Economía y Derecho en el Contexto de la Globalización

by Eduardo Morgan, Jr.

August, 2008

Panama is a real globalization pioneer: This was already the case, when the trade tracks of the Spanish Empire crossed in the Isthmus. Today, it is – above all – the Panamanian ship register, the fiscal law and the “law of stock corporations” which relate Panama to globalization.

 The history of Panama is connected with globalization like no other country.

At the time of the Spanish Empire, it was the place where the trade tracks crossed. After this period, Panama served as transit area for the Americans who wanted to connect the East coast with the West territories. Then, the crossing routes were placed by the railway which later was complemented by the Panama Canal.

And in 1917, the country enacted Law No 63 that allowed creating the first open ship register. The international maritime trade needed a flag that was not related to the nationality of the owner nor of the crew.

Panama’s open ship register has created completely new opportunities for the international maritime trade: for instance, foreigners can be ship owners or can work for a ship crew even if the vessel is sailing under Panamanian flag.

But the real key for the success of the Panamanian ship register is another one: it facilitates the activities which have to be conducted by a ship-owner.

Therefore, issues such as financing, freight contracts, and the receipt of technical certificates can be carried out quickly. Furthermore, the register allows the ship owner to maintain the control over its property. And last, but not least, Panamanian lawyers offer their services, as well as the Panamanian consulates; the latter ones are located at all the main ports of the world.

Since its beginnings in 1919, Panama’s open ship register has grown substantially. Today, it is the worldwide leader of all ship registers: the tonnage registered under Panamanian flag is more than twice as large as the one of Liberia, ranked second. The significance of Panama’s ship register also becomes obvious considering its contribution to the International Maritime Organization: for the 2008 budget, it came to no less than 19.2%.

The idea of globalization is also being reflected in other business sectors of Panama. In 1927, for instance, Law No 32 was introduced, known better as “law of stock corporations”. Ultimately, the idea behind this law is the same as with the Panamanian ship register: the international business shall be facilitated. As for this law, it also allows making investments in countries which do not correspond to the nationality of the investor.

As in the case of the ships, the Panamanian stock corporations are bound to a public register. This circumstance gives confidence to all those dealing with them; furthermore, the highly qualified lawyers in Panama give them security abroad. In Panama, stock companies can be incorporated by lawyers only who are obligated to know their customers. The Panamanian stock corporation is based on the territorial tax principle, meaning that its businesses conducted abroad are tax-free.

There is another law which is a good example for the high level of globalization in Panama; it is the law regulating private interest foundations which was enacted in 1995/1996.

Today, twelve years later, the public register contains a list of over 20,000 foundations. As with the stock corporations, they have to be founded under the supervision of Panamanian lawyers who are under the obligation to respect the high standards of due diligence and compliance.

All these services offered at the international level have a positive effect on Panama’s economy. On the one hand, the private sector and the notaries’ offices benefit from the proceeds; on the other hand, the Panamanian government profits even more. In 2007, for instance, the national ship register, as well as the fees for stock corporations and foundations, generated state revenues for USD 198 million; the main part thereof, namely USD 103 million, was paid by vessels. Stock corporations and private interest foundations yielded USD 63 million; the public register USD 30 million. And as for the private sector, its profits from these businesses amount to USD 70 million.

In the end, all these revenues are nothing else than service exports because they are generated abroad.

Calculated at a profitability rate of 4%, the total revenues of USD 268 million (public and private sector), represents capital of USD 6.7 billion for the country. Actually, this capital is growing constantly because of the new registration of ships, stock corporations and foundations taking place each year.

The registrations will increase to the same extent as the globalization of the economy because instruments like the ship register or the Panamanian stock corporations will always be necessary. Therefore, these foreign investments are – beyond doubt – the most important ones in Panama: Each registration of a stock corporation or foundation costs USD 750 on average, while the expenses of a ship registration come to about USD 13,100.

This enormous abundance from abroad can only be maintained by means of the juridical certainty guaranteed by the Panamanian law and the Public Register. Of great importance are also Panama’s territorial tax system, the defense of absolute confidentiality, and a strict control preventing misuse of them.

Furthermore, it is essential to stand up to all threats related to tax matters intending to put pressure on Panama to execute treaties for tax information exchange.

Panama has no tax laws which favor foreign people. Everyone who does business in Panama is treated in the same way: only incomes generated within the national territory are taxed.

Complete Article – Panama as Important Actor of Globalization