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Panama Import Regs.: Free Trade Zones

Discuss the sanitary standards, prohibited imports regulations, licenses, and free trade zone in Panama.

Panama Import Regs.: Free Trade Zones

Postby bridgat » Tue Nov 18, 2008 6:05 am

One of the principal support programmes for exports is the Export Processing Zone (EPZ) programme. EPZs are tax-free areas (defined as "free and free-enterprise zones"). The purpose of the programme is to contribute to national development by generating employment and foreign exchange, encouraging investment creation, and stimulating the scientific, technological, economic, cultural, educational and social development of the country. Any natural or legal person, Panamanian or foreign, interested in the production of goods and services may participate in a EPZ and the licences may be of several kinds: for promoters, operators, and established or installed enterprises.

The free zone territories, including the Colon Free Zone (ZLC), are not regarded as being part of Panama's customs territory and have a separate customs regime. Therefore, goods entering these territories are not treated as imports for customs purposes. For all goods entering the ZLC it is necessary to produce a so-called Commercial Movement Form, duly signed or authorized by the Trade Department of the ZLC. To obtain authorization a duly attested copy of the commercial invoice and a copy of the bill of lading (for example, the waybill for the corresponding mode of transport) are required.

The EPZs are governed by Law No. 25 of 30 November 1992, its amendments and regulations. Executive Decree No. 28 of 19 May 1993 (regulating Law No. 25 of 30 November 1992 in relation to the Immigration Regime); Executive Decree No. 1-D of 28 January 1994 (regulating Law No. 25 of 30 November 1992 in relation to the commercial activity of enterprises subject to the Export Processing Zone Regime); Law No. 28 of 1 February 1996 (cancelling special passports issued on the basis of Law No. 25 of 1992 and introducing other provisions). The Law grants tax incentives and special labour and migration benefits. Enterprises established in the EPZs, together with any activity or transfer of property and the purchase or importation of any goods or services required for their operations within the EPZ, are totally free of national direct and indirect taxes, contributions, charges, duties and levies. The capital of enterprises established in EPZs is also free of national direct and indirect taxes. The legislation does not establish a date for the expiration of the regime.

To qualify for the benefits of the EPZ regime it is necessary to add value in the zone. Re-exportation is not permitted. There are no minimum investment requirements in general, only in order to take advantage of the migration regime (see below). To install themselves in a EPZ, enterprises must obtain a licence to operate in the Zone and an official registration document issued by the MTI's National Export Promotion Directorate. Enterprises that have received a licence are enrolled in the Official Export Processing Zone Register. EPZ promoters must obtain the prior approval of the Cabinet Council.

The legislation establishes a special migration regime for foreigners whose enterprises are installed in a EPZ or have been authorized as EPZ promoters or operators, provided that the investment amounts to more than B 250,000. Under this regime, foreign investors are entitled to apply for a permanent residence visa as an investor, and to employ executives, experts and technicians who are entitled to apply for a temporary residence visa valid for the duration of their contract. There are also certain special labour provisions for enterprises incorporated in the EPZ regime.

The Colon Free Zone (CFZ), the largest in the Western Hemisphere and second in the world to Hong Kong, is located in the City of Colon, five km from the Port of Cristobal on the Atlantic side of Panama and 90 km from Panama City. Goods (except firearms or petroleum products) may be imported, stored, modified, repacked and re-exported without being subject to any customs regulations. Due to its geographic location, the CFZ is a major factor in channeling goods from large industrialized countries to the consumer markets in Latin America.

Benefits of the CFZ
Benefits of having operations in the CFZ include:
- free movement of goods
- exemption from taxation on imports and re-exports
- no taxes on the export of capital or the payment of dividends
- no taxes on earnings from re-export sales
- exemptions from import duties as well as from guarantees,
licensing, and other requirements and limitations on imports
- no corporate income taxes
- special income tax rates on foreign trade operations
- exemption from federal and municipal taxes

Types of Sales Operations
Companies operating in the CFZ are engaged in four types of sales operations:
1. Re-export of goods from CFZ warehouses;
2. Sales to clients located within Panama's customs territory;
3. Direct sales to foreign clients in which goods are shipped from a
third country manufacturer without physically arriving in the CFZ; or,
4. Transfers in which sales are made to other CFZ firms.

