Category: Interviews

This chapter will cover a general description of Panama, taking into consideration several positive and strategic complements that influence the services that may be promoted in different areas such as business, logistics, financial and maritime matters that are seen from a global perspective. In this sense, Panama, as a country with a privileged geographic position that allows it to take advantage of economic competition and worldwide opportunities, is one of the countries with the highest growth and enrichment potential, while offering important benefits for foreign investments.

Panama allows us to provide all the necessary legal services to provide security and tranquillity to a multinational company that decides to establish in our country. For this, aside from our geographical position that allows greater logistic opportunities, we must consider the laws and regulations that make Panama one of the best countries for investment and competitiveness, achieving better profits compared to other countries in the region.   

Panama has special tax regimes with the objective of promoting productive activities in different areas of the country that help generate new jobs and economic growth by giving opportunities for the companies to start operations.

The Panama Pacific Special Economic Area, created by Law 41 of 20 July 2004, establishes a special legal, fiscal, customs, labor, immigration and business regime for the establishment and operation in the Area. This special Area aims to encourage and ensure the free flow and movement of goods, services, and capital, to attract and promote investment and jobs generation.

The companies located in the Panama Pacific Area have several tax benefits such as exemption from income tax on activities encouraged by law, exemption from remittances, interest, and business privilege for services abroad and capital gains, among many other benefits.

We also have Law 57 of 2018 of the Multinational Companies Headquarters (SEM for its acronym in Spanish) that allows a company to maintain its business offices in Panama to provide services to the headquarters and having benefits for both the companies and their executives who come to work in Panama:

• Tax benefits for companies: reduced rate of income tax, exemption from payment of dividend tax on operation notices and; exemption from the payment of the dividend tax, the complementary tax and the branch tax, without distinction that they are from local, foreign or exempt sources, among other benefits.
• Tax benefits for executives: by opting for the SEM (Migration) visa, they may obtain exemption from income tax, exemption from import tax for household goods and exemption from import tax on motor vehicles.

Taking into account the Panamanian migratory system, it is also relevant to point out that the SEM visa allows the headquarters to hire as many expats as necessary for the operation without limitation.  Additionally, it allows the expat to obtain a residence permit for his or her dependents with unlimited renewals and eventually grants the principal a permanent permission to remain that leads to a Panamanian identification document.

As part of the situation that arises from the COVID-19 pandemic, the labor environment has been transformed with various regulations issued under the State of National Emergency decreed by the Executive Branch, covering working hours reduction, labor contract suspensions, among other measures that benefits the employee and helps the employer to reduce the economic impact of the pandemic.

Regarding home office working, Panama has a recently enacted Law No. 126 of February 18, 2020 that regulates the offsite working option, which includes provisions related to the responsibility of the employer for the health and safety of the employees working from home.  The law establishes that teleworkers must be informed of the company’s policies regarding this matter and that a program to supervise and train personnel on health and safety matters must be adopted, as well as a manual of good environmental practices and general socialization.

In addition to the fiscal / tax measures that we have contemplated in previous paragraphs, other measures have also been issued to help alleviate the strong impact on the global economy due to of COVID-19, such as the following measures:

• Decree that grants a term of 120 days, effective once the decree was published, for the payment of any tax to be paid to the General Directorate of Income, without causing interest, surcharges, or fines for late payments.
• Deadlines are extended for the payment of taxes that are caused or must be paid during a period declared as a State of National Emergency, until 31 July 2020. Likewise, the payment of the Property Tax corresponding to the first four-month period of 2020. This, without entailing fines, interest, surcharges for late payment as well.
• Deadlines are extended to file the Tax Returns for fiscal year 2019 until 31 July 2020.
• Deadlines to submit the Transfer Price Report regarding the operations carried out with related parties during the 2019 fiscal period were extended until 30 September 2020.
• Extension of one year of exemption for companies registered with the Micro, Small and Medium Enterprise Authority (AMPYME).
• Extend the deadlines to present the Report of the special payroll 03 corresponding to the fiscal period 2019 until 31 July 2020.

Another important aspect of the Panamanian legal framework is Law 81 from 26 March 2019 regarding the protection of personal data. This law, to be implemented from March 2021, establishes principles, rights, obligations, and procedures that regulate the protection of personal data. Responsibilities for the infractions or faults and sanctions that may take place, among other provisions, are also included. It is very important for all companies established in Panama to make sure that their internal policy regarding this matter complies with the local law and in any case should adjust accordingly before the law comes into effect.

As to money laundering and terrorist financing, in the last 12 months Panama has adopted a series of laws, executive decrees, and other regulations that contribute to compliance with international standards, so it has strengthened it’s position as a safe and collaborative jurisdiction. In addition, it has improved its governmental administrative structure of both financial and non-financial obligated subjects to ensure full compliance of the money laundering and terrorist financing measures, including a legal mechanism to process tax evasion.

At EY Law Panama we can provide detailed legal guidance to help meet the needs that are required in general or more specific aspects of companies established or to be established in Panama, including those related to the consequences of COVID-19. Panama is a country full of opportunities where all the advantages and benefits given should be taken knowing that it provides for entrepreneurship and face the new global economy that we see every day with new challenges and complexities to achieve.

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Cuestamoras Salud is a pharmaceutical distribution company. We have a portfolio of distribution assets that not only cover pharmacy, but also medical equipment. We serve the two biggest markets in Costa Rica: the public market – which consists of hospitals, clinics and the whole public health sector – and the private sector, which also includes hospitals, clinics and pharmacy outlets. I have legal oversight for compliance functions, regulatory affairs and value protection (formally known as asset protection).

