Starting A Business In Panama
Entrepreneurs Welcome—Why This Is The Best Place In Today’s World To Start A Business
July 21, 2009
Panama City, Panama
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Dear Overseas Opportunity Letter Reader,
This day and age, you could start a business anywhere. Therefore, before you can determine where best you might indulge your entrepreneurial inclinations, be clear in your agenda. Are you moving to a new country to start a business? Or are you interested in retiring overseas and thinking that, once there, you'd like to find a productive (and maybe profitable) way to fill your days? Then, as important, will your business be local (perhaps retail) or international? Will you have a storefront or an office where customers or clients will visit, or are you thinking more along the lines of an Internet or consulting enterprise?
Local options can be restricted in some jurisdictions. In Panama, for example, retail is protected, meaning foreigners can't buy or open a retail business. And Europe in general is a challenging place to try to be a small retail business owner. For the most part, though, you could open a dive shop, a coffee house, a gift shop, or a bed and breakfast most places in the world.
If this is your idea, to pursue a hobby-business dream you've maybe harbored for years, you should make your destination decision independent of your entrepreneur agenda. Retire where you want to retire. Then, once there, see what kind of entrepreneurial mischief you can get up to. You could open an art gallery or start a small school (a friend did this in San Jose, Costa Rica); you could buy a small existing business or become a local service provider (set yourself up as a construction consultant, for example; there is a big demand for this in emerging markets where local construction standards, for everything from bathrooms to swimming pools, are not what the growing volumes of developed-world buyers demand).
Anyone reared, schooled, and trained in the First World has a serious leg up on the local competition in a developing nation. Growing up in the United States or Britain, for example, you've encountered innumerable business ideas. You've had the opportunity to watch some grow and others fail. You understand why some enterprises succeed while others do not. You bring that experience and judgment with you overseas. On the other hand, note that, to compete locally, you'll need strong local language skills.
The underlying point, though, is not to allow a secondary, local business agenda to determine what should be a bigger-picture decision. Retire where you want to retire and allow the business agenda to follow organically.
If, however, you're moving for the purpose of starting a business, then put the business requirements first. The ease and the costs of incorporating; tax rates; and the infrastructure, these things become top priorities.
It's not difficult or costly to incorporate in most countries, and, if you're running a non-local business, you shouldn't need a business license. Most countries do not tax foreign-source income, so tax planning is available just about anywhere, to greater and lesser degrees.
Infrastructure--that is, reliable Internet and electricity--is key for any business, for a business that can't communicate with clients and customers isn't in business very long. Panama and Malaysia sit at top of the best infrastructure list outside Europe, followed by Uruguay and Argentina. The Dominican Republic, Nicaragua, and Ecuador fall short here.
Local labor is the sticky wicket. If your international operation will not require any, then your choices for where to base yourself remain wide-open. If you don't need local staff, you could operate anywhere. I have a friend, self-employed in an international business that requires no employees. He likes the Cayman Islands. The Cayman Islands is not a budget destination, but cost of living is not an issue for my friend, so he's moving, with his business, to the Caymans. He's delighted. He's managed to find a way to pursue his income objectives in the place where he wants to spend his time.
If yours, though, is an international business that requires local staffing, then the decision-making process becomes all about things like employment laws; labor costs; and employer taxes and social charges you would be liable for.
The most important thing to understand about employment law is that nowhere in the world does it favor the employer as much as it does in the United States. I ran a division of an international publishing company for about 23 years, the first 13 Stateside. Then I moved, with that business, to Ireland, where I came face-to-face for the first time with non-U.S. labor law. My most important lesson: In a jurisdiction like Ireland (the rest of Europe also qualifies), it's not possible to fire someone.
The in-house attorney for the company I worked for in the States reminded managers regularly that that business operated on a hire-at-will, fire-at-will basis. "You can fire someone because you don't like the color of the tie he wears to work one day," he'd joke. Depending on the state where you're doing business, it can, in fact, be almost that easy to disengage a U.S. employee.
