Thetabiz Corporation

The Fiscal Code regulates all matters concerning the country’s exports. The
Code establishes that all national products may be exported, except:
drugs (with the exception of those having pharmaceutical or scientific
purposes); staple products determined by the Government to be temporarily
scarce in the country; and those products the Panamanian Government
decides not to export for reasons of international agreements or for
economic interest of the country.

Exports subject to the payment of taxes require an Export Authorization,
which is issued by the National Customs Office, Ministry of Economy
and Finance. Exports subject to taxes are: metals and natural
resources.

No import licenses are required in Panama. Any company holding a commercial
license can freely import goods into Panama. Individuals or companies
wishing to engage in commercial or industrial activities require a
commercial or industrial license. Phytosanitary permits are required
to import some agricultural products. These were routinely issued
in the past but as previously stated, are now frequently refused or
delayed as a means of limiting agricultural imports.

Panama assesses import duties on an ad valorem basis. The ad valorem system uses the declared C.I.F. value as the basis for import duty calculations and in some cases utilizes historical price information as a reference. In addition to the duty, all imports into Panama are subject to a five percent transfer or value added tax (ITBM) levied on the C.I.F. value, plus import duty and other handling charges. Pharmaceuticals, foods and school supplies are exempt from the ITBM tax.

Beginning in 1995, Panama adopted the Harmonized System (HS) or Tariff Nomenclature as its customs classification system. In general, the Panamanian customs system tends to be efficient and straightforward and does not represent a significant obstacle for U.S. exporters. For more information contact the Panamanian Customs’ office.

The current Panamanian Government took office in September 1999. The previous Government joined the WTO and lowered tariffs to a maximum of 15%, except for a few agricultural products, and to an overall average of 12%, the lowest in the region. The revised import duty structure was significantly lower than the one negotiated for WTO accession and represented a substantial commitment to trade liberalization. The current Government has maintained this policy with regard to manufactured products but has largely reversed it for agricultural products. Duties for most agricultural products have been increased to the maximum limits permitted by the WTO. Additionally, the Government has erected substantial non-tariff barriers for certain agricultural products including pork, produce (permanent barriers), beef, poultry and rice (seasonal barriers). The mechanism utilized has been alleged phytosanitary concerns over non quarantine diseases. The Government has declared it will abide by WTO commitments.

The High Value Products (HVP) sector continues the most important category of imported products in Panama. HVP imports from the US were $83 million during CY02, representing a 4% decrease as compared to the previous year. HVP was composed of Snacks ($15 m, all time high), Processed fruit and vegetables ($10 m), Fruit and Vegetable Juices ($9m), Pet Foods ($6m, all time high), Dairy Products ($6 m), Wine and beer ($6 m), Fresh fruit ($4 m), Poultry meat ($4 m), Red meats ($3 m), Breakfast cereals ($3 m), and other ($17 m).

Best prospects are: Snacks, Processed Fruits and Vegetables, and Fruit and Vegetable Juices.

Attorneys are required, among other things, for establishing a corporation, registering products, registering a patent, obtaining a commercial license, and for handling immigration matters. Attorneys are frequently used to prepare major bids to make sure that paperwork and other requirements are properly completed. In many cases, local lawyer firms become part of consortia participating in major bids.

Panama does not have a Central Procurement Office such as the U.S. General Services Administration (GSA). All purchases of goods and services of any significant value are by law advertised for public bid. Government procurement regulations establish that each government organization is responsible for its own procurement but subject to the supervision of the Ministry of Economy and Finance and the Comptroller General’s Office. The later provides ultimate authorization for all purchasing contracts. Government regulations also establish a process of company pre-qualification for purchases above US$250,000 to ensure that potential suppliers have the proper qualifications. Another feature of the procurement system is that tender documents for major bids are discussed with interested companies in order to assure agreement about an understanding of terms and condition of participation. Lack of transparency, excessive delays, and bureaucracy in the bid selection process have caused problems for U.S. and other bidders in important government bids in the past.

Excessive bureaucracy is also responsible for the government’s poor payment record. Typical payment schedules range from three to six months, after good or services have been invoiced.

Success among distributors is often decided by quality of the training, counseling and support they receive from their principals. U.S. companies should focus on providing U.S.-level training and technical assistance to their distributors and making sure they have the resources to provide after-sales support, including spare parts, service equipment, and quality service to the customers.

The price structure for imported goods in Panama depends on the level of competition. The costs of transportation and import duties vary from item to item. Local prices can be higher or lower than world average depending on local competitive conditions. For the sake of illustration, the calculation below demonstrates average costs added to a product before it reaches the consumer. Import duties average 10% over CIF value and wholesale and retail markups are about 25% each.