Since COVID-19 our workload has increased significantly, especially in the areas of regulatory compliance, contracts, customs and public health bidding. Public health bidding has been a huge area for us, and in recent times it has obviously increased. The pharmacy and health sector have to buy products from the market, during a time when everybody is trying to buy the same products. This has been a really big challenge for us.

However, the biggest challenge in the last few months has been uncertainty. This is a fairly new disease and there is little known statistically and scientifically about the virus. So there are a lot of questions to consider, in terms of how to act and how to react. I believe keeping calm during this time can be just as contagious as the virus.  You need to make a proper assessment of all the information you have at hand and try to keep focused on goals. Our goals are keeping our employees safe, whilst continuing business operations.

One of our biggest regulatory hurdles has been getting the government to approve private testing. At first, health authorities in Costa Rica said no because they wanted to be in control of confirming who is a COVID patient and who is not. In order to get private testing approved we had to do some lobbying. We pressed the government with evidence of what had been happening Europe – in places such as Spain and Italy – to show that you need the private sector to help minimize and contain the spread of the virus alongside public officials.

Finally, authorities permitted private testing, providing the private sector with the tools to determine at an early stage who may be sick and who is not. From that we could determine who might need to be isolated. There was a business continuity incentive here, but it also had a public health component. It allowed us to stop and isolate a person, and ultimately minimise the spread of the virus within our warehouses.

With this we have moved forward on our proactive testing. This does not mean we are going to be testing everyone: we cannot test all 1900 of our personal. Instead we used statistical analysis and assessed the risk factor of employees. Data on where they live and how they travel to work were used to profile everyone in the company. This was done by experts in virology and statistical analysis. We had a separate team determining who was going to be tested based on their risk factor and exposure. In the end we did both reactive testing and proactive testing. Proactive testing is testing people who, though not showing systems may have a higher epidemiological risk. We have had proven results through this method.

From a legal standpoint, this testing involved a lot of negotiations. We had to negotiate with the service provider and our employees. The testing program was voluntary and as a result required consent from individuals. We also had to manage privacy issues surrounding access to and handling of employees’ private medical information.

Nevertheless, we obviously have inter-regulatory obligations with the government. When we determine through private testing that someone is positive with COVID, we need to inform the health authorities immediately. There is a lot going on.

Uplifting our digital capabilities on all fronts of the business has also been key. We have had to enhance our processes, and are currently going through a digital transformation right now. COVID has confirmed to us that this is the right way to go. We started the project at the end of the third quarter last year, but recent events made us move faster in order to take advantage of that opportunity.

The changing role of the workplace is also another area that needs to be defined. It is important to comply with a new normal. Working from home has shown there has been no impact on productivity in terms of results. If you are going to open your central offices, they have to serve a different purpose than what you are doing at home. The workplace has to become a beacon of corporate culture. That means developing and enforcing culture, so that people feel compelled to go to work.

We also need to facilitate interdisciplinary collaboration spaces, whilst keeping in mind all the regulations in terms of interactions. This is especially important when talking about innovation. We need to be able to provide space for creative opportunities, for the conversations you have with fellow colleagues in the hallways. Those spontaneous conversations that generate interesting ideas may be important for the company. That is one of the biggest burdens about working from home, you do not have those spontaneous opportunities to discuss anything with anyone else. Innovation does not happen when you plan it to happen. Going forward this is one of the things we are trying to deal with. We are working and trying to design what our idea of ‘offices of the future’ will be. This has enormous legal implications all-round.

Part of managing a crisis is providing emotional support to employees, and this has been a top priority. We set up a program within which our human resource team followed up with employees. This entailed picking up the phone and speaking to each and every member of staff who was working from home. It was important as a company to hear their worries and hear their concerns. Accordingly, we developed a program to address all the challenging aspects of working from home, from creating a proper physical space to task programming, organisation and leadership skills. By doing this we found our employees were more motivated. This is how we have managed to stay focused and deliver results.

Our mission is to keep access and supply of medications open for all. This is a goal that motivates our teams, because they understand the importance of what they are doing. Considering all challenges we have experienced during this pandemic, we have managed to maintain company results because of the effectiveness and productivity of our people. 

This article aims to show the legal environment that El Salvador is experiencing, both before the pandemic, at the present time, and how it might look in the future once COVID-19 is learned to live with.

Amidst the COVID-19 pandemic, the smallest country in Central America is being threatened with an economic recession like never before, but the legal market may be on its way to thriving this year. Before COVID-19, legal markets were stable, the majority of legal teams were working in-office, had a normal 8-hour working day, had a regular amount of contentious issues and disputes, any changes in regulations were made occasionally, tax benefits were predetermined, and an increase in technological advances and resources were not a priority or being used as well as they should.

Nonetheless, for many, the pandemic has transformed the legal markets into a helping hand that has allowed many industries and companies to keep up with the new normal and hold their pillars stable. El Salvador’s GDP growth reached 2.3% last year, but the country is still suffering from previous persistent low levels of growth, and this year that number might not change in a positive way. COVID-19 struck hard enough that it is expected that the country’s level of growth will change to a negative number.

Low levels of growth of the economy were ‘the normal’ panoramic for El Salvador, but a pandemic of this size has caused an enormous amount of uncertainty, reaching the point where the ‘new normal’ has brought with it a new modern way of working for many – if not all – private companies and public entities. Many legal teams all over the country have been dealing with numerous questions from clients on a daily basis regarding employment matters, new and provisional regulations on any legal subject, tax advice, new working protocols, contract compliance and migration; and it is these matters that have kept the legal market flourishing in these hard times.