In Ireland, the rest of Europe, and much of the world, I learned, mostly the hard way, not only can you not fire at will, often, you can't fire at all. In France, super-small owner- and family-run enterprises are common, because people are afraid to take on employees. In this country, when you hire someone, you hire him for life. That employee becomes your very long-term liability.
Furthermore, that employee (like all employees in France) assumes that the employer is the bad guy. In all Europe, the burden is on the employer to take care of his employees, but, in France, the relationship is more tense. It's not so much parent and child as it is Mean Mister Capitalist and Victim. If you want to start a business that will require local hires, don't move to France. In fact, I'd steer clear of Europe altogether. Otherwise, you're creating additional and costly challenges and headaches, stacking the deck against your chances of success.
In Panama and elsewhere in Latin America, too, labor laws favor the employee, though not nearly as aggressively as in Europe. In Panama, for example, it is possible to fire someone when you want to. You're responsible to make a severance payout according to legislated formulas. As in Europe, the amount of the payout is predicated on the employee's salary, meaning that, in the Americas, severance payments aren't typically enough to break a business' back, as they can be in Euro-land.
As an employer anywhere outside the States, you're also liable for social benefits charges and fees, comparable to though often more onerous than Social Security in the States. Again, though, these fees are predicated on salary, meaning that, in Latin America, while, as percentages they can seem burdensome, as whole numbers, they're manageable.
This gets to one of the key benefits of doing business in Latin America: the cost of labor. It's low. I'm right now having flood damage repaired in a house I own in Granada, Nicaragua. The roof was blown off in a storm, and I was negligent in having it repaired. Meantime, the rains came, and, over months, the wood moldings around the windows and the doors rotted away. This is a two-story, 2,300-square foot house with many large windows. I've just had a quote for the cost of the labor required to tear our and replace all the rotted window and door frames. The quote is for $450.
Again, labor costs in this part of the world are one big advantage of doing business here.
Note, though, that, depending on the type of business you want to run, your labor costs may be higher than average. I'm sure the carpenter being called in to replace the rotted wood in my house in Nicaragua doesn't speak English. English-speaking labor, if you require it, comes at a premium in this part of the world.
Taking all these issues into account, where should you think about basing your international business if it requires staffing? Panama. It checks every box you need checked. The IT infrastructure is First World and reliable. The time zone is convenient if your clients, customers, or vendors are based in the United States or in Europe. The educated and English-speaking labor pool is big, and it comes at an affordable cost; the current minimum wage in Panama City is US$3.25 per hour (it's less outside the capital city). An English-speaking mid-level manager makes US$1,500 a month; you can hire an English-speaking personal assistant for US$800 a month.
There is little red tape or interference from local authorities in day-to-day business activity, making Panama one of the freest economies in the world. Panama's is also a stable economy with low inflation (less than 2% per year). The country has used the U.S. dollar as its currency since 1903, meaning Americans have no exchange-rate risk. Panama boasts a developed banking sector, the largest south of Miami. And it encourages free enterprise. Depending on the type of business you launch, you could qualify for important tax and employer benefits and incentives.
I've started and operated businesses in eight countries. If I were to launch an international business today that did not require any local employees, I'd move back to Paris. For me, this city offers the world's greatest quality of life. However, the international publishing company I'm running does need local staff, which is one of the primary reasons we're in Panama rather than Paris right now. If my business required hundreds of employees, maybe I'd have to find a bigger city with a bigger labor pool. But, for a small- to medium-size international operation, Panama's the place.
P.S. Moving to a new country to launch a new business is no easy thing. Over the years, doing this again and again, in eight jurisdictions now, I've been uncertain, nervous, intimidated, afraid, lonely, confused... Yet I've continued to pursue this life as part of the laptop-toting expat entrepreneur revolution, because it comes with serious advantages. As an entrepreneur abroad, you have complete freedom and flexibility, independence and autonomy. You're able to take what you want to do, what you love to do, and convert it into an income that allows you to live where you want to live. You live where you want, how you want, all the while having the adventure of your lifetime.
At the same time, starting a business overseas takes a serious leap of self-faith. Having made that leap myself, this is my advice: Get as much support as you can. Here's a resource I recommend, a 90-day program to helping you launch your new life as an Expat Entrepreneur.
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