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Written by moset
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Saturday, 28 July 2007 |
The Reforestation Visa, your Green Ticket to Panama
Relocation to Panama as a Forest Investor
By Petra Kollmannsberger
Forest cover is not only declining all over the world, but also in Panama with at the same time the growing need of additional resources. Panama offers especially favorable conditions for the growth of fine tropical timber: The tropical climate which leads to fast growth, the country is out of the hurricane zone, has a stable economy, the US$, the currency the world timber is being traded in; to name only a few of Panamas economic advantages. The government of Panama has already in 1994 recognized the need of incentive schemes in the forestry sector and established law 24 – a program to encourage investment in this environmental sector with 100 % exoneration on taxes (both for imported equipment and future profits) and the Reforestation Visa with minimum investment of 40,000 US$. In February 2005 it was suspended. In April 2006, desperately awaited by eager forest investors the Visa has been re-established under the Micro and Macro Investor Visas with some minor changes. The Reforestation Visa is not only a new possibility to relocate to Panama, it enables the investor to contribute to ecological and social development and offers a lot of other economical advantages. Profits of 6-11 % IRR from timber on a 25 year investment term are possible.
Advantages of the Reforestation Visa
Lowest minimum investment needed:
The Reforestation Visa has a relatively low minimum investment (40,000 US$), the minimum investment for immigration as micro investor starts with 50,000 US$ minimum investment and requires the set up of a company which employs minimum 3 Panamanians.
Pension Scheme:
The Forest Investment is not only your entrance ticket, as it is a long term-investment it can provide you an ideal additional income for your retirement. Please check with your local advisor if there are possibilities in including the investment into your self directed pension plan.
Taxes:
Also a very important fact considering forest investment to other investment granting visa is Panama’s new law from 2005 guarantees that profits coming out of reforestation are tax free for 25 years when started in the next 17 years.
The risk of changes in the legal or fiscal conditions cannot be excluded. In Panama’s history, however, there have not been any retroactive laws. The investor also has the chance to profit from changes in the legal or fiscal conditions.
Contribute to Social and Ecological Development in Panama:
Apart from your ecological contribution by helping reforesting our planet the reforestation Visa is one of the very few opportunities where your investment goes right to the people in rural areas creating employment and social development where it is mostly needed.
The Visa Requirements according to RESOLUCIÓN Nº 039 27. April 2006:
A foreigner interested in making Panama his or her place of residence must invest in a reforested parcel, a paid capital of US$ 40,000.00. Immigration is possible either in the name of a corporation or in the personal name of the applicant. The foreigner must be able to prove to the Immigration Authorities where the funds originate from, his or her direct investment and the payment of the minimum paid capital, also to file the documents and evidence such as a bank statement in regards to the income or the transfer of the funds from abroad in the name of the applicant.
If immigration via a corporation the applicant must be an officer and shareholder of the company in which he or she has invested the paid capital of at least US$ 40,000.00. The foreigner that applies for this visa must have at least US$40,000.00 in share certificates issued to his or her name that reflect the investment. If the paid capital is larger than the US$ 40,000.00 minimum, other share certificates can be issued in the names of the other shareholders for the remaining amount.
Once the Visa has been approved, the investor will receive a document valid for one year named a Permiso Provisional de Permanencia (Provisional Permit to stay in Panama). After one year, one month before the first permit expires, the investor must apply for a one-year extension. Once the first extension has expired, the petitioner must apply for another one year extension annually, for the next three years. Resulting in four Provisional Permits with a duration of one year each, in four years, after which, the investor is eligible to request the Definitive Permit, which will grant the right to a Panamanian I.D. Card, valid for 10 years as a resident of Panama. Please check with your immigration lawyer for a detailed list of requirements.
Why Forest Investment:
Forest cover is declining in all parts of the world; forests in the tropics of Africa and Latin America have been particularly affected: an average of 15 million hectares per year during recent decades. The reasons are clear: Growing population, slash and burn agriculture as a successor to poverty and extreme social misbalances in basically all tropical countries as well as an exploitation of commercial wood in a non-sustainable manner through national and international logging companies. A converse development can be observed in forest plantations. The area has increased by more than a tenfold in the last 20 years (FAO-Food and Agriculture Organisation, 2001. Growing wood consumption will be increasingly sourced from plantations.
In the last years not only green Eco-Idealists have come to recognise forestry as a profitable long-term investment. Investors are looking for investment opportunities with a good combination of security and profit. Real values and long term stability are preferred in comparison to pure cash values. Recently also the big players invest their money in reforestation. UBS, the world’s largest asset management company is one of the major forest owners on this planet. The big investors set on commodities. Low volatility, portfolio diversification and tax reductions make fine timber one of the easiest calculable commodities. We are also experiencing a change in the awareness of social and ecological issues. For many people the balance between economical, ecological and social aspects is becoming more and more important in the area of investment.
Choosing a forestry project to invest
Once decided for to go for the application for Panama residency via the Reforestation Visa the applicants need to go through a due-diligence process of available forestry projects. Tropical Forestry is a stable, long term investment. But as any other investment also forest investment has risks and you should look carefully into what the market offers. Panama in general offers a very good business and investment climate. Declining supply but increasing demand marks the market for tropical fine timber. So a stagnation or decrease of the price of non-commodity woods is therefore highly improbable.
It is definitely not an easy business for non-experienced investors to set up an own forestry operation, a lot of know-how is needed to choose the land, to decide which species to plant and which soils improve growth and how to manage it so it will generate profits within the growth cycle. We highly recommend therefore investing with one of the existing operations. There are different types of investment available: Newly planted lots and existing forest plantation up to age 15 years old. Please check that carefully. With the law 24 in 1994 reforestation projects appeared all over the country, especially teak plantations. But - a big part of the resources generated through the deductibility of reforestation investments were directed to the financial sector instead of improving the competitiveness of the plantation. A lot of these plantations will not create the expected return on investment; they have been badly managed or not managed at all, as purely done up for tax reasons.
