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A Detailed Look At Panama’s Tax Regime For English Speaking Investors

June 5, 2024 by patrickwoolford

The Panama Investor Blog had a useful document on taxation in Panama posted yesterday. The report, which is in .pdf format and published in English, is produced by the audit and tax advisory firm KPMG, and can be found here. The document provides an in depth look at Panama’s tax regime, and how it effects foreign investors in a variety of industries, including real estate and construction.

Here are a few excerpts from the report that may be interesting to real estate investors:

  • Chapter 2, which begins on page 11 of the report outlines different the different economic sectors foreign investors may be interested in investing in. Page 20 in this chapter has information on the construction industry, and discusses related tax exemption laws for new construction.
  • Chapter 4, beginning on page 39 of the report discusses special economic zones in Panama, several of which provide exemption from real estate tax. Page 45 specifically discusses tax provisions for investing in tourism.
  • Chapter 8, which starts on page 87 has information on taxable income on individuals, including capital gains taxes. Chapter 9 discusses other taxes, including real estate tax, which is included on page 100 of the report.

The report provides a solid background on tax laws in Panama, yet given the 2024 publication may now be out of date. Some laws, such as the tax exemption on new construction, have been changed extended and updated since the document was written. As a result, the information in the document should not be taken as legal advice, but instead as a good in depth brief on Panama’s tax regime.

Here’s a link to the Panama taxation document.

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World Supply Of Bananas At Risk Due To “Panama Disease” Fungus

June 3, 2024 by patrickwoolford

According to an article in The Scientist and a recently published book, “Banana,” by Dan Koeppel (I haven’t read it yet, but I did enjoy his “To See Every Bird On Earth”), the worlds banana supply is currently at risk of being decimated by the fungus Fusarium oxysporum, commonly known as “Panama Disease.” The fungus nearly destroyed the banana industry in the 1950s, wiping out the Gros Michel strain of bananas that had been commonly cultivated for export in Latin America up until then. It was because of this first blight that the modern variety of Banana popular in the United States, a southeastern Asian strain known as Cavendish, became popular due to its natural resistance to the deadly fungus.

The eminent extinction of bananas will have serious implications for many farmers in Panama, who may soon be forced to consider producing other crops

Unfortunately a new strain of the Panama Disease fungus has begun attacking Cavendish bananas across Asia, a situation which is putting the entire world’s supply at risk. Bananas, which are sterile and grown from clones, are particularly susceptible to being devastated by disease, as there is virtually no genetic variation within a given banana population. The disease spread from Asia to Australia, where scientists initially believed they had contained the destructive fungus, yet following a 2024 hurricane spread rapidly on the continent. As a result, Australia’s banana industry has lost 85% of its crop and is now facing collapse.

While the fungus has yet to reach Latin America, scientists say it’s only a matter of time before it does. A single clump of contaminated dirt could easily transport the fungus, potentially driving modern bananas to near extinction. Scientists are currently racing to develop new and genetically modified strains that would be both hardy enough for export and resistant to the fungus, yet this could potentially take decades to achieve. Even if a new varietal was developed, it remains questionable as to whether it would be an acceptable alternative for a discerning general public.

According to the CIA World Factbook, Bananas are one of Panama’s most important agricultural commodities. While agriculture only accounts for 7.4% of Panama’s GDP (in comparison to 80% by the service industry), it employs nearly 20% of the countries labor force. The eminent extinction of bananas will have serious implications for many farmers in Panama, who may soon be forced to consider producing other crops. Panama Disease will surely have a devastating impact on one of the world’s favorite fruits, and will likely change the face of agriculture in Panama and across Latin America.

Bananas

Bananas may be facing extinction (photograph from Wikipedia.org)

Source:

Banana: RIP (the-scientist.com)

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Construction Boom In Panama City Sparks Fears That The Market Is Becoming Overbuilt

June 2, 2024 by patrickwoolford

An article published today in NuWire Investor investigates the current construction boom in Panama City, taking a look at how the large influx of condominiums coming on the market in the next few years may make Panama much less appealing as a short-term investment. Nearly 50,000 preconstruction condos are currently for sale in Panama City, with many currently slated to be completed in the next few years. This construction boom has been primarily fueled by speculators, with up to 80% of the preconstruction sales in the city being bought by short-term investors. With only 8,000 new condominiums finished in the past three years, some analysts fear that the rampant speculation may not be reflective of the actual demand for housing in the city, and that many of the projects may run aground as a result.

