Foreign investment issues

Investment restrictions

What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?

There are no special restrictions, fees or taxes on foreign investment in, or ownership of, a project company or its related companies. The Panamanian Constitution provides for the equal treatment of foreign and local investors. However, the Constitution also creates two exceptions. Pursuant to these exceptions foreign investors may not own property located within 10 kilometres of the country’s borders; in islands considered strategic areas that are reserved for governmental programmes; or in islands that are not declared areas of special development and regulated by special laws; or participate in retail business activities. There are no bilateral investment treaties in force exempting the application of those restrictions on a particular nationality. Hence, no special registration requirements apply to foreign investors.

Insurance restrictions

What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?

Under Panamanian law, all local risks must be insured by insurance companies licensed by the Insurance and Reinsurance Superintendency of Panama. However, insurance companies licensed elsewhere may issue policies to cover local or Panamanian risks, provided that licensed Panamanian insurance companies do not provide coverage for such risks, and that such policy or coverage is previously authorised by the Insurance and Reinsurance Superintendency of Panama. Cut-through clauses are not effective under Panamanian law. Panamanian law does not have limitations for local insurance policies to be payable to a foreign secured creditor.

Worker restrictions

What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?

Foreign workers must obtain an immigration visa from the National Immigration Department and a work permit that is issued by the Ministry of Labour. Labour law allows the foreign workforce and payroll of a local or foreign company doing business in Panama to consist of up to 10 per cent of the local or Panamanian workforce and payroll. In the case of trusted and skilled workers or technicians, the foreign worker allowance is increased to 15 per cent of the local or Panamanian workforce and payroll.

However, Panama has enacted legislation that affords unlimited temporary visas and work permits to the foreign workforce and payroll of companies licensed or established pursuant to special legislation designed to promote foreign investment in Panama. The Multinational Corporate Seat Law (MCS Law) allows companies that are licensed under the statute to obtain immigrant visas and work permits free of thresholds or quotas. The MCS Law also creates a simplified process to obtain such visas and permits. Likewise, the Panama-Pacific Special Economic Area Law creates a simplified process for obtaining visas and work permits. Project companies located in special economic and trading areas, such as the Colón Free Trade Zone or export processing zones, can also hire foreign workers under special immigration and labour regulations.

Equipment restrictions

What restrictions exist on the importation of project equipment?

There are no restrictions to import project equipment. However, Panama’s tax legislation imposes import duties and a kind of value added tax, domestically known as ITBMS, on equipment imports. Tariffs for imports into Panama are fixed by cabinet decrees issued by the executive branch. Panama is a member of the World Trade Organization (WTO), so tariffs must comply with WTO standards. In the case of equipment imports, ITBMS is assessed at the rate of 7 per cent of the cost, insurance and freight (CIF) value of the equipment, plus customs duties and charges at the applicable rates for the particular equipment imports. If the CIF value cannot be determined, the tax code provides for an import assessment of free on board value plus 15 per cent.

Nationalisation laws

What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?

According to the Panamanian Constitution the government can expropriate private property for public or social interest purposes, in exchange for proper compensation.

The Code of Civil Procedure requires the executive branch of government to commence a civil court proceeding immediately after issuing the resolution to expropriate private property. Said proceeding is designed to fix proper compensation through a valuation of the expropriated property by three experts appointed by each party and the court, and to enable creditors holding security interests in the expropriated property to pursue payment of their credits. Panama’s Civil Procedure Code also provides for swift expropriation in the case of war and serious public or social unrest, as well as for the development of projects of urgent public and social interest. In such cases, court proceedings to appraise the assets and fix proper compensation must be completed in a shorter period. There are no forms of investment protected from expropriation. However, Panamanian law does require the government to provide fair compensation.