Article Courtesy from Business Panama

Tourism Investment Draft Bill
The New Tourism Investment Draft Bill No.132
Jaime Ricardo Arias, Mendoza Arias Valle & Castillo, provide a brief overview
of Panama’s new tourism legislation

With the introduction of this draft bill the government of Panama is recognizing that it needs new legislation to promote projects in designated tourism zones in Panama. This bill will not just attract foreign investment in this growing industry in Panama, but in doing so will help with Panama’s economic and social regional development.

The draft bill could be considered a further enhancement of the existing law 8 of June 1994 (known as the Tourism Incentives law) as it includes residential or vacation home developments as a tourism interest and it allows the transfer of title of government land to developers in the designated areas, thereby providing legal assurance. The draft bill in question is called (non official English translation) “Whereby Concessions for Tourism Investments and the Sale of Island Territory for Tourism Use is Regulated” and is currently opened for public discussion and proposals by the Panamanian legislature. The bill consists of 35 articles which cover the granting of concessions for single homes, commercial projects and the sale of government land in Islands, all within what is called the designated areas.

Among the proposals received during the first two weeks of discussion of the draft bill are petitions to include more provisions regarding protection to the environment among others.
It is important to note that the draft bill respects the right of existing occupants of government land within the designated zones (holders of what is known in Panama as “Derechos Posesorios”) to continue in their current status. In accordance to the Ministry of Economy, in future, all holders of “Derechos Posesorios” will be able to file said rights with the office of “Catastro” of the Ministry of Economy which in accordance to the laws in force in Panama has jurisdiction over Islands and any land up to two hundred meters from the high tide line in the Republic of Panama.

Said proposed law will also respect the autonomy of the Indigenous tribes’ reservations in those areas.
Designated Tourism Zones. The designated tourism zones in the Republic of Panama are described in detail in its respective government resolution. The following is just a guide to its general location:

Zone 1. La Amistad (a national park in the provinces of Chiriqui and
Bocas del Toro)
Zone 2. Bastimentos (an area of Islands in the province of Bocas del Toro)
Zone 3. Arco Seco (Provinces of Herrera and Los Santos)
Zone 4. Farallón (75 Km of coastal land between the provinces of Panama and Cocle)
Zone 5. Area Metropolitana (City of Panama)
Zone 6. Portobelo (Certain areas of the province of Colon in the Caribbean coast)
Zone 7. San Blas (Indian Reservation. Caribbean Islands)
Zone 8. Archipiélago de Las Perlas (Bay of Panama. Pacific)
Zone 9. Darien (Pirre and Valle de Cana)
Zone 10 Veraguas (part of the province of Veraguas)
 

Concessions.
In accordance to the bill the Ministry of Economy is empowered to grant concessions for up to 60 years extendable for another 30 years on islands, coastal land and government land located in designated tourism zones as approved by the Ministry of Tourism.
The new bill will help the Ministry of Economy complete an inventory of all the government land available for concessions that could be consulted in future by interested developers.
The law will benefit both big and small developers, individual retirees and anyone that wishes to establish their permanent or vacation home in the designated areas.
The requirements and conditions will vary depending on whether the applicant is interested in a concession for large developments, small developments or just his vacation home.
In any case there will be a single government office that will receive all applications and after an initial review, will grant a provisional concession until the construction of the development or home is completed. Thereafter a final or regulatory concession will be granted in the form of a contract between the concessionaire and the government.
The concessions for island property must have a public access easement as will be determined by the corresponding authorities. The beach easements will never be less than 60 meters wide from the high tide line.

