Panama – Country Overview
By: Beatriz Cabal
After a tumultuous couple of years following the publication of the so-called “Panama Papers”, Panama has continued surging ahead by taking active measures to eradicate this disrepute. With that target in mind, and mindful of its interest in remaining competitive in today’s global economy, Panama has endeavoured to adopt legislative measures that promote international standards of transparency, encourage local and foreign investment and, at the same time, attempt to modernise its financial sector, one of the cornerstones of Panama’s economy.
In April 2018, the Panamanian legislature began drafting a bill for the modernisation and international competitiveness of the financial system. This proposed legislation aims to modernise Panama’s financial system by regulating financial activities that are not regulated by our current legislation. These include specialised financial entities, collective financing centres, the issuance of cryptocurrencies and the creation of a sandbox to support and promote local financial innovation, to be supervised by the banking, stock market and insurance regulators, along with the Ministry of Economy and the Panamanian City of Knowledge (“Ciudad del Saber”). This very extensive bill also aims to create new legal vehicles such as single and multi-family offices, exclusive holding companies and limited partnerships, and grants them certain immigration benefits for their foreign employees.
Considering all the changes brought on by the Fourth Industrial Revolution, as some call the digital revolution caused by technology in all the different industries, Panama is attempting to stay relevant in the global market by drafting and discussing a personal data protection law in its National Assembly. This proposed law – the first of its kind in Panama – regulates the principles, obligations, rights and procedures applicable to the protection of personal data in Panama, designates the individuals who are subject to the law, and also sets forth the fines and penalties applicable to those who violate an individual’s right to data protection.
An interesting development in the area of gender equality is the enactment of Law No. 56 of 11 July 2017, which establishes the presence of women on the boards of directors of governmental entities. This law requires governmental entities to maintain a minimum quota of women on their boards of directors, which was established at 30 percent. This law is to be applied in three stages starting one year after its promulgation, with the participation of women in those boards of directors and holding at least ten per cent of the total board seats. Pursuant to Law No. 56, the implementation of the minimum participation of 30 per cent should be accomplished by 2021.
With respect to politics, Panamanians return to the polls in 2019 to elect a new President. Panama holds general elections every five years, and its citizens choose a new President and Vice-President, the members of the National Assembly, the mayors of the different municipalities and the representatives of the local boroughs. Elections generally cause a certain degree of uncertainty to those doing business in the country since the government machine tends to slow down in preparation for the election.
Notwithstanding the foregoing, Panama has a very robust democratic system, led by the Electoral Tribunal (“Tribunal Electoral”), which oversees and guarantees an honest, free and effective election. In preparation for this democratic process, the Electoral Tribunal issued the revised text of the Electoral Code in November of 2017, which regulates all matters associated with the upcoming general elections.
In the construction industry, there are several large infrastructure projects in the pipeline, such as the construction of the fourth bridge over the Panama Canal, with an approximate cost of one billion dollars, as well as the expansion and rehabilitation of approximately 54 kilometres of the Inter-American Highway, which will extend from the district of La Chorrera to San Carlos, thus covering the road that connects Panama City to most of the Pacific Ocean beaches, with an approximate cost of 322 million dollars for the first phase of the project.
Also affecting the construction industry is the agreement to increase the construction workers’ salary for the period between 2018 and 2021. The total wage increase for these four years is 14 per cent for private projects, 18 per cent for government projects and 44 per cent for mega projects. This wage increase is expected to affect current and new housing developments, since it will directly affect the cost of a new house or apartment. But not all is lost, as Law No. 66 of 2017 modified the tax code to include a reduced tariff to property taxes affecting the family home, thus benefiting the average Panamanian family.
Additionally, improvements in public infrastructure such as the revitalisation of certain key areas to increase pedestrian flow by building pavements, parks and green areas for recreation are also currently in progress throughout Panama City. The construction of the second line of the metropolitan metro and the expansion of Tocumen International Airport are still ongoing and both are expected to be ready when Panama hosts World Youth Day in 2019. Panama expects the participation of at least 200,000 people for World Youth Day, and preparations are ongoing to ensure proper organisation of the logistics for a summit of this magnitude.
Finally, it is worth mentioning that Panama continues to prove that it is not only interested, but is actively seeking to achieve international standards of transparency with concrete actions such as the signature in January 2018 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). It is with legislative measures such as those described herein that Panama will maintain its position as a regional leader, notwithstanding the unforeseeable challenges that it may face in the future.