In a matter of days, the world stopped, and change came with it; a change not many people were open to but have been obliged to digest. There is no question fear has taken over many minds, and Salvadorans are no exception. Fear for the country’s levels of public debt has increased (as the country has never been prepared to deal with a pandemic, much less one this size and length) leading to even more placement of bonds and loans through multilateral organizations, and leaving us with foreign interest in investment at its lowest point.

Although a reduction in moderate poverty has been reported, with COVID-19 still living among us and the death toll rising on a daily basis, the poverty rate is expected to rise again; both moderate and extreme poverty. This has led various start-ups and low-level income companies to stop their businesses or even shut down. Unemployment has increased, working contracts have been suspended in numerous companies, and although there have been new laws placed in action during the last four and a half months to help these small businesses (and the informal working class) there is still a lot of uncertain ground to discover. The question is whether there is a chance of the economy opening back up, and therefore, if employment will rise to where it was before COVID-19. If not, the new normal brings more difficulties than those projected.

Moreover, new regulations have been placed since March in order to alleviate the tax burden in a series of industries, especially those concerning tourism. The current environment of uncertainty on the duration and control of the coronavirus, implies that more and more doubts and queries will rise on ‘how to proceed’ from now on. This is hope that ‘uncertainty’ will lead legal markets to thrive this year.

The expectations of having an increase in contentious issues and disputes are rising, as well as litigations. There is a basic need for this area of expertise right now, specifically in areas like labor, insurance, tax, regulations in general, and contract compliance, but projections can change from one day to another as a result of any change in the spread of the virus; changes that are being monitored continuously, for example, another outbreak further in the year, which could again paralyze the execution of economic activities and, therefore, cause even more uncertainty.

Regarding technology, both the government and private organizations have implemented digital solutions in order to deliver services; they have joined the use of new technologies, implementing the use of online banking, electronic signatures, digital deliverables, home office, client meetings, rapid response via emails; and have taken into account that the new normal has brought with it new technologies that are here to stay.

There is no question that social distancing is an obligation in order to slow down the curve, but time has told us that mental health issues are also rising, and resources around these issues are still not being taken as seriously as they should. There are many appropriate resources, but still not enough, and the legal market has not taken this issue into account.

Although the legal market in El Salvador expects to continue thriving during COVID-19 and after, there is still a lot to tackle in the months to come.

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The Promised Energy and Infrastructure Investment Opportunities

In the early months of this year before COVID-19 became a global pandemic, all indications were that 2020 would be another record-setting year for investment in energy and infrastructure throughout Latin America. Significant institutional capital was being raised by debt and equity funds with an increasing appetite for and interest in Latin America. More and more global companies and strategic investors were lining up to pursue the development of renewable energy and infrastructure projects throughout the region. Renewable generation was increasingly cost-competitive with other generation without government subsidies, distributed generation was expanding rapidly, and commercial and industrial (C&I) businesses in Latin America were increasingly interested in direct contracting for renewable power. Governments were proposing new policies and reforms: advancing the evolution and diversification of Latin American energy markets, addressing climate change concerns through various investments, tackling urban congestion and pollution with public-private partnerships (P3s) to increase the electrification of public transportation, and structuring a pipeline of P3s to address other infrastructure gaps. Investment returns were better and opportunities more plentiful in Latin America than in most advanced economies. A growing roster of commercial banks and other lenders offering financing for those projects followed, also drawn, in part, by the better returns.

The Aftermath of the Pandemic

Then, the global pandemic spread to the Americas and led to a rapidly cascading shutdown of economic and human activity across the region resulting in an unprecedented deceleration of ongoing construction and an indefinite pause in new projects and investment. Quarantines resulted in a dramatic drop in electricity demand and substantially disrupted logistics for the construction and operation of projects. Government orders mandating uninterrupted supply of essential services coupled with suspensions of payment to private operators and the overall emergency have led to disruptions across value chains, including widespread force majeure claims, all of which have raised questions about the financial health of companies in these sectors despite mitigating efforts by countries like Brazil, Chile and Colombia. In short, the pandemic has set the region back economically, brought about a number of challenges for private and public sector plans for energy and infrastructure projects, and created uncertainty about the post-pandemic future.

It remains to be seen how these various dislocations will be resolved. Force majeure claims, in particular, have been asserted by parties across value chains and may raise a number of questions given the legal intricacies of the provisions that need to be interpreted, the economic consequences of contract milestones, term extensions, performance metrics and related payments, and the impact of these disputes on future contracts. The litigation generally arising from the pandemic, including claims for increased costs due to the pandemic and for the suspension of private operators’ rights to charge tolls or exercise remedies for nonpayment, will take time to be resolved and may produce outcomes that are inconsistent from project to project. Most importantly, investors will be watching the outcomes of these disputes, particularly those associated with government actions requiring private owners and operators to continue to provide services without compensation, in order to reassess political risks and the strength of investor rights under contracts in the different countries in the region.

The Opportunities Remain with Challenges

As the Inter-American Development Bank stressed in this year’s Development in the Americas report, Latin America and the Caribbean should ‘invest more and better’. Countries there/in the region have historically invested much less in energy and infrastructure than other developing regions and closing that gap will require greater and more effective public and private investment to produce better quality public services. The pandemic may shift aspects of how we live our lives and conduct business – and by extension whether we invest more in technology, media, and telecoms (TMT) and digitalization of services – but the need for investment in energy and infrastructure in Latin America has never been greater. Per IRENA’s Global Renewables Outlook, recovery measures that employ technologies consistent with long-term climate sustainability, like renewable generation, flexible power grids, efficiency solutions, electric vehicles, energy storage, and ‘green’ hydrogen, can help drive socio-economic development and create new private sector investment opportunities while addressing climate change goals.

