The Republic of Panama is an independent civilian republic situated in Central America between Costa Rica to the west and Colombia to the east.
The executive arm of government is led by a President, who is elected by popular vote and serves a five-year term. The president selects cabinet ministers and other key appointed officials. The legislative body consists of a national assembly which includes among its duties the initiation of legislation, rules on international treaties and the approval of the national budget.
The judiciary is headed by the Supreme Court of Justice, which is made up of nine members.
The laws of the Republic of Panama are based on the Napoleonic Code and the official language of the country is Spanish. All official deeds and documents filed with the government, including documents relating to the formation of juridical entities, must be in Spanish or accompanied by a Spanish translation.
The Panamanian economy is based on service industries, the leading examples of which are:
– Transportation through the Panama Canal and the related Free Trade Zone serving Central and South America;
– International banking and financial services; and
The principal commercial center is Panama City situated at the southern (Pacific) end of the Panama Canal while Colon, at the northern end, is home to the Free Trade Zone and David in the west, close to the border with Costa Rica, is the largest of many agricultural market towns scattered throughout the country.
Services account for more than three-quarters of the Gross Domestic Product and employ in excess of one half of the national work force.
The international professional and clerical labour forces are generally multi-lingual (Spanish, French and English are commonly spoken) and this linguistic capability has enhanced the county’s ability to sell its financial services throughout the world. Since the 1960’s, Panama has been an international banking centre taking advantage of modern banking laws, good communications and transportation facilities, no exchange controls, and a currency (the Balboa) which is freely convertible at the rate of one for one with the US dollar. Panama does not print its own paper money but relies instead on the US dollar as its day to day medium of monetary exchange.
Aside from its international banking centre, Panama also boasts a shipping registry second to none, and it has been a centre for tax-exempt company formations for over 50 years. Unlike other such centres, the “tax-exempt” nature of its corporate entities does not rely upon the existence of a separate piece of tax-exempt company formation legislation. Panama taxes its legal entities only on income arising in the Republic. For this reason, all foreign source income is tax-free and entities that have no income arising in Panama are not required to file detailed income tax returns.
The Panamanian legal entities commonly used by the financial advisor are:
– the Sociedad Anonima (limited company); and
– the Private Interest Foundation.
The high quality and abundance of local and international law firms, accounting firms, banks and company management facilities together with its multi-lingual workforce place Panama at the forefront of the international “offshore” financial services industry.