Panama Briefing #1: The Foundations of Panama's Prosperity

Hey guys, Mikkel here,

Of all the developments I expected to be discussing in the inaugural edition of Panama Briefing, a devastating earthquake was certainly not one of them.

Unfortunately, that's exactly what Panama has been dealing with since October 9, when a magnitude 7.7 earthquake struck the country.

A second powerful tremor measuring 6.6 was recorded, along with more than 200 aftershocks in the two days following the initial earthquake.   

Damage has concentrated primarily in the central provinces of Herrera, Los Santos, and Veraguas (about 250+ km from Panama City), where nearly 900 homes have reportedly been affected, along with at least 14 bridges and numerous schools, churches, hotels, and other public buildings.

At least 27 people have been injured, and sadly, one person has been reported as deceased.

My thoughts are with all those affected by this tragedy.

Amid this, Panama's Ministry of Economy and Finance has confirmed that, despite the unexpected recovery costs, the government intends to maintain its 2026 fiscal commitments rather than seek special permission to loosen its deficit targets.

The government plans to draw upon insurance coverage, donations, and other sources of non-repayable financial assistance to help cover the costs.

Here we have a country dealing with a major natural disaster and substantial infrastructure repairs, yet its government is publicly reaffirming its commitment to fiscal discipline.

I appreciate that kind of thinking, especially when so many governments around the world have grown accustomed to treating every unexpected expense as an excuse to abandon their financial commitments. 

But Panama's economic story goes far beyond responsible budgeting.

One reason I find this country so fascinating is that its economic model benefits from a combination of geographic, financial, commercial, and institutional advantages.

Understanding how these advantages work together helps explain why Panama has become so attractive to internationally minded entrepreneurs, investors, and families who have moved here or invested in the country to take advantage of the opportunities that come with establishing a position in a freedom-first, economically robust country.

Let’s get into this inaugural edition of the Panama Briefing Newsletter,

Panama operates under a territorial taxation system, meaning its income tax framework taxes income sourced within the country rather than taxing an individual's entire worldwide income.

As someone who has spent more than 25 years studying global mobility, offshore investing, and international tax planning, I appreciate the appeal of a jurisdiction that doesn't automatically claim a portion of every dollar you earn worldwide.

I don’t believe in taxation. I consider it theft. That said, they are a reality of the world we live in. 

Rather than relying on private industry to foot the bill for necessary infrastructure (for their own needs and corporate advancement), governments have assumed the role of building and maintaining infrastructure and institutions to serve their country's people. 

They do this through taxation (apologies for the tax 101 lesson; I know nearly all of you reading this already know this).  

When I see a country that can offer favourable tax treatment, I like to understand where the government generates revenue, which industries support the economy, and whether it has competitive advantages that can sustain its position as a low-tax country over the long term.

Almost any government can lower taxes through legislation, but if the underlying economic model cannot support the decision, those attractive policies can eventually come under pressure.

For that reason, I pay particular attention to countries with structural economic advantages, advantages that are difficult, expensive, or practically impossible for other countries to reproduce.

To demonstrate, let's look toward the Middle East.

Before moving to Panama, I spent eight years living in Abu Dhabi, where oil and natural gas have generated massive revenues for Gulf governments for decades.

Those revenues helped fund rapid development in the Gulf countries without requiring citizens to foot the bill through personal income taxes.

They are not completely tax-free, of course, but substantial natural resource income has historically allowed several Gulf governments to rely far less heavily on personal income taxation for their growth and development. 

Panama does not have enormous oil and gas reserves underpinning its public finances…

Instead, it has one of the world's most strategically important pieces of infrastructure. 

The Panama Canal.

Most people understand the Panama Canal's basic purpose: it connects the Atlantic and Pacific oceans, allowing commercial vessels to avoid travelling thousands of additional kilometres around South America when moving cargo between certain international markets.

When you're operating a commercial vessel carrying thousands of containers loaded with hundreds of thousands of tonnes of cargo, an extra week at sea can cost millions of dollars.

The Panama Canal eliminates enormous distances from their journeys, creating commercial value that shipping companies are willing to pay hefty tolls to access.

Panama is leveraging its geographic position to provide a commercially valuable service to the global economy.

Geography is the economic asset. The Canal represents a structural advantage that can’t be replicated. 

Sure, the Canal faces competition from alternative shipping routes, but its strategic importance has been demonstrated by more than a century of commercial operations.

