Panamanian government promotes new law for the Colon Free Zone

By Juan Antonio Alfaro H., Alfaro, Ferrer & Ramírez (AFRA)

Since 1948, the Colon Free Zone (“CFZ”) operates as a duty free trade zone situated near the city of Colon, which is located next to the Atlantic entrance of the Panama Canal. The activities carried out therein consist primarily of the re-exportation of all sorts of goods to Latin America and the Caribbean, being the largest of its kind in the hemisphere and the second in the world after the Hong Kong Free Zone. Its overall success is not only attributed to the zone´s strategic positioning for regional and global trade due to its location near the Panama Canal and its proximity to the country’s main ports (both on the Atlantic and the Pacific), but also to the the tax and migration benefits granted by local regulation.

However, during the past several years, statistics have shown a substantial decline in the overall revenues of companies doing business in the CFZ of 10.9% on 2013, 12.3% on 2014, and 7.6% on 2015. Experts point out to Venezuela´s economic situation, the imposition of re-exportation duties by Colombia, the revalorization of the US. Dollar, and China´s deceleration. This particular crisis - in addition to the fact that the CFZ operated under a regulation that dates back to 1948 and remained unaltered throughout the years - motivated the Panamanian Government to enact and approve recently Law No. 8 dated April 4th, 2016, which serves as the new legal and regulatory framework of the CFZ (“Law No. 8”).

Law No. 8 incorporates significant improvements to the internal administrative structure of the CFZ, which is expected to represent benefits to companies in terms of efficiency in the handling of their day-to-day dealings with the CFZ administration. It also included updates to the tax and migration benefits so they can be matched in parity to those granted under other similar special regime zones operated in the country (such as the Panama Pacific Special Economic Area). Finally, it contemplates reduction to certain administrative fees and rates charged by the CFZ, which should have a positive impact in the operative cost of companies doing business therein.

Law No. 8 is part of the initiative of the Panamanian Government towards the recovery of Colon, which also includes new Law No. 7 dated April 4th, 2016, regarding Colon´s Special Free Port System. This Free Port System contemplates the construction of new shopping areas which are expected to attract tourism, increase commercial activity and, at the same time, benefit the people of the area.