Certain Latin American governments have already adopted policies designed to attract foreign investment in energy and infrastructure and make it a centerpiece of economic recovery efforts. Chile has introduced major initiatives on renewables, green hydrogen and electrification of public buses. Brazil has even reversed decades of prohibitions on the dollarization of contracts to increase the bankability of projects. Additionally, the United States has expressly made it a foreign policy goal to promote investment in energy and infrastructure in Latin America and the Caribbean in order to encourage a geographic shift in key suppliers to the United States from China and Asia to the Americas.

Further, the fundamental factors that promised opportunities prior to the pandemic – availability of capital, appetite for greater returns and need for investment – remain. There has been a reassessment of risk among investors and lenders and recent reports estimate that only a small percentage of newly raised capital is earmarked for Latin American investments. The International Energy Agency has cautioned that sponsors and investors will find that governments have focused their attention and resources on addressing the immediate impacts of the pandemic. As a result, government sponsorship of projects will be limited and public sector processes, including tenders, permitting and regulatory procedures, will be subject to delays. Moody’s predicted in July that future financing of energy and infrastructure will come from multilaterals and institutional investors given governments’ fiscal constraints and commercial banks’ focus on strengthening their balance sheets. Consequently, financing projects will be more difficult, particularly projects viewed as being riskier.

Nevertheless, from the perspective of Latin American companies, investments to ensure more reliable and affordable supply of electricity and infrastructure are essential to competitiveness and profitability and by extension economic growth. The pandemic has also underscored, if not accelerated, the public’s focus on climate change, ESG and sustainability concerns, including environmental and social costs, the importance of a diversified, reliable supply of energy, and the broad impacts of choices made with respect to infrastructure. As IRENA and OLADE stated in announcing their expanded collaboration this past July, ‘accelerating the development of sustainable energy’ as part of the economic recovery following the pandemic ‘could provide the Latin American region with a long-term strategy to address social inequality, energy access and energy security’. Companies seeking to encourage investment can support broad adoption of renewable generation or contract directly with developers and project owners seeking creditworthy buyers for their electricity. They can also partner with those developers as has happened in the United States to provide capital while mitigating political risks in this uncertain time. Consequently, we remain optimistic that there will be good investment opportunities in Latin America and that Latin American companies with access to industry expertise and seasoned counsel experienced in structuring and negotiating successful investments can play an active role in ensuring these positive changes continue. 

 

Maria-Leticia Ossa Daza is a partner in the Corporate & Financial Services Department and head of the Latin America Practice at Willkie Farr & Gallagher LLP. Jorge Kamine is a partner and Matt Vitorla is an associate in the Corporate & Financial Services Department of Willkie Farr & Gallagher and both are members of the Latin America Practice focusing on the energy and infrastructure sector.

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It’s no surprise that the COVID-19 pandemic has forced human coexistence to rethink, revalue and reinvent itself in all aspects. Indacochea Asociados (IA) attorneys were no exception.

During this time, the Bolivian National Government issued a series of regulations in order to mitigate the impacts on our country. Regulations were focused mainly on labor matters, financial and tax compliance extensions, economic reactivations programs, enforcement of technology driven commercial mechanisms and most importantly, regulations regarding public health.

Due to quarantine, commercial and economic activities were practically paralyzed at a general level, which generated major uncertainty in the labor force where, despite the quarantine, employers were forced to take on a social burden while being limited or unable to continue commerce or cover day-to-day expenses. Adding complexity to this situation of uncertainty, Bolivian legislation provides high regulatory protection and labor stability for employees, which was reinforced by new regulations issued during the strict quarantine. Law No. 1309 established the prohibition to dismiss employees during the quarantine, a prohibition that would be applicable for a period of two months after the state of emergency had been concluded.

However, as the quarantine was constantly extended, some activities and restrictions have been partly lifted by the government, allowing the development of essential activities on-site. These measures have been regulated by Supreme Decree No. 4218, which establish guidelines, obligations and conditions for the execution of home office practices at a national level – work practice that has been highly encouraged by well-established companies. The implementation of these measures certainly upgrades labor practices in Bolivia.

Likewise, and as encouragement to taxpayers, the National Government through its National Tax Service issued several regulations aiming to provide payment facilities and extension deadlines for applicable taxes levied over personal and company obligations. These policies were reflected in programs that allow flexibility in the fulfilment of tax obligations, thus avoiding potential applicable sanctions by the National Tax Service. Similarly, these regulations provided various incentives for those taxpayers who complied with tax obligations in a timely manner or who performed donations directed to COVID-19 pandemic relief.

The Bolivian Registry of Commerce has issued a new Manual of Commercial Procedures which intends to reduce bureaucracy in all commercial acts that must be registered before this authority. This manual recognizes the digital signature as a valid way of securing certain commerce acts required by the Bolivian commerce code. Moreover, through new commercial regulations, it is now legally accepted that shareholders meetings may be held via communication technologies (prior to COVID, all shareholders meetings required shareholders to be physically present in the legal domicile of the company). Alongside this, the Bolivian Financial System Authority allowed for certain banking procedures to be executed with digital signatures, thus avoiding the physical presence of the interested party at financial offices.

In regards to welfare programs, the Bolivian Government provided economic support and relief to the general Bolivian population through various bonds. These bonds have been aimed at those whose economic or employment situation has been severely affected by the pandemic.

Taking into account the extended duration of the quarantine applied in Bolivia (In accordance to Supreme Decree No. 4199 strict quarantine started on 19 March and flexible and dynamic quarantine was established starting 1 June), the country’s economy will surely be impacted; experts predict anything from a 3% to 9% contraction in 2020.