Television and newspaper advertising are the promotion tools of choice for the majority of distributors of U.S. products. E-mail marketing is becoming increasingly popular, especially for services. Panama has a very competitive advertising market, with standard prices and very good production quality. Additionally, trade shows, specialized seminars and exhibitions are effective tools for trade promotion. Special sale prices during events such as mother’s and father’s day, back to school and Easter are usually advertised in newspapers during weekends. Most foreign manufacturers of consumer products maintain a high profile presence in the country through newspaper ads, large billboards, sponsored sports events, and TV advertising. Radio advertising is mainly utilized outside of Metropolitan Panama City.

Panama has the highest per capita income in Central America. The majority of income is skewed to a small, consumer goods oriented economic class. These upper-middle and upper class families have high levels of disposable income. They are interested in purchasing high quality, trend-setting goods. Price is less of a factor in purchasing decisions made by this class than for the middle and lower income classes. The majority of Panamanians are interested in quality but price plays a more important role in the purchase decision. The use of the U.S. dollar as legal currency and consumer preference for high quality products at competitive prices are two reasons for high acceptance of U.S. products in Panama. Overall, U.S. products are well accepted in the market and are considered of good quality. However, in many instances, U.S. products must compete against lower priced products especially from the Far East. For example, as in the U.S. itself, Japanese and Korean electronics dominate the market because of aggressive market entry techniques and good quality at competitive prices.

Panama has one of the most modern and flexible corporate laws in Latin America. In order to form a corporation in Panama, the client must furnish the following information:

• The name of the corporation. It may be in any language, but it must terminate in a word or abbreviation indicating that it is a corporation
• The objectives and purposes of the corporation
• The amount of the authorized capital. Usually the authorized capital will consist of US$10,000 divided into 100 shares of US$100 each. Shares may be nominative or bearer shares.
• Duration of the corporation, usually perpetual
• The full names and addresses of three or more directors and/or officers
• The domicile of the corporation

The time period usually involved in setting up a corporation is from 15 days to two months. Attorney fees usually range from US$600 to US$1,500 per corporation.

Exemptions for business license requirements are granted to persons or legal entities engaged exclusively in agriculture, cattle, bee, or poultry husbandry, or in the manufacturing and sale of handicrafts, provided that the work is not performed by hired workers.

Joint ventures, especially for large projects, are becoming common in Panama. Some joint ventures are formed for limited periods of time, such as for a specific construction contract or technology transfer contract. The profits from joint ventures can be distributed annually to each joint venture partner, and are taxed in the same manner as any other income. Panamanian law contemplates the registration of license agreements, although in practice few licensors and licensees do so. License agreements are frequently used to reinforce rights to registered trademarks. The agreements must be attached to the registered trademark and filed with the Industrial Property Department in the Ministry of Commerce and Industry. The agreement becomes part of the file on the trademark covered. Panama is an interesting and potentially profitable site for licensing agreements and joint ventures as well as routine buy/sell operations. The Colon Free Zone offers the U.S. exporter looking for regional marketing arrangements a convenient one-stop distribution center. There have been instances of money laundering, intellectual property piracy and drug trafficking reported in the CFZ. All U.S. firms should be aware of these factors before commencing operations in the Zone.

Panama is receptive to U.S. style franchising. The market for both specific and general franchising opportunities is attractive. Panama maintains no control on royalty payments or transfers. Recreation, entertainment services, fast food, automotive, and hotel and motel franchises are readily marketable as the local market demands better facilities and services. The U.S. Embassy recommends consulting a local attorney for details on how to set up a franchise in Panama. Key factors for market success in Panama are: high quality, customer service, brandname recognition and attractive packaging. U.S. products targeting the middle to uppermiddle income market are usually competitive. Panamanians have a penchant for high quality U.S. products. Consumers with high disposable income follow sophisticated U.S. and European consumption patterns. Most high-end U.S. and foreign brand names are represented in Panama. An aggressive marketing strategy is usually necessary to succeed in this trendconscious market.

According to Panama’s constitution, nationals and foreigners are treated equally under the law. Both Panamanian and foreign companies must fulfill the same basic requirements to organize and operate most types of business activities in Panama. There are restrictions on foreigners participating in retail trade and practicing certain professions. In practice, however, there are legal ways to overcome these restrictions. U.S. firms interested in retailing should consult a local attorney. There is no law regulating the relationship between international suppliers and local agents and distributors. This relationship is only governed by the private agreements made between the parties involved. In cases of contract termination or disputes, the private contract clauses prevail over any other document or practice. Individuals may engage in business activities in their own names or through legal entities. The most commonly adopted form of legal entity is the corporation (sociedad anonima). Other types of legal entities commonly used in Panama are: general partnerships, simple limited partnerships, joint stock partnerships and limited liability companies. The U.S. Commercial Service, offers U.S. companies assistance in identifying potential business opportunities in Panama. We offer the worldwide Gold Key Service (GKS) for those who wish to travel to Panama and the International Partner Search (IPS) for those companies who cannot immediately visit Panama. Both services assist U.S. companies in locating appropriate representatives in Panama.