The Panamanian government offers foreign and domestic investors alike a range of incentives.

Under Cabinet Decree 413 of 1970 and Law 3 of 1986, companies in manufacturing and processing industries which export all their production receive exemption from most direct taxes and from import duties on machinery and equipment. To take advantage of the incentives, a company needs to register with the Official Registry of National Industry, a department of the Ministry of Commerce and Industry.

These laws were followed by Law 28 of 1995 which offers superior incentives, but only to companies which give up their registration under the previous laws and re-register under the new Law. The main benefits of registration under Law 28 are as follows:

• total exemption until 31st December 2002 from income taxes generated by export activities;
• a uniform fixed rate of import duty on raw materials, semi-processed ingredients and capital assets employed in the manufacturing process; and
• for companies investing in technology in a range of industries, and not otherwise exempted from tax, a tax credit covering up to 25% of their tax bill in any one year.

Other investment incentive schemes apply to agriculture, forestry and housing development, and various aspects of the tourist industry. Tourist sector Investments worth more than $300,000 (in the city) or $50,000 (in the countryside) attract exemption from import duties and real estate taxes for 20 years, exemption from capital taxes, and accelerated depreciation.

Under Law No. 25 of 1992 (as amended by Law No. 28 of 1996) export processing zones can be established by companies singly or in groups, in which all activities, including support services, are exempt from direct and indirect taxation, and from import duties; in addition, dividends and interest payments are exempt from withholding taxes. These incentives are particularly aimed at making use of the extensive facilities becoming available throughout the country as a result of the departure of US forces during the hand-over of the canal to Panama.

In 2003, in partnership with the World Bank's International Finance Corporation, the Panamanian government made plans to transform the American military's Howard air force base into a special economic zone with tax incentives and high-tech logistical and telecommunications facilities. It is hoped that the project will attract some $600 million in investment and create 20,000 jobs over the next two decades.

Legislative approval for the initiative is expected to be forthcoming by the end of this year according to Alfredo Arias, general administrator of the Interoceanic Regional Authority, which administers private and public investment programs.