A Lawyer's Guide To Panama
InterAm Database
National Law Center for Inter-American Free Trade
Lex Mundi
A LAWYER'S GUIDE TO PANAMA
PREPARED BY
JULIO CESAR CONTRERAS III
AROSEMENA, NORIEGA & CONTRERAS
Republic of Panama
Table of Contents
I. The Country at a Glance
II. Investment Principles and General Considerations 2
1. Political System
2. Legal System
3. Economic System
4. Culture
5. Foreign Trade
6. International Status 6
III. Investment Framework
1. Sector Restrictions
2. Foreign Investment
3. Institutions Assisting Foreign Investors
IV. Sensitive Areas
1. Branch Registration 8
2. Permits
3. Commercial Licenses 8
4. Labor Law
5. Price Controls
V. Direct Sales
1. Foreign Trade Regulations
2. Import Tariff
3. Tariff Protection
4. Free Ports
VI. Exports
1. General
2. Tax Incentives
3. Tax Allowance Certificates
VII. Representatives, Distributors, Franchisers 12
1. Representatives Agents and Distributors 12
2. Franchise
VIII. Intellectual Property 13
1. International Conventions
2. Patents
3. Trademarks
4. Copyrights
5. Industrial Design and Models
6. Licensing
IX. Direct Investment
1. Types of Investment Methods
2. Types of Companies 17
3. No Restrictions on Foreign Investments
X. Purchase by a Foreign Corporation of Business in Panama 18
1. Controls Applicable to Foreign Investors 18
2. Controls Applicable to Specific Industries 19
3. Regulatory Framework for Acquisitions
4. Competition and Anti-Trust Policy for Business Combination 19
5. Private Acquisition Agreements
6. Transaction Taxes
XI. Branches
1. Branch Office of Foreign Corporation
a. Capital
b. Financial Statements 22
c. Resident Agent
d. Authentications
2. Registration Prerequisites
3. Tax Aspects: Branch v. Subsidiary 23
XII. Incorporation 24
1. Corporate Forms with Limited Shareholder Liability
2. Incorporation Requirements 24
3. Registration of Shares
4. Management of Corporations
5. Taxation
a. Corporate Income
b. Dividends
c. Distribution of Assets
d. Personal Income
XIII. Shipping
1. Introduction
2. Procedures for Registration 28
a. Provincial Registration
b. Permanent Registration
3. Radio License
4. Registration of Ships' Mortgages
4.1 Requirements 31
4.2 Provincial Registration and Permanent
Registration of Ship's Mortgages
XIV. Banking System
1. Introduction
2. Banking licenses
a. General licenses
b. International licenses 34
c. Representation licenses
3. National Banking Commission
4. Criteria for the Granting of Banking Licenses
5. Privacy of Accounting and Banking Records
6. Applicable Taxes
XV. Exchange Controls 37
XVI. Tax
1. Introduction
2. International Maritime Commerce 38
3. Categorization of taxes
3.1 Corporate Income Tax
a. Dividends
b. Interest
c. Capital Gains 39
3.2 Taxation on Individuals
3.3 License Tax
a. Commercial License Tax
b. Municipal Taxes
3.4 Value Added Tax
3.5 Other Taxes
4. Tax Treaties
XVII. Labor
1. General
2. Sources of Law
3. Social Security
4. Foreign Employees
5. Duration of Employment Relationship
6. Termination of Employment Relationship 47
7. Labor/Management Relations
8. General Regulations 48
a. Hours
b. Wages
c. Paid holiday and vacation
XVIII. Dissolutions, Insolvency and Bankruptcy 49
1. Dissolution
2. Insolvency
3. Bankruptcy
4. Creditors Agreement 51
5. Foreign Declaration of Bankruptcy 52
XIX. International Relationships 52
1. General
2. Bilateral/Agreements 53
XX. Dispute Resolution 53
1. Arbitration Practice
2. Court System 55
Appendix 1. Key Government Agencies and Embassies 57
Appendix 2. Financial Institutions
Appendix 3. Commercial Institutions and Other Organizations 61
1. THE COUNTRY AT A GLANCE
Panama is located at the southeastern end of the Central American isthmus which connects the North and South American continents. The country has an area of 77,082 square kilometers (29,761 square miles) and consists of nine provinces - Panama, Colon, Chiriqui, Bocas del Toro, Veraguas, Herrera, Cocle, Los Santos, Darien and the San Blas Region (Comarca de San Blas). Panama is a multiracial country with a population in 1988 of 2,322,000 of which an estimated 1,000,000 live in the capital (Panama City). Panama borders to the East with the Republic of Colombia and to the West with the Republic of Costa Rica. The isthmus faces the Caribbean Sea to the North and the Pacific Ocean to the South, with the Canal actually on a northwest to southeast axis, cutting through the isthmus at one of its narrowest sections. The official language is Spanish. In the cities of Panama and Colon a high percentage of the population also speak English; approximately five percent (5%) of the population still speak indian dialects. Panama is in Zone 17 (five hours behind of Greenwich Mean Time).
II. INVESTMENT PRINCIPLES AND GENERAL CONSIDERATIONS
1. Political System
The constitution of Panama provides for a Republican form of government. The government is divided into separate Executive and Legislative branches with an independent Judiciary.
The Executive branch is constituted by the President of the Republic and the Ministers of State. The President is elected by direct suffrage and for a period of five years and with him are elected two Vice-Presidents to replace him in his absences. The Legislative function is carried out by the National Assembly that by September 1, 1994 will be composed of 72 members, which are elected by direct suffrage and for a period of five years in each electoral circuit of the country. The Judicial branch is constituted by the Supreme Court of Justice, Magistrate's courts and lesser courts as established by law. The magistrates of the Supreme Court of Justice are appointed by agreement of the council of ministers subject to the approval of the Legislative branch for a period of 10 years. In each province there exists a governor appointed by the President of the Republic and a provincial council integrated by all the representatives of the corregimientos (the smallest administrative units in the country) of the respective province, as well as the other members determined by law.
The functions of the Government Attorney Office are carried out by the Attorney General, Attorney for the Administration, Circuit Attorneys, Prosecutors and other officials as established by law.
There are five political parties of some significance in Panamanian political life:
- Arnulfista Party (Partido Arnulfista),
- Revolutionary Democratic Party (Partido Revolucionario Democrático - PRD),
- National Liberal Republican Movement (Movimiento Liberal Republicano Nacionalista - MOLIRENA),
- Christian Democratic Party (Partido Democrata Cristiano - PDC),
- Liberal Party (Partido Liberal).
The large percentage of the population align themselves with either the Arnulfista party or PRD party which have traditionally represented the interests of the working class and with MOLIRENA which has a traditional alliance with trade and industry.
2. Legal System
The Constitution of Panama establishes a strict separation of powers between the Executive, Legislative and Judicial spheres. These separate spheres act limited and separate but in armonic collaboration.
The Panamanian Legal system consists of different levels. The hierarchy of legal norms is demonstrated in the following table:
a. The Constitution
Decrees of Law: Extraordinary powers granted to the Executive
branch by the National Assembly covering specific matters and under certain circumstances as contemplated in the Constitution.
b. Laws
Ordinary Laws
Organic Laws
c. Decrees Cabinet Council Decrees: The President, Vice-President and Cabinet Ministers.
Executive Decrees: The President And the respective Minister according to the law which the Decree regulates.
d. Resolutions and Cabinet Resolutions.
Agreements
Other Resolutions and Agreements by Administrative
Authorities.
Individual acts by any government or administrative authority and by the courts must be based either on the constitution, laws decrees or resolutions, which is recognized as the principle of legality (principio de la legalidad) in that all the functions which the state performs must be previously defined by law.
The Legislative functions are carried out by the National Assembly. However the Executive branch and the administrative authorities can issue and/or approve decrees, resolutions and agreements that are an integral part of the legal system.
The Supreme Court of Justice has exclusive jurisdiction over the constitutionality of laws, decrees, resolutions and other acts of the Administration. All decisions rendered by the Supreme Court are final, definitive and mandatory.
3. Economic System
In Panama the unit of currency is the Balboa (hereinafter referred to by its international symbol; PAB), is at par with the US dollar and is issued only in coins which coincide in size and value with those of the United States. Given the absence of Balboa bills, US dollar bills are used for internal transactions in Panama, doubling as foreign exchange and internal currency.
The economy of Panama is based primarily on private enterprise. It depends heavily on the services sector and is closely geared to international trade and external factors. The tertiary or service sector accounted for approximately 75% of the gross national product (GNP) in 1993; the secondary sector, covering manufacturing, construction, electricity and other utilities, for 15% and the primary sector, covering agriculture and mining for 10%. The Colon Free Zone and the predominantly foreign banking center are also strong contributors to the country's GNP.
Panama has encouraged the development of a highly successful international banking center by enacting new banking legislation in 1970 to insure high-quality banking services, the protection of depositors, and to provide maximum flexibility for individual banking operations. By the beginning of 1994 there were registered in Panama; 63 Gene-ral license banks, 27 International license banks and 19 banks with Representation Licenses (see chapter XIV, infra).
4. Culture
Ethnically and culturally, Panama has seen the intermingling of the original inhabitants of the isthmus with the Spanish colonizers, as well as with African and Antillan slaves. Immigration was sporadic until the beginning of the present century, when construction of the canal gave rise to waves of immigrants, especially of Asian and West Indian origins.
During the beginning of the twentieth century, the US settlement in the Canal Zone became a cultural enclave isolated both geographically and culturally from the rest of Panama. It maintained its own language, legislation, and labor and educational systems. After the abolishment of the Canal Zone in the late 1970's many members of the US settlement have continued to live in Panama. Some maintain the same unique customs and characteristics that originally set them apart, while others have joined the process of cultural and ethnic integration that continues too take place as larger groups of foreigners settle in Panama.
5. Foreign Trade
One of the smallest nations in Latin America in area and population, Panama overcomes its limitations of size by location, which links the northern and the southern hemispheres. The use of the Republic of Panama as a bridge in international commerce did not arise in the modern world. Since colonial times the isthmus of Panama has been used as a transhipment point for merchandise to and from South America. The existence of the Colon Free Zone is an example in today's terms, of Panama's commercial predominance.
The Colon Free Zone, located in the City of Colon on the Atlantic side of the isthmus, has been in operation for over 40 years. It is the largest re-export center in the Western Hemisphere, with total turn over (re-export plus imports) reaching US$9.6 billion in 1993. Firms located in the Zone are exempt from import duties as well as from guarantees, licensing and other requirements and limitations on imports. 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.
