Employing in Panama

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Expanding into Panama

Expanding to Panama – characterised by a small, open, highly diversified, dollar driven and highly competitive economy – can bring excitement to the possibilities and significant stress to ensure the entity with the country’s structure and structure laws.

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Ensuring compliance without sufficient knowledge of the country’s laws also adds stress to getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

The opportunities that come with expanding into Panama can be stimulating as well as intimidating and confusing, especially when you consider all the registration procedures that need to be done and the documentation required.

These can be worked through more efficiently and cost-effectively with the support of a Professional Employer Organisation (PEO) such as Bradford Jacobs, primarily through our Employer of Record (EOR) framework.

This can be best utilised when businesses are just beginning their expansion process and require more information before incorporating an entity and fully establishing themselves in that market.

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Country EOR Guide - Bradford Jacobs

Download our Guide to Panama

Learn all about expanding into Panama and see what we can do to make your expansion easier.

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Download our Guide to Panama

Learn all about expanding into Panama and see what we can do to make your expansion easier.

Country EOR Guide - Bradford Jacobs
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Hiring Staff
in Panama

Panama is located on the Isthmus of Panama, a narrow land bridge connecting North and South America. The tropical nation is renowned as the site of the Panama Canal, which cuts through its midsection and links the Atlantic (via the Caribbean Sea) and Pacific Oceans. It is famous for its natural beauty and diverse plant and animal life. Costa Rica borders the country to the west and Colombia to the southeast. Panama’s capital and largest city is Panama City, whose metropolitan area is home to half of the country’s 4 million people.

Panama has a high-income economy with a history of low inflation and ranked 61h in the world in 2021 in terms of the Human Development Index (0.805, very high). According to the IMF, the national GDP reached USD 71.09 billion (EUR 66.8 billion) in 2022. Panama’s economy is small, open, highly diversified, dollar driven and highly competitive by regional standards.

The country is a founding member of the United Nations and other international organisations such as the Organisation of American States (OAS), the Latin America Integration Association (LAIA), the G77, the World Health Organisation, and the Non-Aligned Movement (NAM). The country’s economy is fully dollarised, with the US dollar being legal tender. Panama was the first foreign country to adopt the U.S. dollar as its legal currency after seceding from Colombia.

In 2021, the country had an estimated growth in GDP of 15.3%, mainly driven by higher copper production (61% increase), the recovery in activity in the Panama Canal (11% increase in cargo volume), a gradual upturn in tourism (102% increase in airport passengers), and an increase in investment for infrastructure and transportation. It stimulated employment and boosted private consumption. Labour markets, too, showed signs of recovery in 2021; however, informality and self-employment are still high.

As oil and other commodity prices rebounded post-pandemic, inflation reached 3.2% in July 2022, led by transport (12.5%) and food (2.8%), but is slowing because of subsidies and tax cuts for fuel and foods that were implemented in July, which will cost up to USD 300 million (EUR 281.9 million). Panama’s dollarisation has helped keep inflation lower than the regional peers,’ as expectations are well-anchored.

Revenue from canal tolls continues to represent a significant portion of Panama’s GDP. Overall, the economy of Panama is based mainly on the services sector, which accounts for 71% of its GDP and most of its foreign income. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, flagship registry, medical, health, and tourism.

Country:
Panama
Local Currency:
Balboa (PAB) / US Dollar (USD) – 1:1
Time Zone:
UTC-5 (EST)
Country Dial Code:
+507
Tax Year:
Calendar Year (1 January – 31 December)
VAT:
The VAT standard rate is 7%, except for alcoholic beverages and hotel accommodations (10%) and tobacco products (15%).
National Minimum Wage:
Depending on the sectors, monthly minimums were increased to approximately USD 326 (EUR 311) in some categories and USD 971 (EUR 926) in others.
Taxpayer Identification Numbers:

The Single Taxpayer Registry (Registro Único de Contribuyente, RUC) is the Tax Identification Number of every Panamanian natural or legal person.

The RUC of a natural person consists of the number of their identity card accompanied by a check digit (dígito verificador, DV) allocated by the General Directorate of Revenue (Dirección General de Ingresos, DGI). The RUC of a legal person corresponds to their assigned registration number at the Public Registry (Registro Público), followed by a combination of other registry numbers provided by the Public Registry Office or, by the year of its incorporation, with a DV as well.

Main trading partners (2021):

United States of America, China, Mexico, Costa Rica, Netherlands, India, Vietnam.

Hiring Staff
in Panama

Panama is located on the Isthmus of Panama, a narrow land bridge connecting North and South America. The tropical nation is renowned as the site of the Panama Canal, which cuts through its midsection and links the Atlantic (via the Caribbean Sea) and Pacific Oceans. It is famous for its natural beauty and diverse plant and animal life. Costa Rica borders the country to the west and Colombia to the southeast. Panama’s capital and largest city is Panama City, whose metropolitan area is home to half of the country’s 4 million people.