As the investment is a real estate investment it can be traded later on. Land prices in Panama have increased constantly over the last 20 years. As agricultural land with high soil quality is scarce in Panama and the population is growing, this could lead to further price increases. In the 100 years of history of Panama there have not been any dispossessions of foreign landowners.
10 point checklist for your due-diligence process in the market of Forestry Investment:
1. FSC (Forest Stewardship Council) Certification as a quality indicator
Panama is one of a number of Latin American countries which are recognizing the growing trend in certified timber. Timber from sustainable reforestation and forest management is an increasing consumer requirement, an added value for investors not to be underestimated. Forest certification is a system of forest inspection that tracks timber and paper through a "chain of custody" — following the raw material through to the finished product — to ensure that the products come from forests which are well managed and considers environmental, social and economic principles and criteria. The Forest Stewardship Council (FSC) is an independent, non-profit, NGO and provides standard setting, trademark assurance, and accreditation services to companies and organizations interested in responsible forestry ( www.fsc.org).
FSC Certified Companies in Panama
12300 ha of forests in Panama are currently certified. The companies are: Eco Forest, Futuro Forestal, Inversiones Agroforestales, Nordic Management Group and Valleverde Desarollo Forestal. Futuro Forestal S.A. was the first in the country to follow the FSC (Forest Stewardship Council) certification standards of sustainable forest management and has just started selling certified Teak and Amarillo hardwoods. FSC-certified companies have to make their management and certification process public, you will find these documents online.
2. Land Ownership
One of the Visa requirements is also the presentation of the land title if not setting up your own operation or being major shareholder of a reforestation company.
It should be checked before, if the investment includes “Direct Title Real Estate Land Ownership” with registration in the National Register of Panama – not only ownership of the trees! Having your title your land is safe even if the forest management company should be in financial troubles later on. And you can receive ongoing yields from forestry, in addition to the first 25-year cycle. It is inheritable and therefore - profits for many generations.
3. Portfolio model, Monoculture versus Multiculture (various species)
Most of the plantations in Panama produce teak in monoculture but we can see tendencies to a more mixed species approach and the improvement of ecological and social development. Though teak has a high market value today you might consider a portfolio model with different species. A multi-species approach does not only minimize your market and plague risks but also enriches biodiversity: creation of habitat for flora and fauna, also for endangered species.
Also the scientific world, especially PRORENA (an initiative of the Yale University School of Forestry and Environmental Studies and the Smithsonian Tropical Research Institute) has great interest in supporting and promoting reforestation with native species in Panama. Futuro Forestal for example is cooperating continuously with universities and scientific institutions such as the National University of Panama, the Smithsonian and the Yale University, has a mixed species approach and offers in its high production zones six native species next to teak such as Mahogany, Spin Cedar, Rosewood and Amarillo and up to 50 species more in protection areas to further increase biodiversity.
4. Profit promises
You also want your investment profitable and give you a good income for your retirement in Panama or if you want to inherit it to your dependents.
Please check for exaggerated profit promises. On 20,000 -25,000 US$ investment per ha (2,47 acres) including 25 years of management services and land ownership 6 – 12 % IRR are realistic, based on inflation rates, timber projections and other sources of income such as carbon credits. The first income can be generated not before the year 10 and is a minor return. The final harvest of teak and other fine timber is usually after 25-30 years.
5. Additional profits through carbon credits
The Kyoto Protocol 1997 allows countries to achieve the emission reduction targets through carbon sequestration activities at home and abroad. Forest carbon sequestration can be reached through activities as reforestation, agro forestry and forest restoration. In Panama first Carbon Credits have been sold to the international market via Natsource in 1998 (by Futuro Forestal S.A.). Check if the reforestation company you want to invest in offers additional income.
6. Security Measures
Also check which kind of security measures have been undertaken for your investment, i.e. fire insurance, a replanting guarantee for the first years for trees which for example have been attacked by Insects, extra security lots for investors, etc.
7. Financial Reserves of the Reforestation Company
You will probably pay your management fees for the investment in advance. Check with the reforestation investment company what measures have been set up to ensure there is enough financial resource and stability of the company for a quality management of your forest until the end of the contract term and your money will not be used up for other purposes
8. ANAM Inspection
Make sure that the site has been/ will be inspected by ANAM, (National Environment Authority). The inscription of your lot into the Forestry Registry is also one of the requirements. Also the National Directorship of Immigration and Naturalization can inspect the land in order to prove the existence and operations according to the established parameters.
9. “Into the Woods” - Go and see for yourself.
Some of the reforestation companies offer tours to their reforestation projects. If you have a chance to do so, take a day off and go into the woods, learn about how reforestation is done, “feel, touch and smell your future investment”, and get to know your reforestation partner. You will be in a business relationship for up to 25 years so trust is important.
9. Other sources of information:
www.sicirec.org : SICIREC, an independent rating agency in the Netherlands also provides information on the market of forest investment in Latin America
www.itto.or.jp, www.fao.org:
Information about the timber market in general can be found on the web page of the Food and Agriculture Organisation (FAO) and the International Timber Trade Organisation (ITTO).
www.fsc.org: Website of the Forest Stewardship Council
www.jagwood.org: Website of JagWood an initiative of the World Wildlife Found to support timber operations in Central America
http://research.yale.edu/prorena/: Prorena/ Native Species project of the Smithsonian Tropical Research Institute and the Yale University in Panama.
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Last Updated ( Saturday, 28 July 2007 )
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