The Panama Canal, which joins the Atlantic and Pacific Oceans, is considered one of the most important channels for world commerce, servicing an average of 34 ocean-ocean-going vessels daily. The Canal and the area servicing it, are important factors in the national economy and large contributors to the government budget. Money generated by the activities related to the transit of ships has a multiplier effect on the economy, taking the form of salary and transfer payments, that are spent on goods originating in other sectors.
6. International Status
Panama is member of the following international organizations:
- United Nations
- Organization of American States (OAS)
- Conference of Non-Aligned nations
- International Maritime Organization
- Union of Banana Exporting Countries (UPEB)
- Interamerican Development Bank
- International Bank for Reconstruction and Development (Worldbank)
- International Monetary Fund
- Latin American Economic System (SELA)
III. INVESTMENT FRAMEWORK
The development of institutions and instruments to regulate business activities in Panama has been consistent with its trade-and services-oriented economy, which is closely connected to the international market and geared to using Panama's geographic position. As a result, the aim of the legal and institutional framework is to offer many facilities and incentives for the development of international commercial and service activities in Panama, with very few requirements regarding the nationality of investors and with no restrictions on converting currencies or transferring funds.
1. Sector Restrictions
There are very few limitations or restrictive practices on foreign investment, especially for international business operations based in Panama. One of the few exceptions is the retail trade, which is reserved for Panamanian nationals.
2. Foreign Investment
Historically, the policies of the Panamanian government toward foreign investment have been so open that there has never been any need for a formal statement of policy on this subject, and legislation hardly establishes any differences in treatment between nationals and foreigners. Similarly, all foreign investors, regardless of their country of origin, are treated equally.
There are no general restrictions of foreign ownership on foreign enterprises and joint-ventures.
3. Institutions Assisting Foreign Investors
To attract foreign investments into Panama, the government has developed the necessary institutional and infrastructural facilities, efficient public administrative machinery, extremely favorable and flexible policy guidelines, and attractive fiscal and nonfiscal incentives.
a. Ministry of Planning and Economic Policy. The Ministry of Planning is responsible for formulating and overseeing the implementation of the country's investment programs and development plans. Businessmen interested in the investment projects included in the program should first approach the Ministry of Planning for information.
b. Ministry of Commerce and Industry. All aspects of retail and wholesale trade and industrial development are supervised by the Ministry of Commerce and Industry. Applications for tax incentives on exports, on new investment or on investments for expansion of existing facilities in the manufacturing sector must be submitted to this Ministry for processing.
c. Panama Trade Development Institute (IPCE). IPCE is a department of the Ministry of Commerce and Industry that provides assistance to prospective investors and exporters as follows:
- General orientation on Panama.
- Identification of investments and export opportunities.
- Information on available tax and financial incentives.
- Cooperation on market surveys, especially for exports.
- Organization of world fairs.
IV. SENSITIVE AREAS
1. Branch Registration
Whereas registration of a corporation is a routine matter for lawyers and the process of registering at the Public Registry normally takes between three to five working days; the registration of a branch could take significantly longer as more documention is required which would need to be authenticated and in most cases translated before filing at the Public Registry. However, no licensing or permits of whatever kind are necessary to register the branch.
2. Permits
Panamanian administrative law is very rigid in some respect in certain key areas such as, for example banking, a permit/license can only be obtained from the National Banking Commission if certain strict criteria concerning the reputation, integrity, efficiency and solid financial situation of the prospective applicant are met. The criteria as established is not only applicable to the bank as an institution but also to the shareholders, partners, directors and personnel.
3. Commercial Licenses
A foreign investor should take into consideration that the obtainment of a commercial license could take between four to six weeks.
Under Panama law there are three types of commercial licenses:
a. Type A license is issued for wholesale business only and to banks, finance companies, insurance and reinsurance companies and hotels. License A permits foreigners to engage in business transactions in Panama.
b. Type B license is issued exclusively for retail business and only to Panamanians or to corporations whose entire capital is owned by Panamanians.
c. Industrial license is issued for manufacturing activities in Panama. It is also required for companies engaged in the construction business.
4. Labor Law
Panama has a strong tradition of strict labor laws. There are restrictions on the hiring of foreign employees which can only be employed if they have obtained a work permit and are in possession of a valid visa.
Labor law provides that every employer must maintain Panamanian workers in a proportion of not less than 95% of his total ordinary work force, albeit he can employ foreign specialized or technical personnel that does not exceed 12% of his total work force.
There are relatively high severance payments (see Chapter XV, infra).
5. Price Controls
There exists a Price Control Office (Oficina de Regulación de Precios) ascribed to the Ministry of Commerce and Industry. The consumer protection through price controls is the responsibility of this office, which has the authority to establish prices for a variety of staples, pharmaceutical and other goods.
V. DIRECT SALES
1. Foreign Trade Regulations
Panamanian traders are free to import from and export to all friendly countries, regardless of their social-political systems. Trade policy in Panama, which is flexible but selective, includes free ports for the export and re-export business, Export Processing Zones, low duties on certain basic staples that are not produced locally and on certain products for the tourist trade, a protective scheme for local agriculture, cattle and manufacturing industries and for industrial and export incentives.
2. Import Tariff
Panama uses the Nomenclature of the Council of Customs Cooperation (of Brussels) for tariff purposes. Duties are levied ad valorem on the CIF value of goods and as specific taxes based on weight, unless there is another base to calculate the value; the tariff cannot be higher than 60%. Rates fluctuate from very low to intermediate, to clearly protective, depending upon the policy pursued for different types of goods.
Import tariffs are not applied to goods imported by natural or juridical persons which are exempted by virtue of a contract or treaty and goods specified as tax exempt in tariff and special incentive laws. In addition to duty, there is a 7.5% surtax payable on most imports except medicines (2.5%) and foodstuffs (3.5%). The 5% transfer of the Value Added Tax is also payable on all imports, based on the CIF value plus of import duty and surtax, except for: foodstuffs, medicines, fuels, lubricants, export and re-export activities, transactions inside the free zones, sales of agricultural, maritime and cattle products in their natural state and also goods related to these activities (tools) as well as school material and books.
All imports are subject to the same tariffs, regardless of the country of origin, with the exception of those originating from countries that have been accorded a preferential tariff. Preferential tariffs are granted to imports that originate in each of the Central American countries with which Panama has entered into separate free trade treaties. Panama is not yet a member of the Central American Common Market.
3. Tariff Protection
As part of the incentives provided in industrial development legislation and the overall free trade policy which Panama has adopted, producers may obtain up to 100% exemptions from import duties on raw materials, component parts, machinery, and equipment.
The policy has been to reduce excessive protective tariffs, to rates that will not exceed 20% in those cases where there does not exist local production and 40% on foreign products. Nevertheless there still exists certain import quota restrictions and protective tariffs especially on agricultural products, when these products are produced in Panama in sufficient quantities and acceptable quality. In any case the tariff cannot exceed 60%.
4. Free Ports
a. The Colon Free Trade Zone has free port status that allows for import and re-export operations with total exemption from duties.
At present, the Zone is one of the most important free trade ports in the world.
b. Pursuant to law N° 25 of 1992, a simplified integrated special system was adopted for the creation and functioning of Export Processing Zones, which amount to nothing more than "private" free zones, that allow for import and re-export operations with total exemption from duties.
VI. EXPORTS
1. General
In Panama, the law regards as an export not only the sale of goods outside the national territory but also the sale within the domestic market of goods, containers, and packaging materials manufactured locally, if they are sold to companies that export not less than 90% of their production to foreign markets.
2. Tax Incentives
There are three principal tax incentives for exports:
- Total exemption from import duties, taxes, levies, or any other charges on the importation of machinery, equipment, and spare parts to be used in the manufacturing process, as well as raw materials, semiprocessed goods, containers, packaging materials, fuels, and lubricants to be used in the manufacturing process.
- Total exemption from income tax on profits arising from exports, with the exception of the extractive industries.
- Total exemption from taxes on exports as well as from taxes on sales or on the capital or assets of the company, with the exception of license fees and property taxes.
The legislation that regulates the awarding and administration of these incentives provides for a payment equivalent to 3% of all the taxes and fiscal charges exempted to be made by the companies obtaining the incentives.
3. Tax Allowance Certificates
The Tax Allowance Certificate, known by the Spanish acronym "CAT", is an instrument to promote non-traditional exports produced or manufactured totally or partially in Panama. All natural or juridical persons that export goods produced totally or partially in Panama can apply for CAT's as long as they comply with the following requirements:
- Companies whose export products have a minimum national content of 220% cost or manufacture and production and contain at least 20% national added value.
- Companies must have a minimum of one year of operations in Panama.
The following are salient features of CATs:
- Are nominative and transferable;
- Maturity date is nine months after issuance;
- Do not earn interest;
- Are tax free;
- Are negotiable in the stock and secondary markets;
- Can be used to pay all national direct taxes and import duties.
VII. REPRESENTATIVES, DISTRIBUTORS, AGENTS, FRANCHISERS
1. Representatives, Agents and Distributors
In 1989 the Supreme Court of Justice declared the unconstitutionality of Cabinet Decree No.344 (of October 31, 1969) which had up to then regulated and protected the activities of Representation, Distribution and/or Agency in Panama.
With the declaration of unconstitutionality of Cabinet Decree No.344 all contracts recorded at the Ministry of Commerce and Industry were left without effect. However, this does not mean that contracts executed between the manufacturer or commercial enterprise and the local company are invalid; these relations will now be governed by general commercial law.
The key feature of the decision rendered by the Supreme Court would seem to negate the principle of exclusivity, that is, considering monopolistic in nature those contracts of Representation Distribution and/or Agency which contain exclusivity clauses. If this criteria remains true all clauses that establish an exclusive relationship would result in being null and void.
2. Franchise
No particular franchise law exists in Panama. Franchise contracts are usually looked upon as combinations of licensing agreements, distributorship or representation agreements and also other legal arrangements such as commission agencies.
In Panama, as in many other Latin American countries, franchising is an increasing industry with skyrocketing examples such as Pizza Hut, Kentucky Fried Chicken, McDonald's, just to name a few name.
VIII. INTELLECTUAL PROPERTY
1. International Conventions
Panama is a signatory to the following multinational conventions protecting intellectual property rights:
- The Universal Copyright Convention;
- The Buenos Aires Convention (1910);
- The General Interamerican Convention for Trademark and Commercial Protection.