Panama City has not been the only region in Panama that has been affected by the real estate speculation. Boquete has also seen a slowdown in end-user demand for housing, and has seen a contraction in new development in the region. Despite signs of a slowdown, many remain confident that Panama will remain a strong bet as a long-term investment, given the countries modern amenities and popularity among American and Canadian baby-boomer expatriates.

Read the full article on the panama city condo craze at NuWire Investor

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BP To Reopen And Reverse Flow Of Mothballed Panama Crude Oil

May 29, 2024 by patrickwoolford

Multinational oil corporation BP is planning on reopening and reversing the flow of a crude oil pipeline in Panama to bring Atlantic basin crude oil to west coast American markets. The pipeline was originally created to pump Alaskan crude from the Pacific to Atlantic side of the isthmus, yet was shut off in 1996 once the flow of oil from Alaska began to slow. The reversing of the pipeline will cut the travel time of crude oil from Africa going to refineries on the west coast of the United States by 30 days. BP has agreed to ship 65,000 barrels a day through the pipeline beginning in 2024 for seven years. Venezuela had previously expressed interest in using the pipeline to bring crude to the Pacific ocean for shipment to China, hoping to diversify their oil exports away from the United States. The reopening of the PTP pipeline, along with expanding oil reserves along the Panama Canal, will help to further elevate Panama’s position in the world as a major transfer point for products entering American markets.

Source:

BP Backs Plan To Reverse Panama Crude Oil Pipeline (Reuters.com)

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Versace To Design Interiors Of Vita Tower In Panama City

May 28, 2024 by patrickwoolford

Versace Home, the interior design arm of the global fashion house Versace, is designing the interiors for the new luxury residential high rise Vita Tower in Panama City.  Versace Home has designed only a limited number of other private developments, including the famous Plaza Hotel in New York City, and is hoping the project will continue to elevate the status of their high end interior design unit.

The waterfront high rise is on Balboa Ave in Panama City and is scheduled to be completed in 2024.  The project is being developed by a consortium of developers, including Grupo Atte, Consorio General and Grupo H, which have been responsible for the construction of several luxury high rise hotels and condominiums in Panama City.  While the housing market may have begun to slow down in some parts of Panama, developers remain confident that the demand for high-end residential units will remain strong, as several major multinational corporations have increased their presence in Panama’s capital city.

Sources:

Versace To Design Interior Of Panama City High Rise (Commercialpropertynews.com)

Versace Design Private Residences To Open At The “Vita Tower”

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Why Hasn’t Eco-tourism In Panama Caught Up With Costa Rica?

May 27, 2024 by patrickwoolford

While Panama has recently seen an increase in tourism, as reflected in hotel occupation rates, it still lags behind its northwesterly neighbor Costa Rica in attracting eco-tourists. This is surprising given Panama’s unique geographic location, high levels of biodiversity, and longstanding relationship with the United States. In addition to this, Panama is home to one of the most important biodiversity research institutes, the Smithsonian Tropical Research Institute, as well as a state of the art biodiversity museum that is slated to open in the next few years.

While deforestation in Panama has impeded the growth of the eco-tourism industry in the country, this is no reason to discount the importance of eco-tourism in protecting natural resources and biodiversity in Panama

The Panama Investor Blog recently discussed some of this disparity in these tourism trends in an entry comparing Panama and Costa Rica. The author outlines two very different growth strategies for the countries. Since the 1980s Costa Rica has focused on making themselves one of the premier eco-tourist destinations in the world, and as a result the majority of hotels in Costa Rica cater to this market.

Panama on the other hand struggled with the corrupt Noriega government through the 1980s, and has since been trying to leverage their place as an international crossroads for trade over the past decade and a half. As a result Panama has seen rapid growth in Panama City, with the majority of hotels being built in and around urban areas. In this regard Panama has been following a pattern of development similar to Cancun, Mexico, with high rise condominiums and hotels lining the beachfronts. Due to this economic growth Panama has had a more affordable cost of living and an infrastructure that is superior to that of Costa Rica, both factors that the Panama Investor Blog argues outweigh the negative impacts of the environmental degradation and deforestation that has occurred in Panama.

