In 2008, I took leave from the publishing company where I’d been working for 23 years. At the time, I was living in Paris with my husband and 8-year-old son. I spent the next three months enjoying early retirement, exploring the City of Light on foot, early to late each day, and getting to know Paris well.
The main thing I learned is that three months is my limit for doing nothing, even in Paris. I returned home from a long walk one afternoon to announce to my husband that I wanted to start a business.
“We’ll need to leave Paris,” Lief replied.
He and I both knew from experience that France is no place to build a business. This country does not value entrepreneurs. 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 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 would be among the best?
By this time, I had managed businesses in eight countries. I considered the countries I knew from experience and others 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. The standard of living is comfortable, even international standard if your budget stretches to allow for it.
Those things, though, are true for many other places that could also make sense for the would-be entrepreneur, including in Latin America but also in Europe and Asia.
Panama’s trump card is the approach it takes 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 that is true is short. 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. Really, you need two tax experts, as finding one who understands both sides of this tax picture will be near impossible.
Its tax advantages put Panama at the top of the where-should-I-locate-the-new-business list.
The second reason I focused early on Panama and, in the end, chose it as the place to base the internet publishing business I wanted to launch is Panama City’s labor pool.
Over the past 20 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 a century, today’s Panama City is home to Venezuelans, Colombians, El Salvadorans, Hondurans, Costa Ricans, Guatemalans, and Nicaraguans who’ve migrated to Central America’s most developed city in search of safe haven.
Included in this population of regional migrants are investors, who’ve bought real estate and started businesses; unskilled labor in Panama mostly illegal and working as maids and restaurant staff; and, relevant for me, the cream of the regional labor crop, people who recognize they can get better jobs and make more money in Panama City than anywhere else in Central America.
That labor pool was enough to get my attention back in 2008. Then something important happened four years after I 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 this country’s Friendly Nations visa program.
Overnight, Panama was targeted by eager, educated, and English-speaking 20- and 30-somethings from North America and Europe in search of employment opportunities. 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 50 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. In the near two decades since, the program has done precisely that.
Over the years, thanks to this open-minded, open-borders visa option, I have been able to hire staff from the United States, Canada, Ireland, the U.K., France, Germany, Spain, Belgium, Australia, and New Zealand, none of whom I would have been able to employ (legally) otherwise.
Nearly two decades later, I have built a successful, continually growing business. What have these years of focused effort in Panama taught me?
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 continues to be an easy place to establish legal residency and get a job, kids from across North America and Europe are 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.
Panama makes it possible for them to get jobs and earn a little money to refill their coffers before setting out for their next stops. I’ve hired 20-somethings from North America and across Europe 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 North America, across Europe, and beyond who’ve been with me for more than a decade and who are now fully fledged, world-class professionals helping to push the Live And Invest Overseas business ever to next levels.
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 many street corners for $5.
Mine is a deadline-intensive business. I’ve finally built a team that understands that and works hard to work ahead to cover all the out-of-the-office time, but that has taken many years.
Panama Entrepreneur Tip #3:
A third piece of advice for anyone 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 is that much more so today than it was 20 years ago when I began doing business here… but, still, this is not the United States when it comes to getting things done.
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 you should be prepared for the typical Panamanian perspective on the employer-employee relationship.
Panama Entrepreneur Tip #4:
Panama labor law, like most everywhere in the world that is not the United States, favors the employee. You need a good reason and a lot of documentation to fire someone. No matter how good the reason, you’ll be required to pay what I consider an overly generous “liquidation,” or severance, depending on how long the about-to-become-former employee has worked for you.
In addition, Panama labor law equates to some particular land mines that I wish someone had told me about from the jump. For example, if you have any doubt about someone’s long-term value to the business, make the decision to remove them from the business before their two-year anniversary. Again, it’s always tough and costly to fire someone. After the two-year mark, it gets tougher and more costly.
I recommend hiring someone well versed in Panama labor law to manage HR for you while you learn the ropes and maybe forever.
All that said, I’m more convinced today, after doing business in this country full time for two decades, that Panama is the best place in the world to be an entrepreneur. I don’t spend many days swinging in a hammock or lazing on the beach. Those pastimes are ever-available, but that lifestyle has never been the point for me.
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 years since anywhere else.
Panama Entrepreneur Tip #5:
The most popular options for forming an offshore company in Panama are corporations and limited liability companies. In the case of a corporation, an attorney drafts the documents, including a list of subscribers and byelaws, then records it in the registry. After that you’ll need a RUC/Tax ID and a social security employer’s number if you intend to hire staff.
Panama Entrepreneur Tip #6:
Minimum wage in Panama varies depending on economic activity, business size, and region. The median monthly wage is around $1,288 with significant regional variations. The minimum wage for household help is $350 per month.
A 13th bonus month is paid to workers, split over three payments annually. Social security is paid at a rate of 12.25% by employer and 9.75% by the worker. Worker’s comp is 0.98% to 5.6% depending on the risk of the job. Day shifts work up to a 48-hour week and are paid an additional 25% for overtime thereafter.
