Digital Business in Panama

Digital Business in Panama

(Fintech Panama, Technology Panama, IT Panama, Software Panama, Cyber Security Panama, Crypto Panama)

1. Legal framework

1. Which legislative and regulatory provisions govern digital business in your jurisdiction?

For the purposes of this article Digital Business will embrace fintech, technology, IT, software cyber security, data centers and others.

Digital business in Panama is primarily governed by the following regulations

• Commercial Code
• Electronic Commerce Law (Law 51 of 2008)
• Data Protection Law (Law 81 of 2019)
• Copyright Law (Law 15 of 1994) and related regulations
• Consumer Protection Law (Law 45 of 2007)
• Telecommunications Law (Law 31 of 1996) and its regulations
• Cybersecurity Law (Law 95 of 2019)
   
  1. Do any special regimes apply (eg, in specific industries or to certain types of products)?

Panama has certain investment, tax and legal benefits for all types of industries, but in the digital field, we can highlight certain advantages and special zones for the development of investments.

 Panama Pacifico Special Economic Area:

• Overview: This area is designed to promote economic growth and attract foreign investment.
• Incentives: Companies operating within the Panama Pacifico area enjoy various benefits, including tax exemptions (e.g., income tax, VAT, import duties) and simplified customs procedures.
• Targeted Industries: It is particularly favorable for businesses in technology, logistics, and service sectors.

 

 City of Knowledge:

• Overview: Located in Clayton, this is a hub for innovation and development, fostering the growth of tech startups, research institutions, and educational organizations.
• Incentives: Companies benefit from tax incentives, networking opportunities, and access to advanced infrastructure and facilities.

 

Colon Free Trade Zone:

• Overview: This is the largest free trade zone in the Americas, located in the city of Colon.
• Incentives: Businesses in this zone enjoy tax exemptions on imports and exports, as well as other fiscal incentives.
• Targeted Industries: It supports a wide range of industries, including electronic goods, textiles, and pharmaceuticals.

 

Multinational Headquarters (MHQ) Regime:

• Overview: This regime is designed to attract multinational companies to set up their regional headquarters in Panama.
• Incentives: Benefits include income tax exemptions for services provided to related parties outside of Panama, as well as exemptions on import duties for certain goods.
• Targeted Industries: This regime is beneficial for companies involved in regional management, logistics, finance, and other professional services.

 

Free Zones:

• Overview: Panama has various free zones across the country that offer benefits to businesses.
• Incentives: These zones provide tax and import duty exemptions, as well as other fiscal incentives to promote exports and international trade.
• Targeted Industries: Free zones support a wide range of industries, including manufacturing, logistics, and technology.

 

Special Economic Area for the Development of Technology-Based Enterprises (SEZ):

• Overview:This area is aimed at fostering the growth of technology-based companies.
• Incentives: Companies within these areas benefit from tax incentives, reduced bureaucratic processes, and access to technological infrastructure.
• Targeted Industries: Specifically targets IT, software development, and other tech-driven industries.

 

Regulatory Considerations:

Digital businesses in Panama must also comply with the country's data protection regulations, particularly Law 81 of 2019 on Data Protection, which regulates the collection, processing, and storage of personal data.

For the development of certain digital businesses, especially those involving money collection, cryptocurrencies, securities and insurance sales, will be subject to supervision by government authorities in those matters.

If you have any more specific questions or need further details on any of these regimes, feel free to ask!

 

1. Which bilateral or multilateral instruments or treaties with effect in your jurisdiction have relevance for digital business?

 

1. Trade Agreements:

Central America-Dominican Republic Free Trade Agreement (CAFTA-DR):

This agreement promotes trade and investment between the United States, Central American countries, and the Dominican Republic. It includes provisions on e-commerce, telecommunications, and intellectual property that benefit digital businesses.

Trade Promotion Agreement (TPA) with the United States:

This agreement includes provisions on e-commerce, intellectual property rights, and trade in services, which are relevant for digital businesses operating between Panama and the United States

Free Trade Agreement with Canada:

This agreement includes provisions on e-commerce, intellectual property rights, and trade in services, which are relevant for digital businesses operating between Panama and Canada.

