The Panamanian banking industry grew during the last quarter of the 20th century into a regional banking centre for Latin American and the Caribbean, due to a variety of factors including the absence of exchange controls, the rapidly increasing volume of trade being conducted through the country (and through the Colon Free Zone in particular), liberal banking legislation and tight secrecy provisions. At the end of 1997 more than 100 banks were licensed in Panama, from more than 20 countries and with assets of about $23bn; however the country responded to international pressure by tightening up on banking regulation, and a number of banks closed their offices in 2000 and 2001. By mid-2005, 80 licensed banks remained, of which 30 had international licences. Assets amounted to $7bn.
Panama introduced a new and comprehensive banking law (which covers local trust companies as well) in February, 1999, replacing one that had been in place since the 1960s. The National Banking Commission that previously issued licenses has been replaced by a Superintendency which comprises a Board of 5 Directors and a Superintendent. In addition to increased investigative powers, the new law has tightened general controls and regulations and brought the country’s supervision more in line with the regulatory standards found in European and American banking centres.
There are three types of banking license:
- General Licences permit trading both in and outside Panama, and can be issued to Panamanian or foreign banks; minimum capital is US$ (Balboas) 10m.
- International ('Restricted') licences allow offshore banking to be conducted from an office in Panama; minimum capital is US$ (Balboas) 3m.
- Representation Licences are issued to foreign banks and permit a local office but no local trading. Activities must be be limited to contacting third parties interested in carrying out operations with the Head Office. Representative Offices are not authorized to carry out any kind of operations from or within Panama.
Branches of major international banks are particularly welcome as they will be able to offer not only traditional retail banking, but also services such as investment management, back-to-back loans and documentary credit facilities, credit card services and trust management.
The new law uses the guidelines of the Basle Committee on Banking Supervision. The Superintendent oversees the soundness and efficiency of the banking system and endeavours to strengthen it as part of the continuing development of Panama not only as a regional, but as an international, banking centre. The Superintendent, whose office is independent of central government, has wide powers of examination and investigation, but that authority is subject at all times to strict compliance with the country’s firm rules of confidentiality. Heavy criminal and civil sanctions can be imposed on bankers as well as the Superintendent for wrongful disclosures.
Although confidentiality is enshrined in the new law, a prima facie case proving funds are illicit will open criminals to exposure. Banks must conform with stringent monitoring and vetting procedures; each bank has a compliance officer who is responsible for ensuring that controls are applied.
Three additional laws passed in 2003 have increased Panama's defences against financial crimes, money laundering and terrorism.
Only banks with General Licenses will have any tax liability, and then only in respect of Panamanian income.
Insurance companies in Panama are supervised by the Superintendent of Insurance and Reinsurance at Panama's Ministry of Commerce and Industry. Licences to operate a captive are issued by the Superintendent, but only a handful of companies have taken them up.
A license application requires the following documents:
- A notarised Spanish translation of the Articles of Association;
- A Board minute authorising the Panamian registration;
- Copies of the most recent financial statements;
- A certificate from a Panamian Consul confirming that the company is organised according to the laws of its place of incorporation;
- Notification of the allocation of capital to the Panamian operation;
- Banking and personal references for shareholders and directors;
- A technical report on the business proposed to be undertaken;
- Registration fee of $1,000
Profits made from external insurance activity will not be subject to taxation.
Trade Marketing and Distribution
With NAFTA to the north, the vibrant economies of Latin America to the south, the Panama Canal, the Colon Free Zone and a tax-friendly attitude towards offshore activity, it would be surprising if Panama was not attractive to companies with American trading, marketing and distribution operations.
Since Panamanian direct corporate taxation is limited to local income, there is no need for offshore operations to use special corporate forms, and most simply adopt the basic Panamanian Corporation (Sociedad Anonima) or register locally as foreign companies (see Forms of Company). More than 120,000 such companies exist, and a considerable proportion of these are engaged in trading or related operations.
Along with other offshore jurisdictions, Panama is a suitable place in which to base e-commerce services for retail or wholesale distribution of material or non-material goods: see Offshore-e-com.com for extended descriptions of how such businesses can take advantage of the combination of offshore and e-commerce. In fact, given the extensive trading infrastructure already present in Panama, it has an advantage over many other jurisdictions.