2. Patents
Patents of invention are regulated by the Constitution, the Administrative Code and Executive Decree No.1 of 1939. The laws provide that any person may obtain from the Executive branch the exclusive right to use his own invention or discovery for a maximum of 20 years in case of national patents, or for a maximum of 15 years in case of foreign patents.
Foreign patents may be registered in Panama, as a confirmation or revalidated patent, provided that the invention is not in the public domain. The term for revalidated foreign patents never exceeds 15 years or the lesser term of the foreign patent which serves as the basis for the Panamanian patent application.
If a patent of invention has been granted for a term shorter than that allowed by law, renewal is possible depending on the merits of the invention by filing a renewal application within 30 days of the expiration of the patent.
3. Trademarks
Trademarks are regulated by the Administrative Code and Executive Decree No.1 of 1939. Any individual Panamanian or foreigner who owns a trademark may acquire the exclusive right to use it in Panama. A trademark is granted for 10 years and may be renewed indefinitely for additional 10 year periods.
Service marks are also registrable in Panama. Use is not a prerequisite for registration. Our trade mark laws only provide that the mark must be used within the one year period following the date of registration of the mark in Panama. However, use is defined to include commercialization of goods, with the relevant trade mark either in the national (i.e. Panamanian) or international commerce. Moreover, in practice, for a Panamanian trade mark application to mature to registration, or for a registration to remain in force, no proof of use need be submitted. The issue of use only becomes relevant in the event of an opposition or a cancellation suit. In the case of unregistered trademarks, a prior user may oppose registration by a third party.
4. Copyrights
Copyrights registration is required within one year following publication. Technically, computer software could be protected under the copyright laws of Panama; however, few applications for protection of computer software have been filed. Software protection requires deposit of source code.
5. Industrial Design and Models
Although, in the past the Industrial Property Department of the Ministry of Commerce and Industry has denied applications for protection of industrial design, recently such protection has been granted.
6. Licensing
Intellectual property licenses or payments of royalties need not be approved or registered with any governmental agency. The government requires that royalty rates be reasonable in other words they should not exceed the average for a particular industry. Payments of royalties outside of the country are subject to a 15% withhold tax. There are no treaties to minimize or avoid such taxes. There are no restrictions on the transfer of intellectual property.
IX. DIRECT INVESTMENT
1. Types of Investment Methods
The main method of investment in Panama would certainly be the creation of a subsidiary. This has been the standard vehicle for many overseas companies to establish their interest in Latin America on the other hand, the registration of a Panama branch is used as an investment method only in specific cases when certain tax advantages or other benefits are granted to the parent company in the country of origin.
The ease and flexibility of Panama corporation law, coupled with a dollar economy and Panama's strategic geographical position makes it the ideal place for setting up headquarters to serve the Latin American and Caribbean markets.
Some relevant aspects that attract foreign investments are the following:
a. Panama legislation does not consider as taxable income revenues originating from transactions that take place outside Panamanian territory (offshore) even when they are managed from within Panama.
b. The Corporation Law of Panama (see Chapter XII, infra) is very flexible about the purpose of a corporation, the amount of capital, the nationality of shareholders, bearer shares, and the geographic scope of operations.
c. There is no control in Panama over free transfer to and from the country of capital, dividends, or payments for any other purpose.
d. The fact that there is no national paper currency acts as a built-in guarantee against the establishment of foreign exchange regulations.
e. An international banking center which operates freely in all currencies and creates a financial climate that encourages the free movement of funds.
Investments in the domestic industry in Panama are more frequently done through purchases of stock or assets of an existing company and also as part of the privatization program sponsored by the government. In addition, a fair amount of domestic investment is also done by entering into joint-venture agreements.
The standard mechanism in Panama for granting incentives is registration of the venture with the Official National Industry Registry (Registro Oficial de la Industria Nacional), which is a department of the Ministry of Commerce and Industry. Under such registration, the government awards certain tax or other benefits as provided in the law, and, as a quid pro quo, the investor undertakes to carry out a given investment project within a certain timetable as specified in the registry.
2. Types of Companies
The most common form of business entity adopted by Panamanians and foreign investors in Panama is the corporation (sociedad anónima) because of the ease in incorporation and flexibility in operation that it grants to merchants and investors.
Corporations represents the ideal corporate form for wholly owned subsidiaries and any corporate forms where shareholders want to exercise direct influence on management.
Corporations may be formed for any lawful purpose by two or more persons of legal age, of any nationality, even though not domiciled in Panama. The amount of corporate capital and the par value of the shares may be in Panamanian currency, or legal gold currency of any country, or both. The articles of incorporation may be executed in any language anywhere in or outside Panama. There are no nationality or residence requirements for shareholders, directors, or officers of the corporation. The capital stock may be issued as bearer or nominative shares. Meetings of shareholders and directors may be held in any part of the world.
In addition to corporations, Panama also has other types of legal entities to wit:
- Limited Liability Company (Sociedad de Responsabilidad Limitada);
- General or Limited Partnership (Sociedad General o Limitada);
- Partnership Limited by Shares (Sociedad Limitada por Acciones).
These types of company and partner forms are not very common in Panama because of the complex legal formalities and restrictions involved.
3. No restrictions on Foreign Investments
The policies of the Panamanian government are geared to encourage foreign investment to the extent that there has never been any need for a formal statement of policy on this subject. Moreover, legislation hardly establishes any differences in treatment between nationals and foreigners. Consequently, all foreign investors, regardless of their country of origin, are treated equally. Some policy issues concerning foreign investment are summarized below.
- Equity participation. There is no explicit formal policy about equity participation of foreigners in investment ventures in Panama. Pragmatism dictates that for larger projects the size of the Panamanian capital market precludes any significant participation of national investors. Usually, for the larger ventures involving the exploitation of natural resources the Panamanian government prefers to have a majority participation in the equity.
- Employment Policy. The government encourages maximum employment of local nationals. Foreign companies are allowed to bring in needed foreign personnel to train Panamanians; however, the law sets maximum percentages of foreign employees to be allowed on the payroll of a given employer. Foreign companies are also allowed to fill certain key or top management posts, including those positions involving sensitive information, with their own personnel.
- Exchange control. There are no regulations or limitations on converting and transferring funds to an from Panama.
- Other Areas. The Panamanian government does not limit in any form overseas borrowing and the remittance of dividends and royalties abroad by foreign or national investors.
X. PURCHASE BY A FOREIGN CORPORATION OF BUSINESS IN PANAMA
1. Controls Applicable to Foreign Investors
In general, there are no restrictions on the foreign ownership of Panamanian businesses, although the retail business is limited to Panamanians or to corporations whose entire capital is owned by Panamanians.
At present there are no limitations on foreign companies in their participation in the government's privatization program. However, the Constitution requires that Panamanians have a majority participation in private enterprises of public utilities that function in the country, save the exceptions established by law, that must also be defined.
2. Controls Applicable to Specific Industries
The aim of the government of Panama is to offer facilities and incentives for foreign investors. Consequently, there are very few limitations or restrictive practices on foreign investment, especially for international business operations based in Panama.
In the exploitation of natural resources, the Panamanian government prefers to have majority participation.
Under the Constitution foreign natural or juridical persons and those nationals whose capital is foreign, either totally or partially, cannot acquire the ownership of land, be it state or private owned, located at less than ten kilometers of the borders.
3. Regulatory Framework for Acquisitions
There is no specific legislation in Panama regulating the conduct of takeovers nor any statutory regulations governing mergers and acquisitions activities. Procedures, however, do exist under Panamanian corporate and commercial law for companies to combine by means of merger or consolidation.
4. Competition and Anti-Trust Policy for Business Combination
The Constitution prohibits in commerce and industry all combination, contract or whatever action that tends to restrict or make impossible free commerce and competition, that would have monopolistic effects in the detriment of the general public. This prohibition refers to private monopolies and to the practice by a single person, be he natural or juridical, of exploiting a chain of commercial retail establishments in such a manner that it ruins or tends to eliminate the competition of the small merchant or industrialist.
There exists popular action to contest before the courts the performance of whatever combination, contract or action that has as its purpose the establishment of monopolistic practices. Notwithstanding, the exploitation of games of chance and betting activities can only be carried out by the state.
5. Private Acquisition Agreements
Most acquisitions in Panama involve the purchase of a privately held family business or a subsidiary of a corporate group and are achieved through a privately negotiated sale and purchase agreement.
Whether the business is sold by means of a sale of assets would normally depend on tax considerations. Shares in a corporation (sociedad anónima) are normally fully transferable. However, the articles of incorporation may require the consent of other shareholders to be obtained and other restrictions for the transfer of shares may also be imposed, but any restriction that in an absolute manner prohibits the transfer of shares is null and void. On the other hand, the transfer of a partnership interest normally requires the consent of all other partners, unless the partnership agreement states otherwise.
Most shares in corporations are issued in bearer form and are thus freely transferable. For registered shares, transfers may require the approval of the corporation.
There is no requirement in Panama for purchasers to make public their shareholding in a corporation nor any general requirement to make an offer to remaining shareholder following the acquisitions of a controlling shareholding.
Increases in the authorized capital stock of a corporation require a shareholders resolution passed by a majority of the subscribed shares or of any class of shares with the right to vote. Notwithstanding, the articles of incorporation may provide that more of the majority of the subscribed shares or of any class of shares is required to amend the articles of incorporation. Moreover and unless otherwise provided by the articles of incorporation or any amendments thereto, each shareholder shall have a preemptive right to subscribe, in proportion to the shares held by him, shares issued pursuant to any increase of the capital stock of the corporation. This right can, however, be waived.
6. Transaction Taxes
Panamanian tax law does not impose a capital transfer tax on contributions of capital to Panamanian corporations. Taxes are not levied on the issue of stock or on the increase of capital stock of a corporation. In the latter case, only a registration fee is payable at the Public Registry office, when filing the document amending the articles of incorporation.
The issue of bonds by a Panamanian debtor or shares with foreign corporations are not subject to tax on the issue of said securities or shares. No tax is imposed on the transfer of securities or in shares. Real estate transactions are subject to a real estate tax (impuesto de inmueble); owners pay tax according to a progressive scale that ranges from 1.4% on the excess over PAB10,000 to 2.1% on the excess over PAB75,000. The taxable base is the assessed value determined by the Land Commission (Oficina de Catastro). Various exemptions are available including building and improvements used by non-profit-making organizations or government entities and those with a value of less than PAB10,000.
XI. BRANCHES
1. Branch Office of Foreign Corporation
Under Panama corporate law a foreign corporation may maintain offices or agencies and carry on business in Panama, provided it files the following documents in the Mercantile Registry:
- Deed of Protocol of the articles of incorporation.