While deforestation in Panama has impeded the growth of the eco-tourism industry in the country, this is no reason to discount the importance of eco-tourism in protecting natural resources and biodiversity in Panama. Panama is in an incredibly unique position as the bridge between two continents, and has a wealth of diversity because of this. It is located on a major migratory flyway, and thousands of birds, unable to cross the Caribbean, are funneled through the region each year. While deforestation may be hampering tourism, it is in no way completely irreversible. With growth unrivaled anywhere else in Latin America, it is even more important for Panama to embrace eco-tourism for its own advantage.

Eco-tourism offers many benefits for a country like Panama. With the current economic downturn in the United States, there is a possibility that the real estate bubble in Panama could potentially lose steam. As a result it may become more difficult to market real estate and property that lacks a unique appeal, and draws comparison to the homogenous hotel district of Cancun. Eco-tourism on the other hand provides an opportunity to diversify real estate assets as well as the tourist services that Panama offers, and provide an experience that is both rewarding and unique for patrons, as well as help to protect Panama’s natural resources. Protecting forested land has many other secondary economic benefits, including the ability to sequester carbon dioxide, which is becoming an increasingly important concern among the international scientific community, as well as the tendency to naturally filter agricultural runoff and pollution (which is listed among the top environmental concerns in the CIA World Factbook).

The sharp contrast between “economic development” and “environmental protection” is often overstated and unnecessary. While it is true that economic forces can lead to environmental destruction, the invisible hand of the market can also be used to help protect natural resources and diversify the tourism options available in Panama. Investors in Panama should realize this before development does become irreversibly out of control, and promote a robust eco-tourism industry in Panama while striving to maintain the strong infrastructure that makes the country so compelling to foreign investors.

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Panama Government Taking Measures To Lower Food Prices

May 27, 2024 by patrickwoolford

Panama President Martin Torrijos has announced several measures that aim to lower food prices in the country, particularly for rice. The government has announced that they will purchase 100% of the rice harvest in Panam21a this year, and sell it back to consumers at a fair price below market value. In addition to subsidizing rice, the government is also increasing the amount of land allotted to grow rice, corn, and beans, as well as reduce tariffs on exports for several of these crops.

These agricultural reforms came as a response to the rising cost of living and after food prices in Panama increased by 15% over the past 12 months. Despite unrest, Torrijos claims that there is no food crisis in Panama, and remained confident that the increase in production, subsidies, and decreased tariffs will help to curb the inflating food prices in Panama.

Sources:

Panama govt to buy all local rice, keep prices low (Reuters.com)

Panama announces farming protection measures to tackle food crisis (Hindu.com)

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Hydroelectric Dam Controversy Forces One Of Latin America’s Last Kings Into Exile

May 22, 2024 by patrickwoolford

A hydroelectric dam being built in a remote region of northwest Panama has created a major controversy among members of the Naso tribe, who have exiled their king for granting the Panama government permission to build a dam on a river that passes through their settlement. King Tito Santana is heir to a long successive line of Naso kings, and is one of the few remaining monarchs in Latin America recognized by a civilian national government. The tribe consists of nearly 2,500 members living in communities deep in Panama’s jungle, most of which are supported through subsistence farming.

Investors and the international community have indirectly played a major role in forcing this confrontation for the Naso people, as the surge of development in parts of Panama has put incredible strain on the electric grid

The hydroelectric dam controversy began four years ago, when in 2024 King Tito crafted an agreement with the Panama government to allow a Colombian firm to build a hydroelectric dam in the region. The electric plant would be built on the River Bonyic, which flows through a portion of Tito’s kingdom. As part of the agreement, the government promised to provide aid to impoverished settlements in the region, and to help members of the community obtain university scholarships. The prospect of building a dam outraged many members of the Naso tribe, who felt that it would destroy their cultural identity, and responded by forcing King Tito and a few hundred of his followers into exile. The community installed Tito’s uncle as a new king, yet the Panama government has not recognized him as the new leader of their tribe, and has continued with the construction of the hydroelectric project.

The debate over the dam highlights the continuing struggle of indigenous communities as they are forced to assimilate under the influence of globalization. In this case the Naso tribesman are faced with the dichotomy famously outlined by Thomas Friedman nearly ten years ago in The Lexus and the Olive Tree, in that the struggle defining globalization has been that between two competing forces: the push for prosperity and technological advancement, and the need to retain culture and identity amid these changes.

