Understand the challenges you might face while expanding your business to Panama and how to overcome them.
Panama has been one of the fastest-growing economies in Latin America, with an average economic growth of 4.6%. The country supports furthermore foreign direct investments by granting fiscal and commercial benefits, such as tax incentives. The consistent growth, the policies to attract foreign investment and its strategic geographical position make Panama an international hub in Latin America.
However, doing business in Panama requires familiarity with the Panamanian workforce law and the understanding of the challenges that might come up. This article outlines some of the most significant challenges when doing business in Panama and exposes how to overcome them.
1. Bureaucracy processes for business in Panama
The initial challenge to face while incorporating your business in Panama is the market entry. In Panama, the process of establishing a company can be extensive if you´re not familiar with local legislation and institutions.
In Panama, many processes require personal assistance of the investors to be or their representatives to the public institutions. The way to overcome this issue is to spend time in the country before incorporating a business in order to build commercial relationships. In addition, working with a commercial associate who can help you to understand the business culture and assist you with the incorporation of your business in Panama is recommended.
2. Language barrier while starting your business in Panama
One of the most common challenges that foreign business owners will encounter in Panama is the language barrier. Non-Spanish speakers might have difficulties when communicating or making new commercial relationships in Panama.
Working with a multilingual business partner can help you to enter the market and make connections with local suppliers, distributors and partners. Furthermore, it helps you to build commercial relationships with local merchants that may not understand your language. If you’re planning to do business in Panama, it’s important to learn the basics of the Spanish language.
3. Understanding the local taxation system
As mentioned before in the article, Panama follows an investment policy in order to attract FDI in the country. The country’s taxation system is a major part of this policy.
Panama has a territorial tax system. This means that the country only taxes the income that is generated within its national borders. For companies and investors based in Panama, this means that foreign income is only taxable in the other country. If a business establishes an administrative office in Panama to invoice foreign clients for goods and/or services provided outside of the national borders, the income received is exempted from tax in terms of the territorial taxation system.
Another way to take advantage of the tax benefits in Panama is the establishment of business within one of the country’s economic free zones. One of them is the Colon Free Zone of Panama Pácifico.
However, businesses must take note of the strongest sectors in Panama. One of them is the import and export activities due to the Panama Canal and other facilities. Investigating additional information about free trade agreements and zones in Panama can be gratifying for business expansion in Panama. To overcome this hurdle of taxation, its recommendable to seek professional support from local accountants with vast experience.
4. Finding and recruiting qualified personnel
Investors planning to enter the Panamanian market need to be familiar with the local recruitment processes. Therefore, understanding labour laws are crucial to avoid sanctions or potential problems with the local authorities. For example, the labour law in Panama allows 10% of foreign employees in the workforce of a company and 15% with some exceptions.
However, taking advantage of local PEO organizations which have experience and knowledge of the labour laws in Panama is not only a time-saving factor but also contributes significantly to the company’s success.
In Panama, it is important to build personal relationships with local company owners and employees as part of the business culture. Developing solid and longstanding and will help you to develop your business faster and more successfully.
Thus, spending time with locals and connecting with them is essential in order to establish a company in Panama. Attending business events is one of many options to build a network in the country.
Overcome challenges to do business in Panama with a local legal provider
Panama offers plenty of business and investment opportunities. However, it’s still important to navigate and understand the local legislation before starting a new business in Panama. Overcoming the mentioned challenges by being prepared will boost the growth of your company.
Our multilingual team at Biz Latin Hub consist of expert lawyers and accountants that have vast experience in all key markets of Latin America and more. Select from our wide range of back-office services, such as accounting and taxation, recruitment and hiring, legal services, due diligence, visa procedures, PEO, market-entry, and others.
Contact us now to learn more about the requirements to do business in Panama and how to overcome them.
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