Contact: Alberto Levy, Galindo Arias y López (Panama)
The World Bank has projected a 6.1% GDP growth for Panama during 2015, placing the strategically-located Central American Republic ahead of major regional economies such as Brazil, Mexico, and Chile.
This economic expansion, however, is no accident. It has been triggered, to a great extent, by Panama’s development not only as a regional (and increasingly global) hub for corporate operations, logistics and services, but also as a stable banking centre tied directly to the dollar. Numerous investment and business-related tax benefits, coupled with a marked increase in both private and governmental real estate investment, have also played a significant role in this process. In 2013 alone, for instance, construction activities and real estate investments represented 26.9% of the total GDP.
These impressive numbers have motivated the Panamanian government to bolster this growth, by means of the approval of new laws and the creation of new legal mechanisms that facilitate real estate investment.
As an example of such government initiative, on August 6 2014 the Superintendence of the securities market in Panama enacted Decree 02-2014, through which Real Estate Investment Trusts (Reits) are regulated. This regulation, which is based on the structure of the Spanish and the American markets, is intended to promote the overall market for Reits by offering significant tax incentives to such entities, together with a flexible regulatory regime with regards to the administration and the scope of activities in which Reits are authorised to take part. The enacted tax incentives are so attractive that, provided that Reits investors have fully complied with the established requirements, these will only be subject to an income tax rate of five percent, far lower than the standard 25% Panamanian income tax.
The new Reits regulation has already begun to show dividends, by attracting even greater activity and investment to Panama. Without a doubt, it will continue to be a game changer with regards to both, the Panamanian securities market and the booming Panamanian real estate market.
**This article was first published in IFLR**