Investors and the international community have indirectly played a major role in forcing this confrontation for the Naso people, as the surge of development in parts of Panama has put incredible strain on the electric grid, and has resulted in recent power shortages across the country. As a foreign investor it is extremely important to remain cognizant of the unintended and ancillary effects of your transactions, and remember that in each opportunity there can be both positive and negative consequences. Globalization can be a double edged sword, and in this case has created a major rift in one of the last autonomous indigenous monarchies in Latin America, yet also has the potential for bringing much needed aid and education to a remote community struggling with poverty.

Sources:

Naso (Wikipedia.org)

Hydro-dam Exiles One Of Latin America’s Last Kings (Reuters.com)

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Developers Of Trump Ocean Club Bracing Themselves For Possible Lawsuit By Dubai Hotel Burj Al Arab

May 21, 2024 by patrickwoolford

Raising the Roof reports that Newland International Properties Corp, the developer building the Donald Trump licensed Ocean Club in Panama City has requested a local court grant legal protection from Jumeirah Group, the developers of the iconic Burj Al Arab Hotel in Dubai. While the Dubai developers have yet to file a lawsuit, there have been accusations that the Trump condominium under construction shares a similar sailboat motif as seen in the Burj Al Arab, and that it may infringe on the design of the ten year old Dubai hotel.

It is unclear as to whether anything will actually come from the dispute, or whether there is any legal precedent for such as suit. It seems unlikely, given that the Trump Ocean Club is one of the highest profile developments in Panama City, that the Panama government would take any action against Newland Developers. While the two buildings do share similarities, they are both based on a well known mast and sail motif, making it less convincing that they are infringing on the Burj Al Arab Hotel.

Here are some pictures for comparison:

Source:
Trump Project In Panama Goes To Court Over Talk It Copied Design Of Famous Dubai Hotel (Blogs.IHT.com)

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Panama Pacifico At Howard Air Force Base To Be One Of The Largest Master Planned Developments In The World

May 20, 2024 by patrickwoolford

UK developer London & Regional is currently working on one of the largest master planned mixed-used developments in the world, Panama Pacifico, at the former United States Howard Air Force Base. The decommissioned US military facility was turned over to Panama’s government in 2024 when the United States officially ended their 90 year control of the territory. The base, strategically located at the mouth of the Panama Canal on the Pacific Ocean, is directly across the canal from Panama City. London & Regional was awarded the $750 million deal in 2024 by the government of Panama to create a mini-city they hope will rival other global cities as a “Singapore of the Americas”.

The Panama Pacifico project, with its preexisting infrastructure, and as one of the largest mixed-use developments in the world, will have many opportunities for real estate investors in the near future

The nearly 3,000 acre Howard Air Force base, recently used to shoot footage for the upcoming James Bond film “Quantum of Solace,” has been idle for over eight years, and will need considerable work on its infrastructure. The property, which at its peak housed 20,000 US servicemen, includes roads and crumbling concrete buildings that will need to be restored. The site already contains a working airport, sports facilities, a movie theater, and a call center operated by Dell Computers, which is one of the largest in the world. Panama hopes to attract other multinational corporations to the development, under the jurisdiction of the Panama-Pacifico Special Economic Area Agency, by offering extensive tax breaks and other incentives.

According to their website, London and Regional has begun implementing their 40 year development plan for Panama Pacifico, which aims to create a modern mixed-use city, including all of the expected amenities. The first stage of the project, which is slated to begin this year, is a 58 acre International Business Park that will offer industrial and commercial office space.

Unfortunately there are shortcomings to the plan. According to the Panama Investor Blog, the general manager of the project has only committed $60 million to the project over the next two years, which may cause the project to fall short of the lofty goals of the master plan. In addition to this, the scope of development would make it a perfect candidate for creating a large scale sustainable New Urbanist project, yet there is very little mention of environmental goals on the Panama Pacifico website. The site mentions the possibility of creating a major “big box” retail outlet near the Pan-American Highway, which would suggest that environmental concerns may not be a priority for the developers. Regardless of these shortcomings, the Panama Pacifico project, with its preexisting infrastructure, and as one of the largest mixed-use developments in the world, will have many opportunities for real estate investors in the near future.

Sources:

Panama Pacifico

Panama-Pacifico Special Economic Area Agency

London & Regional Finally Begin Work On Howard AFB (Panama Investor Blog)

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