Why Starting A Business In Panama Made Perfect Sense

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The Real Panama In 2016, Part III—Why Panama Is The World’s Best Place To Start A Business

Early July 2008, I arrived in Panama with my husband Lief, my 8-year-old son Jackson, and an East Coast bartender named Harry.

The four of us weren’t passing through. We’d upped sticks—Lief, Jackson, and me from Paris… Harry from Annapolis, Maryland—and were in Panama for the long haul.

Lief and I came to build a business. I’d engaged Harry (a bartender with lots of smarts and big ambitions) to join us as marketing manager.

Jackson was along for the ride.

The year before, I’d taken my leave from the publishing company where I’d been working for23 years.

I was 45 years old and living in Paris. I spent the next three months exploring that city on foot, early to late each day, and got to know Paris well.

I also learned that three months is my limit for doing nothing, even in Paris, and returned home from a long walk one afternoon to announce to my husband that I wanted to start a business of my own.

“We’ll need to leave Paris,” he replied.

He didn’t need to spell it out.

We knew from experience that France is no place to try to be an entrepreneur. This country does not value entrepreneurs, and running a business here is expensive and hassled. Labor law and the French perspective make every employer the enemy, and French taxes can take half of every dollar your business earns.

We were in the fortunate position at the time of being able to move anywhere, so, as much as we loved living in Paris, the question became:

If France is among the worst places in the world to invest in a business, where might be the best?

By this time, my husband and I had managed businesses in eight countries. Based on that experience, I made a list of things important to the expat entrepreneur, as follows:

  • Quality and cost of infrastructure, especially internet and banking…
  • Quality, availability, and cost of English-speaking labor…
  • The country’s approach to taxation…
  • The current administration’s perspective on foreign business and foreign investment…
  • Residency and work permit options…
  • Cost of doing business, especially office rent…
  • Ease of setting up a company…
  • Stability of the local currency (if other than the U.S. dollar)…
  • Time zone relative to the business’ intended marketplace…
  • Local labor law…
  • Local standard of living.

I considered the countries I knew from experience and others, too, in the context of these 11 variables, and one stood out—Panama.

The infrastructure in Panama City is the best in the region, in part thanks to the decades-long U.S. military presence here while the Americans ran the Panama Canal. Panama as a whole is a safe, stable, affordable country that uses the U.S. dollar as its currency, meaning no exchange-rate risk for dollar holders. The standard of living is comfortable, even luxury standard, if your budget stretches to allow for it.

Other places can also make sense for the would-be entrepreneur, including in Latin America but also in Europe and Asia; however, Panama has a trump card.

Thanks to this country’s approach to taxation, both personal and corporate, it’s possible to live and run a business you own in Panama, paying little in taxes, even if you’re an American. The list of places around the world where this is the case is short.

Set yourself up properly, and you’ll be liable for no corporate tax. Not in Panama and not anywhere else either (including, you may be wondering if you’re an American, in the United States).

Panama is also one of the best places to base yourself if you want to make a living from consulting, travel writing, copywriting, or any other laptop-based profession.

The key is that your customers are outside Panama. In other words, as long as the revenues of your business aren’t sourced in this country, you don’t pay tax on them in this country. And, again, as long as you structure your corporation properly, you shouldn’t be liable for taxes from the revenues that flow through it anywhere else, either.

I’m speaking of legal and compliant strategies. It’s not difficult to organize, but you need competent advice from a tax expert who understands both Panama’s approach to taxing corporate income and the obligations to Uncle Sam of an American living and earning money in another country. In fact, you need two tax experts, as finding one who understands both sides of this tax picture will be near impossible.

The second reason I focused early on Panama and, in the end, chose it as the place to base my internet publishing business is Panama City’s labor pool.

Over the past dozen years, Panama City has evolved into a global melting pot. In addition to Panamanians and Americans, who’ve been a part of this landscape for more than 100 years, today’s Panama City is home to a fast-growing expat population that includes Germans, French, British, Irish, Dutch, Australians, Kiwis, Venezuelans, Colombians, Hondurans, Costa Ricans, Guatemalans, and Nicaraguans, all of whom have migrated to Central America’s most developed city in search of employment.

Regional migrants and investors have targeted Panama for many years. For the Nicaraguan or Venezuelan, for example, Panama is both a land of abundant opportunity and an obvious safe haven.

That localized labor pool was enough to get our attention back in 2008; however, something important happened four years after we moved to Panama that made Panama City an even more interesting place to be an employer.

In 2012, Panama’s former President Ricardo Martinelli issued an Executive Order creating what’s become known as this country’s Friendly Nations visa program.

Overnight, Panama was targeted not only by opportunity-seekers from neighboring countries but as well by eager, educated, and English-speaking 20- and 30-somethings from North America and Europe.