- Copy of the last balance sheet, accompanied by a statement of the amount of capital engaged or to be engaged in business in Panama.
- A certificate stating that the corporation is incorporated and organized under the laws of the country or state of its domicile. The certificate must be issued by a consular representative of Panama in that country or, if there be no such representative, by that of a friendly nation.
In addition to these documents, it has been the practice to register as well any amendments that may have been made to the articles of incorporation and a certificate issued by the secretary of the corporation setting out the names and addresses of the present directors and officers of the corporation. The names should be set out in full, without initials.
a. Capital.
A statement on the portion of a corporation's capital to be used in the business of the corporation in Panama. This is usually accomplished by a resolution of the board of directors of the corporation. Most corporations use a nominal figure to minimize registration fees. The minimum fee of PAB60 will cover any amount up to PAB10,000.
b. Financial Statements.
The treasurer of the corporation should certify for purposes of registration that the last balance sheet of the corporation is the most recent available.
c. Resident Agent.
While the law does not require that a foreign corporation registered in Panama have an attorney-in-fact in Panama, it has been the practice to appoint a natural person resident in Panama to hold such power of attorney. Otherwise, the corporation will be physically unable to act and will not have a link with Panama's governmental authorities. This attorney-in-fact may be a Panamanian citizen or foreigner, provided the latter is a legal resident of Panama.
e. Authentications.
All documents must be authenticated by a notary public and legalized by a Panamanian consul at the corporation's domicile. In the absence of a Panamanian consul, they may be legalized by the consul of a nation friendly to Panama, usually any Latin American nation. The foreign consul must certify that, in fact, Panama does not have a consul in that city.
Notwithstanding the above, if the country where the documents are issued is a member of the Hague Convention of 1961, then the documents should carry the apostille in lieu of the Panamanian Consular legalization previously mentioned.
2. Registration Prerequisites
Commercial companies other than corporations legally organized in a foreign country may maintain offices or agencies and carry on business in Panama upon meeting the following requirements:
- Recording in the Public Registry the notarized by-laws, contracts, and other documents relating to the organization.
- Submitting the latest balance sheet and a certificate, issued by a Panamanian consul or a consul of a friendly nation, attesting that the company is organized and in good standing pursuant to the laws of its parent country.
Thereafter, the foreign company may exercise its powers in accordance with the instrument of organization; however, to perform commercial acts included in its objectives, the foreign company must submit to the provisions of Panamanian law and to the jurisdiction of Panamanian courts in any controversies that result from its business.
Foreign companies other than corporations are also taxed as juridical persons.
3. Tax Aspects: Branch vs Subsidiary
The same tax rates apply to branches and subsidiaries, but branches of non resident companies must withhold 10% of their taxable Panamanian income after deducting Panamanian income tax payable on that income. Payment is due when the tax return is filed. The after-tax profits of branches, unlike the profits of subsidiaries, are thus treated as having been distributed as dividends.
Panama has no specific provisions governing the conversion of a branch into a subsidiary. The income tax consequences are the same as in a merger or other form of reorganization, in that transfers of assets may give rise to capital gains chargeable to ordinary income.
XII. INCORPORATION
1. Corporate Forms with Limited Shareholder Liability
Panamanian corporate and commercial law recognizes various forms of incorporation involving the limited personal liability of the entrepreneurs towards the creditors of the company, namely:
- the corporation (sociedad anónima)
- Limited liability company (sociedad de responsabilidad limitada)
- Limited partnership (sociedad limitada)
- Partnership limited by shares (sociedad limitada por acciones)
Of the above forms the corporation is the corporate form which is entered most often in the Public Registry and by far the legal form of doing business most frequently used by Panamanian and foreign investors.
2. Incorporation Requirements
In Panama Corporations (sociedades anónimas) are regulated by law N° 32 of 1927. To organize a corporation under law 32, the following information must be provided:
a. The name of the corporation.
b. The main object of the corporation.
c. The amount or authorized capital, indicating the amount of shares into which such capital is to be divided.
d. If the capital is to be composed of shares without par value, then it is not necessary to state that amount of capital, but it is necessary to indicate the number of shares to be issued.
e. Whether or not the shares are to be bearer shares.
f. The full names (without initials) and addresses of at least three (3) directors.
g. The full names (without initials) and addresses of the first officers of the corporation, which must be at least a President, a Secretary and a Treasurer. The law permits that directors be officers and that the same person hold more than one office. However, for practical purposes it is recommended that the office of President and Secretary be held by different persons.
3. Registration of Shares
A corporation must maintain at its office in Panama or in any other place specified in the articles of incorporation, by-laws or by resolution of the Board of Directors, a stock register with a record of the names in alphabetical order of all shareholders in the corporation, listing their place of residence, the number of shares each holds, the date of acquisition, the amount paid on account, and whether the shares are fully paid. In the case of shares issued to bearer, the register would indicate only the number of shares issued and the date of issuance.
4. Management of Corporations
The business of a corporation is managed and directed by a board of directors consisting of at least three adults of either sex. The board of directors has absolute control and full direction of the corporation and may exercise any of the powers of the corporation unless the law, the articles of incorporation, or the by-laws confer those powers or reserve them for the shareholders.
A corporation must have a president, a secretary, and a treasurer, who are elected by the board of directors and it may have any other officers, agents, or representatives that the board of directors, the articles of incorporation or the by-laws of the corporation may specify. It is not necessary for an officer to be a member of the board, unless required by the charter or by-laws.
5. Taxation
a. Corporate Income.
Panama income tax is levied only upon net income obtained from operations carried on within Panama. Income obtained from offshore operations is not considered as income obtained from "sources within Panama" and is, therefore, not taxable.
Even though a Panamanian corporation has an office, employees, and a license to engage in business, all in Panama, it still does not pay Panamanian income tax if the transactions to produce the income took place outside Panama. No tax liabilities arise even though payments of the merchandise is made from Panama, or payment is received in Panama, or if the sale or purchase operations are directed from an office situated in Panama, provided the merchandise involved in the transaction does not physically come to Panama.
If a Panamanian corporation engages in business within Panama and also offshore, it is subject to income tax only on that portion of its net income arising from business carried on within Panama.
b. Dividends.
Only dividends distributed from income arising from Panamanian sources are taxable at the rate of l0%, in the case of corporations that have issued registered shares and 20% in the case that they have issued bearer shares, whether received by corporations or individuals, residents or non-residents. Dividends distributed from income arising from offshore sources are not taxable. Panamanian law further provides that a Panamanian corporation which has as its only income dividends received from other corporations, Panamanian or foreign, is not subject to Panamanian income or dividend tax.
c. Distribution of Assets.
It is also true that a Panamanian corporation which has had only offshore income in Panama may distribute all or part of its assets upon dissolution or otherwise to its stockholders without any tax to the corporation or to the shareholders in spite of the fact that the assets may have a value at the time of distribution that is in excess of their value when originally acquired by the corporation.
d. Personal Income.
Individuals who receive salaries, wages, or any other compensation from corporations are subject to Panamanian income tax only if the services rendered are deemed to be performed within Panama. Thus, if a Panamanian corporation pays a salary for services rendered abroad, the recipient does not have to pay Panamanian income tax on the salary.
Corporations which have only offshore source income are not obligated to prepare or publish a balance sheet, nor are they required to file any tax returns.
XIII. SHIPPING
1. Introduction
The registration of vessels under the flag of the Republic of Panama is regulated by Law No. 8 of l925 and amendments. Since the enactment of said law and for close to 70 years Panama has had an open registry for the enrollment of vessels. In this regard Article 1 defines vessels that may be registered as follows: "Merchant vessels for purposes of registration shall be, in addition to crafts intended for the transportation of passengers and cargo, pontoons, dredges, floating docks, or other hulls made of wood, cement, iron, or mixed material, or other objects which are employed or may be employed for maritime commerce."
Basic to the registration requirements is the fact that the owner of a vessel registered under the flag of Panama may be an individual or a corporation, either Panamanian or foreign, residing in Panama or abroad. Furthermore, there are no minimum requirements of tonnage or age of the ships, provided that these are in good navigating conditions.
2. Procedures for Registration
a. Provisional Registration.
The registration of a vessel under the Panama flag is initiated with its provisional registration. The application for the provisional registration of a vessel may be accomplished through Panamanian consular officials with maritime jurisdiction in various parts of the world or directly in Panama at the Panamanian Shipping Bureau (Dirección General Consular y de Naves) by the legal representative of the owners.
Once the application is submitted before the Consul and after verifying that all documents are in order, the Consul or registering officer will send a telex to the Panamanian Shipping Bureau requesting the necessary authorization for the issuance of the provisional patent and radio permit together with the call signs.
Upon authorization from the Panamanian Shipping Bureau, the Consul will proceed to issue the provisional patent navigation valid for six months and the radio permit valid for three months. During this time the appropriate documents must be filed for registration.
Information Required:
a. Name of vessel.
b. Owners name and address.
c. Previous name of the vessel.
d. Name of the authority in charge of the radio accounts.
e. Previous nationality.
f. Place and date of built.
g. Builders.
h. Number of decks, mats and funnel.
i. Material of the hull.
j. Main measurements: length, breadth and depth.
l. Kind of service given by the vessel.
m. Type and number of engines.
n. Number and type of cylinders.
o. Brand or name of manufacturers.
p. Speed of the vessel.
q. Horse power.
r. Name of the Classification Society.
s. Type of call letters (radio telephonic or radio telegraphic).
t. Tonnage: Gross/Net.
Documents Required:
a. Proof of ownership.
b. Power of attorney in favor of the persons registering the vessel and acting on behalf of the vessel before the Panamanian authorities.
c. Technical certificates.
d. Deletion Certificate or document to this effect.
e. Tonnage Certificate issued by an authorized Classification Society on behalf of the Republic of Panama.
f. Confirmation of the name of the Classification Society.
g. Document issued by the authority in charge of the radio accounts confirming that, it is in fact, responsible of the radio accounts.
h. Radio application form duly filled out.
b. Permanent Registration.
Within six months after issuance of the provisional navigation license, the bill of sale, or the builder's certificate in cases of newly constructed vessels, or other proof of ownership must be registered at the Public Registry of Panama. The bill of sale must be authenticated by a notary public who must state, out of his knowledge and not by way of deposition, that the seller of the vessel was at the time of sale the legal owner of the vessel and that the person acting on his behalf to do so. In case of a builder's certificate, there must be a declaration by the builder that the vessel was built by order and on account of the buyer, and the power of authority of the builder to act should likewise be authenticated by a notary public. The notary's signature must be duly legalized by a Panamanian consul. Furthermore, the bill of sale or the builder's certificate must also state that the buyer has accepted the sale or transfer of the vessel. Alternatively, the acceptance of the sale by the buyer may be contained in a separate document which should also be authenticated and legalized by a Panamanian consul.
