Colon free zone

The Colon Free Zone, located at the Atlantic entrance to the Panama Canal, is the focal point for sea and air cargo transportation in the hemisphere. It is considered a unique entrepot of world commerce.

The annual volume of business is approximately US$20 billion and there is a substantial number of companies established in the Zone from U. S., European, Asian and other origins. Merchandise is received in bulk duty free, subsequently repacked, labelled, assembled, manufactured (as the case may be) and reshipped in smaller quantities to customers in a wide area. Companies operating in the Colon Free Zone do not require a commercial license.

Operations in the Colon Free Zone may be conducted through any of the following methods:

• The user may lease land from the Colon Free Zone and construct its own building. The land lease can be signed for 20 years with options for renewal.
• The user may lease warehouse space owned by the Colon Free Zone. Rental is per square meter per month depending on the size of the building and on lease period.
• Public warehouse. When volume of business does not warrant for the customer to set up its own warehouse operations in the Colon Free Zone, a warehousing company can provide all the services required. Charges are made monthly based on merchandise warehoused. However, the operating person or entity must register previously with the Free Zone authorities.

Companies established in the Colon Free Zone might have three types of income subject to different income tax consequences:

• Income derived from triangular sales when merchandise does not physically come to the Colon Free Zone (the merchandise is sold through the Colon Free Zone company but physically the merchandise moves from the seller to the buyer directly and only the shipping documents are handled by the Free Zone company). In this instance the profit is not subject to Panama income taxes.
• Net income derived through re-exporting of the merchandise to foreign countries, is free of any taxes.