In order to reverse these mid-2020 economic growth projections, the Bolivian government, through Supreme Decree No. 4216, Ministerial Resolution No. 159 and Ministerial Resolution No. 160  issued economic programs to support micro, small and medium enterprises, as well as programs to support employment and labor stability. These programs extended bank credits to micro, small and medium businesses bank credits in service of two main objectives: avoiding closure and maintaining jobs.

Additionally, and with the sole objective to reboost the national economy, a loan program was launched to promote the consumption and production of national goods and services. This loan has an historically low interest rate of 3% per year and intends to reactivate consumer buy-ins .

Despite the fact that economic support measures have become a reality, the current political scenario in Bolivia has made it difficult for them to materialize. A continuous struggle between the Executive Branch, which holds office, and the Legislative Branch, which holds a majority has seen the initiatives of one side opposed by obstacles from the other. This situation can be clearly identified with law projects in regards to international loans and sovereignty bonds proposed by the Executive Branch and blocked by Legislative Branch.

Although during the first months of the National Emergency the national economy was affected, as of June an increase in the labor market and in the generation of labor income could be witnessed, according to studies carried out by the National Institute of Statistics. Likewise, as a result of the implementation of virtual registries before the Trade Registry, there was an increase in the creation of small and medium enterprises, which implemented innovative business models and e-commerce in their offer of services and products. Also, because of the recently issued resolutions by the National Tax Service, tax incentive programs were created, implementing a system applicable to individual entrepreneurs and start-ups which offers access to a unique tax, as a replacement to traditional taxes applied to ordinary businesses.

We consider that despite the limitations COVID-19 brought to Bolivia and the world, it has given birth to what we call the Bolivian Legal System 2.0. This version comes with legal technology innovation, debureaucratization of public institutions’ procedures and new opportunities to reinvent business. It is necessary to adapt quickly to the new limitations and obstacles that are found in our reality, and to seek the effectiveness from the offer and customer satisfaction to provide the results that are sought.

The current situation has forced the state to adapt quickly, responding effectively with incentives that promote foreign investments likely to help the country’s continued economic growth. In this matter, new investments can count on a far higher level of legal protection than was offered by previous governments. The Government’s guidelines on new investments are certainly promising, and investors can have every confidence that legal protections are robust and will be enforced.

Thus, even though we are aware that much more needs to be done, COVID-19 certainly changed the rules of the game and government officials must continue to promote Bolivia as a promising emerging market, securing not only local but international investments. They must, they will.

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This article contains an overview on Costa Rica, taking into account the impact of the Covid-19 pandemic in certain areas, coupled with the acceleration of trends that were already in motion before this pandemic started, all amid a ‘new normal’ stage that continuously triggers game-changing and challenging transformations.

Costa Rica, with its long-standing democratic tradition – having abolished its army in 1948; ranking at the top of the list of nations of the American continent in literacy, health and life expectancy; its wide-array of trade and commercial agreements with its major trading partners; and its long-standing and attractive investment programmes (such as the Free Trade Zone Regime) – now has to embrace and facilitate this period of transformation. It must redouble efforts to continue being a leader in the region, as a major hub for technological development, highly specialized shared services and manufacturing operations, while promoting a stable environment that enables the development of technological transformation and innovation.

Currently, Costa Rica is a major centre for the aforementioned added-value operations – headquartering subsidiaries for the Latin American operations of major transnational Fortune 500 corporations and other high-profile regional companies – and it is expected that these operations continue to increase as many companies recalibrate the supply chain seeking competitive nearshoring options in a new ‘decoupling’ setting.

To continue this path, the country has taken two major steps in the last two years to improve its finances and regulatory framework, the second taking place during Covid-19 times:

The first step consisted of a major and long-overdue overhaul of the tax legislation, albeit maintaining the tax territoriality principle. On 4 December 2018, Costa Rica enacted a major tax reform through the ‘Law for the Strengthening of Public Finances’, incorporating new rules regarding income tax, fiscal periods, permanent establishments and taxable events, taxation of capital income and capital gains and losses, and the Value-Added Tax (VAT) at a rate of 13%, excluding certain goods and services.

As will be the case in most countries in the world, further tax legislation is expected to improve the state’s finances, aggravated by the Covid-19 pandemic, all of which will increase the scope of reporting and compliance of tax and related regulatory obligations.

The second step was the culmination of the long process for being unanimously admitted into the Organization for Economic Cooperation and Development (OECD) on May 2020. For admittance, Costa Rica had to revamp its regulatory framework by approving specific legislation in areas such as investment, anti-corruption, corporate governance, financial markets, private insurance, competition, tax, public governance, statistics, economics and development, education, employment, health, trade and export credits, agriculture, fishing, scientific and technological policies, digital economy and consumer protection. It is expected that all the approved legislation required to become a member, in addition to future commitments, will pave the way for strengthening Costa Rica’s position in the global markets as a regional leader in many of these areas, pursuant to international practices and standards.

Even before being admitted to the OECD, Costa Rica had adopted the European Union’s General Data Protection Regulations (GDPR) as the basis for its legislation regulating protection of personal data and information under the self-determination, confidentiality, consent and use and protection of data principles.

The recent amendments to the competition law also follow OECD principles and practices, and in certain aspects, new rules are even more stringent for merger control and anti-competitive practices.

Moreover, as part of the public governance policies, the government is promoting and implementing through Mideplan-MEIC Guideline 085 a ‘digital government plan’ procuring the simplification of administrative procedures (in part to counter the increase of regulation), support to SMEs and business ventures, employability and investment in public infrastructure. This type of plan, along with strong public/private partnerships, is crucial for developing the necessary infrastructure to achieve digital transformation and maintain Costa Rica’s standing in the region.