If these requirements are not complied with, the documents will have no legal effect in accordance with the laws of Panama.
Additionally, a certificate attesting to the cancellation of the prior registry or to the consent of the prior country of registry to its cancellation and/or transfer to the flag of Panama must be filed with the Panamanian Shipping Bureau as soon as possible after issuance of the Provisional Navigation License. This document should also be legalized by a Panamanian consul.
The presentation of the deletion certificate is a requirement sine qua non to the issuance of the Permanent Navigation License.
Furthermore, there are a number of technical certificates issued by ship surveying societies appointed by Panama, such as Lloyd's Register of Shipping, Bureau Veritas, American Bureau of Shipping, Nippon Kaiji Kyokai, Det NorskeVeritas, etc., which should also be filed with the Shipping Bureau prior to the issuance of the Permanent Navigation License.
It is important to note that these certificates, at their expiration, should (except in case of a new construction) be reissued by the respective society, on behalf of the government of Panama, at the request of the shipowner.
3. Radio License
An application form for the appropriate radio license may be obtained at a Panamanian consulate subsequent to provisional registration. The application should be completed as soon as possible and filed with the Shipping Bureau in Panama before the expiration of the Provisional Radio License.
4. Registration of Ship's Mortgages
4.1 Requirements.
Article l5l3 of the Commercial Code of Panama provides that the owner of a vessel that has been provisionally registered but for which the title deed has not been registered at the Public Registry may grant a mortgage for the vessel. Upon subsequent registration of title at the Public Registry, the interested party shall cause the mortgage to be registered at the Public Registry, in order for it to produce legal effects against third parties. Nevertheless, it is possible to register mortgages provisionally at certain Panamanian Consulates abroad to obtain registration priority at the Public Registry in Panama.
Article l5l5 of the Commercial Code provides the following: The naval mortgage, contract, granted within or outside the Republic, may be executed in any language and shall be stated in writing by means of a public deed or a private document.
If the contract is executed by means of a private document, the signatures of the parties must be authenticated by a Notary Public or by a Consul of the Republic of Panama in the exercise of his notarial functions.
The naval mortgage contract may also be executed according to the formalities required in the country where it is granted.
In all cases, the mortgage shall only be effective against third persons from the moment it is filed at the Public Registry.
For such filing, the document must first have been legalized by a Consul of the Republic of Panama.
The mortgage document may contain all such stipulations as the parties may deem convenient to include, but in all cases it must contain:
a. The name and domicile of the mortgagor and of the mortgagee.
b. The fixed or maximum amount of the principal guaranteed.
Besides the principal, the mortgage shall guarantee all of the accrued interest, court costs, collections expenses, the amounts arising from fluctuations of the currency or means of payment, and all other sums agreed upon for any other reason in the mortgage contract.
It is presumed, both between the parties and with respect to third persons, unless there is evidence to the contrary, that the sums owned, whether for principal, interests or other sums secured by the mortgage, shall be those expressed in the respective lawsuit.
c. The dates of payment of principal and interest or the manner of determining such dates, save if the mortgage is executed to secure obligations due on demand, future obligations or obligations subject to a suspensive condition.
In the event interest has been agreed upon, the rate of interest agreed upon or the form of calculating it shall be established in the mortgage contract.
Among others, interest may be stipulated with reference to the type of interest in effect in a particular market or to the kind of bank interest charged from selected borrowers in any market. The kind of interest may be adopted as the existing one at the time of the execution of the contract or according to the variations of the same during the continuation of the credit term.
Credits secured by naval mortgages shall not be subject to a maximum interest rate and, therefore, the provisions of law dealing with maximum interest rates shall not apply. Nevertheless, the National Banking Commission may establish a maximum interest rate for these credits when the mortgage is granted upon vessels of domestic service.
d. Name, license number, called signs if registered, tonnages and dimensions.
If the mortgaged vessel is under construction, the circumstances required by Article l5l8 of the Commercial Code shall be indicated.
e. In cases where two or more vessels are mortgaged to guarantee a single credit, the amount or part of the mortgage for which each vessel is liable must be stated. If said statement is not made, each creditor may collect for whole of the sum guaranteed from any of the vessels or from all of them".
A further requirement of Panamanian law is that the mortgage be accepted by the respective creditor.
Subsequent to execution, the deed of mortgage must be sent to Panama for registration in the Public Registry Office. If executed in a language other than Spanish, which is commonly the case, it must be translated into Spanish by an official translator in Panama and then protocoled by a Notary Public and finally recorded in the Public Registry Office.
4.2 Provisional Registration and Permanent Registration of Ship's Mortgages.
For the convenience and security of creditors in whose favor mortgages are executed abroad, it is possible to provisionally register said mortgages at certain Panamanian Consulates with the effect of granting a registration priority for said mortgages as of the date of annotation of said provisional registration at the Public Registry Office in the City of Panama.
Permanent registration of mortgages, regardless of whether or not the mortgage has been provisionally registered, can only be accomplished subsequent to permanent title registration at the Public Registry. On the other hand, provisional registration of mortgages can be accomplished either if title has been recorded provisionally or permanently.
XIV. BANKING SYSTEM
1. Introduction
The procedures for the establishment and operation of banking institutions in Panama are contained in Cabinet Decree No. 238 of July 2, l970.
Banking is defined primarily as the act of obtaining financial resources from the public through the acceptance of demand or time deposits of money or through any other means authorized by the appropriate law and the use on account and risk of the bank of such resources for loans, investments, or any other transactions authorized by law or banking practices.
2. Banking Licenses
According to Cabinet Decree No.238, there are three types of banking licenses:
a. General licenses are issued to banks organized under Panamanian laws and to authorized branches of banks organized under foreign laws to engage in banking business both within and outside Panama.
b. International licenses are issued to banks organized in accordance with Panamanian laws and to authorized branches of banks organized under foreign laws to conduct, exclusively, from an office established in Panama, transactions which are completed, accomplished, or are intended to take effect outside Panama (offshore).
c. Representation licenses are issued to banks organized in accordance with foreign laws to establish, exclusively, representative offices in Panama.
3. National Banking Commission
The National Banking Commission regulates banking operations, interprets the legal provisions concerning banks and is the entity which issues the appropriate bank licenses. This Commission is made up of seven members: The Minister of Planning and Economic Policy, who presides over the Commission; the Minister of Finance and Treasury; the General Manager of the National Bank of Panama (Banco Nacional de Panamá); three bank representatives who must be Panamanian citizens, domiciled in the Republic, bank officials and who must be appointed by the Executive Branch from a list of names submitted by the Panama Banking Association; and one member appointed by the Executive Branch who may not be a bank director, officer, or employee of a bank.
4. Criteria for the Granting of Bank Licenses
It is important to point out that the National Banking Commission is rather selective in the granting of bank licenses. In this regard, they have established certain basic criteria, applicable to all prospective applicants, summarized as follows:
- A history that reflects a stable and solid financial situation;
- Proven experience and efficiency in its banking operations;
- Excellent reputation and integrity;
- Capacity to contribute in the development and enhancement of Panama's banking enter;
- A preference for branches over subsidiaries, placing on the establishment of the bank in Panama a greater responsibility in the decision making process.
- A preference for those banks from countries or geographical zones not represented in Panama's banking centre.
- The criteria as established is not only applicable to the bank as an institution but, in its relevant parts, also to the shareholders, partners, directors and personnel.
5. Privacy of Accounting and Banking Records
The National Banking Commission has the power to examine the accounting records of a bank as it may require to ascertain the solvency of banking institutions and compliance with the provisions of Cabinet Decree No. 238. However, the Decree specifically safeguards the confidentiality of the records of deposits and securities belonging to private individuals or companies, with the following stipulation:
"When requested in writing, every bank shall be obliged to show the inspector authorized by the Commission for such purpose the accounting books, minutes, cash currency, securities owned by the bank, documents and vouchers, as well as reports and documents relative to its operation. Nevertheless, in order to protect the interests of the bank's clients and the confidentiality that its operations require the examination by the Commission's inspectors may not include any type of deposit accounts, nor the securities in custody, nor the safe-deposit boxes, nor the documents derived from credit transactions that clients maintain with the bank, unless there is a judicial order issued in accordance with Article 89 of the Commercial Code."
The Commission is forbidden to conduct or to order investigations of the private affairs of any bank's client. The information obtained by the Commission may not be revealed to any person or authority, except if it requested by a court of law or used as part of consolidated data for statistical purposes. There are penalties for violation of this precept.
The Commission may not publish any information that has been furnished pursuant to the law, unless consent in writing from the bank or client is obtained. Publication of statistical data on a consolidated basis is permissible.
While the National Banking Commission may require the presentation of financial statements examined by a certified public account the confidentiality of bank records in this connection is safeguarded by the fact that the CPA who audits the statements may be freely chosen by the bank from among the professionals doing this type of work in Panama. A specific CPA may not be imposed upon a bank by the National Banking Commission.
6. Applicable Taxes
All banks that operate in Panama are subject to taxes on net income obtained from operations in Panama, according to rates established by law. No taxes are paid on operations outside Panama (offshore), even though such operations may have been directed from the Panamanian office (see chapter XVI, infra).
XV. EXCHANGE CONTROLS
There are no exchange controls in Panama. One of the key factors in Panama's economic development is the country's unique monetary system. There are no restrictions on monetary transfers to and from the country or on the conversion and circulation of the US dollar. Furthermore, there is no central bank or money issuing authority. The unit of currency, the Balboa is at par with the US dollar. Because Panama does not issue paper currency, the US dollar is the currency that circulates.
XVI. TAX
1. Introduction
Panama is a tax haven and is, as a result, especially attractive to foreign investors.
Income tax is levied on all revenues produced within Panama irrespective of where the income is received and of the domicile or residence of the taxpayer. The law establishes some exceptions. The concept of territoriality is a major factor in making Panama a center of international operations.
Only Panamanian source income, that is, income produced in, or derived from, or obtained in Panama, is taxable. The following forms of income are not subject to income tax because they are not considered to be produced in Panama.
a. Billing the sales of merchandise or goods from an office established in Panama for an amount higher than they were billed to the office established in Panama, provided the merchandise or goods move exclusively abroad.
b. Transactions conducted from an office in Panama, but perfected, consummated, or having effect abroad.
c. Distributing dividends or partners' participations when they originate from income not produced within Panama, including income arising from the activities mentioned in (a) and (b) above.