Free Trade Agreement with Singapore:

This agreement includes provisions on e-commerce, intellectual property rights, and trade in services, which are relevant for digital businesses operating between Panama and Singapore.

Free Trade Agreement with Taiwan:

This agreement includes provisions on e-commerce, intellectual property rights, and trade in services, which are relevant for digital businesses operating between Panama and Taiwan.

Association Agreement between Central America and the European Union:

This agreement facilitates trade and cooperation between Central American countries and the EU, including provisions that impact digital trade and intellectual property protection.

 

There are other agreements between Panama and a number of countries.

 

2. Intellectual Property Treaties

Berne Convention for the Protection of Literary and Artistic Works:

This treaty protects the rights of authors in their literary and artistic works, including those disseminated digitally.

Paris Convention for the Protection of Industrial Property:

This treaty provides protection for industrial property, such as patents, trademarks, and industrial designs, which are crucial for digital businesses.

Patent Cooperation Treaty (PCT):

This treaty facilitates the filing of patents internationally, which is beneficial for digital businesses involved in technological innovations.

Madrid Protocol:

This agreement allows for the international registration of trademarks, simplifying the process for digital businesses to protect their brands globally.

 

3. Data Protection and Privacy

Convention 108 of the Council of Europe:

Although Panama is not a member of the Council of Europe, the principles of Convention 108 on data protection influence global standards and practices, including those adopted in Panama’s data protection laws.

Law 81 of 2019 on Data Protection:

This domestic law aligns with international standards on data protection and privacy, impacting how digital businesses handle personal data.

 

4. World Trade Organization (WTO) Agreements

General Agreement on Trade in Services (GATS)

GATS includes provisions relevant to digital services, promoting fair and open trade in services, which encompasses many aspects of digital business.

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

TRIPS establishes minimum standards for the protection and enforcement of intellectual property rights, which are essential for digital businesses.

 

5. Multilateral Treaties and Organizations

United Nations Convention on the Use of Electronic Communications in International Contracts

This convention facilitates the use of electronic communications in international contracts, supporting the legal framework for digital transactions.

World Intellectual Property Organization (WIPO)

Panama is a member of WIPO, and it adheres to various treaties administered by WIPO that protect intellectual property in the digital realm.

These treaties and agreements provide a framework that supports the growth and protection of digital businesses in Panama by ensuring a stable and predictable legal environment for trade, data protection, and intellectual property rights. If you need more detailed information on any specific treaty or how it applies to digital business, let me know!

1.4 Which bodies are responsible for implementing and enforcing the digital business regime in your jurisdiction? What is their general approach in doing so and what are their key areas of focus?

 

Ministry of Commerce and Industries (MICI)

• Role: MICI oversees commercial activities, including digital businesses. It is involved in implementing trade agreements and promoting foreign investment.
• Approach: MICI focuses on creating a favorable business environment through regulatory support, incentives for businesses, and international trade agreements.
• Key Areas of Focus:
  • Trade facilitation and export promotion
  • Implementation of free trade agreements
  • Support for innovation and entrepreneurship

 

National Authority for Government Innovation (AIG):

• Role: AIG is responsible for promoting digital transformation and e-government initiatives.
• Approach: AIG focuses on enhancing digital infrastructure, promoting e-services, and ensuring cybersecurity.
• Key Areas of Focus:
  • Development of digital infrastructure
  • Implementation of e-government services
  • Cybersecurity initiatives and regulations

 

National Authority for Public Services (ASEP):

• Role: ASEP regulates telecommunications, broadcasting, and other public services.
• Approach: ASEP ensures compliance with regulations, promotes fair competition, and protects consumer rights in the digital sector.
• Key Areas of Focus:
  • Regulation of telecommunications and internet services
  • Licensing and compliance for service providers
  • Consumer protection and quality of service standards

 

National Directorate of Electronic Commerce:

• Role: This directorate, under MICI, specifically focuses on promoting and regulating e-commerce.
• Approach: It works on creating a regulatory framework that supports the growth of e-commerce while ensuring consumer protection.
• Key Areas of Focus:
  • Development of e-commerce regulations
  • Promotion of digital business practices
  • Consumer protection in online transactions