The financial results tell the story.

In 2025, the Panama Canal generated approximately $5.7 billion USD in total revenue, up 14.4% from 2024.

That $5.7 billion reflects revenue from more than 13,000 commercial vessels transiting the Canal.

…not too shabby for a single infrastructure asset controlled and administered by a country with a population of roughly 4.5 million.

Now, not all $5.7 billion in revenue flows directly into government spending accounts, because the Panama Canal Authority must finance its own operations (maintenance, personnel, etc., etc.).

Despite substantial operating costs, in December 2025, the Canal Authority transferred $2.965 billion USD directly to Panama's National Treasury… all from just one year of operations.

For context, the Canal transferred approximately $2.47 billion in 2024 and $2.54 billion in 2023.

Recurring multibillion-dollar contributions flowing directly into the country’s treasury.

Since the Canal was transferred to Panamanian administration at the end of 1999, its cumulative direct contributions to the National Treasury have exceeded $31 billion USD.

Now, let’s put the Canal’s contributions into perspective.

In 2025, Panama collected roughly $6.4 billion in tax revenue. 

That means the Canal’s direct contribution to the Treasury was almost half the country’s total tax revenue for the year.  

So, when people say, “Panama is a tax haven because of the Canal,” the story is not complete, as the country still collects more than $3 billion USD in taxes from other sources. 

Imagine the flexibility a government gains when one nationally controlled infrastructure asset produces a multibillion-dollar annual contribution to its finances…

If you evaluate the Canal exclusively on the basis of the tolls it collects, you're neglecting to acknowledge the vast commercial ecosystem that surrounds the Canal operations. 

…consider what happens when thousands of commercial vessels and enormous quantities of cargo regularly move through one relatively small country…

Shipping companies need fuel, maintenance, supplies, inspections, maritime services, and operational support, while cargo must be loaded, unloaded, stored, transferred, financed, insured, and distributed.

International businesses need warehouses, offices, telecommunications, banking relationships, legal services, accounting, and people who understand the complexities of regional commerce.

As those companies establish themselves, their employees need homes, schools, healthcare, restaurants, transportation, and other services that support living and working in a modern economy.

This is how the economic effects of one important infrastructure asset spread into industries that might initially seem unrelated.

Panama has been particularly deliberate about developing the commercial infrastructure needed to capture more of that activity.

For example, the country has major container terminals on both its Atlantic and Pacific coasts, allowing shipping operators to transfer cargo between vessels and connect with other transportation networks.

The Panama Canal Railway provides another connection across the isthmus (a narrow strip of land connecting two larger landmasses, with water on either side), moving containers and passengers between the two sides of the country.

Then there's the Colón Free Zone, one of the most important merchandise distribution and re-export centres in the Western Hemisphere.

Businesses operating within this commercial system can import merchandise, store inventory, arrange distribution, and serve customers across multiple international markets.

Plus, none of these businesses necessarily depend on selling products to Panama’s relatively small domestic consumer market; instead, they use Panama as a platform to reach other markets. 

That's important to note because Panama can attract businesses whose customers are located thousands of kilometres away, benefiting from the facilities, employees, services, and investment required to support those international operations.

While the precise tax treatment depends on each business’s activities, applicable deductions, and incentives, companies earning taxable Panamanian-sourced income also contribute to government revenue. 

Now, let's return to a question that I think many people overlook when evaluating countries with attractive tax environments.

Why would Panama want successful entrepreneurs, investors, and internationally mobile families to establish themselves within its borders if those people might not pay Panamanian income tax on foreign-sourced earnings? 

The answer is simple: governments can benefit from economic activity in many ways, and collecting personal income tax is only one of them. 

Panama doesn't need every wealthy foreign resident to pay tax on every dollar they earn overseas for their presence to contribute meaningfully to its economy.

Let me explain.

Imagine a successful Canadian entrepreneur who has spent 25 years building his business and accumulating wealth, and who now wants to establish a second home in Panama as part of a strategy to diversify his family's interests internationally.

He visits the country, likes what he sees, and purchases a home for half a million or a million bucks.

If he's buying from a developer, his investment can help finance their capital-intensive operations (think about the entire ecosystem of suppliers, architects, engineers, contractors, employees, equipment, and everything else that goes into building homes and apartment buildings). 

If he's purchasing an existing home, the transaction still involves real estate professionals, lawyers, and, eventually, service providers who will maintain the home. 

