The Panamanian Government recently approved a bill that establishes an incentive program to recover and promote the conservation of natural forests. This bill is aligned with the objectives of the UN Sustainable Development Goals to conserve and restore the use of terrestrial ecosystem to sustainably manage forest, combat desertification, halt and reverse land degradation and biodiversity loss.

This bill recognizes the following tax incentives, that apply to owners and tenants of private lands, and concessionaires of state-owned lands:

  • Income tax exemption on property registered in the Forestry Register that maintains and/or increases reforested areas, in relation to net profits resulting from its use in accordance with the Forestry Management Plan submitted and approved by the Panama Environmental Office.
  • Exemption from property tax and real estate transfer tax on premises exclusively dedicated to commercial timber and non-timber plantations, conservation and/or restoration of natural forests in more than seventy-five per cent (75%) of its suitable extension.
  • Exemption of introduction duties on the importation of machinery and equipment to be used in the activities listed in the bill, that follow the Forestry Management Plan approved by the Panama Environmental Office and procedures agreed with the Customs Administration.

Activities covered under this bill contemplate the following:

  1. Protection and conservation of natural forests.
  2. Natural assisted regeneration.
  3. Restoration of natural forests.
  4. Agroforestry systems: silvopastoral and agroforestry.
  5. Sustainable management of natural forests.
  6. Commercial forestry plantations.
  7. Processing of timber and non-timber products.
  8. Forest research, development and innovation.
  9. Exportation of forestry products that have an adequate custody chain and come from an environmentally sustainable reforestation project.

Through the activity listed as commercial forestry plantations, this regulation promotes reforestation with tree species of timber or non-timber shrub species, as well as through fruit tree plantations, of which its commercial exploitation is not subject to the taxes mentioned above. Panama, thanks to its status as a tropical country, has a high potential to produce a variety of fruits, especially in terms of export prospects.

Historically, bananas have been Panama's main export item; whose offer has been extended to cucurbitaceae and pineapples to diversify the exportation of agro-products. More recently, fruit production in Panama has been complemented by other alternatives, such as the commercial production of mango, lemon and avocado plantations, which have seen an impulse through the offering of agricultural investment projects, both locally and internationally, to manage large scale fruit farms.

Incentives in the agricultural sector have been limited to farms that produce less than US$350,000 as gross income per year, and conditional upon the activity not being performed in a fractional manner; if manage through a corporation its shares must be registered and issued to individuals, who cannot be shareholders and/or exercise control of other companies in the agro-industrial sector. With this new regulation, large-scale commercial fruit production is promoted, with no capped annual revenue amount to access the benefit of no income tax. The only condition to enjoy de full benefits is to have a Forestry Management Plan submitted and approved by the Panama Environmental Office.

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