 

National Authority for Transparency and Access to Information (ANTAI):

• Role: ANTAI ensures transparency and access to information, which includes overseeing data protection regulations.
• Approach: ANTAI focuses on protecting personal data and ensuring that public and private entities comply with data protection laws.
• Key Areas of Focus:
  • Implementation and enforcement of data protection laws (Law 81 of 2019)
  • Monitoring compliance with data privacy regulations
  • Educating businesses and consumers about data protection rights

 

Industrial Property Registry:

• Role: This body is responsible for registering and protecting intellectual property rights, including patents, trademarks, and copyrights.
• Approach: It ensures that intellectual property laws are enforced and provides a legal framework for the protection of digital and technological innovations.
• Key Areas of Focus:
  • Registration and enforcement of intellectual property rights
  • Support for innovators and creators in protecting their works.
  • Collaboration with international IP organizations

 

General Approach and Key Areas of Focus:

• Regulatory Support and Compliance: Ensuring that businesses comply with relevant laws and regulations.
• Consumer Protection: Safeguarding the interests of consumers in digital transactions.
• Promotion of Innovation: Encouraging the development and growth of digital businesses through incentives and support programs.
• Data Protection: Ensuring that personal data is handled responsibly and in compliance with the law.
• Cybersecurity: Protecting digital infrastructure and data from cyber threats.

 

These bodies work collaboratively to create a robust environment for digital business in Panama, balancing regulatory oversight with the promotion of innovation and investment.

 

2. Market snapshot

2.1 How embedded has digital business become in your jurisdiction? How does this picture vary from sector to sector?

Digital business in Panama is growing. In recent years all industries have been migrating to e-commerce, through mobile applications, websites, social media sales, and development of digital technologies.

The impact of the Covid-19 pandemic also accelerated the migration process to e-commerce. Faced with the difficulties of being able to sell in person, sales were made through e-commerce to such an extent that today all companies have an online sales page.

We have a remarkable development in the digital business of payment applications, real estate management and banking.

 

2.2 Who are the main players – domestic, foreign and international?

All sectors are involved, especially the international sector.

2.3 Are many domestic players active overseas? If so, are there any key jurisdictions and/or sectors in which they have carved a particular foothold?

The national market for large industries is small, but Panama serves as a technological hub for the region because of the benefits it offers to international companies.

2.4 Are there any cultural aspects or attitudes which are particularly conducive to the uptake of digital business in general, or specific aspects thereof (eg, electronic payments), in your jurisdiction?

For the moment, the greatest development has been in the electronic payments and sales sector.

2.5 Are there any cultural barriers to the uptake of digital business in general, or specific aspects thereof, in your jurisdiction?

The domestic market is small. However, Panama has been categorized for being home to multiple multinationals for the Latin American region, so for the management of digital business is innovative.

2.6 What enduring effects has the Covid-19 pandemic had on the digital business landscape in your jurisdiction?

Accelerated the process of transition to digital business.

 

3. Technologies

3.1 How are the following digital business technologies regulated in your jurisdiction, and what specific considerations and concerns should be borne in mind in relation to each?

 

(a) Online payments:

• Regulation: Online payments in Panama are primarily regulated by the Superintendence of Banks of Panama and the Ministry of Economy and Finance. The regulatory framework includes laws and regulations related to electronic payments, data protection, anti-money laundering (AML), and know your customer (KYC) requirements.
• Considerations and concerns: Businesses operating in online payments need to comply with AML and KYC regulations, ensure data security and privacy according to local laws, and adhere to payment processing standards.

 

(b) Fintech:

• Regulation: Fintech companies in Panama are regulated by the Superintendence of Banks, which oversees financial institutions and activities. The regulatory framework for fintech includes laws related to electronic banking, financial services, consumer protection, and data security.
• Considerations and concerns: Fintech startups and companies should be aware of licensing requirements, data protection regulations, cybersecurity measures, and compliance with financial regulations specific to their services.

