The evidence was there for all to see. President Barack Hussein Obama, in his recent State of the Union speech, unveiled a cornucopia of new government programs with the promise that all of the related spending would not add one dime to our already gargantuan national deficit.
I was reminded instantly of President Ronald Reagan’s much-quoted quip about how to tell if a politician is lying — “see if his lips are moving.”
Let’s not pull any punches. Although President Obama would never admit it, he is now America’s leading advocate of an economic and political philosophy that was once anathema to most Americans — socialism.
His assault of massive federal spending and regulatory overreach is simply more of the same — ever-increasing taxes and a tighter regulatory noose around the necks of American citizens.
Yet it is still possible to escape and to reinvent yourself, your fortunes and your future overseas.
Panama has opened its doors ever-wider for those looking for financial independence, personal liberty and unique investment opportunities. Panama offers an expedited path to greater freedom and profits in a friendly country just a two-hour flight away from Houston or Miami.
In my article, you’ll find the critical information and personal contacts needed to carve out your own sovereign offshore life in the Age of Obama.
Panama’s Second Rebirth Offers Great Opportunities
Panama is currently undergoing one of its periodic “rediscoveries” by the outside world.
Even the U.S. State Department this month said: “International indexes generally rate Panama as one of the best countries in Latin America for business and investment.”
From 2005 to 2010, Panama’s economy averaged 8% growth annually. In 2011, it was up 10.6%. In 2012, it neared 9% and so far, in 2013, it has grown by over 10%, the fastest growth in all of Latin America. Accounting for purchasing power, it is one of the five richest countries in mainland Latin America. It is also the 11th fastest growing economy in the world, ahead of China (7.8%), Brazil (1.3%) and the United States (2.2%).
From 2006 to 2010, poverty was reduced by 10% in Panama, while unemployment dropped from 12% to less than 3% in 2011. One major real estate developer told me: “Now we can’t find enough workers. There is no unemployment.” All this and inflation has remained in the 5% to 6% range.
Growth has been augmented by the Panama Canal expansion project that began in 2007 and is scheduled for completion by 2014. Canal capacity will more than double, allowing passage of ships too large to traverse the existing waterway, with the U.S. and China among its major users. Some 15,000 ships, carrying 5% of the world’s sea-going cargo, already pass through the canal every year producing over $1 billion in revenue.
At the heart of Panama’s strong economy lies its well-developed service sector, which accounts for more than three-quarters of the country’s GDP. This sector includes all Panama Canal operations and logistics, the Colon Free Trade Zone (second only to Hong Kong in trade volume), insurance, container ports, flagship registry, tourism and, of course, finance.
The country has more than 80 well-regulated banks, 50 of which are multinationals, that collectively hold an estimated $100 billion in assets, with liquidity impressively high at an average 30%, far better than in the U.S.
A Pro-Free Market Government
Panama’s current president, Ricardo Martinelli, is a multi-millionaire grocery store magnate, who was elected in a three-way race with an unprecedented 50% of the vote for a five-year term in 2009.
The U.S.-educated Martinelli has been a vocal opponent of Venezuela’s late, radical leftist leader, Hugo Chavez. Although critics claim the conservative Martinelli is a power-hungry caudillo, whose infrastructure spending is going to bankrupt the country, polls show that the president and his free market policies remain more or less popular.
One of Martinelli’s priorities was a five-year, $13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads and a metro transit system for the congested capital. Pensions for the poor and a universal scholarship program were instituted to reduce inequality.
Although Martinelli is limited constitutionally to one term, the current political environment is in no more turmoil than that of the United States in a pre-election year. Whatever the eventual election outcome, the next government will be pro-free market and pro-American.
On the Fast Track
The radical restrictions imposed in the U.S. by the PATRIOT Act, the Exit Tax and the Foreign Account Tax Compliance Act (FATCA) are driving wealth from the United States. For years, Americans have been subjected to laws that restrict and punish successful people for the offense of having worked hard and achieved success. Now, Panama is providing a convenient way out.
During the past four years of rapid expansion, President Martinelli saw the need for qualified talent to continue the economic growth. In April 2012, I met with the Minister of the Presidency, Demetrio “Jimmy” Papadimitriu, a former Capitol Hill aide to U.S. House Speaker John Boehner of Ohio, who emphasized what he described as “Panama’s need for thousands of better educated and trained workers.”
He told me: “Martinelli’s open-door policy seeks both foreign direct investment and skilled international professionals. We are looking for workers in growth sectors such as logistics, tourism, banking and those who will make Panama a regional hub for multinational companies.”
On May 16, 2012, President Martinelli signed an order that created a new category of “Immediate Permanent Resident” aimed at attracting foreign nationals to Panama.
Executive Order 343 created a new category for foreigners from selected countries “that maintain friendly, professional, economic, and investment relationships with the Republic of Panama” making them eligible for immediate residence and eventual citizenship.
John Gaver, president of the conservative group, Action America, commented: “Panama is creating a huge magnet for foreigners with either skill or money to move to Panama and work or start a business at a time when the U.S. government is making it increasingly punitive for those same people to stay in the United States.”
