Monday, April 28, 2008

Monaco With Bananas

Richard C. Morais 05.05.08, 12:00 AM ET

Who needs Liechtenstein or the isle of Jersey? We've got a lovely tax haven right in this hemisphere
In 2005 Alexandre and Aude de Beaulieu, Parisians in commodities trading and public relations, picked up stakes and flew to the Republic of Panama. For $60,000 they bought, renovated and equipped a shop in Casco Viejo, a decrepit Panama City neighborhood that was filled with squatters but so architecturally unique it is a Unesco World Heritage site. Their business: gourmet ice cream, with flavors like cinnamon and basil.
"Everyone told us we were crazy," says Alexandre. By which they meant that the entrepreneurs should set up shop closer to home. But France's thicket of taxes, regulations and restrictions on hiring and firing workers scared them away. "Panama is like California 20 years ago. Everyone I know is building something--a newspaper, a development. It's very uplifting."
The De Beaulieus' ice cream parlor, called Granclément, furnished with family heirlooms and antique scoopers, has got glowing writeups in the Financial Times and numerous local papers. When FORBES visited the shop in February, a European film crew was shooting Granclément for a travelogue to be aired on KLM flights. Down the cobblestone lane construction workers were restoring a crumbling palace as a five-star hotel, while the latest James Bond flick was being filmed in a nearby square.
Granclément is busy enough to generate maybe $150,000 a year in revenue, a good take in a country where shop clerks earn $4,000 in salary and benefits. So these 36-year-old self-starters and their four young children are on their way to becoming wealthy. This year the De Beaulieus will add supermarket distribution and a shop among the Miami-style high-rises and malls getting built in the modern banking quarter across the bay.
America's recent exit was in some ways the real birth of Panama. This lively backwater--famous mostly for flying maritime flags of convenience and hosting dodgy finance--seems to have found its voice. Democratically elected governments have clamped down (somewhat) on corruption, signed several free trade agreements (the U.S. Congress has yet to ratify a 2007 deal with Panama) and instituted tax and social reforms.
Meantime, even as the U.S. pulled up its drawbridge to many foreigners after the Sept. 11 attacks, its dollar was the standard for Panama, which (until lately, at least) has found the currency bulwark an additional attraction for some of those same itinerants.
Result: Panama's GDP has been compounding at 7% these last five years. "Something's happened," says Joseph Harari, director of Panama's Credicorp (nyse: BAP - news - people ) Bank and an executive board member at the Wharton School in Philadelphia. "We've always had very liberal tax laws. But we also use the U.S. dollar to run our economy. It all helped."

Panama's corporate tax rate is 30% and is levied on local income only. The U.S.' 35% federal corporate tax burden is, in contrast, the second highest in the world and is applied to global income. Caterpillar (nyse: CAT - news - people ), Procter & Gamble (nyse: PG - news - people ) and Hewlett-Packard (nyse: HPQ - news - people ) have all recently announced significant investments in Panama. The personal income tax, capped at 27%, is also limited; the De Beaulieus, for example, don't pay Panamanian taxes on their French investments, which face high levies at home.

Between the glass towers of HSBC and BNP Paribas, South Beach-quality apartment complexes emerge from every weed-choked lot, turning Panama City's skyline into a porcupine of cranes. New developments are granted tax holidays for 10 to 20 years. On the seaside Avenue Balboa, famed interior designer Philippe Starck is filling a 56-floor tower; Panamanian and Colombian partners have teamed up with Donald Trump to build the 68-story Trump Ocean Club International Hotel & Tower, financed by a $220 million bond offering.
According to one report 35 towers of over 20 floors are in construction. Besides the danger of overbuilding, there are stress signs of too-rapid growth: brownouts from an overtaxed electricity grid, a Third World sewage system under the First World high-rises. Filth is still pumped into the bay. The government says it is working on sewerage improvements.
Of course, the newly arriving affluent also want high culture and good health care. Frank O. Gehry is designing Panama's museum of biodiversity; Hospital Punta Pacifica is the recently opened affiliate of Johns Hopkins Medicine International.
The old Howard U.S. Air Force Base is a 20-minute drive from downtown Panama City. Dotted with ugly barracks, this 3,500-acre property is still oddly elegant, with rolling lawns and hills, reminiscent of an African savanna, interspersed with flowering rain forest. Europe's London & Regional Properties, with partners, recently won the contract for Howard.
The plan, says Dan R. Marcus, an American developer who just arrived to run the project, is to build 12 million square feet of commercial space alongside 20,000 housing units, all woven together in a "holistic way." Houses will be integrated into the lush forest; on hand, everything from fire stations to chic restaurants. A free trade zone grants Howard-based firms generous VAT to income tax breaks.
Backstopping all this glamour and hype are the canal and related ports. Some 14,000 ships a year make their way through the 50-mile link, paying a fee of up to $313,000. In 2006 Panamanians voted to build an additional set of locks, for $5.3 billion, that in 2014 will double capacity and finally allow modern and much larger container ships to pass through.
Still, Panama has juice. At the dated but busy Veneto Casino, South American men line the bar, sipping beer and watching a soccer match. Gamblers pull the slots as hookers work the house. There's a lot of money sloshing around, and there will be more of it.
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America's Loss, Panama's Gain
Richard C. Morais 05.05.08, 12:00 AM ET

Abraham Suchar is a 38-year-old Venezuelan who migrated to the U.S. and made good money in the Los Angeles construction boom of the late 1990s before hitting up against the real estate bust in Florida these last couple of years. Meanwhile, his childhood friend Roberto Molko, who married into a prominent Panamanian family, was down in Central America making a killing flipping apartments.

"Florida is now famous among Latin Americans for little fortunes. You come with a big fortune, and you leave with a little one," says Suchar.

So Suchar has joined his old friend in Panama, building office space. "With all the issues happening in the U.S., I have more of a chance to make a living here," he says. "And the quality of life is much better.

"Two maids and a driver in Panama cost you $1,000 a month," he added. His Danish wife and their daughters have yet to be convinced.

But January was Suchar's first month in Panama full time, and in that month the partners presold $17 million worth of real estate to Venezuelans fleeing Hugo Chávez socialism. Panama has low crime, says Molko; its clients are escaping the "kidnapping, robberies and assaults" routine back home.

The U.S. is losing out, too. Sandra Snyder, an American who has written the hot-selling starter's guide Living in Panama (TanToes SA, 2007), says Sept. 11 has been the excuse for the U.S. government to soak foreigners for $130 to consider a visa application. "Imagine what that means to a middle-class family, with four kids, wanting to take a shopping trip to the U.S. or visit Disney," she says.

So Latin America's arrivistes are bypassing the U.S. and heading instead to balmy Panama, where $5 and a 30-second visa form gets you waved into a country in which nearly all the top boutique brands are waiting for you in the marble-filled MultiPlaza Pacific Mall.

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