In the labor law and practices realm, Covid-19 has reshaped the workplace, and the new trends in relation thereto are here to stay. As in other countries, the ‘new normal’ in Costa Rica will be working remotely on a permanent basis or, at least, applying a hybrid model that allows certain employees to work remotely, whilst others continue to work in the office. Setting rotating shifts as part of this hybrid model will allow using smaller office spaces, which will generate savings, not only in office space, but also on supplies, transportation, food and other costs related to physical work in the office.

Costa Rica has been ready to properly apply remote work or ‘work from home’ by timely approving legislation in September 2019. This legislation is quite flexible, as it allows the parties to negotiate the terms and conditions for each specific case, but seeking a proper balance by mandating employers to follow proper practices in its internal procedures to ensure the employee’s right to disconnect and avoid ‘burnout’ as a work-derived sickness. Employers must take a hands-on approach to ensure that employees have a proper office environment in their homes.

New labour legislation allows flexible work schedules and provides that an employee’s performance is measured based on the fulfilment of objectives and not just in the completion of daily shifts. The outsourcing of all tasks that are not related to the company’s core-business will become more common. Specialized and technical experience will be more relevant when selecting a service provider.

We also expect an increasing number of labour disputes to be solved through mediation and alternative dispute resolution centres.

Technology, as a major disruptive force on employment through artificial intelligence, is also continuously transforming the way standardized legal work is delivered, and we expect clients to seek solutions that improve the effectiveness of the contracting process and the contract life cycle management, the assistance and support to clients and GCs in the development of responses to regulatory events and business changes, regulatory response and compliance. We understand that GCs need to focus more on strategic matters, and providing the technological tools for such standardized legal work will be expected to be part of value proposals to clients. That is why at EY Law, we have spearheaded the legal managed services industry.

Other notable trends have been the increase in debt restructuring matters as the expected scope and duration of the Covid-19 emergency remain unclear, intensifying economic implications for many industries. This situation has increased the work related to debt restructuring, insolvency strategies and other ‘hibernation’ measures, the preservation of business continuity, along with liquidity and funding.

We have also been instrumental in advising retail clients on the implementation of e-commerce platforms as the region is experiencing a surge in online shopping.

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I have been a lawyer for 24 years, originally specialising in tax law. I became an in-house lawyer by chance. I began my corporate career as legal manager for Central America and the Caribbean at British American Tobacco. It was an incredible experience, but one day I received an offer I could not turn down. So, I went to work for Colgate-Palmolive. This is a really interesting company that deals with consumer goods and products that focus on oral health, personal care and home care. We also have a division that manufactures and sells pet food. It is a very diverse and interesting company.

I manage six countries: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. I oversee all the legal issues including tax, environmental law, government relations and advertising law. One of the most important things that has set Central America apart from the rest of the world when it comes to COVID-19 is the implementation of curfews. We have been under lockdown and had strict controls placed on our movements over the last five months.

Despite this, Colgate-Palmolive has not had to shut down  its operations. We sell our products throughout Central America, Dominican Republic, some parts of Europe, Mexico and the United States. We have not stopped even for one day. The goods we sell have been considered essential by every government in the region. Ensuring our people are able to do their job in a safe manner has been key. While this work has involved many departments, the legal team has made sure everything is done in a fully legal and compliant way.

The truth is, in-house legal work is usually done behind the scenes. I am fine with that, [because it] means when we do our work in the best way, everything goes smoothly. For example, in order for our employees to travel during curfew times we had to apply for special legal permits. In the end, nobody raised any issues. This means we did our job well.

This is a consumer goods company, it is a company whose main area of focus is to manufacture, sell and market products. We as legal are a support function, and our main goal is to operate in such a way that people do not know what we are doing behind the scenes. [Our lack of visibility] is a measure that the legal function, not only in Central America but worldwide is working effectively. Colgate-Palmolive has done a terrific job as we continue to manufacture and sell products safely.

Another, major change in my role is I am working from home all day. Apart from a quick visit into the office, I have not seen my leadership and management team for the past five months. This means we have had to change how we deal with everyday issues.  Previously, I would spend some time of the year in each country, making at least two visits per country a year. If something was urgent I would just hop on to a plane. These days I have to handle everything over the telephone or over a computer screen.

One of the biggest challenges during this pandemic has been brand protection, and I believe we have been doing a great job. We pursue and take action against imitation of products, counterfeiting and smuggling of products that do not conform to our requirements. During this pandemic, right from the beginning, we have had to deal with people trying to sell products and mislead consumers into believing products are from our company, when they are not. In the past, we would send our brand protection team, comprised of lawyers and private investigations to looking into to these kinds of issues. We would run an investigation, submit a case for breach of intellectual property and prosecute the case. As many of the countries in our regional cluster are now closed we have had to come up with creative ideas to deal with such issues. For example, gel alcohol (sanitizer) which is advertised using one of our brands on Facebook marketplace, is not a product we manufactured. We let Facebook know the product is not ours, and they need to shut the account down. We also sent a cease and desist letter [to the manufacturer of this product].

We have had to find a lot of creative ways to protect the company’s trademark, as well as protecting consumer rights. In the past, we would go into a street and look for the product, collect samples and just gather as much information as possible to prosecute those cases. Now, we have had to be more creative, and find other ways to have the product removed from the market without us involving private investigators.

My personal opinion is that we have managed our resources very efficiently. We can respond to matters effectively, whether we are sitting in an office or at our homes, and provide the same results. I believe the legal profession will become more flexible as we look for smart and creative solutions, whilst respecting the processes of the law. The reason people are hesitant to approach lawyers is that we can sometimes take too long to address issues.

