The Colon Free Zone (CFZ), the largest in the Western
Hemisphere and second in the world to Hong Kong, is located in the
City of Colon, 90 kilometers from Panama City. The CFZ offers free
movement of goods and complete exemption from taxation on imports and
re-exports. There are no taxes on the export of capital or the payment of
dividends. In addition, there are reduced income tax rates on earnings
from re-export sales. Furthermore, firms located in the CFZ are exempt
from import duties as well as from guarantees, licensing, and other
requirements and limitations on imports. Due to its geographic location,
the CFZ is a major factor in channeling goods from large industrialized
countries to consumer markets in Latin America. Unfortunately, the CFZ
has also been used by the Colombian drug cartels for money laundering
and drug trafficking. Other problematic transactions include trade in
pirated intellectual property and stolen vehicles.