Panama has a high-income economy with a history of low inflation and ranked 61h in the world in 2021 in terms of the Human Development Index (0.805, very high). According to the IMF, the national GDP reached USD 71.09 billion (EUR 66.8 billion) in 2022. Panama’s economy is small, open, highly diversified, dollar driven and highly competitive by regional standards.

The country is a founding member of the United Nations and other international organisations such as the Organisation of American States (OAS), the Latin America Integration Association (LAIA), the G77, the World Health Organisation, and the Non-Aligned Movement (NAM). The country’s economy is fully dollarised, with the US dollar being legal tender. Panama was the first foreign country to adopt the U.S. dollar as its legal currency after seceding from Colombia.

In 2021, the country had an estimated growth in GDP of 15.3%, mainly driven by higher copper production (61% increase), the recovery in activity in the Panama Canal (11% increase in cargo volume), a gradual upturn in tourism (102% increase in airport passengers), and an increase in investment for infrastructure and transportation. It stimulated employment and boosted private consumption. Labour markets, too, showed signs of recovery in 2021; however, informality and self-employment are still high.

As oil and other commodity prices rebounded post-pandemic, inflation reached 3.2% in July 2022, led by transport (12.5%) and food (2.8%), but is slowing because of subsidies and tax cuts for fuel and foods that were implemented in July, which will cost up to USD 300 million (EUR 281.9 million). Panama’s dollarisation has helped keep inflation lower than the regional peers,’ as expectations are well-anchored.

Revenue from canal tolls continues to represent a significant portion of Panama’s GDP. Overall, the economy of Panama is based mainly on the services sector, which accounts for 71% of its GDP and most of its foreign income. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, flagship registry, medical, health, and tourism.

Country:
Panama
Local Currency:
Balboa (PAB) / US Dollar (USD) – 1:1
Time Zone:
UTC-5 (EST)
Country Dial Code:
+507
Tax Year:
Calendar Year (1 January – 31 December)
VAT:
The VAT standard rate is 7%, except for alcoholic beverages and hotel accommodations (10%) and tobacco products (15%).
National Minimum Wage:
Depending on the sectors, monthly minimums were increased to approximately USD 326 (EUR 311) in some categories and USD 971 (EUR 926) in others.
Taxpayer Identification Numbers:

The Single Taxpayer Registry (Registro Único de Contribuyente, RUC) is the Tax Identification Number of every Panamanian natural or legal person.

The RUC of a natural person consists of the number of their identity card accompanied by a check digit (dígito verificador, DV) allocated by the General Directorate of Revenue (Dirección General de Ingresos, DGI). The RUC of a legal person corresponds to their assigned registration number at the Public Registry (Registro Público), followed by a combination of other registry numbers provided by the Public Registry Office or, by the year of its incorporation, with a DV as well.

Main trading partners (2021):

United States of America, China, Mexico, Costa Rica, Netherlands, India, Vietnam.

The Main Sectors of the Panama Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

Agriculture

30% of the country’s land is devoted to farming. Overall, agriculture accounts for 2.77% of GDP and employs 14.41% of the labour force. Panama mainly produces bananas and varieties of vegetables, maise, sugarcane, rice, coffee, watermelons, cocoa beans, pineapples, potatoes, coconuts, soybeans, timber, milk, livestock and shrimp. Considering Panama’s abundant and valuable forest resources, there has been little use of the country’s native trees for industrial purposes. Mahogany, tropical cedar, cativo (a large tree belonging to the legume family), and other woods supply domestic sawmills, and some logs are exported.

Industry is not very developed and contributes 22.8% of GDP, employing 17.7% of the labour force. 43.6% of Panama’s land is forest land, so logging is a big industry in the country. The leading industries are food processing (notably fish, sugar, bananas, and cacao), oil refining (near Colón), and natural gas and electricity production. Other major products include clothing, shoes and leather goods, alcoholic beverages, paper, chemicals, cement (in the limestone areas near the Trans-Isthmian Highway), and tobacco products. The main manufacturing centres are Panama City and the Colón Free Zone, with some industry at Colón and David.

Panama’s economy is pegged to the dollar, and the service industry is the biggest in the country, accounting for 70% of Panama’s GDP and employing 67.8% of the workforce. Transport is the most essential service industry sector, comprising the Panama Canal – the government’s chief revenue source. Other well-developed sectors are logistics, banking, the Colón Free Zone (a focal point for foreign investment in the manufacturing industry), insurance, container ports, boat registrations and tourism. Panama is also an essential country for off-shore banking services. In 2021, the services sector showed a steady recovery following the pandemic, as the activity in the Panama Canal intensified thanks to the resumption of world trade and increased tourism rates.