2. International Maritime Commerce
The income from international maritime commerce or merchant ships registered under Panamanian law is not subject to income tax in Panama even if the transportation contracts are executed in Panama. The owner of a ship registered in a foreign country is not liable for tax on income from Panamanian sources, provided that the country in which the ship is registered grants reciprocal treatment for income earned in that country by the ships of the Panamanian Merchant Marine. The exemption in Panama extends to a foreign individual or company deriving income from Panamanian sources through the operation of a foreign registered ship, provided that the country of nationality of the individual or incorporation of the company grants reciprocal treatment for income earned by an individual of Panamanian nationality or company incorporated in Panama.
3. Categorization of Taxes
The most important taxes for businessmen and business entities are:
a. Corporate Income tax;
b. Taxation of Individuals;
c. License Tax;
d. Value Added Tax;
3.1 Corporate Income Tax.
Panama income tax is levied only upon net income obtained from operations within Panama. Income obtained from offshore operations is not considered as income obtained from "sources within Panama" and is, therefore, not taxable. Even though a Panamanian corporation has an office, employees, and a license to engage in business, all in Panama, it still does not pay Panamanian income tax if the transactions to produce the income took place outside Panama. No tax liabilities arise even though payment of the merchandise is made from Panama, or payment is received in Panama, or if the sale of purchase operations are directed from an office situated in Panama, provided the merchandise involved in the transaction does not physically come to Panama.
The taxable rates payable by juridical person are set at a flat rate of 30% on the first PAB500,000 of net taxable income and of 34% of all net taxable income in excess of PAB500,000.
a. Dividends.
Dividends are not included in income subject to corporate income tax. Expenses incurred in obtaining dividend income are not deductible. A flat withholding tax of 10% on dividends paid in the case of nominative shares and (20% for bearer shares) is levied. These taxes are charged on dividends in cash or in kind, including dividends in the form of shares in the paying company.
b. Interest.
Interest paid on savings accounts, term deposits and government securities is exempt.
c. Capital Gains.
Capital gains from the sale of bonds, shares and other securities are taxed as ordinary income although specified securities registered with the National Securities Commission are exempt. Gains from transfers of other personal property are similarly taxable. Capital gains from the transfer of immovable property are taxed under special rules.
3.2 Taxation on Individuals.
The territorial concept of income applies also to individuals. Income tax (impuesto sobre la renta a personas naturales) is charged on income derived from Panamanian sources. However, some income is exempt.
As in the case of companies, the extent of income tax liability does not primarily depend on residence, although residence is of importance in relation to withholding taxes. There are no statutory residence rules, but individuals are considered resident for tax purposes if they are physically present in Panama for 180 days in any tax year. The government must authorize residence.
Taxable income is the aggregate of income from Panamanian sources after deduction of allowable expenses and losses and the exclusion of exempt income. Included are income from employment and from rendering independent personal services, income from business activities, and investment income.
Indemnities for the termination of employment, as well as some other types of income, are taxed separately at reduced rates. Employees are taxed on remuneration earned for work done in Panama regardless of where payment is made or received.
The following table provides the progressive tax rates for individuals:
Band of Taxable Income Rate of Tax Application to Cumulative Tax on Upper
(PAB) Band (%) Limit of Band (PAB)
Up to 3,000 Nil ---
3,001- 3,250 52.0 130
3,251- 4,000 4.0 160
4,001- 6,000 6.5 290
6,001- 10,000 11.0 730
10,001- 15,000 16.5 1,555
15,001- 20,000 19.0 2,505
20,001- 30,000 22.0 4,705
30,001- 40,000 27.0 7,405
40,001- 50,000 30.0 10,405
50,001- 200,000 33.0 59,905
Over 200,000 30.0 ---
3.3 License Tax.
a. Commercial License Tax.
Commercial or industrial enterprises are required to obtain a license to carry on their activities (see chapter IV, supra). An annual business and industrial license tax (patentes comerciales e industriales) is levied at the rate of 1% on the net worth of the company concerned, which is increased by amounts owed to any parent company or head office. This license tax may not exceed PAB20,000.
b. Municipal Taxes.
Municipalities levy various taxes, including municipal business license taxes (impuestos municipales sobre la operación comercial), which is usually based on gross sales, production, or paid-in capital and must be paid by both individuals and companies that carry on a business.
3.4 Value Added tax.
Value added tax or general turnover tax (impuesto a la transferencia de bienes corporales muebles) referred to here as VAT, is a consumer tax imposed on the transfer of personal property by sale and purchase, exchange, contribution to a company, assignment, or any other act transferring over the property. Imports of personal property are also chargeable. The taxable base is the price of the transaction, including ancillary costs, or -in the case of imports- the value for customs purposes plus the customs fees levied.
Tax is computed as the difference between the liability on chargeable transactions and the tax allowed as a credit (tax paid on purchases or imports). Credits that exceed the tax liability may be carried forward.
VAT is paid on a monthly basis or every three months, depending on the taxpayer's gross receipts.
The standard rate of VAT is 5%, but a 10% rate applies to imports and sales of liquor and cigarettes. Exemptions include inheritances, gifts, transfers of shares, exports, and exemptions related to transfers in free zones, food, medicines, and fuel.
3.5 Other Taxes.
- Capital gains. Gains on the sale of real estate are regarded as taxable income. Special tax regulations allow the taxpayer a choice between methods of computing the tax. Gains on the sale of shares and other securities issued by companies doing business in Panama or owning capital assets located in Panama are subject to income tax as ordinary income. However, if the securities are those of companies listed with the National Securities Commission, gains on their sale are exempt. Gains on the sale of other personal property are subject to income tax as ordinary income.
- Withholding Taxes. Basic withholding tax rates are given below. Panama has not entered into any compressive double tax treaties that would provide lower rates. As income from foreign sources is not taxable, no relief is allowed by way either or credit or a deduction for taxes paid abroad on foreign source income.
a. Dividends.
Dividends on nominative share paid out of income derived from activities within Panama are subject to a withholding tax of 10% (20% for bearer shares), which is a final tax for both resident and non resident recipients. Dividends paid from foreign-source income are not subject to the withholding tax, and dividends paid out of income derived from the Colon Free Zone operations or specified small businesses are exempt.
b. Interest.
Interest payments not exempted are subject to withholding tax at the source when made to nonresident companies and individuals. The rate is 6% and the tax is final.
c. Royalties.
Only 50% of royalties paid to nonresidents is subject to withholding tax. Corporate tax rates are charged in the case of corporate recipients and personal tax rates are charged in the case of individuals. Recipients must file a return at the end of the year for final assessment. If no return is filed, the withholding tax is final.
- Social Security Contributions. Employers and employees must make social security contributions (contribuciones al seguro social) totaling 10.75% and 7.25%, respectively, of salaries and wages. In addition, employers must contribute 1.5% and employees 1.25% of salaries and wages to educational programs.
- Real Estate Tax. Immovable property located in Panama, whether urban or rural, is subject to a real estate tax (impuesto de inmuebles). Owners pay tax according to a progressive scale that ranges from 1.4% on the excess over PAB10,000 to 2.1% on the excess over PAB75,000. The taxable base is the assessed value determined by the Land Commission (Oficina de Castastro). Various exemptions are available including
buildings and improvements used by non-profit-making organizations or government entities and those with a value of less than PAB10,000.
- Miscellaneous Taxes. Import taxes are payable on the total value of goods imported at rates that vary with the type of goods involved. Excise taxes are levied on various goods.
Gift taxes are levied at graduated rates ranging form 4% to 33.75%, depending on the value of the assets transferred and the relationship between donor and recipient.
Banks and exchange houses are subject to annual flat rate taxes in the following amounts:
a. Banks with general licenses PAB25,000.
b. Banks with international licenses PAB15,000.
c. Exchange houses PAB 600
An annual business license tax of 1% of capital as defined by law (up to a maximum of PAB20,000) is also levied on all business establishments, including banks with a general license.
Loan-making financial institutions (financieras) must pay an annual tax of 2.5% of their paid-in capital; this tax may not exceed PAB12,500.
Stamps are required for a wide range of documents; their cost is based on the value of the document concerned.
4. Tax Treaties
Panama has not entered into tax treaties with any country.
XVII. LABOR
1. General
As a result of the rapid development in the last two decades of the services and financial sectors, there is in Panama a high degree of competition for executive and technical skills. The situation changes as one moves to lower levels of skills, where at current wage rates, the supply of unskilled labor is larger than the demand.
Moreover, due to the significant economic growth over the last two decades the skill level of the labor force has improved noticeably. This improvement was brought about primarily through direct training programs sponsored by both the government and private corporations.
Twenty two percent of the employed population (excepting those in agriculture) have received a university education, while only 7.5% of the total labor force are without any formal education.
2. Sources of Law
The Labor Code enacted in 1971 regulates Panamanian labor relations and the individual rights and duties of employer and employee. The principal element of any labor relationship is subordination, which is defined as the employer's legal right to control and direct the employee and the latter's corresponding duty to obey the employer. Even though the parties may otherwise designate their agreement, there is a labor relationship, with all the rights and obligations corresponding under the Labor Code if the service performed is personal and subordinated.
An employment contract sets forth the conditions for the performance of services. The absence of a written document does not deprive the employee of his rights under the labor code. In this regard it is noted that in labor matters, the burden of proof is on the employer. Collective agreements concluded between employers and employees organizations may further regulate terms and conditions of employment.
3. Social Security
The Social Security Institute manages the social security system of Panama, which covers health, maternity leave, disability, retirement, and death by causes not originating on the job. It also manages a workmen's compensation system which covers work-related personal injuries and death and occupational diseases. All employees of the central Government and of its autonomous institutions and other public entities are covered as well as employees of private entities within the national territory. Self-employed workers affiliated with guilds that have recognized legal status are also required to be covered by the system. Other employees or workers may join the system voluntarily. Affiliation is not compulsory for foreigners hired outside of Panama to work in the country for a maximum of two months.
It is the employer's duty to file registration with the Social Security Institute once an employee has started work. The employer has to pay a part of the social security contributions and also deduct the employee's contribution to social security from the salary and channel the money directly to the Social Security Institute (see chapter XIV, supra).
4. Foreign Employees
All foreigners who wish to work in Panama must obtain a work permit from the Ministry of Labor. Such permits are issued for a particular employment, are valid for one year and can be renewed annually for a maximum of five years in the case of temporary visitors, and indefinitely, in the case of immigrants, after having obtained ten consecutive annual renewals.
