Panama Free Zone License: Requirements by License Type

The three licenses and who grants each

The short answer is that there is not one single “free zone license” but three, and each is requested by a different actor. Article 17 of Law 32 creates the Free Zone License for anyone who wants to act as promoter or operator, and article 26 creates the License for Companies Established in Free Zones for businesses that set up inside a zone. The 2017 decree separates them into three definitions: promoter license, operator license and established company license.

The deciding body is the National Free Zones Commission. The law defines it as an agency attached to MICI, chaired by the Minister of Commerce and Industries, with representatives from Economy and Finance, Labor, Health, Customs and the National Secretariat for Science, Technology and Innovation, among others. Its Technical Secretariat receives applications, and article 10 of the law provides that every procedure of promoters and companies before State entities goes through that Secretariat.

The distinction matters for anyone looking to set up a technology company. A project such as Innovation Smart District (ISD) states on its About page that it holds a free zone license issued by the National Free Zones Commission of MICI. That is the license on the zone side. A company that sets up there applies for its own, the established company license, and the decree requires a certification from the zone’s promoter for that.

Promoter license

The promoter is the one who conceives the project, finances it and organizes the zone. The law sets conditions of its own. Article 16 requires zones established after the law took effect to have a minimum of two hectares of land, with the option of asking the Commission for an exception if the project is smaller and is backed by technical and economic criteria. Article 20 obliges the promoter to invest in developing the zone a sum of no less than 250,000 balboas, to start that investment within one year of its registration in the Official Registry of Free Zones, and to file every year an activity report and a certification from an authorized public accountant proving what was invested.

Article 5 of the decree lists what the applicant must submit: a formal application through a lawyer when it is a legal entity, the articles of incorporation with a recent Public Registry certification (no more than three months old), bank references, a shareholder certification going down to the individual owners, a national good standing certificate, a digital ID-style photo and a signed study. That study describes the zone’s objectives and services, its area and location, the land title or lease, the initial investment and the investments planned for the next two years, financial projections, the schedule and the Ministry of Housing’s authorization on land use and zoning.

The process includes a site inspection by the Technical Secretariat and a technical report. If the Commission finds it viable, it sends it to the Cabinet Council, and only when the Cabinet resolution is published in the Gaceta Oficial is the license issued and the promoter registered. Article 21 of the law adds that the promoter’s license is permanent, although it can be revoked or canceled under the penalties chapter.

Operator license

The operator is the one who runs and administers the zone. The law allows promoter and operator to be the same person, and the decree repeats that the operator can be the promoter itself or whoever it designates. The list of requirements in article 8 of the decree is very close to the promoter’s, without the project study, and adds one item of its own: the authorization from the promoter designating the applicant as operator of the zone.

The same article adds a practical obligation: the operator must have an administrative office inside the free zone, from which it ensures compliance with the customs and tax rules in force. The Technical Secretariat checks that the application meets the law and has the promoter’s approval, may carry out an inspection and takes the file to the Commission, which records it in minutes before issuing the license.

Established company license

This is the license that matters to a startup or a technology company that wants to operate inside a zone. The law allows individuals or legal entities, domestic or foreign, to settle in activities such as goods production, services, logistics services, higher education, scientific research, high technology and environmental services. In article 24, the high technology company is defined as one dedicated to producing high value added goods and services, such as hardware, software, supplies and data processing and storage centers protected by intellectual property rules.

Under article 10 of the decree, the application carries a power of attorney to a practicing lawyer, the applicant’s details, a study of the activity to be carried out, the origin of raw materials, equipment and machinery, the number of jobs projected, the initial investment and the investments planned for two years, the schedule, the corporate documents, the national good standing certificate, the Taxpayer Registry number, a certification of invested capital issued by an authorized public accountant and the shareholder certification. The last piece is a certification from the zone’s promoter stating that the applicant’s installation was authorized, subject to approval of the license. Companies listed on a stock exchange are exempt from the shareholder certification and submit a stock exchange certification instead.

For the high technology category, the decree also asks for a study detailing the specialized high technology services and tools to be offered. For the services category, a study of the type of services to be provided. If the activity requires a sector license, for example from a regulator, that license must be held beforehand. All documents go in Spanish, and foreign documents must be authenticated or apostilled and translated by an authorized public translator.

Article 26 of the law sets a maximum of ninety days for the Commission to approve the established company license. Once approved, the company is entered in the Official Registry of Companies Established in Free Zones, and from the date of the resolution, under article 29, it enjoys the benefits and incentives of the law.

Documents side by side

The table summarizes what the decree asks of each applicant. It works as a map; the text of the decree prevails in case of doubt.

Radar’s compilation from articles 5, 8 and 10 of Executive Decree 62 of 2017, read in the copy of Gaceta Oficial 28257 A published by MICI. The decree is in Spanish and the content is paraphrased.

Obligations and cancellation

The license comes with commitments. Article 28 of the law obliges the authorized company to invest at least the capital stated in its application, to start the investment within one year of registration and the activity within two years, unless the nature of the business requires more time. It must also hire Panamanian workers, with the exception of foreign experts, technicians and trusted staff, offer them training, comply with environmental rules and send the Commission each year statistics on jobs, investment, products or services and destination markets.

Non-compliance follows a graduated path. Under article 39, a written warning is issued with ninety calendar days to correct; if the problem persists, the penalty is a fine of up to 100,000 balboas, and if it is still not resolved the license and the registration are canceled. Article 38 notes that failure to meet investment amounts and deadlines can lead directly to cancellation, unless force majeure applies.

What to check before applying

This order lets the applicant reach the Technical Secretariat with the file complete. To compare the free zone with other regimes, Radar’s piece on Panama’s special regimes is a starting point, and the one on taxes a company pays in Panama shows the general regime.

This content is informational and does not replace the advice of a lawyer or a professional specialized in the free zone regime.

Related articles

• Panama’s special regimes: Colón Free Zone, Panamá Pacífico, SEM and EMMA
• How to open a company in Panama: steps, Notice of Operation and taxes
• Taxes a company pays in Panama: income tax, ITBMS, dividends, Notice of Operation and payroll
• Panama as a digital hub: submarine cables, data centres and what it means for a technology company

Sources

• Law 32 of April 5, 2011, Gaceta Oficial Digital 26757 B: articles 3, 9, 10, 16 to 21, 24, 26, 28, 29, 38 and 39. Copy published by MICI.
• Executive Decree 62 of April 11, 2017, Gaceta Oficial Digital 28257 A: articles 3 to 12. Copy published by MICI.
• MICI, General Directorate of Free Zones: regulations.
• Innovation Smart District, About: free zone license and benefits under Law 32.
• Radar Panamá, special regimes, how to open a company and taxes a company pays.