Tourism contributes nearly one-fourth as much to the Panamanian economy as the finance and real estate sector. In addition to the unique attraction of the Panama Canal, tourists are drawn to the thousand miles of beaches on both the Atlantic and Pacific coasts, the myriad of offshore islands, and the mix of colonial and contemporary life in Panama City also boasts a lively nightlife. The mild climate affords year-round opportunities for tennis, golf, fishing, boating, diving and other water sports. The San Blas islands draw visitors to the traditional culture of the Kuna. Panama’s abundant and varied flora and fauna on both land and sea attract eco-tourists, who have their choice of habitats to explore, including richly diverse cloud forests and coral reefs. Much of the potential in this area, however, remains underdeveloped.

Resources and Power

Clay, limestone, and salt are the leading mineral products, and gold, ferrous sand, and manganese have been mined on a small scale. There are commercially significant but largely unexploited deposits of copper, including the Cerro Colorado found in the Chiriquí province. Deposits of bauxite, phosphates, and coal have been minimally exploited, as have various construction materials such as stone and gravel. Petroleum reserves have been found off the Pacific and Caribbean shores. Electricity was long distributed by the state-run Institute of Hydraulic Resources and Electrification before it was privatised in 1998. Much of Panama’s electricity is generated by hydroelectric dams. The first plants were opened in 1975 at La Yeguada in Veraguas province and 1976 on the Chepo River; the largest, at La Fortuna, opened in 1984.

In 1970, the Panamanian government began to promote offshore banking by giving international transactions tax-exempt status; it also removed other forms of regulation. As a result, Panama attracted significant amounts of foreign capital, and by the 1980s, it had become Latin America’s largest financial centre. Several major Latin American, North American, and European banks have branch offices in Panama City. Some of these also operate branches in the provinces and provide loans for industrial, agricultural, and cattle-raising ventures. The National Bank of Panama (1970) oversees the banking system, partly reformed in 1998 to discourage money-laundering schemes connected to narcotics trafficking.

Panama is mainly export-oriented and highly dependent on trade, representing 83.2% of GDP. The country also has the largest trading fleet in the world, with 16% of the global fleet carrying capacity registered in Panama. The free zone of Colón is the second largest free zone in the world after Hong Kong, demonstrating the country’s openness to foreign trade. Panama’s principal imports are machinery, fossil fuels, transportation equipment, and chemical products. One-fourth of imports are from the United States.

The Main Sectors of the Panama Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

Agriculture

30% of the country’s land is devoted to farming. Overall, agriculture accounts for 2.77% of GDP and employs 14.41% of the labour force. Panama mainly produces bananas and varieties of vegetables, maise, sugarcane, rice, coffee, watermelons, cocoa beans, pineapples, potatoes, coconuts, soybeans, timber, milk, livestock and shrimp. Considering Panama’s abundant and valuable forest resources, there has been little use of the country’s native trees for industrial purposes. Mahogany, tropical cedar, cativo (a large tree belonging to the legume family), and other woods supply domestic sawmills, and some logs are exported.

Industry is not very developed and contributes 22.8% of GDP, employing 17.7% of the labour force. 43.6% of Panama’s land is forest land, so logging is a big industry in the country. The leading industries are food processing (notably fish, sugar, bananas, and cacao), oil refining (near Colón), and natural gas and electricity production. Other major products include clothing, shoes and leather goods, alcoholic beverages, paper, chemicals, cement (in the limestone areas near the Trans-Isthmian Highway), and tobacco products. The main manufacturing centres are Panama City and the Colón Free Zone, with some industry at Colón and David.

Panama’s economy is pegged to the dollar, and the service industry is the biggest in the country, accounting for 70% of Panama’s GDP and employing 67.8% of the workforce. Transport is the most essential service industry sector, comprising the Panama Canal – the government’s chief revenue source. Other well-developed sectors are logistics, banking, the Colón Free Zone (a focal point for foreign investment in the manufacturing industry), insurance, container ports, boat registrations and tourism. Panama is also an essential country for off-shore banking services. In 2021, the services sector showed a steady recovery following the pandemic, as the activity in the Panama Canal intensified thanks to the resumption of world trade and increased tourism rates.

Tourism contributes nearly one-fourth as much to the Panamanian economy as the finance and real estate sector. In addition to the unique attraction of the Panama Canal, tourists are drawn to the thousand miles of beaches on both the Atlantic and Pacific coasts, the myriad of offshore islands, and the mix of colonial and contemporary life in Panama City also boasts a lively nightlife. The mild climate affords year-round opportunities for tennis, golf, fishing, boating, diving and other water sports. The San Blas islands draw visitors to the traditional culture of the Kuna. Panama’s abundant and varied flora and fauna on both land and sea attract eco-tourists, who have their choice of habitats to explore, including richly diverse cloud forests and coral reefs. Much of the potential in this area, however, remains underdeveloped.