Overall, we as lawyers want the legal profession to advance. When I was at school, there was a philosophical discussion regarding the law and whether the legal profession was a science or just a body of dead knowledge  that continued to follow the same statutes and cases over and over again. This pandemic has made us stop for a moment to take a look at our profession from a scientific standpoint. As in-house lawyers we have to reinvent ourselves, and find alternative answers to make things easier. The law can evolve, and the legal profession can evolve just as other sciences do. 

Regardless of the fact that Ecuador’s economy is the eighth largest in Latin America and the Caribbean (among 33 countries), Ecuador has amazing potential of business activities in the mining, energy, tourism and agriculture industries. With large natural mineral reserves (in gold, cooper and iron), amazing conditions for the development of energy projects, especially photovoltaic and hydroelectric energy, incredible tourism locations such as the Galapagos Islands, beautiful highlands, and considered to be one of the most bio-diverse countries in the world, Ecuador is also one of the top exporters worldwide of bananas, shrimp, flowers and cacao.

Due to all these interesting factors and many others like a dollarized economy, the government’s current policy has been focused in promoting attractive conditions for foreign investors and working on improving the benefits that were already granted in the Organic Code of Production, Commerce and Investment (COPCI) published in December 2010, but had little or none effect during the previous government (aligned to Hugo Chavez ideology).

The Law of Productive Development, Attraction of Investment, Employment Generation and Fiscal Stability (Investment Law) enacted in august 2018, offers to investors the possibility of obtaining interesting benefits such as: tax exemptions (income tax and currency remittance tax), reduction of custom tariffs, legal stability and entering into arbitration agreements while entering into Investment Agreements with the State, which has given law firms a new scope of work that involves project finance, tax, regulatory matters and contracts.

Furthermore, Ecuador offers investors a dollarized economy and a much more transparent State which has promoted transparency and the implementation of ISO 37001 anti-bribery among its government institutions and companies. These benefits have caused almost a 130% increase in foreign direct investment in comparison to the former government as per studies of the Central Bank of Ecuador.

However, despite the new foreign investors that came in different industries due the favorable conditions of the Investment Law and the effort of the current government to solve the extremely high debt left by the former government (which in addition to other matters caused a division among the elected political party, some in favor of the previous government and some in favor of the actual government), the economy of Ecuador was affected again by a combination of different factors.  These are the social unrest events that occurred not only in the country but also in the Latin American region around October 2019, followed by the oil crisis (price-drop), the damages in the local oil pipelines due to massive landslides and COVID-19.

COVID-19 impact not only revealed the deficit in the country’s health system but also caused the lockdown of the country and the suspension of most economic activities for a couple of weeks. As a consequence, certain small businesses have faced bankruptcy or many other, have had to reduce their production capacity and employment force, generating many opportunities for law firms in debt restructuring, ADR and labor advice, that had to innovate their services to provide legal assistance while working from home.

In addition, Ecuador has upcoming presidential elections on February 2021, and the political scenario is uncertain due to the fact that most of the high public official (President, Vice President and some ministries) of the former government have been prosecuted in relation to corruption allegations, and there is low probability that they can run for a public position. As such, after 14 years of having the same political party in government, there is a high probability of having a different political party achieving the presidency.

Some of the key aspects take into account while deciding to invest in Ecuador are the following:

Key Indicators for 2020 and forecast

Current Business Environment

Tax Regulation

Bellow a brief description of the main taxes applicable to commercial activities in Ecuador:

a) Income Tax

Income tax taxes the rent obtained by persons and local and foreign companies. Under the Ecuadorian law, income refers to:

Income from Ecuadorian source obtained free of charge of from work or capital.

Income obtained from abroad by persons domiciled in Ecuador or by Ecuadorian companies.

The tax basis is the total taxable income, less returns, discounts, costs and expenses deductible and attributable to such income. In general terms, the rate for companies is of 25%.

b) Value Added Tax

Tax on the value of transfer of ownership or import of goods, services, copyrights, industrial property and related rights. A 12% rate is applied over the price of goods and services. Some exceptions may apply to certain goods and services that will be taxed with a 0% rate.

c) Currency Remittance Tax (ISD)

The Currency Remittance Tax (ISD) taxes transfers in cash, through money orders, bank transfers, shipment, withdrawals or any payment of any kind, of currencies sent abroad, with the exception of an account clearing made with or without the intermediation of financial institutions.

The tax rate of 5% is applied over the value of the currency transfer. This tax is declared and paid by the financial institution by which the financial operation is carried out.

d) Capital Gains Tax or Property Transfer Tax

The tax rate for Capital Gains Tax and Property Transfer Tax ranges from 2% to 10%.

Labor – Profit sharing

15% of the net earnings of a company are distributed to all employees in the payroll. It can also apply to employees of companies that provide the company complementary services such as catering, security, cleaning and courier services. From the 15%, 10% is divided and distributed to all employees. The remaining 5% is distributed in accordance with the employee’s household.

Profit Sharing in mining, oil, and hydroelectric companies: as an exception to the general profit sharing rule, that the 15% of the annual profit must be distributed to all employees, in the case of mining, oil and hydroelectric companies it is only distributed 3% to all employees in the payroll, and 12% is distributed to the state.

Public Private Partnerships

The government has promoted Public Private Partnerships (PPP) which can be established for the provision of goods, building infrastructure, or services. All terms and conditions of PPPs are set out in a contract that must be signed with the public entity.