Establishing Operations in the CFZ
The CFZ is administered as an autonomous institution of the Panamanian Government. It has been in operation since 1953. Today it is completely developed and covers 300 hectares, including 45 hectares designated as an industrial zone.

Corporations or individuals of any nationality may establish operations in the CFZ without obtaining a commercial license or investing any minimum amount of capital. Firms interested in operating in the CFZ must file an application and provide a copy of articles of incorporation and bank references.

There are four basic ways of doing business in the CFZ:
1. Leasing lots on which the firm builds a warehouse or other facilities
as designed by the firm. Land leases are granted for a 20-year
2. Purchasing an existing facility from the Zone Administration;
3. Reaching an agreement with a company already established in the
CFZ as the operator's representative. The cost of this service is set
by mutual agreement between the parties concerned.
Representation agreements are subject to the approval of the Zone
Administration; and
4. Leasing a public warehouse operated by the Zone Administration.
The firm receives its goods and stores them like any other company
there. There are no fixed costs and payment is based on the weight
or volume of the goods stored.


Administracion de la Zona Libre de Colon,
(Colon Free Zone Administration)
General Manager
P.O. Box 1118
Colon, Republic of Panama
Tel: (507) 445-5794/5114
Fax: (507) 445-2165

Asociacion de Usuarios de la Zona Libre de Colon,
(Colon Free Zone Users Association)
Galo Pinto de la Ossa, Executive Director
P.O. Box 3118, Zona Libre de Colon
Colon, Republic of Panama
Tel: (507) 441-4244
Fax: (507) 441-4347

In November 1992, Panama allowed for the establishment and development of Export Processing Zones (EPZ) within the country by passing Law No. 25. EPZs are well-defined areas for the establishment of industrial, commercial and service facilities which operate in a free trade system. Companies allowed to establish operations in EPZ are those engaged in: manufacturing, assembly, high technology, and specialized and general services, e.g. computer data entry, reinsurance.
All or most production is exported. A range of tax incentives and more favorable labor and immigration provisions for employees of EPZ firms have been established to attract companies into the EPZs.

Tax Incentives
EPZs are classified into two types of firms: EPZ developers and EPZ tenant companies.

For EPZ developers
- Exemption during the life of the contract (the maximum is 20 years), from taxes, duties and other charges related to the importation of machinery, equipment, accessories and material used in the construction of the facilities.
- Exemption from property and income taxes, and taxes on capital or assets for the first 10 years of operation. From the 11th year until the end of the contract, the developer is exempt from income tax on net earnings reinvested in the development and expansion of the EPZ, provided that the amount reinvested exceeds 20% of the net taxable income for the fiscal year the reinvestment is made.
- The developer may carry over losses from the year in which the loss takes place.

For EPZ tenant companies
- Exemption from taxes, duties and other charges related to the importation of machinery, equipment, raw materials, semi-processed goods and other materials such as packaging, fuel and lubricants used in the manufacturing process.
- Exemption from income tax on profits arising from exports, and exemption from export sales taxes, as well as from taxes on capital and assets of the export industry.

Contact the Vice Ministry of Foreign Trade for information on EPZs:
Vice Ministerio de Comercio Exterior
Roberto Henriquez, Vice Minister
P.O. Box 6-1897
Panama 6, Republic of Panama
Tel: (507) 236-0550/0347
Fax: (507) 236-0495

Decree No. 29 (Executive Decree) dated 07/14/92 allowed the creation of Petroleum Export Zones (PEZ) in specially-designated areas in Panama. It allows any foreign or national company to establish operations in a PEZ to produce, refine and export petroleum products. It also permits direct sales to foreign vessels transiting the Panama Canal, and to foreign airlines. Companies operating out of these PEZs are exempt from municipal or federal taxes and are not subject to government regulations affecting the local market.

The Government of Panama has authorized four Petroleum Export Zones:
- Petroterminal de Panama (PTP, the transisthmian pipeline);
- Refineria Panama (TEXACO);
- Autoridad Portuaria Nacional (APN, the Port Authority); and
- Aeropuerto Internacional de Tocumen.

Contact the Ministry of Commerce and Industry, Direccion Nacional de Hidrocarburos for more information.
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