The Tax Free Zone in Colon

Colon is a sea port city on the Caribbean Sea coast of Panama. In 2000 it had a population of about 204,000, and it is the second largest city in the Republic of Panama.
It is near the Atlantic entrance to the Panama Canal, and the city is the capital of Panama’s Colon Province. It is highly popular because of its Tax Free Zone.

The population is predominantly from African-Antillean origin, which is quite a contrast from Panama City which is a melting pot of people.

A Brief History

The city was founded in 1850 as one end of the Panama Railroad then under construction. For a number of years early on in its history, the sizable United States émigré community called the town Aspinwall, while the Hispanic community called it “Colon”, in honor of Christopher Columbus.

Much of the city was burned during a Colombian civil war in 1885, and again in an accidental fire in 1915. In 1900 the population was some 3,000 people. However, it grew significantly with the building of the Canal. The city was home to many of the most respectable, educated and well-heeled Panamanian families of West-Indian heritage, including the Moodys, the Beebys, the archibalds, Edwards, the Crowns, the Warehams, the Abrahams, the McIntoshs, and many more. Of these families sprang the teachers, professors, doctors, lawyers, engineers, business men, and politicians that governed the city, many of whom relocated to the U.S. or back to the U.K. in later years.

However, their influences can still be seen by descendents that remained in the Province.

Colon- Most Important Crossroad of Merchandise Traffic of the Republic

The city became the most important crossroad of merchandise traffic of the Republic, thanks to its Free Trade Zone of 1948. Most of the import/export is now handled here.

The Atlantic entrance to the Panama Canal is one of the largest port/haven systems in Latin America, even surpassing the Port of Miami. This is a conglomerate of the Manzanillo International Terminal, Colon Container Terminal, Panama Port Terminal and Colon Port Terminal.

The Tax Free Zone

The Colon Free Trade Zone (CFZ) is the largest free zone in the Americas and the second largest in the world. It houses 1,751 merchants, receives yearly more than 250,000 visitors from all over the world; however, mainly from such countries s Haiti, Jamaica, Costa Rica, Venezuela, Colombia, United States, Ecuador, and others. The CFZ generates exportation and re-exportation goods valued at more than 6.5 billion U.S. dollars.

Tax Free Zone Generates Many Benefits to the National Economy

The intense commercial activity that develops in this emporium has an enormous impact in the local economy, which is reflected in the contribution to the national internal product of 7.5%, reason why it is considered one of the largest pillars in the Panamanian economy.

In 2006 the re-exportation commerce in the CFT increased to 14.7% in value and 23.5% in metric tons, while the value of the importations increased 11.1% and 5.6% in metric tons. Regarding the income of the Canal in concept of tolls, the same increased in 21.9% cargo in long tons in 93% and the net tons in 8.4%, in contrast to the transit of ships through the waterway which increased in 3.6%.

Factors Contributing to Success of the Tax Free Zone

The Colon Tax Free Zone’s success is due to a combination of factors such s the geographical location of Panama at the crossroads of the world, the Panama Canal, the fact that the U.S. 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.

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.

Also, the CFZ offers free movement of goods and complete exemption from tax on imports and re-export. 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.

Administration of the Free Trade Zone

The Board of Directors, an Executive Committee and the General Manager of the Institution, operate and manage the Administration of the CFZ. Corporations or individuals of any nationality may establish operations in the CFZ without obtaining a commercial license or investing any minimum amount of capital. Firms thinking of operating in Colon Panama’s Tax Free Zone must file an application and provide a copy of the articles of incorporation and bank references.

Four Basic Ways of Doing Business

Leasing lots on which the firm builds a warehouse or other facilities designed by the firm. Land leases are granted for a 20 year period.

Purchasing an existing facility from the CFZ Administration.

Reaching an agreement with a company already established in the zone as the operator’s representative. The cost of this service is set by mutual agreement between the parties involved. Representation agreements are subject to approval of the CFZ Administration.

Leasing a public warehouse operated by the zone’s Administration. The firm receives its goods and stores them like any other company of the zone. There are no fixed costs and payment is based on the weight or volume of the goods stored

Colon the second largest city in the country, is the most important crossroad of merchandise traffic of the Republic, thanks to its Free Zone. Also, this city will produce the first wholesale merchandize Mall ever to be constructed and will be located near the free zone, with an estimated value in the tens of billions of dollars. Looking forward to this new construction!