The new bill recognizes two types of development activities:

• Commercial Developments:
Some of the world’s largest hotel chains have already taken advantage of the benefits of law 8 of 1994, including the Intercontinental, the Marriott, the Radisson, Crown Plaza, the Sheraton, and soon the Hilton and with the coming into force of this draft bill we could expect some other big names in beach or ecotourism resorts to show interest in our country.
As per the proposed bill large developers can request a concession of 40 years, renewable up to another 30 years for a total of 70 years. Larger developments can request concessions of 60 years renewable up to another 30 years for a total of 90 years.
Developers will be required to show the survey plan of the land, approved preliminary architectural plans, the budget and working plan, activity schedule, description of public services, financial capacity and source of funding of the petitioner, the environmental impact study, and a 10% performance bond valid until the improvements are duly registered in the public registry of Panama.

• Vacation Homes
A novelty of this proposed bill is the inclusion of “residential investment” as an activity of tourism interest and therefore eligible to the benefits of the tourism incentives law (law 8 1994). Up to now the incentives in the tourism industry as mentioned above would only be available to developers of the more traditional tourism interests, however with this new proposed law also the tourist or home owners that want to make Panama their second home or just a paradise in which to retire will also benefit from such incentives if they choose to.
The requirements to apply for this concession will be established in a subsequent regulation issued by the Ministry of Economy, however the proposed bill does limit the concessions to one lot per petitioner.
 

• Tax Incentives
As it is proposed the bill will allow the concessionaires to apply for the tax exemptions granted by the law 8 of June 1994 (on tourism incentives). By means of this law the government of Panama grants as much as 20 years exemption on importation tax and property tax or 15 years exemption on income tax among others to tourism operators of certain tourism activities. Some of the activities included in said law are public lodgings, receptive tourism agencies, tourist transport services, tourist restaurants, discos, nightclubs, specialized tourism centers, recreational parks, theme parks, zoos, convention centers, marinas, etc Any person willing to invest as little as $50,000 in the activities mentioned in said law can take advantage of the tax and financial incentives available in Panama
The incentives will vary in accordance to the activity and whether the operator is located within a tourism zone or not. As per said law the incentives will be available to applicants until the year 2015 for those operators within the tourism zones and until the 31st December of this year to those outside said zones. We understand that there is already a proposal to extend the validity of the incentives of Law 8 of 1994.

• Titled Property In Islands For The Large Projects.
In accordance with article 291 paragraph 2 of the Constitution of Panama the sale of government land in islands can only be done when designated as a special zone for development and as provided in a law for that purpose. The proposed bill no.132 is precisely that special purpose law to promote tourism in Panama.
Islands will no longer be restricted to be subject to title when a developer will offer economic and social development for the region.
Article 121 of the Tax Code of Panama will also be amended with the proposed bill so as to remove the existing restriction of foreigners and Panamanian corporations funded solely or in part with foreign capital from owning property in islands. If the law is passed as it is, the only restriction in force will be of foreigners and Panamanian corporations funded solely or in part with foreign capital from owning property within 10 km of the national boundaries.
Other restrictions for the transfer of the land are that the land may not have been declared national historical patrimony or patrimony of humanity, that it has not been declared for environmental, reforestation or scientific conservation and that it is not part of an indigenous tribe reservation. Only fifty percent of island territory may be transferred
The sale of government land for these large developments will require a call for bids from all interested parties. However any existing developer which has already started their development by the time this law comes into force, will be able to purchase the land without the requirement of the bid.
The purchase price of the land will be the average of both the amount assessed by the Ministry of Economy and the General Controllership of Panama. Said appraisal will be based on the infrastructure already available in the area of the project.
 

Other Important Relevant Laws:

• Decree Law 9 of August. 27, 1997, whereby the government of Panama created tax incentives for property developers interested in Panama City’s Casco Viejo.

• The Investment Stability Law (Law No. 54 of July 22, 1998) guarantees all foreign and national investors equal rights in terms of investments and business practices. This law provides ten years stability as of the registration of the investment. It guarantees that taxes, customs, municipal and labor regulations will remain unchanged for the investor to those in force at the time of his registration.
Panama, October 2005.



Article Courtesy of Business Panama
The American Chamber of Commerce (AMCHAM)
and Deal Inc.

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