Resources and Power

Clay, limestone, and salt are the leading mineral products, and gold, ferrous sand, and manganese have been mined on a small scale. There are commercially significant but largely unexploited deposits of copper, including the Cerro Colorado found in the Chiriquí province. Deposits of bauxite, phosphates, and coal have been minimally exploited, as have various construction materials such as stone and gravel. Petroleum reserves have been found off the Pacific and Caribbean shores. Electricity was long distributed by the state-run Institute of Hydraulic Resources and Electrification before it was privatised in 1998. Much of Panama’s electricity is generated by hydroelectric dams. The first plants were opened in 1975 at La Yeguada in Veraguas province and 1976 on the Chepo River; the largest, at La Fortuna, opened in 1984.

In 1970, the Panamanian government began to promote offshore banking by giving international transactions tax-exempt status; it also removed other forms of regulation. As a result, Panama attracted significant amounts of foreign capital, and by the 1980s, it had become Latin America’s largest financial centre. Several major Latin American, North American, and European banks have branch offices in Panama City. Some of these also operate branches in the provinces and provide loans for industrial, agricultural, and cattle-raising ventures. The National Bank of Panama (1970) oversees the banking system, partly reformed in 1998 to discourage money-laundering schemes connected to narcotics trafficking.

Panama is mainly export-oriented and highly dependent on trade, representing 83.2% of GDP. The country also has the largest trading fleet in the world, with 16% of the global fleet carrying capacity registered in Panama. The free zone of Colón is the second largest free zone in the world after Hong Kong, demonstrating the country’s openness to foreign trade. Panama’s principal imports are machinery, fossil fuels, transportation equipment, and chemical products. One-fourth of imports are from the United States.

Commercial Laws in Panama

Labour Contracts Law in Panama

The relationship between employers and employees in Panama is governed by the Constitution of the Republic of Panama and the Labour Code (Código del Trabajo), which was drawn up in 1971 and amended in 1995. The conciliation boards of the Ministry of Labour address disputes.

General considerations for employers under the Labour Code include the following:

  • Providing employees with contracts in writing and Spanish, with translations if required.
  • The employer, employee and Ministry of Labour each have a contract copy.
  • The contract should include complete details of the employee, including any dependents; place and type of work; type of contract – indefinite or fixed-term; working hours and paid vacation allowance; salary and payment schedule; date, time and place where the contract was signed.
  • During the first week of work, employees must be registered with the social insurance authority, the CSS (Caja de Seguro Social Panameña).
  • The employee must have a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • The registration process is completed at the General Revenue Department (DGI) website.
  • Full-time employees must be correctly classified as such with the authorities and not as independent contractors, as they are treated differently for taxation purposes.

Tax Authorities

The General Revenue Department (Dirección General de Ingresos, or DGI) is the government authority with the power to administer tax collection and public revenues under the control of the Ministry of Economy and Finance.

Labour Authorities

The Ministry of Labour and Workforce Development (MITRADEL) is the government authority for all Labour matters in Panama.

Commercial Laws in Panama

Labour Contracts Law in Panama

The relationship between employers and employees in Panama is governed by the Constitution of the Republic of Panama and the Labour Code (Código del Trabajo), which was drawn up in 1971 and amended in 1995. The conciliation boards of the Ministry of Labour address disputes.

General considerations for employers under the Labour Code include the following:

  • Providing employees with contracts in writing and Spanish, with translations if required.
  • The employer, employee and Ministry of Labour each have a contract copy.
  • The contract should include complete details of the employee, including any dependents; place and type of work; type of contract – indefinite or fixed-term; working hours and paid vacation allowance; salary and payment schedule; date, time and place where the contract was signed.
  • During the first week of work, employees must be registered with the social insurance authority, the CSS (Caja de Seguro Social Panameña).
  • The employee must have a Unique Taxation Registration Number (Registro Único de Contribuyentes, RUC), which can be obtained from the government’s e-Tax website.
  • The registration process is completed at the General Revenue Department (DGI) website.
  • Full-time employees must be correctly classified as such with the authorities and not as independent contractors, as they are treated differently for taxation purposes.

Tax Authorities

The General Revenue Department (Dirección General de Ingresos, or DGI) is the government authority with the power to administer tax collection and public revenues under the control of the Ministry of Economy and Finance.

Labour Authorities

The Ministry of Labour and Workforce Development (MITRADEL) is the government authority for all Labour matters in Panama.

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