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New Panama Law, Quickly Repealed, Makes Panama Dangerous for Business

 -- Published: Thursday, 2 January 2014 | Print  | Disqus 

By Randy Hilarski

We are all in shock right now! #Panama just put into law legislation which makes Panama Dangerous for all types of companies in Panama. Then in a flash the law was quickly repealed. The law was far reaching and had the Panama business community scrambling to contact their lawyers.

The law was buried in legislation signed into law on December 30, 2013 by President Ricardo Martinelli. Law 120 made it a requirement for all companies to pay taxes in Panama on their worldwide income.

Law No. 120 of 2013, states that every natural or juridical, domestic or foreign, who receives any taxable income within or outside Panamanian territory, must pay taxes.

Lets make something clear, Panama has been a business friendly nation for over a century. Sure the fall guy in all of this is Luis Cucalón, administrator of the National Revenue Authority Panama (ANIP ). He is shouldering the blame for the new legislation that was submitted on December 30, 2013 while the legislative body was home for the holidays.

I have two questions.-

1. Why would a non elected official like Luis Cucalón have the authority to change a national Law without a vote?

2. Why would such a huge change to Tax Law be buried in legislation?

Here is the Tweet from President Martinelli saying he will discuss the legislation.

Here is the Tweet from Luis Cucalón saying Law 120 will be repealed.

This whole fiasco really makes me wary of doing business in Panama. Yes the law has been repealed but what if it was just a test to see what the response of the business community would be? From a distance this may just look like low hanging fruit that the Panama government could tap into and tax, but up close this would be the most destructive legislation this country has ever put into law.

Let me be clear, a law like this would utterly cripple the Panama economy! Taxing shipping companies, logistics companies, foreign companies that do business in Panama and all the other smaller companies and residents who choose to do business here because of its tax friendly policies would cause a mass exodus. These companies would close, move their money out of the country and leave thousands without jobs.

Why would the administration risk mass rioting, loss of revenue, harming the Panama Canal income and driving away good paying jobs? As an American I am used to seeing bone headed moves like the Free Trade Agreement signings which saw an exodus of jobs to cheaper countries with less protection for workers. Panama is a country which has a thriving middle class. Why risk destroying your own countries economy unless of course you are trying to emulate the American economy? Panama is seeing double digit growth while the USA is in a bit of a funk.

My personal belief is that this idea originated outside of Panama. There are some countries and central banks that would love to see these tax havens disappear. Panama has built a thriving economy off the back of 100 years of a business friendly tax environment. Who is putting pressure on the Martinelli administration which has only a short time left in office?

We do know that Panama signed an agreement in 2011 with the USA to open its banks doors to the US authorities. After this occurred it was very difficult to open a bank account in Panama as Panama banks no longer wanted American clients and went so far as cashing you out and saying, “Best of Luck to You”. This made Panama a less desirable country to do business in, the new Law 120 would have put the nail in the coffin.

So what does one do? Contact your lawyer and ask what you can do to prepare in case this happens again. This will be a scary time for many small business owners in Panama. We live in a time of uncertainty. National sovereignty is being eroded.

Law 120 would have made Panama dangerous for Business. Don’t let a laughable government be in control of your fiscal future. Educate yourself and be prepared for the changes that are ahead.

About Randy Hilarski

Randy Hilarski is an entrepreneur who moved to Panama where he saw opportunity and growth. Panama has been an opportunity of a lifetime with excitement at every turn. Choosing to be an expat was an easy choice for Randy. The world is changing and he wanted to be part of it. Native of Rochester, NY he spent his first eighteen years there before deciding to join the US Navy after graduating High School. The Navy took him on an eight year journey around the world where he worked as a Corpsman/Nurse. The Navy taught him to survive in foreign lands and adapt to other cultures. After leaving the Navy he spent time in school, working in sales and working in psychiatry. Helping others has always driven Randy to learn more and more about people, culture and what drives them. Randy has lived all over the USA, in Italy and Ethiopia and while serving in the US Navy spent time in many exotic locations around the world. Some of his interests include internet marketing, writing, social media, travel, metals, investing, sustainable agriculture and culture.

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