Statutory labor law provides that every employer must maintain Panamanian workers or foreigners married to Panamanians or that have resided in the country for ten years, in a proportion of not less than 95% of his total ordinary work force. The employer can, however, employ foreign specialized or technical personnel that does not exceed 12% of the positions in the total labor force. Notwithstanding these limitations, a larger percentage of foreign specialists or technicians may be permitted, prior recommendation by the respective Ministry and approval by the Ministry of Labor.
5. Duration of Employment Relationship
Any individual employment relationship is subject to the principle of "job stability", which is the right of the worker to keep his job for as long as the job exists and is gained when the employee has more than two years of continuous employment.
If the relationship is for a specific job or term, the worker has the right to keep his job until his specific task is completed. An employee may be dismissed without the employer having to prove "just cause" for his dismissal, provided the employee has less
then two years of continuous employment if the labor relationship is for an indefinite term, the worker cannot be dismissed without just cause. A general principle contained in the Labor Code is that the employment agreement is presumed to have been executed for an indefinite period of time unless the type of service to be performed calls for a specific activity or period of time.
6. Termination of Employment Relationship
The termination of employment contracts is highly regulated. However, the parties are free to terminate the employment, at any time, by mutual consent. Contracts for a definite period will end when the contract period has elapsed. Employment contracts for an indefinite period can be terminated either by resignation of the employee or by dismissal pursuant to any of the "just causes" set forth in the Labor Code, without liability for the employer. If an employer is unable to prove the existence of the alleged "just cause", the employee with stability is entitled to receive: (a) an indemnity payment which will depend upon the time of service spent with the employer or (b) reinstatement under the same terms and conditions that existed prior to dismissal. A worker of trust (trabajador de confianza), is entitled to receive a 25% surcharge and an ordinary worker (trabajador ordinario) a 50% surcharge above the indemnization in lieu of reinstatement. In addition to the indemnities an employee who has been dismissed is entitled, as severance benefits, to proportional vacation and proportional thirteenth month and in the case of employees with less than two years employment, notice of withdraw payment equivalent to a month salary. In the event that employment has lasted for ten or more years, the employee is additionally entitled to a seniority bonus of one week salary for every year of employment.
7. Labor/Management Relations
Labor/Management relations are also regulated by the Labor Code, which aims to promote further unionization of labor and to encourage workers to join freely any of the existing unions. The Labor Code sets forth special "labor rights" for union organizers and representatives and provides that workers protected by those rights may not be discharged without previous authorization from the Labor Courts. Unions are authorized by law to engage in collective bargaining. They have the right to strike if an employer refuses to negotiate or if the conciliation procedures have been exhausted. Some additional requirements regarding the legality of a strike include the following:
- A valid purpose, such as obtaining higher wages or a collective labor contract.
- Previous notification of the labor authorities and a formal declaration by a vote of the majority of the workers at least five days in advance.
Unions.
Approximately 11% of all wage earners in Panama outside the public sector belong to trade unions, the most important being the Banana Workers Union. Unions in Panama are organized both by trade and company. Most unions are affiliated with one of three exiting national labor organizations called Centrales. They are of comparable strength and represent the three main international labor movements.
Conciliation.
When parties in a dispute fail to reach a direct settlement, the workers' union may request the conciliation services of a Ministry of Labor representative who is required to mediate and seek an amicable solution. For a strike to be called, there is a 20-day waiting period required after the end of the conciliation process. This waiting period may be extended for up to 23 working days.
Arbitration.
Disputes which cannot be resolved through negotiation or conciliation may be submitted to arbitration at the request of both parties, at the request of labor, or by the Ministry of Labor if the dispute affects a company engaged in public service or if it may cause serious economic dislocation.
8. General Regulations
a. Hours.
The regulation of working time in Panama is laid down in the Labor Code. In addition, individual employment contracts or collective agreements frequently limits working hours and/or increase compensation for certain period of working time (in particular for overtime). The average working day is eight hours, with a maximun of 48 hours a week.
b. Wages.
Statutory labor law provides certain regulation on the question of wage formation. However, and as a general rule, this issue is mainly left to collective agreements and, above that to individual agreements, therefore, employers are rather unrestricted in how compensation is calculated as long as the minimum wages as set out by law are complied with. The great majority of Panamanian employees are paid on the basis of time on the job. Minimum wages for white collar workers depends on the type of work performed and to a large extent on seniority. Very roughly, minimum wages for white collar employees range from about PAB300,- per month for Junior and low qualified employees up to PAB1,250,- per month for senior and higher qualified employees. Minimum wages for blue collar workers regularly do not depend on seniority but only on the type of work and geographical area where it is performed. Very roughly minimum wages range from PAB0.65,-to PAB1.20,-per hour.
c. Paid holiday and vacation.
All employees in Panama are legally entitled to 11 statutory paid holidays (an additional day every five years for inauguration day of the President) and an annual paid vacation of 30 calendar days.
In addition, the Executive Branch is empowered to authorize the compulsory closing of firms and commercial establishments on national mourning days.
XVIII. DISSOLUTION, INSOLVENCY AND BANKRUPTCY
1. Dissolution
Under Panama corporate law, if the board of directors of any corporation decides that the corporation be dissolved, by a majority of votes of its members it may propose a dissolution agreement, and within the next ten days, shall call, or cause to be called, pursuant to the provisions of the law, a meeting of the shareholders with a right to vote to decide upon the agreement of the board of directors. The resolution that the shareholders adopt has to be protocoled, recorded at the Mercantile Registry and published once in a local newspaper and the Official Gazette. Nevertheless, if all the shareholders with the right to vote state in writing their consent to the dissolution, neither the meeting of the board of directors nor the meeting of the shareholders shall be necessary, but the consent has to be protocoled, recorded in the Mercantile Registry and published once in a local newspaper and the Official Gazette.
Every corporation existence of which ends by expiration of its term or by dissolution, will continue, nevertheless, for a period of three years from that date for the specific purpose of settling its affairs; but in no case it may to continue the business for which it was organized. During this period the directors shall act as trustees of the corporation with power to settle its affairs, collect its credits, sell and transfer its assets of all kinds, distribute its properties among its shareholders once the debts of the corporation have been paid; and they shall also be empowered to initiate judicial proceedings in the name of the corporation with respect to its credits and assets, and to represent it in the proceedings that may be brought against it.
2. Insolvency
Under the Commercial Code there exist cause to call for the dissolution of a company when its capital appears to have been reduced by fifty percent; unless the partners are willing to restore it or if the corporate charter provides for an other alternative.
If in a bilateral contract the rights of one of the parties is in risk because the other has become insolvent, the party so in risk can refuse compliance until he has been guaranteed of the obligation in his favor. In the event that he has requested the guarantee and not received it within a prudent period, he can rescind the contract.
3. Bankruptcy
Pursuant to the Commercial Code of Panama there exists cause for the declaration of bankruptcy when any individual or company are incapable of meeting one or more of their liquid and certain obligations resulting from acts of commerce. The declaration shall be issued by the Judge of the Circuit in which the debtor has his commercial domicile:
a. At the request of the debtor or his legal representative;
b. At the request of a legitimate creditor;
c. At the request of the Government Attorney in case the debtor has escaped or is in hiding and has not appointed a representative.
The commercial debtor who has suspended payment of a mercantile obligation, must within a period of two days of its expiration, file with the competent Judge a declaration of said circumstances dated and signed by him or his attorney, in order that the bankruptcy can be declared.
In the case of a company this obligation corresponds to the managing partners, the administrator, directors or liquidators. Failure to meet this obligation could result that these representatives be personally liable towards the creditors under civil law and to criminal prosecution.
Upon the declaration of bankruptcy, the debtor is deprived of all rights to make any dispositions with respect to his property or business activities. Any pending litigation or actions for enforcement of claims against the debtor must join the bankruptcy process. This includes all pending legal actions, proceedings and suits which have been initiated within the four preceding years.
Upon deciding to declare bankruptcy the court appoints a receiver under the supervision of the court and the creditors committee. The receiver has complete control over the administration of the bankruptcy estate. However, he requires prior approval from the judge or the creditors committee in order to sell or convert assets.
Under Panamanian law a distribution of the debtor's assets does not discharge the debtor definitely of his debts towards the creditors; the debtor remains liable for all unsettled debts for a 15 year period. In the case of companies or partnerships the bankruptcy will in every case imply the personal bankruptcy of the partners; while in the case of corporations the bankruptcy will not affect the shareholders personally.
4. Creditors Agreement
Panamanian law does not regulate other proceedings such as moratorium and debt recomposition. However, the debtor who has complied with the obligations imposed by law and whose bankruptcy has not been declared fraudulent, can at any stage of the proceedings after the meeting to verify credits, propose an agreement to his creditors. The agreement must be approved by an absolute majority vote of all of the creditors present at the respective general creditors meeting and which represent at least three fourths parts of the total liabilities. The agreement must be ratified by the Court.
5. Foreign Declaration of Bankruptcy
Except for the provisions that may be contained special in treaties, foreign judgements declaring the state of bankruptcy will only have effect in Panama after having received the exequator (recognition of foreign judgement) in accordance with the law; however, even before complying with this requirement, the bankruptcy can be declared by virtue of rogatory commissions, precautionary measures with respect to the assets of the bankrupt located in Panama.
The foreign judgement will not in any manner affect the existing rights of creditors residing in Panama. In this regard resident creditors are those whose credits must be satisfied in Panama even if they are foreign domiciled.
XIX. INTERNATIONAL RELATIONSHIPS
1. General
Panama has been a member of the United Nations since its founding and participates in all of the 19 specialized agencies of that body. Panama is also a member of the Organization of American States (OAS) and of the Latin American Economic System (SELA). Panama is one of the founding members and key promoters of the Union of Banana Exporting Countries (UPEB), and the headquarters of UPEB is located in Panama. In 1975 Panama became a member of the Conference of Non-Aligned Nations.
In 1984 the European Economic Community (EEC) signed a Cooperation Agreement with the countries of the Central American Isthmus. Panama is a full member of this agreement. In 1993 Panama subscribed the Protocol to the General Treaty for the Economic Integration of Central America (Protocolo de Guatemala), which establishes the basis to reach in a voluntary, gradual, complementary and progressive manner, the economic union of Central America. Panama has also subscribed the Agreement for Cooperation with the Permanent Secretariat of the General Treaty for the Economic Integration of Central America (SIECA), by which Panama will receive assistance and technical and administrative cooperation from the regional organism to develop the formation of specialized technical personnel in those areas relating to the economic integration of the region. Panama is a member observer of the General Agreement on Tariffs and Trade (GATT) and is presently in the last stages of negotiation to become a full member.