The businesses and individuals receiving money through these transactions will ultimately spend or reinvest their earnings back into the Panamanian economy. 

This is an example of the economic multiplier effect, where an initial investment generates additional rounds of spending and economic activity as money continues to circulate through the economy. 

…and of course, the economic contribution doesn't end when the property changes hands.

Our Canadian entrepreneur might spend several months each year in Panama, bringing his wife and children, dining out, buying groceries, hiring property maintenance workers, buying a car, paying for insurance, and hiring local professionals. 

Perhaps he eventually establishes local banking relationships, buys another property, moves his family, or starts a business.

Each of those actions generates additional economic activity and supports local businesses. 

Multiply that by thousands of families like our Canadian friend, and you can see the value families and investors like many of you reading this bring, and I’m sure you understand why Panama is happy to welcome us as expats. 

Panama doesn't need to extract tax revenue from every foreign resident to benefit from attracting them.

Encouraging people like us to bring capital and business activity into the country can generate substantial economic benefits.  

Panama doesn't rely solely on its tax environment to attract internationally minded families.

It offers another important incentive: well-established pathways to permanent residency 

For more than a decade, my work through Expat Money has helped families establish themselves outside their home countries, whether financially, physically, or through a combination of both.

Some families want to relocate permanently, while others want to secure a second residency by purchasing a second home, perhaps an income-generating property that can also serve as a place they can legally live if conditions in their home country warrant relocation. 

Panama is one of the most important jurisdictions where we've helped families achieve these objectives.

A well-established pathway to residency for families and investors like us is ultimately a
way to attract foreign investment into the country.

From the applicant's perspective, the exchange is gaining the right to establish a legal foothold in the country.

It’s a win-win.

Residency and economic development are closely connected, and understanding that relationship gives you a clearer picture of why Panama has spent decades positioning itself to attract foreign capital and globally minded families and investors like us.

One consequence of infrastructure investment is that it can transform a region's economic appeal by making previously hard-to-reach locations more accessible to residents, businesses, and tourists.

A simple example: a new highway can change the practical distance between two places without changing their physical distance.

I’ve seen the relationship between infrastructure and access play out many times throughout my career, and one stretch of Panama's Pacific coastline illustrates it well.

I’m talking about Playa Caracol, a beautiful beachfront community west of Panama City.

Sandy beaches, ocean views, and a quieter pace of life… all within what has become a relatively quick drive from the city.

Today, under normal traffic conditions, you can generally drive from Panama City to Playa Caracol in under an hour and a half. 

Reaching Playa Caracol wasn’t always this easy. 

When my friend and business partner Alfredo Aleman,  whom I've come to regard as something of a big brother, first set his sights on developing Playa Caracol, the region was little more than an undeveloped stretch of Pacific coastline surrounded by dense tropical vegetation. 

When Alfredo first went to inspect the land, he literally had to make his way through thick bush just to reach the beach, and the roads leading there from Panama City made for quite the headache, to say the least. 

What Alfredo saw, however, was the potential to transform a largely inaccessible stretch of coastline into a beautiful beachfront community within reasonable reach of one of Latin America's most important cities.

Despite the lack of accessibility, Alfredo and his team at Grupo Los Pueblos (GLP)
began turning their vision for a resort-style community along Panama’s Pacific coast into reality.

They broke ground long before the route to Playa Caracol became the “smooth sail” it is today, and wouldn’t you know it, their action (and investment) created the momentum that prompted the government to follow suit and invest in improving the infrastructure, which ultimately made driving between Panama City and Playa Caracol far simpler than it was.

Leave it to a private business to inspire action for government investment…

Panama committed to investing hundreds of millions of dollars to improve the roadways connecting the city to the country's west. 

Over the years, the Pan-American Highway and surrounding road networks have improved substantially. 

The project’s first phase alone represented an investment of roughly $282 million USD, including a six-lane highway that opened for use in September 2024.

Think about the transformation Alfredo has witnessed and helped drive.

What began as a beautiful but largely inaccessible stretch of coastline, where he literally had to fight his way through the bush to inspect the land, has now become an established beachfront community that families can reach in around an hour and a half from Panama City. 

Investors like us should take note of these access-unlocking infrastructure improvements.

Better roads can make a previously inconvenient location practical for weekend visitors, full-time residents, and businesses serving the area.

That can increase demand for homes, rental accommodation, and nearby services… and when demand grows faster than suitable supply, property values can benefit. 