 

(c) Digital health:

• Regulation: Digital health technologies in Panama are governed by various laws and agencies, including the Ministry of Health and the National Secretariat of Science, Technology, and Innovation (SENACYT). Regulations cover telemedicine, electronic health records, medical device approvals, and patient data protection.
• Considerations and concerns: Providers of digital health solutions must comply with medical device regulations, data privacy laws (such as GDPR if dealing with EU data), patient confidentiality standards, and ensure the security of healthcare data.

 

(d) Artificial intelligence:

• Regulation: Panama does not have specific laws solely focused on regulating artificial intelligence (AI). However, AI applications may fall under existing regulations related to data protection, consumer rights, employment laws, and ethical considerations.
• Considerations and concerns: Companies using AI technologies should consider ethical implications, bias in AI algorithms, data privacy, transparency, accountability, and potential impact on employment and society.

 

(e) Other technologies:

• Depending on the specific technologies involved, other considerations and regulations may apply. For example, e-commerce platforms would need to comply with consumer protection laws, electronic contracts, and online dispute resolution mechanisms.

 

It's important for businesses operating in these digital sectors in Panama to stay updated with regulatory developments, seek legal advice when needed, and implement robust compliance and risk management practices.

 

4. Data protection and cybersecurity

4.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for digital businesses? How does this vary from sector to sector?

 

Panama, the data protection regime is primarily governed by Law 81 of 2019 on Personal Data Protection. This law establishes principles and regulations for the collection, processing, storage, and transfer of personal data. Here are some key aspects of the data protection regime in Panama and its implications for digital businesses:

 

1. Data Protection Principles: The law outlines principles such as legality, consent, purpose limitation, data minimization, accuracy, storage limitation, integrity, confidentiality, and accountability. Digital businesses must comply with these principles when handling personal data.
2. Data Subject Rights: Individuals have rights regarding their personal data, including the right to access, rectify, delete, and oppose the processing of their data. Digital businesses must establish mechanisms to allow data subjects to exercise these rights.
3. Data Transfers: Transfers of personal data outside Panama are subject to certain requirements to ensure adequate levels of protection for the data. Digital businesses engaging in international data transfers must comply with these requirements.
4. Security Measures: The law mandates digital businesses to implement appropriate security measures to protect personal data from unauthorized access, alteration, disclosure, or destruction.
5. Data Protection Officer (DPO): Some businesses may be required to appoint a Data Protection Officer responsible for ensuring compliance with data protection regulations.
6. Sector-Specific Regulations: Certain sectors may have additional data protection requirements or guidelines. For example, the healthcare sector (digital health) may have specific regulations regarding the processing of health data, while the financial sector (fintech) may have additional requirements due to the sensitivity of financial information.
7. Enforcement and Penalties: Non-compliance with data protection laws can result in penalties, including fines and sanctions. Digital businesses need to be aware of these consequences and strive for compliance. The implications of the data protection regime vary across sectors due to the nature of the data involved and sector-specific regulations. For instance:

• Fintech: Fintech companies dealing with financial data must ensure secure data handling practices and compliance with financial regulations alongside data protection laws.
• Digital Health: Companies in the digital health sector must navigate additional regulations related to the processing of sensitive health data, including patient consent and data security measures.
• Artificial Intelligence: Businesses using AI technologies need to consider data protection implications, especially regarding the use of personal data for training algorithms and making automated decisions.

 

Overall, digital businesses in Panama must navigate a complex landscape of data protection regulations, sector-specific requirements, and evolving technology trends to ensure compliance and maintain trust with users and stakeholders.

 

4.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for digital businesses? How does this vary from sector to sector?

