Gross domestic product (GDP) in 2012 was 36.2 billion US dollars (US$) and is expected to increase by 7.5 percent in 2014, driven by construction, a rate that will decelerate from 2015 as large investment projects reach fruition.
Policy remains focused on large capital investment projects, including the expansion of the Panama Canal and the metro rail system in the capital, Panama City. Infrastructure upgrades form part of wider plans to develop Panama into a regional logistical hub and to increase its capacity for reassembly operations, in order to sustain employment levels when infrastructure development starts to slow. The gap between living standards in Panama City and the rest of the country remains significant and could widen further, as infrastructure spending has come at the expense of investment in agriculture (the main employer outside of the capital). In response, the government (the PRD – Partido Revolucionario Democrático) also wants to boost agriculture through measures such as credits.
Panama strongly encourages free trade and competition. Its law forbids price fixing, market division and limitation, and collusion in public bidding and auctions, along with economic concentration that diminishes or restricts free competition. Panama maintains price controls for liquid combustibles.
Panama welcomes foreign investors and strives to be an international service center. The tax structure is favorable to inward investment, and generous incentives are available for tourism, manufacturing operations and other sectors. The main obstacles for FDI are government bureaucracy, strict labor laws and a complicated investment registration process. In part to address the complexity of the registration process, the government established a new online system in January 2007 to facilitate business creation and promote transparency.
Panama generally maintains a liberal trade policy, with relatively low tariffs and few non-tariff barriers. Exports subject to taxes require an export authorization from the Ministry of Finance. There are no legal exchange controls in Panama, and businesses operating currency exchanges do not need a license.
Corporate tax rates in Panama are low, and tax ‘morality’ is fairly high by Latin American standards. Panama does not tax income from non-Panamanian sources, making it a preferred base for holding and sales operations. Generous tax incentives are available, mainly for export-related concerns and investments in tourism. A company (or branch of a foreign company) in Panama is liable for tax on both Panamanian-sourced and export income, but not on non-Panamanian income. 2013 corporate income tax was 25 percent. A special tax rate of 27.5 percent for fiscal years 2012 and 2013, and 25 percent beginning in 2014, applies to companies engaged in: generation/distribution of electricity; telecommunications; cement production; insurance and reinsurance; gambling and casinos; financial services; mining; and banking. There is no income tax on capital gains from the sale of government securities. Interest paid to a foreign lender is subject to 6 percent withholding.
In Panama, KPMG has approximately 300 professionals located in Panama City.