Under this new immigration category, qualified applicants will be able to engage in professional and economic activities, establish businesses and have the right to work in Panama — permissions that, in the past, have been difficult to obtain. After five years they will be eligible to apply for full citizenship.
This grants immediate residence and a “cédula,” the national identification card issued to all Panamanians, not only to the qualified foreign individuals, but also to dependent spouses, children under 18, family members with disabilities and dependent parents. Children ages 18 to 25 can be included if they are students.
Visa applications are made to the National Immigration Service (NIS), but subsequent work permits are governed by commercial and labor laws administered by the Ministry of Labor, with foreigners barred from some professions. Experience shows applicants will need to be represented by a qualified Panamanian attorney, especially if they do not speak Spanish.
In addition to the fast-track residence program for foreigners looking to work in Panama, there is also a new “Professional Residence Permit” that makes it easy to qualify for residence without making a major financial investment or proving pensioner status.
Apart from the usual good conduct domestic police report, applicants for this visa need to have a bachelor, masters or doctorate degree, provided his or her intended profession in Panama is not one of those protected by legal restrictions for Panamanians only. Because of these limitations, this visa is mainly available to those in teaching or research positions.
In my newly revised “Passport Book”, I reveal which foreign officials to contact to expedite all passport and dual citizenship documents.
Other visas available include:
The “investor visa” (inversionista) is issued to those who invest at least $160,000 in a permitted business and hire a minimum of five permanent Panamanian employees. It is granted provisionally for two years. Upon renewal an identification card (cedula) is issued. After five years, the holder is eligible to apply for citizenship. A similar visa is available for those who invest in agricultural projects.
An “immigrant visa” for those who want to become citizens of Panama is provisionally granted for one year, after which a petition for permanent residence must be filed. If approved, a permanent residence permit and a Panamanian identification card (cedula) are issued. After five years, the holder is eligible to apply for and receive full citizenship.
Open for Business
There are also many possibilities for foreigners who want to do business in Panama. And the conditions for commerce are about to get even better.
After four years of stalling by President Barack Obama because of U.S. labor union objections, a U.S.-Panama Free Trade Agreement (FTA), signed in 2007 by President George W. Bush, was finally approved by the U.S. Congress and signed into law in October 2011. Its provisions have yet to take full effect.
The government of Panama does impose some limitations on foreign business ownership, as in the retail and media sectors where ownership must be Panamanian, but foreign retailers have been able to work through franchise arrangements. Currently about 55 professions are reserved for Panamanian nationals including medical practitioners, lawyers, accountants and custom brokers. The government also requires foreigners in some sectors to obtain explicit permission to work.
Under the FTA, Panama gives U.S. service suppliers substantial access to its markets, including financial services, express delivery and certain professional services previously reserved to Panamanians. They also agreed that U.S. portfolio managers can provide management services to both mutual funds and pension funds in Panama. U.S. insurance suppliers are permitted to operate as a branch or subsidiary.
If you are interested, Panama’s Ministry of Commerce and Industry is responsible for promoting foreign investment. Proinvex (toll free from U.S., (888) 453-8257) is the agency that provides foreign investors with information, expedites specific projects, leads investment-seeking missions abroad and supports foreign investment missions to Panama.
Panama has established several export-processing zones that offer special tax and other incentives for manufacturers located there, including call centers. Companies pay basic user fees and a 5% dividend tax or 2% of net profits if there are no dividends. The zones also offer employees tax-free status, special immigration privileges and license and customs exemptions for manufacturers who locate there. Investment incentives are available equally to Panamanian and foreign investors. There are also special tax breaks for investing in tourist facilities. Tourist numbers exceeded two million in 2011.
Life in Panama is a far more modern experience than many expect. Panama City, the balmy, tropical capital on the southern, Pacific end of the Panama Canal, suggests Miami, except arguably more locals speak English here than in some parts of South Florida.
The city has thousands of modern condominiums and more than 100 skyscrapers, new first-class hotels (two new Westins) and restaurants, plus excellent high-speed Internet and other global communications.
If you speak Spanish it helps, but Panama City is a world crossroads in every sense – people, commerce, business, goods, services and available products. Malls offer any high-end fashionable store you can find in New York or London, and every fast food or low cost retail outlet you find in Columbus, Ohio or Portland, Maine. Small cars dominate in traffic but dealerships sell anything you can afford.
The country, after almost a century of what amounted to American military occupation, is in many ways “Americanized,” but not enough to dilute its distinctive friendly Latin flavor. Expats from the U.S., Europe, Asia, and the world live, work and play here providing a unique mix that is never dull. And an hour’s drive away are the Pacific coast beaches, a few more hours are beautiful, cool mountain towns such as El Valle and Bouquete.
One loyal reader of mine who just returned from a first visit to Panama summed up his impressions in an email to me: “How incredibly vibrant and dynamic Panama City is. I could barely believe all the skyscrapers. It was like flying into a Miami-esque Manhattan — definitely a country and city on the way up, and waaaay under the radar for most Americans.”
