Investing In Panama

World’s Top Doing Business Haven

In this Internet Age, you could start an international business anywhere. Local business options can be restricted in some jurisdictions (some countries, for example, protect their retail, legal, or medical industries, meaning foreigners can’t buy or start businesses in these fields), but you could launch a laptop-based, consulting, or Internet business anywhere on earth where you can get an Internet connection.

Given this, if running a business (and thereby generating an income) is part of your live-overseas plan, where should you consider settling down?

I recommend Panama. That’s why I’m here.

Europe in general is a challenging and expensive place to try to be a business owner. Asia is on the other side of the world, meaning that, if your customers and vendors are in the Americas and Europe, you’re going to have to learn to work through the night to stay in touch with them. Look not east or west, therefore, to pursue your entrepreneurial inclinations, but south.

When you do, consider these things primarily: the ease and the costs of incorporating; the corporate and income tax rates; the infrastructure; and the local English-speaking labor pool.

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 an option just about anywhere, to greater and lesser extents.

Infrastructure–that is, reliable Internet and electricity–is critical for any business, for a business that can’t communicate with clients and customers isn’t in business very long. In Latin America, Panama sits squarely at the top of the best infrastructure list, followed by Uruguay and Argentina. The Dominican Republic, Nicaragua, and Ecuador fall short here. I’ve started and operated businesses in eight countries, including Nicaragua and Ecuador. I recommend against these last two. In Nicaragua and Ecuador, in particular, you spend an inordinate amount of your time repairing your Internet connection, waiting for the electricity to come back on, and standing in line waiting for your turn to debate and deliberate (again and endlessly) with the local bureaucrats.

The real sticky wicket, though, is local labor law. If your international operation will not require local staff, then your choices for where to base yourself remain wide-open. If you won’t have to hire employees in-country, 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 will require local staffing, then the decision-making process becomes all about things like employment law; 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’ve 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 you (the employer) are 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, again, 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, but not nearly as aggressively as in Europe. In Panama, for example, it is possible to fire someone when you want to. You, as the employer, are responsible for making 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.

Anywhere in the world, you, as the employer, are liable for social benefits charges and fees, comparable to, though typically more onerous than, Social Security in the United 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 recently had 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. The total cost of the labor required to tear out and replace all the rotted window and doorframes was US$450.

On the other hand, I’m sure the carpenter who replaced the rotted wood in my house in Nicaragua didn’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? I say again, 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 comes at an affordable cost; the current minimum wage in Panama City is US$1.81 per hour (less outside the capital city). An English-speaking mid-level manager makes US$1,200 a month; you can hire an English-speaking personal assistant for US$800 a month. Call centers start their English-speaking staff at US$500 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.

If I had no doing-business agenda at this time in my life, I’d return to Paris. For me, that city offers the world’s greatest quality of living. However, the international publishing company I’m running does need local staff, which is one of the primary reasons we’re in the Hub of the Americas right now rather than the City of Light.

If my business required hundreds of employees, maybe I’d have to find a bigger city with a bigger labor pool (I’d look at Buenos Aires). However, for a small- to medium-sized international operation, Panama is hands down the world’s top jurisdiction for starting and operating a business right now, certainly the best choice in the Americas.

That’s why we’ll be featuring current doing-business opportunities in this country as part of the program for our Emergency Offshore Summit in December.

Kathleen Peddicord