Panama Reforestation Incentive

"By which incentives are established and activities are regulated, for reforestation in the Republic of Panama"

Panama enacted Law 24 to encourage private investment in efforts to restore the country's rapidly diminishing tropical forests. To reverse this trend, Law 24 offers significant tax advantages and permanent residency visa eligibility to investors in government approved reforestation projects. Individuals who present proof that they have met the minimum amount invested in an approved reforestation project, including the purchase of the land itself, can apply for Permanent Residency in Panama.

THE LEGISLATIVE ASSEMBLY DECREES INCLUDED:

This Law regulates everything related to reforestation. For the purposes of this Law, the following definitions are adopted:

1. Reforestation: The action of planting with FOREST SPECIES a land devoid of arboreal vegetation; whether for commercial, landscape, environmental, tourism, agroforestry, silvopastoral, energy, or any other purpose.
2. Forest Investment: It is the disbursement of money destined to the acquisition, rental or leasing of land, equipment, machinery, rolling equipment, vehicles, agricultural and forestry tools, nurseries, standing forest plantations, research, industrialization, insurance, contracting or subcontracting of forestry firms for the execution of the forestry development plan, sawmills, roads, bridges, civil works and buildings necessary for the development of reforestation, and all other current and administrative expenses, for the operation and maintenance of reforestation.
3. Indirect Forest Investment: It is the disbursement of money destined for the purchase of bonds, stocks, and securities of companies engaged in reforestation and all its derivative and related activities.

The Executive Body, attentive of its responsibility to all partners and taking into account the increasing annual rate of deforestation and its serious consequences for the country, declared the following necessary:

1. Increase all forms of reforestation in the Republic of Panama.
2. Regulate the incentives referred to in this Law in order to stimulate and promote reforestation in all its forms.
3. Establish a thirty (30) year period during which priority and open support is given to private reforestation.
4. Promote companies, associations, community boards, and cooperatives related to reforestation activity.
5. Promote the establishment, development, and improvement of the forest industry so that it uses the product of reforestation as raw material.
6. Study, research, and disseminate all forms of reforestation and means to carry it out.

Forest Plantations are considered as a forest crop with freedom to the usage, transformation, and commercialization of derived forest products, either nationally or internationally.

Nevertheless, their owners must inform the National Institute of Renewable Resources of the purposes of extending the corresponding transport guide, which will be free and for statistical records.

Forest plantations are owned by the natural or legal person who possesses the corresponding rights, with the exception of the restrictions established by the Constitution regarding private property.

The Profits, of natural or legal persons, derived from the commercialization of products extracted from forest plantations, until the final cut of the forest plantation, and whose establishment is made within twenty-five (25) years counted from the validity of this Law, will be exempt from the payment of Income Tax, insofar as the owners of these plantations are registered in the Forest Registry of the National Institute of Renewable Natural Resources.

One Hundred Percent (100%) of Forest Investments or Indirect Forest Investments made by natural or legal persons will be considered deductible expenses for the purposes of Income Tax, as long as the amounts invested come from a source other than the reforestation activity.

With regards to Indirect Forest Investment, the benefits established in this article may be utilized once, and the natural or legal person who receives the benefit consigned in this article for their Indirect Forest Investment is obligated to maintain their investment for a minimum period of five (5) years.

Forest Investments or Indirect Forest Investments made in organizations, private institutes or educational institutions that are dedicated to research in forestry, the forestry industry or the promotion of the forestry sector, may be considered as one hundred percent (100%) deductible expenses for the effects of Income Tax, as long as the amounts invested come from a source other than the reforestation activity.

The company that intentionally sells bonds, stocks or securities which avail themselves of the benefits of this Law and do not meet its objectives, incur in tax fraud.

The Introduction into the country of agricultural, forestry, industrial machinery and equipment, rolling stock, materials, tools, agrochemicals, forestry research equipment, seeds, cuttings, and forest plants and other necessary elements for the exclusive use of reforestation, management and/or exploitation activities of forest plantations, are declared exempt from the payment of Import Taxes and other fees. The Ministry of Finance and Treasury must dictate the respective regulations.

Farms Dedicated to reforestation on more than fifty percent (50%) of their land or that have a minimum of two hundred (200) hectares reforested are declared exempt from the payment of the Real Estate Tax and the Real Estate Transfer Tax.

The Profits derived from bonds, stocks, and securities of companies engaged in reforestation and their derivative and related activities, and the profits obtained from the sale of these bonds, stocks, and securities, will be exempt from the payment of Income Tax.

Holders of these bonds, stocks, and securities may use these documents as collateral for bank transactions.

The Executive body will promote the creation of credit lines with preferential interests, and "Preferential Forest Loans" for reforestation, through official credit institutions and private banks, savings and loan associations, finance companies or any other legal entity that is registered with the Ministry of Finance and Treasury and whose commercial activity is to grant loans. The Executive body will offer all the facilities to stimulate, develop, and strengthen this activity.