 

In Panama, the applicable cybersecurity regime primarily consists of the following laws and regulations:

1. Law 51 of 2008: This law establishes the legal framework for the protection of personal data in Panama. It outlines the obligations of data controllers and processors regarding the collection, storage, use, and transfer of personal data.
2. Executive Decree No. 315 of 2013: This decree regulates aspects related to the security of information and data protection, including measures to ensure the confidentiality, integrity, and availability of information systems.
3. National Authority for Government Innovation (AIG): The AIG plays a role in promoting and coordinating actions related to information security and data protection in Panama.
4. Sector-Specific Regulations: Certain sectors, such as banking and finance, healthcare, and telecommunications, may have additional cybersecurity regulations or guidelines imposed by sector-specific regulatory authorities. The implications of this cybersecurity regime for digital businesses in Panama vary depending on the sector:

 

1. Financial Sector: Businesses operating in the financial sector, including fintech companies, are subject to stringent cybersecurity requirements due to the sensitivity of financial data. They must comply with regulations set forth by the Superintendence of Banks of Panama (SBP) and other relevant regulatory bodies.
2. Healthcare Sector: Digital health businesses need to adhere to strict data protection standards outlined by the Ministry of Health and other regulatory entities. This includes safeguarding patient information and complying with laws related to medical data privacy.
3. Telecommunications Sector: Companies in the telecommunications industry must comply with cybersecurity regulations imposed by the National Authority of Public Services (ASEP). This includes ensuring the security of telecommunications networks and protecting customer data.
4. General Data Protection: All digital businesses, regardless of sector, must comply with general data protection laws such as Law 51 of 2008 and Executive Decree No. 315 of 2013. This includes implementing measures to protect personal data, conducting risk assessments, and notifying authorities of data breaches.

 

 

5. Financial crime prevention

5.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for digital businesses? How does this vary from sector to sector?

 

In Panama, provisions governing money laundering and financial crimes are primarily outlined in Law 23 of 2015, known as the Anti-Money Laundering Law (AML Law), and its corresponding regulations. This law establishes obligations for entities such as banks, financial institutions, insurance companies, securities dealers, and other designated non-financial businesses and professions (DNFBPs) to implement anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

 

Specific implications for digital businesses include:

1. Customer Due Diligence (CDD): Digital businesses, especially those involved in financial services like fintech companies offering payment processing or virtual currencies, are required to perform thorough CDD procedures. This includes verifying the identity of customers, assessing the purpose and nature of the business relationship, and monitoring transactions for suspicious activities.
2. Record-Keeping: Digital businesses must maintain accurate and up-to-date records of transactions, customer information, and risk assessments. This helps in audit trails and investigations related to potential money laundering or financial crimes.
3. Reporting Obligations: If digital businesses detect any suspicious transactions or activities that could be linked to money laundering or terrorism financing, they are obligated to report such activities to the Financial Analysis Unit (UAF) of Panama. Failure to report suspicious activities can lead to penalties and legal consequences.
4. Compliance Programs: Digital businesses must establish and maintain robust AML/CFT compliance programs, including risk assessments, internal policies and procedures, training for employees, and regular independent audits.

 

Variations across sectors may exist in terms of the intensity of regulatory scrutiny and specific requirements based on the nature of the business. For instance:

• Banking and Financial Institutions: These entities typically face the most stringent AML/CFT regulations due to their direct involvement in financial transactions.
• Fintech and Payment Service Providers: These businesses are subject to AML/CFT regulations similar to traditional financial institutions, especially if they handle large volumes of transactions or deal with virtual currencies.

 

6. Consumer protection

6.1 What consumer protection measures are applicable in your jurisdiction and what specific implications do these have for digital businesses? How does this vary from sector to sector?

 

In Panama, consumer protection measures are regulated primarily by Law 45 of October 31, 2007, which establishes the legal framework for the protection of consumers and users of goods and services. These measures are relevant to digital businesses in several ways:

• Transparency and Information: Digital businesses must provide clear and accurate information about their products or services, including pricing, terms of use, cancellation policies, and any other relevant details. Failure to do so can lead to consumer complaints and legal repercussions.
• Consumer Rights: Consumers have rights regarding the quality, safety, and performance of the products or services they purchase. Digital businesses must ensure that their offerings meet these standards and address any issues promptly and fairly.
• Data Protection: While data protection is covered separately (as you’ve mentioned before), it intersects with consumer protection in digital businesses. Consumers expect their personal data to be handled securely and in accordance with relevant regulations. Failure to protect customer data can lead to legal consequences and damage to the business's reputation.
• Dispute Resolution: Digital businesses operating in Panama must have mechanisms in place for resolving consumer disputes. This may include offering refunds, exchanges, or other remedies as required by law.

