Colon Free Trade Zone (“CFZ”) is the largest in the Western Hemisphere and the second largest in the world. Created in 1948, the free zone houses 1,751 merchants, receives more than 250,000 visitors yearly and generates exports and re-exports valued at more than US$6.5 billion in 2005. Just minutes away from the principal ports on the Caribbean, the CFZ provides local manufacturers with an international market for their goods.
The CFZ success is due to a combination of factors such as the geographical location of Panama at the crossroads of the world, the Panama Canal, the fact that the US dollar is legal tender, a large banking center on its doorstep, a developed insurance and reinsurance industry, several state-of-the-art container ports and not very onerous business requirements.
Colón has regained the glory that once belonged to nearby Portobelo which, until the middle of the 18th century, was a major trading center in the New World.
Most Free Zone merchandise is transshipped from Panama to other parts of the Western Hemisphere and Europe. Imports into the CFZ come mainly from the Far East. The largest individual supplier of the CFZ in 2004 was Hong Kong (China) followed by Taiwan, United States, Japan, Corea, Francia, Mexico, Italia, Puerto Rico, Suiza, Reino Unido, Malasia and Alemania. These countries supplied nearly 87 percent of all CFZ imports in 2004. Colombia is the largest buyer of merchandise, buying nearly 16 percent of all CFZ exports. Other principal buyers are Venezuela, Panama (domestic market), Guatemala, Ecuador, Costa Rica, Dominican Republic, the United States, Chile, Cuba, Honduras, Peru, Brazil, Nicaragua and El Salvador. These countries buy approximately 83% of all exports from the CFZ.
The CFZ is administered as an autonomous institution of the Panamanian government. Today it is completely developed, and covers approximately 400 hectares, including 45 hectares designated as an industrial zone.
The CFZ offers free movement of goods and complete exemption from tax on imports and re exports. There are no taxes on the export of capital or the payment: of dividends. In addition, there are reduced income tax rates on earnings from re-export sales. Furthermore, firms located in the CFZ are exempt from import duties as well as from guarantees, licensing, and other requirements and limitations on imports. Due to its geographic location, the CFZ is a major factor in channeling goods from large industrialized countries to consumer markets in Latin America.
Companies operating from the CFZ enjoy many trade advantages along with special tax incentives such as tax credits, depending on the number of Panamanian employees, and special income tax rates on foreign trade operations. Companies in the free zone do not pay corporate income tax. Dividends paid on profits from foreign trade operations and from direct sales are not subject to the dividend tax. Merchandise arriving at, stored in, or leaving the CFZ destined for a foreign country is exempt from taxes, charges or any type of tariff. Also, CFZ companies are not subject to any type of federal or municipal tax.