Of course, improved access doesn't guarantee appreciation, but it helps explain why communities like Playa Caracol can offer massive upside to early investors who capitalize on the opportunity before everyone else sees the full potential.

Plus, infrastructure improvements don't just make an existing location more attractive… they literally can change the economic viability of developing something new in the first place. 

Think about it like this…

A developer considering a residential community needs to assess whether prospective buyers will actually use the properties, whether contractors and building materials can reach the construction site efficiently, and whether businesses can realistically serve the residents who eventually move in.

Poor infrastructure makes all of those things harder and more expensive, and in some cases, completely prohibitive. 

Improving the underlying infrastructure can fundamentally change the economics of developing the surrounding land.

When roads are poor and travel between locations is difficult, developers face greater challenges transporting materials, managing construction, attracting buyers, and convincing businesses to set up nearby.

As those connections improve, projects that previously made little economic sense can become far more practical and worthwhile to the developer or business owner.  

For investors who recognize these changes early, there's an opportunity to identify locations whose development potential is improving long before that potential is fully reflected in property prices.

My family owns several rental units in the Playa Caracol development, as well as our own vacation property we like to visit on weekends.

Countless families in my Expat Money community have also bought vacation homes and investment properties in the development.

Some purchased primarily for personal enjoyment, wanting somewhere beautiful to bring their families and spend time along Panama's Pacific coast.

Others have approached the opportunity from an investment perspective, looking at rental demand and the potential long-term benefits of holding real estate in an increasingly accessible coastal location.

For some families, the property fits into a more complete diversification plan that includes establishing residency.

These objectives aren't mutually exclusive, and I've worked with plenty of families pursuing several of them at once.

A well-chosen property should serve several purposes.

A vacation home, an income-producing rental property, the potential for long-term capital appreciation, and a tangible store of wealth outside the jurisdiction you currently call home.

Now, finding the right location is only part of the equation.

You also need to understand the developer, construction quality, operating costs, and whether the property makes sense financially.

Given the earthquake Panama just experienced, quality construction is especially important to discuss. 

Immediately following Friday’s earthquake, management and staff at Playa Caracol began checking on guests, residents, and the condition of the development. Thankfully, everyone on-site was safe, and initial inspections indicated only isolated cases of minor superficial damage. 

More thorough structural assessments are planned to identify issues that may not be immediately visible and provide property owners with greater clarity.

It's also a timely reminder of why I place so much importance on working with experienced developers who have demonstrated their ability to deliver quality properties.

When I evaluate a real estate opportunity, the purchase price and projected returns matter, but I want to understand the people behind the development long before I get excited about the financial side of the investment equation. 

Who's building it?

What have they built before?

What construction methods and materials are being used?

How does the developer approach quality control, maintenance, and long-term durability?

I take these questions seriously, especially when I’m introducing an opportunity to members of our Expat Money community and, going forward, to those of you joining me here through Panama Briefing. 

For me, Playa Caracol represents an interesting combination of everything we've discussed throughout this inaugural edition: a beautiful coastal location, substantial public investment in infrastructure, an established residential community, and the ability to own real estate in a country whose economic model I've spent years studying, participating in, and investing my own capital in.

For the past three years, my partners and I have worked on a special residential project within the larger Playa Caracol development called The Solana Beach Estates.

I've been involved from day one, working closely with my partners to create something specifically suited to internationally minded families who want to make Panama a more permanent part of their lives.

Unlike some of the other developments within the larger Playa Caracol site, Solana Beach Estates is being developed with full-time, community-oriented expat living in mind.

We're talking about a four-phase residential community featuring modern apartment towers and standalone family homes, plus plenty of amenities to benefit everyone who lives in or visits the community. 

We set out to create a real expat community where families can establish themselves, build relationships with their neighbours, and enjoy life along Panama's Pacific coast, and The Solana Beach Estates will deliver exactly that.  

The properties can also qualify as real estate investments under Panama's Qualified Investor residency program, making them particularly interesting for families looking to combine property ownership with establishing permanent residency here in Panama. 

I’ve put together a video presentation covering everything we’re doing to build a beachside community designed for internationally minded families in Panama. 

If you've been considering Panama for residency, a family home, or an international real estate investment, I strongly encourage you to watch it from top to bottom.

Watch My Solana Beach Estates Presentation Here: Click Here For Access

Speak soon,
Mikkel