Thanks to the Friendly Nations program, these enthusiastic youngsters, then and today, can obtain both easy residency and work permits. It’s a uniquely turnkey program that makes it possible for anyone holding a passport from one of the 48 countries on the “Friendly Nations” list to be able to live and work legally in Panama almost immediately. Martinelli issued his decree in a creative attempt to provide more qualified labor for the dozens of foreign businesses setting up shop in his country.

Over the past four years since this visa option became available, we’ve hired staff from around the world, none of whom we would have been able to employ (legally) otherwise.

What have we learned these past eight years about being an entrepreneur in Panama?

Panama Entrepreneur Tip #1:

Panama City is home to a bigger and better-educated pool of English-speaking labor than anywhere else in Central America and perhaps than anywhere else in all Latin America. However, a sizable percentage of it is what I’ve come to think of as “accidental labor.”

As Panama has become an easy place to establish legal residency and get a job, kids from across North America and Europe have been doing that. Not all of them are interested in working, though. Some are on walkabouts, the post-graduation equivalent of a gap year, wandering around to see what they might see and experience what they might experience. Now Panama makes it possible for them to get jobs and earn a little money to refill their coffers before setting out for their next stop.

I’ve hired 20-somethings from Ireland, Canada, the United States, and Australia who’ve worked for me for six months or so, long enough to save up enough to buy plane tickets onward. Just as I’ve trained them to the point of becoming worth something to the business, they bug out.

On the other hand, I’ve also hired 20-somethings from Ireland, Canada, the United States, and Australia who’ve been with me for years and who today are important contributors to continued business growth.

Panama Entrepreneur Tip #2:

Panama celebrates three independence days, all in November, plus 11 other national holidays each year. Almost everyone extends every holiday to include at least one other day off, officially or unofficially, making the bridge between the holiday and the nearest weekend. In addition, Panama labor law calls for four weeks of paid vacation every year, starting from year one of employment, and stipulates that employees earn into a “sick leave fund” that allows for up to 18 sick days per year with signed doctor letters. I’ve been told by many, including my attorney, that signed doctor letters can be bought on most street corners for US$5.

In addition, on pay days (twice monthly), every employer is required by law to distribute paychecks before lunch so that staff can go on their lunch breaks to their banks to cash their checks. This can be a three-hour ordeal.

When I bemoaned the staff-out-of-the-office reality of being in business in Panama, a friend in the States asked if I hired extra personnel to cover. I don’t, but sometimes I wonder if I should. Few are the days, especially this month, when everyone in my employ shows up to work. You get good at workarounds.

Panama Entrepreneur Tip #3:

One of Panama’s biggest advantages is its position as a global banking haven. The country is home to more than 70 local and international banks.

However, in today’s post-FATCA, anti-money-laundering world, it’s not nearly as easy as it once was for an American to do business with any of them. This is an ever-changing and ever-more-frustrating playing field.

We’ve known Americans whose accounts have been closed overnight and without warning because the bank in question decided that the most cost-efficient way to comply with FATCA was to opt out of FATCA and divest itself of all U.S. account holders.

Banks we work with have added fees meant to offset the costs of FATCA compliance measures and requested updated know-your-client information to meet FATCA compliance demands, and every week a new rumor circulates about which banks will and will not welcome new American clients.

This isn’t specific to Panama. Banks worldwide are struggling to stay compliant with FATCA regulations. The point in the context of Panama is that, though the country is home to dozens of international banks, you can’t count on being able to open an account with any one of them if you hold a U.S. passport.

On the other hand, because Panama is home to so many banks, if one refuses your business, you have other options.

Panama Entrepreneur Tip #4:

My final piece of advice for the expat considering starting a business in Panama would be to be prepared for the culture shock.

Panama’s is a booming economy, and all the foreign investment in the country can give you the impression that this is a real-world business culture. It’s not. This is still a country of fiestas and mañanas. For most, business is not the priority, and work is not a vocation but a way to pay the rent. You’ll encounter exceptions but should be ready for the typical Panamanian perspective on the employer-employee relationship.

It’s not as contentious as it can be in France, but, in Panama, as in most of the world, labor law and the general sentiment favor the employee, not the employer. You must keep careful records and be able to document your position if you decide to let someone go.

All that said, I’m more convinced today, after doing business in this country full time for eight years, that Panama is the best place in the world to start an internet endeavor.

I don’t spend many days swinging in a hammock or lazing on the beach. Those pastimes are ever-available, but, for me, that lifestyle has never been the point. I chose Panama because I believed it would support the business-building dream I conceived in 2008, and I doubt I would have been able to accomplish what I’ve accomplished these past eight years anywhere else.

Kathleen Peddicord

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About Author

Kathleen Peddicord

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With 30 years of experience covering this beat, Kathleen reports daily on current opportunities for living, retiring and investing overseas in her daily e-letter. Her newest book, "How To Buy Real Estate Overseas," published by Wiley & Sons, is the culmination of decades of personal experience living and investing around the world.