Panama is a Tax Haven Again
September 3, 2015
In the latest 1980’s Panama’s status of free trade zone and area of good financial conditions for businesses was quite restricted due to the unpopular Noriega affair. However Panama had made a lot of economical changes and to the mid-1990’s it gained its’ previous success and attractive position again. Since that time almost all refugee funds returned and exchange reserves have been restored.
The business community of Panama is back to normality and new financial achievements have been made in some economical areas, including great revenues from initiative Colon Free Zone and shipping traffic of Canal Zone. Though the Embassy of US in Panama sometimes criticize the Government of Panama for having “monopolistic” markets and unfair attitude to US investors that have formation of companies in Panama.
The development of Panama can be displayed in the annual increase of gross national product on 6 percent during the past years. Moreover the growth of the construction industry can be measured in 60 percent each year. By 2002 the Colon Free Zone activity had significant growth and reached $19 billion level. As the United States submitted Panama Canal for full running, Panama totally managed to control traffic through the Canal. The 51-mile long waterway was widened to increase the throughput for modern large ships. Also Panama began to develop 535 square miles of land changing it to commercial basis instead of the previous nonprofit one.
The Economical Recovery
The US contributed to Panama’s developing by restoring democracy with military forces. In result the control of the country returned to the government of President Guillermo Endara who had been elected previously. So Panama had all necessary instruments to start the recovery process of it’s economy with no influence of General Noriega. The first and essential step in this recovery process was made towards micro and small businesses, giving them incentives for the beginning and further development by releasing them from all types of taxes, such aspropertyand income taxes, etc.
The Government of Panama also approved a special program for export processing area that gave definite benefits for attracting capital. For example 20-year release from income tax was offered, as well as some restrictive positions of the Labor Code were canceled. All these changes were done to attract capital from Asia. And in the result foreign capitals are coming back, with Hong Kong, China and Taiwan investing widely in the infrastructure development and computer projects.
Since Noriega has gone nearly 50 000 new companies were created. The recovery process of Panama’s economy and resurgence of its’ status of tax haven were supported by external billion dollars aid and repatriation of great amounts of refugee funds that were also sought as sanctuaries.
Due to financial problems and lack of confidence in stability and loss of offshore banking status of Panama there was a great transfer of residence of multinationals from the US and Europe to more economically and politically stable tax haven where attractive laws played their role for the companies from all over the world. However since that time $30 billion of off shore funds has returned to Panama after such dramatic leaving.
The shipping industry of Panama that had always been strong enough suffered seriously after such transfer of maritime registries to other flagship carriers, such as Bermuda, Bahamas, the Cayman Islands, Liberia, British Virgin Islands, Vanuatu and Singapore, but has confidently recovered. The embargo cancel made by former President of the US Bush allowed ships from Panama to enter the US ports eventually prevented a heavy outflow.
Panama’s City Office of Maritime Affairs and Consular in New York, the only company outside Panama that is authorized to handle inspections and issue license, is now always busy. Partly due to political problems in Liberia, Panama has exceeded Liberia in two positions at once – in number of registered vessels and in total overall tonnage. The records of Panama’s gross tons are about 70 million, while Liberia registry only recorded 51 million. The maritime industry of Panama faced definite concerns before political problems occurred in the Republic. The reason was in regular competition expressed in shipping alternatives, such as airlifts, pipelines and intermodal sea-to-rail transport.
The Bank Recovery
The cancellation of sanctions and unfreezing of more than $400 million of assets that was blocked also eased the recovery process. The banks of the US reopened and created new conditions for trade credits and to open foreign account. The unemployment level has decreased to 12 percent from the high 31 percent. Servicing income of more than $800 million offset the trade deficit in $350 million. Since 1990 financial deposits have doubled.
The governmental proposal for economical recovery included great amounts of US financial assistance. There was a financial help in $420 million initially approved by the US Congress, but $80 million is still to come to insure Panama signs two-sided legal assistance agreement covering money laundering and tax evasion.
After a compromise was reached during negotiations, the agreement according money laundering and drug dealing with no relation to fiscal matters in general was frustrating in achieving the objective, because the Government of Panama was not cooperative enough in matters related to drug abuse and money laundering.
However Panama appeared to be almost the first of Caribbean countries that submitted a law against money laundering in 1994. But the law was taken under definite pressure from the US, FAFT, OECD, and other organizations critical to lax position of Caribbean Islands in tightening process against drug smuggling, money laundering and crimes. In reality, Panama was named a “harmful” and “dangerous” tax haven due to these problems.
Eventually, Panama in 2000 adopted four strict laws to prevent possible schemes used by these money launderers all over the world. These laws were:
- Legislative Assembly Law No. 41 of October 2, 2000, entitled “Capital Laundering” and improving the Penal Code by creating strict penalties (up to 10 years of imprisonment) for public violation of the secrecy of data and proceeding unlawful transactions connected to money laundering;
- Legislative Assembly Law No. 42 of October 2, 2000, setting down Measures for the Prevention of the Crime of Capital Laundering;
- Ministry of the Presidency Decree No. 136 of October 3, 2000, creating the Financial Intelligence United for the Prevention of Capital Laundering;
- Executive Decree No. 213 of October 3, 2000, a change to 1984 Decree related to trusts practice and making it necessary for financial institutions to provide information about “suspicious transaction”.