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Free Trade Zones: Tax and new regulations

Since the late 1950’s Panama has been at the forefront of developing its logistics and trading capacities through the creation of especial free zones regimes. Traditionally and until 2011 the Rep. of Panama had created 4 different trade zones via especial laws regime, all of which are state owned, or partly, and controlled initiatives, these are:

  1. The Colon Free Trade Zone
  2. Panama Pacifico
  3. The City of Knowledge
  4. The Multinational Headquarters Regime

The Law n°32 of April 5, 2011, created a new free trade zones legal regime that works differently to what are the traditional free trade zones in Panama, as it allows private investments to develop and operate free trade zones. The law allows the free trade zones to be located in any part of the country, plus it grants tax incentives and have especial labor and immigration dispensations.   Since the enactment of Law 32, a total of 19 licenses have been granted of which 12 are already operational and 7 are in the development process. Over 160 companies are already operating from these new free trade zones, mainly from Panama and Colon cities.

Executive Decree N°62 of 2017 regulates Law 32 of 2011, which established a unified regime for free trade zones in the Republic of Panama.

The Executive Decree introduces the following regulations, all of which intend to make existing and future free trade zones more competitive:

  1. It Creates a Technical Bureau to supervise all free trade zones in the Rep. of Panama;
  2. All new applications to obtain licenses to operate in a free trade zone will have to apply at the Bureau office and no longer through separate offices at different entities;
  3. The Executive Decree regulates the promotion, development, administration of free trade zones and all following activities:
  1. Call centers
  2. Scientific research centers
  3. Health rendering services
  4. Technology businesses
  5. Assembling plants
  6. Processing  of semi and elaborated products
  7. Service companies
  8. Environmental services
  9. General services
  10. Logistical services
  11. Aviation and airport services
  12. Manufacturing
  13. Securities businesses

The Law and the Executive Decree both grant a especial fiscal regime and incentives for the development of free trade zones, and throughout their operation. For the development, construction and operation of a free zone, all necessary materials, equipment, services engaged and real estate transactions will be tax exonerated.

Companies established at the free trade zones and that export their services and goods, or that perform transactions with each other within a free trade zone are income tax exempted.

Applicable taxes are:

  1. Income tax on real estate transactions and goods over local leases and subleases. Promoters of free trade zones are exempted of this tax;
  2. Dividends tax, 5%, and its complementary tax, 2%, are mandatory;
  3. A 1% tax on the declared of the companies, with a minimum payment of $100.00 per year up to a maximum of $50,000.00;
  4. Selective consumers tax on certain goods and services;
  5. Especial funds for interests compensation, except those loans guaranteed by bank deposits;
  6. Social security contributions by employer, and other applicable taxes to labor contracts.

The Executive Decree also establishes the requirements for qualifying as a Promoter, Operator or Administrator, Business Licenses and a especial chapter for Call Centers.


Dr. Juan José Espino Sagel


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