The PPPs have, among others that might be agreed upon the contractual parties, the following incentives:

a) Legal stability.

b) Income tax Exemption: Income tax exemption for ten years in projects in the prioritized sectors determined by an inter-institutional committee, period which starts from the first fiscal year in which the company generates operating income.

c) Currency Tax Remittance Exemption:  All companies that participate in an PPP will be exonerated from ISD in the following scenarios:

• In the importation of goods for the execution of the public project, whatever the import regime used.
• In the acquisition of services for the execution of the public project.
• The payments made by the company to the financiers of the public project, including capital, interest and commissions, provided that the agreed interest rate does not exceed the reference rate at the date of registration of the credit. The benefit extends to subordinate loans, provided that the borrowing company is not in a situation of undercapitalization in accordance with the general regime.
• The payments made by the company for distribution of dividends or profits to its beneficiaries, notwithstanding where they have their fiscal domicile.
• Payments made by any person or company due to the acquisition of shares, rights or participations of the structured company for the execution of a public project in the PPPs modality or for transactions that fall on securities representing obligations issued for the financing of the public project.

d) Reduction of tariffs: Customs tariffs that are related to the PPP projects will also be exonerated

e) International or domestic arbitration agreements

The incentives mentioned above may be enjoyed for the term agreed upon in the contract, with the exception of the income tax exemption, which can only be 10 years.

Investment Contracts

The Investment Law and COPCI benefits are directed to those new investments (either made by foreign or local investors) that meet the criteria of new productive investments in prioritized sectors of the economy that increases production and generates new employment.

The benefits granted by the government will depend on the investment project, its location, its industry, whether is a new company or an existing one, amongst other criteria, as shown bellow:

a) Total or partial income tax reduction from 8 to 15 years.

b) Currency Remittance Tax (“ISD”) exemption for the payment of imported machinery and raw materials, and for the payment of profits to foreign shareholders.

c) Tax stability for up to 15 years of the current applicable income tax rate. This provision does not provide stability for municipal, customs nor VAT Taxes.

d) Temporary exemption of custom tariff.

e) International or domestic arbitration is available for investors.

Initially, the aforementioned benefits apply for those investments made up to August 2020, but the President has recently extended the benefit for 2 years more, until 2022.

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See more from Paz Horowitz at: www.pazhorowitz.com

I am from Venezuela and for most of my career I was based there. I moved to Panama five years ago when 3M relocated me to takeover legal responsibilities for countries across Central America and the Caribbean. After two and a half years I relocated to Mexico to become general counsel there. In 2020, I moved back to Panama as general counsel for Latin America, overseeing legal operations in the health care, transportation and electronics sectors.

I started this new role during the pandemic and have overseen the company’s involvement in a range of initiatives during this period. 3M has been very focused on increasing production of respirators. As a company are working together to get things where they need to be, utilising our own distribution channels. It is important to note the company has not increased the price of respirators. In fact, 3M has been fighting against price gouging and many other types of fraud in both the United States and Latin America. There have been fewer cases in Latin American than in the US.

Legally, we have taken a global approach, rather than a local one. Legal departments across the company have aligned their goals for Latin America, USAC (United States and Canada) and Europe.

One of the biggest challenges that I have experienced in recent months has been dealing with the speed of change. Governments have generally relaxed their rules to allow healthcare products to come into countries easier,  while some jurisdictions have made it harder to export products deemed necessary during the pandemic. Dealing with different jurisdictions and trying to standardise the way in which we work has been our biggest goal. It is a challenge when deciding how to balance multiple jurisdictions – you cannot work with 15 countries in 15 different ways. We need to find a midpoint that works across varying countries.

For example, if I am drafting an agreement that I would like to be used as a template for both Mexico and Argentina, I cannot put into that agreement the initial part of the document, as the format will be different for each country. If I insist on having that part of the document done in one single way for Latin America it would simply fail. If I focused on the little things, I would lose sight of the bigger picture.

No matter what jurisdiction we are dealing with, general counsel need to be more business minded  than external counsel. Being part of a company is very different to being part of a law firm. Your state of mind needs to be focused on what the company needs, and on how the company’s goals  can be achieved through different tools. That is where the IT team here at 3M steps in and integrates those tools, sometimes even delivering new tools on demand. When I was in Venezuela I asked the IT team to develop a tool for my internal client agreements. I was tired of people coming to my office to request an agreement with a range of stipulations, without giving me the details that I would need in order to draft the agreement.  The IT team developed technology that would make it easier to extract the relevant information I would need to draft that agreement. However, as things evolved, that particular technology is not efficient enough anymore.

At the moment, there are a number of tools on the market that companies can purchase. They can then adapt those tools to the company’s needs. That is exactly the case for 3M. We have been working with management tools for agreements as well as repository tools to be more efficient. We as a legal department are very much like a sponges. We need to be aware of and absorb a lot, whilst always adapting to the needs of the business. Our goal is to serve the business – there is no question ever about that. We then have to be innovative, and we need to be fast. We aim to help business teams do what they need to do – which in the end is to sell our products.

To that extent, it is really important to adapt to the needs of the business and to take advantage of all the tools we have to make work easier. But I have to admit that the legal department does complain in order to get the technologies that help us become more streamlined. That is the nature of being human, if we did not complain we would not be able to improve things.

I miss being able to go into to work and see people in our Panama office. Looking to the future, I think this moment of time has accelerated things within the industry. We definitely need to move towards becoming more efficient, and to find a balance between being compliant with the law and doing the right thing. I know doing the right thing is a subjective concept, but it is important to try and do what is right at a particular moment when you are faced with a particular situation. As a lawyer, the personal values you have and believe in, are a big part of it.

Of course, you also need support from the business. In a company like 3M, when a lawyer says something is not right, the issue will be heard and observed. Legal departments do not only report to their businesses, but also to a wider legal code. Everybody knows the opinions of lawyers matter – and although lawyers can sometimes get it wrong – companies trust their legal departments.