation or unreasonable delay in prosecuting a law suit. In no instance should our advice be seen as a substitute for the obligation of a rights holder to promptly pursue his case.

It is always advisable to conduct due diligence on partners. We recommend conducting more due diligence than would be normal for the U.S. A good partner is an important ally in protecting IP rights. Keep an eye on your cost structure and reduce the margins (and the incentives) of would-be bad actors. Projects and sales in Panama require constant attention. Work with legal counsel familiar with Panama laws to create a solid contract that includes non-compete clauses, and confidentiality/non-disclosure provisions. 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.

We also recommend that small and medium-size companies understand the importance of working with trade associations and organizations to support efforts to protect IPR and stop counterfeiting. There are a number of these organizations, both in Panama and the U.S.

We recommend that you start with the U.S. Government resources at Stopfakes.gov: http://www.stopfakes.gov/ and then go to:

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IPR Resources
A wealth of information on protecting IPR is freely available to U.S. rights holders. Some excellent resources for companies regarding intellectual property include the following:

  • For information about patent, trademark, or copyright issues - including enforcement issues in the U.S. and other countries - call the STOP! Hotline at 1-866-999-HALT or register at www.StopFakes.gov.
  • For more information about registering trademarks and patents (both in the U.S. as well as in foreign countries), contact the U.S. Patent and Trademark Office (USPTO) at 1-800-786-9199.
  • For more information about registering for copyright protection in the U.S., contact the U.S. Copyright Office at 1-202-707-5959.
  • The U.S. Commerce Department has positioned IP Attachés in key markets around the world. Mr. Albert Keyack, based in Rio de Janeiro, Brazil, covers Panama. He can be contacted at albert.keyack@trade.gov or at 011-55-21-3823-2499.

IPR Climate in Panama

Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights. Intellectual property policy and practice in Panama is the responsibility of an inter-institutional Committee for Intellectual Property (CIPI), which includes representatives from six government agencies (Colon Free Zone, Intellectual Property Registry, Ministry of Education, Ministry of Health, Customs, and the Attorney General) under the leadership of the Ministry of Commerce and Industry. CIPI coordinates enforcement actions and holds seminars to increase knowledge of and improve compliance with IPR law. Individuals can search their website, http://www.digerpi.gob.pa, for information about trademarks, patents, plant varieties, collective rights, and various legal documents.

Since June 1997, two district courts and one superior tribunal have been exclusively adjudicating antitrust, patent, trademark, and copyright cases. In January 2003, Panama established an IPR-specific prosecutor with national authority, which has consolidated and simplified prosecution of those cases. Law No. 1 of 2004 added crimes against intellectual property as a predicate offense for money laundering; Law 14 establishes a five to 12 year prison sentence, plus possible fines. In 2012, Panama passed three new IPR laws including Law 61 of October 5, 2012, which amended the industrial property law and Law 64 of October 10, 2012 which amended the copyright law and introduced important updates to Panama’s legislative framework to implement the IPR obligations of the TPA.

The U.S.-Panama Trade Promotion Agreement (TPA) also provides for improved standards for the protection and enforcement of a broad range of IPR, including protections for patents, trademarks, undisclosed test and other data submitted to obtain marketing approval for pharmaceuticals and agricultural chemicals, and digital copyrighted products such as software, music, text, and videos; and further deterrence of piracy and counterfeiting.

The 2012-2013 World Economic Forum Global Competitiveness Survey ranked Panama 38/144 for protection of intellectual property rights but only 132 out of 144 in judicial independence. The Embassy is aware of complaints by U.S. companies about judicial irregularities and corruption relating to intellectual property cases, though an ongoing dispute was resolved this year with the Supreme Court upholding the IP rights of a U.S. firm. Given Panama’s role as a transshipment point and limited resources dedicated to addressing IPR (and other) issues, U.S. industry remains concerned that the Colon Free Zone is a conduit for trading in grey market, pirated and counterfeit goods.

Panama is a member of the World Intellectual Property Organization (WIPO), the Geneva Phonograms Convention, the Brussels Satellite Convention, the Universal Copyright Convention, the Bern Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, and the International Convention for the Protection of Plant Varieties. In addition, Panama was one of the first countries to ratify the 6. 6. WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. As part of TPA implementation, Panama has recently ratified or acceded to the Patent Cooperation Treaty, the Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite, and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure.

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The National Assembly in 1994 passed a comprehensive copyright bill (Law 15), based on a World Intellectual Property Organization model. Law 15 provides copyright protection based on the life of the author plus 50 years. If there are co-authors, the protection is until 50 years after the death of the last author. Collective works, software and audiovisual works are also covered for 50 years since the date of publication or after the work is finished (with no publication). The law modernizes copyright protection in Panama, provides for payment of royalties, facilitates the prosecution of copyright violators, protects computer software, and makes copyright infringement a felony. Though Panama’s 1994 copyright law modernized copyright protection and amendments to the law in 2004 provided for a special Copyright Office with anti-piracy enforcement powers, piracy remains a problem. Films in theatrical release are often downloaded to DVDs and videos, reproduced on optical discs, and then distributed by street vendors.

Law 64 of 2012 implemented the WIPO treaties in a manner consistent with the U.S. digital Millennium Copyright Act. The law also extended copyright protection to life of the author plus 70 years; and mandates the use of legal software in government agencies. It also includes provisions to protect against the theft of encrypted satellite signals and the manufacturing or sale of tools to steal such signals.

Panama is a member of the Paris Convention for the Protection of Industrial Property. Panama’s Industrial Property Law (Law 35 of 1996) provides a term of 20 years of patent protection from the date of filing. Law 35 provides specific protection for trade secrets.

Panama’s legal system provides for a trademark protection regime, which includes a simplified process of trademark registration, and the ability to renew a trademark for 10-year periods. However, U.S. companies report judicial irregularities and corruption once the cases reach the courts. In one case, a U.S. multinational’s brand was illegally copied and the Colon Free Zone-based distributor of the IPR-infringing goods continued to sell the knock-offs for approximately eight years before the Supreme Court finally resolved the case.

Due Diligence

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 011-507-317-5000 or at enrique.tellez@trade.gov.

The following websites can be useful in obtaining information on corporations/individuals.

For affiliation with major chambers of commerce:

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Local Professional Services

Additional Web Resources

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For More Information

The U.S. Commercial Service in Panama can be contacted via e-mail at: enrique.tellez@trade.gov;

Phone: 011-507-317-5000; or visit our website: http://www.export.gov/panama.