 

7. Taxation

7.1 What is the applicable tax regime in your jurisdiction and what specific implications does this have for digital businesses?

 

For those companies that are established in Panama and their income arising from activities from Panama, they do not have to pay income tax in Panama.  This is quite attractive for international companies.

For operations within Panama, all taxes are applicable – corporate income tax, capital gains, dividends, VAT, etc.

7.2 What specific challenges or concerns does digital business present from a tax perspective? What key considerations should be borne in mind in this regard?

There is no advanced regulation on digital economy issues, and it will be necessary in the coming years to extend the current legislation to adapt it to the digital economy.

 

8. Cross-border trade

8.1 What specific challenges or concerns does digital cross-border trade present in your jurisdiction? What key considerations should be borne in mind in this regard?

 

In Panama, several technologies and measures have been implemented to facilitate digital cross-border trade in both the public and private sectors:

1. Electronic Payments Systems: The adoption of electronic payment systems such as credit/debit cards, digital wallets, and online banking has streamlined international transactions for businesses and consumers.
2. Digital Trade Platforms: Various digital trade platforms and marketplaces have emerged, providing a digital infrastructure for cross-border trade. These platforms often offer services like e-commerce, digital marketing, and logistics support.
3. Customs Automation: Panama has implemented electronic customs systems like the Single Window for Foreign Trade (VUCE) to simplify and expedite customs procedures for importers and exporters.
4. Blockchain Technology: Some companies in Panama have started using blockchain technology to enhance transparency, security, and efficiency in cross-border transactions, especially in industries like logistics and supply chain management.
5. Electronic Documentation: The transition from paper-based to electronic documentation has been significant, with digital signatures and electronic documents being recognized and accepted for international trade purposes.
6. Trade Facilitation Agreements: Panama is a signatory to various trade agreements that promote digital trade and e-commerce, facilitating smoother cross-border transactions for businesses operating in the country.
7. Cybersecurity Measures: To ensure the security of digital cross-border trade, cybersecurity measures such as data encryption, secure networks, and threat monitoring systems are in place to protect businesses and consumer.

 

9. Innovation

9.1 How is innovation in the digital business space protected in your jurisdiction? What key concerns and considerations should be borne in mind in this regard?

 

Innovation is protected by laws and governmental bodies in charge of patent and trademark protection, innovative laws and in accordance with international agreements and world reality.

9.2 How is innovation in the digital business space incentivised in your jurisdiction? How has this picture changed over the years?

The government is working to provide tax benefits for technological innovation. In the last year, laws have been passed in the digital area, such as laws to promote investment in the semiconductor industry. These are guiding laws that can be migrated to other areas.

 

 

10. Competition

10.1 What specific challenges or concerns does digital business present from a competition perspective? What key considerations should be borne in mind in this regard?

 

Digital businesses in Panama face competition challenges including market dominance by tech giants, data control, platform gatekeeping, high entry barriers, and cross-border competition. Addressing these requires balanced regulatory frameworks, transparency in platform operations, support for startups, and efforts to harmonize regulations with international standards. Ensuring fair competition will foster innovation, benefit consumers, and support economic growth.

 

11. Trends and predictions

How would you describe the current landscape for digital business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

As of July 1st, a new government takes office, which has indicated that it will protect foreign investment and encourage the digital business market in Panama, so the outlook is promising.

 

12. Trends and predictions

12.1 How would you describe the current landscape for digital business and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

 

Investing in Panama and establishing your digital business in this country can provide investment and tax benefits for ecommerce sales made from Panama.

In addition, Panama has a constantly advancing technological infrastructure and the country allows digital nomads to establish themselves with multiple benefits.

Panama is a strategic gateway to set up different cross border businesses, because its location in the middle of the Americas; state of the art infrastructure, seaports, airports; 8 intercontinental submarine cables including Google cross Panama to different parts of the globe; plus, excellent tax incentives and business environment.

 

Adrian Rivera
Associate

Pardini & Asociados 
Tel (+507) 223-7222

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