Why should you consider the Colón Free Trade Zone in Panama for your Business?

The Colon Free Trade Zone (FTZ) provides a wide range of operations and activities, such as importation, exportation, re-exportation, manufacturing, sales, commercialization, distribution, refining, and processing of goods. This also encompasses airport transportation operations and the storage of general cargo.
Companies wishing to operate within the Colón Free Trade Zone (FTZ) must obtain authorization from the FTZ Administration Office, referred to as the “Operational License Key.”

Colon Free Trade Zone (FTZ) – Facts.

Here are some key features of operating within this zone:

  • It ranks as the second-largest Free Trade Zone globally.
  • Activities primarily focus on export and re-export.
  • Access to the Panama Canal, 5 container ports, and a highway along the Caribbean Coast.
  • Emphasizes global wholesale distribution, though retail sales (B2C) are permitted exclusively online with special authorization from zone authorities.
  • Transactions are conducted in USD$.
  • Presence of numerous national and international banks.
  • The Zone holds ISO 9001-2008 accreditation (Quality Management System standard).
  • Currently hosts over 2,649 established companies.
  • Cargo services operate 24/7.
  • Provides specific immigration residency and visas for company executives within the zone.
  • Operating in the Zone offers multiple tax benefits and exemptions.

Important Note: Companies importing products into the zone must re-export 60% of those goods abroad and commit to employing at least 5 Panamanians.

Colon Free Trade Zone (FTZ) – Registration Process

In addition to general documentation requirements, the following criteria must be fulfilled to gain access to the zone:

  • Company Establishment: Establish a commercial entity in Panama, meeting all corresponding due diligence requirements.
  • Define Type of Operation: Upon registration, specify how the company will engage within the zone:
    • Lease: Enter into a lease agreement with a company already holding a zone operation license, renting existing spaces, or constructing own facilities. A 20-year lease option is available in the Zone.
    • Purchase: Acquiring a property within the zone.
  • Operational License Key: Obtain an “Operational Key” from the Colón Free Trade Zone (FTZ) Administration Office, which can be:
    • Goods License Key: Authorization for importation, exportation, and re-exportation of goods by the company itself.
    • Representation License Key: Authorization to import, export, and re-export goods on behalf of a third company. No lease contract is required for this option, and physical presence in the free trade zone is unnecessary.
    • Storage License Key: Authorization for depositing goods in state-owned spaces within the zone. These companies can store only their own goods in such public spaces.

Colon Free Trade Zone (FTZ) – Tax incentives

Restructuring operations within the Colón Free Trade Zone (FTZ) in Panama offers significant advantages for international business owners, due to its favorable tax benefits. The FTZ tax-friendly environment and strategic location provides easy access to major shipping routes, facilitating efficient logistics and distribution across the Americas.

The following tax benefits and exemptions would be applicable to businesses and activities within the zone, in accordance with its tax regulations and the Fiscal Code of Panama:

  • No Income Tax on activities conducted within the zone.
  • No Import Taxes.
  • No taxes on profits from International Re-Exportations.
  • No Value Added Tax (VAT) on activities within the zone.
  • No local municipal taxes for companies in the zone.
  • No Commercial License taxes.
  • No Property Tax on zone real estate.
  • No Transfer Tax on buy-sell property transactions within the zone.
  • No Taxes on Property or Installation Improvements within the zone.
  • No Capital Investment Taxes for companies within the zone.
  • Complete exemption from all foreign-closed operations from the zone.
  • Complete exemption from all commercial operations closed within the zone

Cases where taxes apply:

  • A fixed 25% income tax (after deductible expenses) applies exclusively to sales of products imported into the zone and subsequently sold within Panama’s fiscal territory, but outside the zone.
  • There is a fixed 5% tax on dividends distributed among partners of companies operating within the zone.
  • Additionally, an annual 0.5% tax is levied on Company Capital.

Applicable Law:

  • Law 8 of 2016 – “Organizes the Colon Free Trade Zone and establishes other provisions.”
  • Law 412 of 2023 – “Modifies articles of Law 8 of 2016 concerning the Colon Free Trade Zone.”
  • Subsequent Colón Free Trade Zone (FTZ) Administration Office resolutions applicable to specific area regulations.

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