2. Bilateral/Agreements
Panama has concluded preferential bilateral trade agreements with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, México, Colombia and the Dominican Republic. In addition, Panama has also entered into trade agreements with Germany, Bulgaria, Czechoslovakia, Hungary, Rumania, Russia and Poland, the purpose of which is to expand the market for traditional Panamanian exports.
XX. DISPUTE RESOLUTION
1. Arbitration Practice
Like in most other Latin American countries, arbitration is of growing importance in Panama. The four regimes most widely used are:
a. The Compromissory Clause of the Chamber of Commerce, Industry and Agriculture of Panama that is governed by the legal provisions contained in the Judicial Code and the Maritime Law (Cláusula Compromisoria de la Cámara de Comercio, Industrias y Agricultura de Panamá que se regirá por preceptos legales del Código Judicial).
b. The arbitration clause recommended by the Interamerican Commission on Commercial Arbitration and the Organization of American States (Cláusula de Arbitraje recomendada por la Comisión Interamericana de Arbitraje Comercial).
c. The model clause on Arbitration of the International Chamber of Commerce (Cláusula modelo de Arbitraje de la Cámara de Comercio Internacional).
d. The Compromissory Clause recommended by the United Nations (Cláusula Compromisora recomendada por las Naciones Unidas).
Panama has also approved the following laws regarding arbitration:
- Law No.11 of 1975 which approves the Industrial Conventions on International Commercial Arbitration.
- Law No.5 of 1983 which approves the Convention on Recognition or Execution of Foreign Arbitration Judgement.
- Law No.6 of 1988 which regulates Arbitration in Construction Work and other Services with the State.
Additionally, it is not uncommon for contracts to provide for ad hoc arbitration, usually before a panel of three arbiters or arbitrators, defendant and plaintiff parties each nominating one arbiter or arbitrator and the chairman being selected by these two arbiters or arbitrators.
Differences between arbiters and arbitrators:
- Arbiters must be lawyers, arbitrators need not be lawyers.
- Arbiters are assimilated to the Judges in the manner of proceedings and should decide according to law. Arbitrators are not under any legal form
and decide according to what their conscience deems to be just and equitable.
- If the contract or convention does not express under which conditions the members of the court must decide the controversy, they must act as arbiters and not as arbitrators.
An arbitral award is subject to attack in courts of law by repeal on substantive grounds of proceedings only under certain circumstances:
- A judgment is pronounced after the stipulated period contained in the commitment or in the law;
- Points are resolved which were not presented for a decision;
- Fundamental procedural rules have been violated which are established by law or agreed to by the parties in the binding instrument;
- The final decision affects recognized rights in the Constitution and laws such as due process;
- Acknowledgment or execution of a judgment would be contrary to public order;
- Breach of public duties.
2. Court System
Panama basically has a four-tier court system to wit: the Supreme Court of Justice, the Superior District Courts, the Circuit Courts and the Municipal Courts.
The Supreme Court of Justice is divided into four chambers:
- The Civil Chamber, which acts as a Court of Appeals on civil matters;
- The Penal Chamber which handles criminal cases concerning high state authorities and as a Court of Appeals receiving criminal or penal cases;
- The Administrative Chamber which reviews decisions, statutes and ordinances of administrative bodies accused of being illegal;
- The General Business Chamber which handles foreign judgments and proceedings relating to foreign legal procedures and other internal administrative functions within the Judicial System.
The Supreme Court has exclusive jurisdiction over the constitutionality of laws, decrees, resolutions and other acts of the Administration.
The Supreme Court also handles Habeas Corpus proceedings and is the final appellate court on decisions of lesser courts and quasijudicial acts of the Administration.
The Superior District Courts handle Habeas Corpus proceedings and Summary proceedings to guarantee constitutional rights against public employees, criminal cases involving consuls, Judges and District Attorney's, criminal cases against persons with authority and jurisdiction, homicides, abortion and appeals from circuit courts on civil cases.
The Circuit courts handle all cases involving more than PAB1,000, cases in which the state is involved, expropriation cases, family cases such as divorce, nullity of marriages and landlord tenant cases. They also act as a court of appeal for municipal courts.
Municipal courts are in charge of criminal cases with penalties of up to two years in prison or pecuniary penalties, criminal cases against private property up to PAB1,000 and cases involving more than PAB150 up to PAB1,000, family cases on inheritance and successions just to name a few.
Court decisions are appealed to the immediate superior for judicial review based on the afore stated four-tier court system.
In trial courts most cases are heard by a single judge, however, in courts of appeal although all cases are heard by a single judge the decision must be made by a panel of judges, to wit: Nine for the Supreme Court, five for the Superior District Courts in Panama City, (three for the rest of the country) and three for the Circuit Courts.
In various criminal cases culpability must be decided by a jury of seven citizens and presided by a judge. The accused may waive his right to the jury system and have his case decided solely by the Judge.
APPENDIX 1
KEY GOVERNMENTAL AGENCIES AND EMBASSIES
MINISTERIO DE RELACIONES EXTERIORES
Ministry of Foreign Affairs
Calle 34 Plaza Porras
Telephone: (507) 27-5222
Fax: (507) 27-3170
MINISTERIO DE GOBIERNO Y JUSTICIA
Ministry of Government and Justice
Ave. 7 Central, 2-24
Telephone: (507) 62-9000
Fax: (507) 62-7877
MINISTERIO DE HACIENDA Y TESORO
Ministry of Treasury
Ave. Perú y Cl 36
Telephone: (507) 27-3033
Fax: (507) 27-2357
MINISTERIO DE PLANIFICACION Y POLITICA ECONOMICA
Ministry of Planning and Economic Policy
MINISTERIO DE COMERCIO E INDUSTRIAS
Ministry of Commerce and Industries
Ave. Perú y Cuba, Cls 31 y 32
Telephone: (507) 27-4222
Fax: (507) 27-5604
MINISTERIO DE TRABAJO Y BIENESTAR SOCIAL
Ministry of Labor and Social Welfare
Ave. Balboa Edif Don Diego
Telephone: (507) 25-6001
Fax: (507) 63-8125
EMBAJADA AMERICANA
American Embassy
Ave. Balboa
Telephone: (507) 27-1777
Fax: (507) 27-1964
EMBAJADA DE FRANCIA
French Embassy
Las Bovedas, Plaza de Francia
Telephone: (507) 28-7824
Fax: (507) 28-7852
EMBAJADA DEL JAPON
Japanese Embassy
Calle 50 y Calle 60E, Obarrio
Telephone: (507) 63-6155
Fax: (507) 63-6019
APPENDIX 2
FINANCIAL INSTITUTIONS
COMISION BANCARIA NACIONAL
National Banking Commission
Vía España, Edif. Banconal
Telephone: (507) 23-2844
Fax: (507) 23-2864
COMISION NACIONAL DE VALORES
National Securities Commission
Edif. de La Lotería, Piso 17
Telephone: 25-9758
Fax: 25-9758
BOLSA DE VALORES
Stock Exchange
Edif. Vallarino,
Calle Elvira Méndez y Calle 52
Campo Alegre
Telephone: 69-1966
Fax: 69-2477
BANCO DE DESARROLLO AGROPECUARIO
Bank of Agricultural Development
Ave. de los Mártires
Telephone: (507) 62-0266
Large Panamanian Banks and Subsidiaries of Foreign Banks
Banco Nacional de Panamá
(National Bank of Panama)
Caja de Ahorros
(Savings Bank)
Banco General
Banco Continental de Panamá, S.A.
Banco del Istmo, S.A.
Banco Comercial de Panama - Bancomer
Lloyds Bank, Plc
Banco del Pacífico (Panamá) S.A.
The Bank of Tokyo, Ltd.
The Chase Manhattan Bank, N.A.
Citibank, N.A.
Banco de Boston
Banco Exterior, S.A.
Banco Central Hispanoamericano, S.A. de Madrid
Banque Nationale de Paris Panama, S.A.
The Hongkong and Shangai Banking Corporation Ltd.
Deutsch-Südamerikanische Bank
Swiss Bank Corporation (Overseas) S.A.
Banco Latinoamericano de Exportaciones - Bladex
APPENDIX 3
COMMERCIAL INSTITUTIONS AND OTHER ORGANIZATIONS
CAMARA DE COMERCIO, INDUSTRIAS Y AGRICULTURA
Chamber of Commerce, Industries and Agriculture
Ave. Cuba y Ecuador, 33A-18
Telephone: (507) 25-0833
Fax: (507) 27-4186
INSTITUTO PANAMEÑO DE COMERCIO EXTERIOR
Panama Trade Development Institute (IPCE)
Ave. Balboa y Calle 42
Telephone: (507) 25-7244
AMERICAN CHAMBER OF COMMERCE AND INDUSTRY OF PANAMA
Edificio Plaza 50
Via Brasil y Esq. Calle 50, 58
Telephone: (507) 23-2736
Fax: (507) 23-2801
SERVICIO COMERCIAL - EMBAJADA DE FRANCIA
French Commercial Service - French Embassy
Telephone: (507) 63-5011
SERVICIO COMERCIAL - EMBAJADA AMERICANA
American Commercial Service - American Embassy
Telephone: (507) 63-6011
COLEGIO NACIONAL DE ABOGADOS
Panama Bar Association
Ave. Mexico y Calle 38 E
Telephone: (507) 25-6371
Fax: (507) 25-0189
COLEGIO DE CONTADORES PUBLICOS AUTORIZADOS DE PANAMA
Chamber of Certified Public Accountants of Panama
Calle 31 y Ave. Justo Arosemena
Telephone: (507)
ASOCIACION PANAMEÑA DE EJECUTIVOS DE EMPRESAS - APEDE
Panamanian Association of Executives of Enterprises
Altos del Korea Exchange Bank
Calle 42 y Avenida Balboa
Telephone: 27-3511
Fax: 27-1872
CAMARA PANAMEÑA DE LA CONSTRUCCION
Panamanian Chamber of Construction
Frente al Hotel Ejectivo
Calle Aquilino de la Guardia, 19
Telephone: 64-2255
Fax: 64-2384
SINDICATO DE INDUSTRIALES DE PANAMA
Industrial Syndicate of Panama
Vía Ricardo J. Alfaro
Telephone: 30-0169
Fax: 30-0805
Lex Mundi - Legal Guide Series
Copyright 1997 Inter-Am Database
