Overview: Panama

Contributed by Ana Clement, EY Law

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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