PANAMA: An Introduction to Shipping

Panama: More Than Just the Canal

When you think of Panama you inevitably think of the Panama Canal: an 80km man-built maritime shortcut that connects the Atlantic and Pacific oceans, and which forever changed global trade when it opened in 1914. Dreamt of by the Spaniards in the 16th century, attempted by the French in the late 19th century, but ultimately built and managed by the United States for over 80 years until it transitioned to the hands of the government of Panama on 31 December 1999. This marvel of engineering cuts across the Isthmus of Panama at one of the narrowest points in the American continent, connecting 1,920 ports across 170 countries and serving as passage for vessels transporting all types of goods.

But the story of Panama as a maritime country and an essential element to the success of international trade does not start with the Panama Canal. Back in the 16th to 18th centuries, the Portobelo Fairs, held at the city of Portobelo, Colon, became the first trade and customs centre of the Spanish Court in the Americas, positioning the small city on the Atlantic side of Panama, as one of the most important ports in the world at the time. Moreover, during the 19th century, the first transcontinental railway was designed and built to facilitate trade between the west and east coasts of the United States after the gold rush in California, moving passengers and goods between the Atlantic and Pacific oceans. Today, Panama has a network of over 30 ports (19 privately operated by means of concession agreements with the government of Panama and 15 government run ports), providing services to vessels, cargo, and passengers on both oceans.

To complement the maritime and ground transportation industries, in 1947 the government of Panama opened Tocumen International Airport (PTY), serving as a regional hub for cargo and passenger air transportation in the Americas, and as a homebase for Copa Airlines, one of the largest and most successful airlines in Latin America. Today, PTY operates two terminals that attend 32 commercial airlines flying to 87 destinations. Located 24 kms east of the city of Panama, businesses are relocating their warehouse and distribution centres to logistics parks near this airport. In the first quarter of 2024 alone, PTY moved 17,758 metric tons of cargo and received more than 4.5 million passengers (of which 75% made connecting flights). PTY strategically operates a duty-free zone for passengers and a fuel free zone to supply aircraft in transit.

Due to its strategic location and geographical size, Panama has historically served as the preferred point of connection in the Americas. Thus, in 1948, the government of Panama created the Colon Free Trade Zone, an area on the Atlantic side of Panama, providing a logistics platform supported by port, railway, highway and airport infrastructures, rapidly emerging as the main container and distribution centre in Latin America. The Colon Free Trade Zone, on top of becoming the largest commercial zone in the Americas facilitating trade, import and re-exportation, also grants tax and customs incentives to local and foreign businesses that establish their distribution centre there.

In addition to the Colon Free Trade Zone, Panama has created an effective and efficient legal framework that allows the establishment and operation of other free zones or special economic areas across strategic locations in the country. Such is the case of Panama Pacifico, a special economic zone located on the Pacific side of Panama that has now also evolved into one of the most sought after real estate areas for business and residential purposes. Moreover, Panama has also been successful in attracting foreign companies to establish their back-office operations in the country, by means of adopting a Multinational Headquarters Regime (Sede de Empresa Multinacional – SEM), providing not only tax exemptions, but also immigration benefits for their executives and other key-performers relocating to Panama. Furthermore, to assist ships transiting the Panama Canal or visiting our ports, the country has also created the necessary legal framework to regulate both the provision of maritime services and the creation of fuel free zones on both oceans for bunkering supply.

This growth has been possible thanks to Panama’s territorial tax regime, pursuant to which the government taxes income that is produced in the territory of Panama (outside of the free zones or special economic areas, which have a different set of tax rules). Panama’s ingenious and creative tax regime and legal framework has been key to attracting foreign investors, furnishing a successful atmosphere for businesses to thrive in our country.

Our rich history as a crossroad for trades and cultures has given shape to Panama’s unparalleled natural vocation for service, enhanced by the most important and recently expanded waterway in the world; a strong maritime, air and ground transportation infrastructure; a robust international banking system; and the convenience of the US dollar as the official commercial currency. Indisputably, Panama possesses all the necessary elements to be crowned as a world leader in trade and transportation.