Panama is one of the Latin American countries that has had an important economic growth during the last years, giving rise to scenarios of political and social stability. This growth is mainly based on the strong flows of Foreign Direct Investment (FDI), the expansion of the Canal, large infrastructure projects and public works such as the extension of Line 1 of the Panama City subway, as well as the urban renewal of Colon City.
Its privileged geostrategic location on the continent, dividing the Atlantic and Pacific Oceans, and its proximity to the United States, where its main cities are no more than a 5-hour flight from Panama City, significantly accelerates the flow of business relations with its main trading partner.
Panama is considered as The Great Hub of the Americas, and is outlined as a unique logistic space in Latin America, with assets such as The Canal, the great inter-oceanic ports that operate one of the most important waterways of the world, a first level air connection with global coverage and very efficient aeronautical operations, thanks to the Tocumen International Airport, a variety of free zones highlighting the Colon Free Zone considered one of the most dynamic of the continent, a first level tourist industry, as well as the establishment of the headquarters of many multinational corporations.
In addition, we must add the strength of its banking system, registering in recent years important operations such as mergers and acquisitions, transformations and the incorporation of new financial institutions, which has resulted in the market being highly regulated and active, turning Panama into one of the most important financial centers in Latin America
Draft Legislation 355
However, the crisis caused by the COVID 19 has significantly impacted the economy of the central american country, bringing with it imbalances in the fiscal box. In this context, the National Assembly has approved in August 2020 the Draft Legislation 355, which creates a Special Regime for the Establishment and Operation of Multinational Corporations for the Provision of Services Related to Manufacturing (EMMA). This Special Regime has been proposed by the Ministry of Commerce and Industry, which aims to attract and promote investment in production processes, seek the maintenance and creation of jobs, technology transfer or reactivation of production chains and the maintenance of the flow of operation and working capital, among others. This regulation contemplates that the services of multinational corporations may be developed in different areas of the country and will perform activities such as:
- Services related to the manufacture, assembly, maintenance, repair, remanufacturing, conditioning, of products, machinery and equipment;
- Services of development, research or innovation of new or existing products or processes;
- Analysis, laboratory, testing or other services related to manufacturing services;
- Renting or buying productive equipment, hiring personnel, buying goods and services related to the productive chain, hiring insurance and financial services, among others, as well as its consequent contribution to sectors such as education, tourism and consumption in general.
Among the normative aspects that stand out in Draft Legislation Project 355 are the following:
- Fiscal Instruments – Such as the exemption from the payment of Income Tax for the first 5 years of operation; the non-cause of the Tax on the Transfer of Personal Property; the exemption from Import Tax (which includes any tax, rate, lien or import duty on any type or class of merchandise, products, equipment and other goods in general, including, but not limited to, machinery, materials, containers, raw materials, inputs, supplies and spare parts that are used or required for the execution of the Rendering of Services Related to Manufacturing; among others.
- Migratory Instruments – Such as obtaining a visa for temporary personnel (and their dependents) of a multinational corporation for the provision of services related to manufacturing.
- Technology and knowledge transfer instruments – Transfer of technology and knowledge to the Panamanian labor force, creating a technical education center within the facilities of the investment company
- Labor Instruments – Such as the agility to sign labor contracts in any of the forms established in the Panamanian Labor Code.
The Draft Legislation Project 355 also seeks to capitalize on the benefits that are already visible in existing special regimes, such as Free Zones, the Colon Free Zone or the Panama Pacifico, among others. It is important to note that Panama itself has a legal architecture that facilitates foreign investment and offers excellent guarantees.
The Coronavirus crisis is posing important challenges for all companies and in this context, information is essential. In Auxadi we are experts in providing value added services in accounting, finance, tax compliance, payroll management and technology, being a strategic partner of your business. If you need to expand on what we have stated here, please do not hesitate to contact us.