Key Real Estate Facts
The overheated Panama real estate market has cooled and bargains are now available.
A friend with a property management company in Panama City since 2006 says a 1,000-square-foot fully furnished condo on Avenida Balboa now rents for $2,200-$2,400 a month and sells for $300,000 new. A few years ago it would have cost $360,000.
A larger condo in an older family neighborhood like Punta Piatilla can be had for $100 per square foot and up.
There are many attractive Pacific Ocean-front golf communities an hour away from Panama City, plus new high-rise condos minutes from center city in Costa del Este.
If you like cool, mountain living, rural Boquete offers a lot of options. Property with infrastructure in place can be priced from $10 to $100 per square meter depending on location and views.
Panama’s Low-Tax Surprise
Unfortunately, Americans carry the obligation to pay U.S. taxes on their backs like a tortoise carries his shell. Wherever they go, they still must pay Uncle Sam his due.
But new arrivals coming to Panama to invest or work will be pleasantly surprised at the low taxes they will encounter. The system is territorial, so only earnings from within Panama are taxable. If you are employed by an international company, you may be able to structure your pay so that some can be paid offshore.
The personal income tax is a sliding scale starting at 7% above the first $9,000, to a maximum rate of 27% only on Panama-source income. Capital gains are taxed at the same rate. For property held for two years or more not owned by someone in the real estate business, a flat tax of 10% applies to any gross profits.
Taxable income includes wages, salaries, business profits, pensions/bonuses, and income from copyrights, royalties, trademarks, stock sales, bonds and securities.
Deductions are allowed for in-country medical expenses, donations to charities, interest paid on home mortgages, education expenses and loans for home improvements.
Unlike the U.S., there are no inheritance taxes in Panama. There are taxes on gifts of Panamanian properties made between living persons (inter vivos). The tax rate depends on the degree of relationship between the donor and the recipient, but there is no gift tax on property owned outside Panama.
Properties with a registered value of $30,000 or lower are exempt from property taxes. Properties of higher value are taxed as follows: 1.75% from $30,000-$50,000; 1.95% from $50,000-$75,000; and 2.1% above $75,000.
If you buy or build a residential property in Panama, you may be exempt from property tax for up to 20 years, if the construction permit was issued by Sept. 1, 2006, and if the occupancy permit issued and improvements were registered by Sept. 1, 2007. On houses or apartments where the construction permit was issued after Sept. 1, 2006, the following exemptions apply:
Value up to $100,000: 15-year exemption
Value from $100,000 to $250,000: 10-year exemption
Value over $250,000: 5-year exemption
The exemption is transferable to any new buyer during the exemption period. The land is not exempted and would continue to incur property tax if its value is above $30,000.
Real estate transfer taxes in Panama are paid by the seller at a rate of 2% of the updated registered value of the real property, or the sale price, whichever is higher. The updated value is the registered value, plus 5% per year of ownership.
If the property is bought by a corporation, it is customary for the shares of the company to be sold instead of the title to the property, with the tax paid on the face value of the shares, rather than the assets in the company being transferred. Normally that would be $10,000, the stated value of the issued share capital. That would amount to a tax of $500 (5%).
Make Your Move
I have visited Panama many times since my first visits as a U.S. congressman in the turbulent 1970s, so many that I can’t count them all.
Since Vasco Nunez de Balboa (1475-1519), the first European to set foot in Panama in 1510, the isthmus and its peoples have welcomed foreigners from all over the world; many thousands have stayed, intermarried and made and lost fortunes. Few countries can boast so romantic a history, so pleasant a climate, so friendly a people, and so dynamic and modern an economy.
Panama is still the ideal location for retirement, a second home, an offshore bank account or any number of legal, asset protection structures – and now it has a new mechanism that welcomes foreigners for employment, business and investment.
The Republic Panama is a proud nation that will welcome you — as it always has me.
Bob Bauman, JD
Author, The Passport Book
When it comes to “offshore,” there’s no one more experienced and more qualified than Bob Bauman. Period.
After receiving his juris doctor degree from the Law Center of Georgetown University, he practiced law. Less than a decade later, he was serving as a Member of the U.S. House of Representatives (1973-1981). The Wall Street Journal, The New York Times, the National Review, and many other publications have featured his work.
His work in Congress took him on trade and diplomatic missions around the world – from Beijing (back when it was called Peking!) to Panama and points in between. Since then, as Legal Counsel to The Sovereign Society, he has led offshore banking expeditions to dozens of countries on five continents.
Currently, he is a sought-after advisor, author, and lecturer on many aspects of wealth protection, offshore citizenship, and international residency.
Bob has truly been around the global block. And while he still believes the United States is one of the best countries of the world… the sad, yet undeniable, facts are that the American way of life has deteriorated over the past 50 years. And the pace of decline is only accelerating.
He wrote THE PASSPORT BOOK to help people like you discover more options for living with the rights you deserve by regaining control of your life. After all, your life belongs to you.
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