The "Preferential Forest Loans" will have a "Preferential Tranche" of up to four (4) percentage points lower than the Interest Rate of the Local Market, and the entities referred to in the previous paragraph that grants these loans, will the first ten (10) years of the life of the loan, annually receive a fiscal credit applicable to the payment of their national taxes, for a sum equivalent to the difference between the income that the Bank would have received in the case of having collected the Local Market Interest Rate, and the income actually received as interest in relation to each one of such "Preferential Forest Loans". The Ministry of Finance and Treasury must issue the respective regulations.

For these effects, the interest accrued by the entities, referred to in the first paragraph of this article, on loans granted to finance the Forest Investment or Indirect Forest Investment will not incur Income Tax.

Expenses are considered one hundred percent (100%) deductible for Income Tax purposes, the interest incurred to finance reforestation and its derivative and related activities.

To Stimulate Investment in reforestation, the Executive body will support the alternatives for the conversion of forest plantations, either through mortgage guarantee, bank, and commercial guarantees, Tax Credit Certificate (CAT), bonds, swaps, transfer of the plantation in standing, participation in the Stock Exchanges, trusts and others.

Panama Permanent Residency: Any foreign Investor who makes a Forest Investment for the sum of one hundred thousand balboas (B/100,000.00) or more, within the Republic of Panama, may opt for his immigrant Panama Permanent Residency visa as an investor. They have also created a fast track residency program for investors that invest more the $350,000 in an approved project where the investor can have permanent residency in less than a year.

The investor must maintain his Forest Investment until the final cut of the forest plantation and in the case of Indirect Forest Investment, he must maintain it for a minimum period of five (5) years.

The Executive Body will create all legal mechanisms in the shortest possible time, to carry out and make feasible the exchange of the external public debt for reforestation, in search of funds at the national and international level to finance private reforestation through a biweekly plan.

The Ministry of Agricultural Development through the Agrarian Reform Directorate will give due protection against insecurity to all forest plantations and areas destined for reforestation by their owners. The invasion of the reforested lands is considered a crime, in such a way that there is a security in the investment and a stimulus in the reforestation.

After A Joint Technical Study between the insurance superintendence, the insurance companies and the National Institute of Renewable Natural Resources, the creation of a Forest Insurance System against fires, pests, diseases, and other damages, will be encouraged in the shortest possible time, that forest plantation owners will be able to benefit from.

The Executive Body, for the purposes of this Law, will increase the transmission and improvement of technology between national and international organizations dedicated to industrial research and forestry that contribute to the development and optimal use of forest resources.

All the norms and provisions of this Law will also be applied to established forest plantations or to be established in deforested areas in the Panama Canal Basin and in protected wild areas, provided that their category and management and development norm, established by the National Institute of Renewable Natural Resources, so allow. For these purposes, the National Institute of Renewable Natural Resources will dictate the minimum requirements with which the forest management plan for said areas must comply, in order to achieve their protection purposes and at the same time guarantee the optimal commercial use possible from the plantations under these conditions.

All the norms and provisions of this Law also apply to the following reforested areas:

1. The areas that border the water holes that are born in the hills within a radius of one hundred (100) meters and fifty (50) meters, if they are born on flat terrain.
2. In rivers and streams, the width of the channel will be taken into consideration and its width will be left on both sides, or a strip of no less than ten (10) meters.
3. In the aquifer recharge areas within a radius of fifty (50) meters from the water holes where they are for social consumption.
4. In natural or artificial reservoirs up to ten (10) meters from its maximum water level.

In these areas, the necessary thinning can be carried out and the trees that are in season can be felled, that is, those that have completed the rotation cycle of the plantation, and that have been marked by the National Institute of Renewable Natural Resources. The owner or investor is obliged to reforest at the latest in the immediate rainy season.

Forest Plantations established at the date of enactment of Law 24, as well as all those established during its validity, will benefit from the Law. For these purposes, forest plantation owners must register in the Forest Registry of the National Institute of Renewable Natural Resources. In the case of forest plantations established before the date of promulgation of Law 24, the term for making said registration is up to five (5) years counted from the entry into force of this Law.

Plantation Owners who are repeat offenders in breach of the provisions of this Law and its regulations or those who refuse to comply with them, will be removed from the Forest Registry of the National Institute of Renewable Natural Resources for up to five (5) years and will be suspended for the same term of the right to incentives and benefits granted by this Law.

Law 24 will take effect from its promulgation and cancels any provision that is contrary to it.

Please note that the following is freely translated and is not meant to be a legal translation of the law. The laws of Panama are amended and updated over time and you must research all amendments that would apply to any project that you wish to do. The most recent decree regulating this law is

https://www.migracion.gob.pa/images/img2021/pdf/DECRETO_EJECUTIVO_199.pdf