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Panama Free Zones: flexible rules are designed to attract investors

Thursday, May 10, 2012

In order to make its free trade zones more attractive to foreign companies, Panama has liberalized its rules on human resources, as well on immigration.

As far as immigration is concerned, a non-Panamanian who invests at least $250,000 in a free zone, or in a company which operates there, now has an accelerated path to permament residence.

Meanwhile, a foreign executive of such a company can expect quickly to acquire temporary residence, including the right to work in Panama.

In relation to local workforce rules, an important change involves the right of a free-zone operation to negotiate schedules with local employees, including the designation of Sunday as a workday, at normal wages.

Previously, Sunday was designated as the only possible day of rest.

Another important change lets employers reduce staff, if revenues have declined.

An employee who has been laid off may appeal to a labor tribunal, if he or she thinks the dismissal was unwarranted.

But the new system is more flexible than the previous one, under which the company could not fire an employee, without previous authorization by the tribunal.

In addition, the new rules, in effect since March 1, let companies give performance bonuses and other incentives to employees, without such payments being subject to a requirement to pay various taxes and benefits.

At the same time, the cost of renting space in a free zone may increase, as a result of an obligation for owners to pay income tax of 5% on dividends issued to shareholders.

Previously, free-zone earnings were tax-free.

The tax on distributed profits is intended to bring Panama in line with the requirements of the World Trade Organization, which will enter into force at the beginning of 2016.