Sponsored briefing: Panama: The multinational hub

Panama is known for smart corporate structures that function harmoniously with a top-of-the-world financial sector, creating business opportunities for entrepreneurs and investors worldwide.

One of Panama’s most successful and developed strategies to attract foreign investment has been the establishment of special economic zones with investment regimes that offer a broad range of tax, labour, migratory and legal stability incentives.

Some of the active investment regimes in Panama are: multinational headquarters (SEM), multinational company for the provision of services related to manufacturing (EMMA), Colón Free Zone, Panama-Pacifico Area, city of knowledge, multimodal logistic support zone of Barú, free trade zones regime, public-private partnerships regime, petroleum free zones, logistic bonded warehouses and agro parks operators and developers companies.

Particularly, the SEM and EMMA regimes were created to encourage multinational companies to transfer their offices or headquarters and workforce to Panama, allowing the country to become more competitive in the global economy.

What is SEM? In 2007, the Panamanian government enacted Law No. 41 of 24 August, creating the Special Regime for the Establishment and Operation of Multinational Corporations Headquarters, the SEM Regime.

SEM, for its acronym in Spanish, stands for Sede de Empresas Multinacionales and is a special investment regime whereby multinational companies can establish their headquarters or offices in Panama to provide administrative, technical and/or financial services to its headquarters, subsidiaries or branches in other countries (business group), allowing the company to receive tax, labour and migratory incentives, and optimise its work structure.

The SEM Regime was created with the purpose of promoting and stimulating the allocation of foreign investment in Panama.

The SEM Regime was created with the purpose of promoting and stimulating the allocation of foreign investment in Panama, creating job opportunities, transferring technology and knowledge, and competing with the benefits and incentives provided by other foreign special economic regimes, making use of Panama’s paramount geographical position and infrastructure of international services.

Since the enactment of Law No. 41, some of the largest companies in the world have transferred their headquarters to Panama. According to the data from the Multinational Corporation Directorate of the Panamanian Ministry of Commerce and Industries, 181 licences have been issued for SEM companies in Panama, generating over 7,800 jobs and more than US$3,000m in contributions to the national economy.

Even during the pandemic, years 2020-21, 28 multinational companies were established as SEM companies in Panama, propelling the activation of Panama’s economy.

How can a SEM licence benefit my company?

Obtaining a SEM licence comes with several benefits both for the company and its employees, such as:

Tax benefits:

• Fixed rate of 5% income tax in the Republic of Panama.
• Exemption from the goods and services sales tax for services rendered abroad.
• Exemption of the dividend and complimentary tax and branch tax.
• Exemption from the use of fiscal equipment.
• Exemption from the commercial licence tax payment.
• The transfer of shares by the SEM company is subject to a fixed rate of 2% capital gains tax.

Migration and labour benefits:

• Special five-year extendable visas for the SEM’s foreign permanent personnel and their dependants.
• Foreign permanent personnel with a SEM visa can opt for a permanent residence after working for five years in the SEM.
• Special short-term visas for technicians.
• Expedited visa assistance.
• No labour permit is required for the SEM’s foreign personnel with a SEM visa.
• The SEM company can hire the number of foreign workers it deems necessary for the development of its operation, hence, it has no foreign workers limit.

Benefits for foreign executives hired by the SEM:

• Exempt from paying income tax.
• Exempt from paying social security contributions and affiliation to the social security fund.
• Exempt from paying import tax for household goods when the worker moves for the first time to Panama.
• Exempt from paying import tax for a motor vehicle for personal or family use every two years.

Other benefits:

• Automatic legal stability for ten years from the time of issuance of the SEM licence.
• The SEM licence is granted for an indefinite term.
• One-stop service to facilitate procedures concerning the SEM Regime.
• The SEM company may locate its offices in any special economic area in the national territory.

Can my company obtain a SEM licence?

A multinational company can apply for a SEM licence if its business group assets are equal or greater than US$200m or if the multinational company provides services to at least seven affiliates, subsidiaries or branch companies.

The multinational company can provide the following services to its business group:

• Logistics and warehousing of components for production.
• Operation support and products and services research and development.
• Electronic processing of any activity, consolidation of operations and networks.
• Development of construction and design drawings.
• Management and administration of regional operations.
• Consulting services, marketing guidelines and advertising of the group’s goods and services.
• Financial management, corporate treasury and accounting for the business group.
• Technical assistance to group companies or customers who have purchased a product or service.

An additional benefit granted by Panamanian legislation is that the main activity or activities of the SEM company can be performed, in whole or in part, through resources provided by suppliers (outsourcing), as long as the outsourced activity is performed in Panama and the SEM company has the mechanisms to control and supervise the activity in Panama.

What is EMMA?

Capitalising from SEM’s success and with the purpose of mitigating the economic impact of the pandemic, in 2020 the Panamanian government enacted Law 159 of 31 August, creating a new special regime for the establishment and operation of multinational companies for the provision of services related to manufacturing, the EMMA Regime.

EMMA, for its acronym in Spanish, stands for Empresas Multinacionales para la Prestación de Servicios Relacionados con la Manufactura and is a special investment regime whereby multinational companies can establish their headquarters or offices in Panama to provide services related to manufacturing, assembling, maintenance and reparation of products to its business group, allowing the company to receive tax, labour and migratory incentives, and optimise its work structure.

It is important to note that companies that are already registered under the SEM Regime and wish to expand their services and create a manufacturing, assembling or related services division, are able to do so and obtain a fast-track registration for the EMMA licence.

How can an EMMA licence benefit my company?

Obtaining an EMMA licence comes with several benefits both for the company and its employees, such as:

Tax benefits:

• Fixed rate of 5% income tax in the Republic of Panama.
• Exemption of the dividend and complimentary tax and branch tax.
• Exemption from the goods and services sales tax for services rendered abroad.
• Exemption from goods and services sales tax for the purchase and import of goods or services in Panama.
• Exemption from the use of fiscal equipment.
• Exemption from the commercial licence tax payment.
• The transfer of shares by the EMMA company is subject to a fixed rate of 2% capital gains tax.
• Exemption from import tax on all types of merchandise, products and equipment, used by the company for the provision of services related to manufacturing.

Migration and labour benefits:

• Special five-year extendable visas for the company’s foreign permanent personnel and their dependants.
• Foreign permanent personnel with an EMMA visa can opt for a permanent residence after working for five years in the company.
• Special two-year extendable visa for temporary personnel hired to render operative services or training services and their dependants.
• Special work permit for temporary personnel for two years.
• Expedited visa assistance.
• No labour permit is required for the company’s foreign permanent personnel with an EMMA visa.
• The EMMA company can hire the number of foreign workers it deems necessary for the development of its operation, hence, it has no foreign workers limit.

Benefits for foreign executives hired by the EMMA company:

• Exempt from paying income tax.
• Exempt from paying social security contributions and affiliation to the social security fund.
• Exempt from paying import tax for household goods when the worker moves for the first time to Panama.
• Exempt from paying import tax for a motor vehicle for personal or family use every two years.

Other benefits:

• Automatic legal stability for ten years from the time of issuance of the EMMA licence.
• The EMMA licence is granted for an indefinite term.
• One-stop service to facilitate procedures concerning the EMMA Regime.
• EMMA companies may locate its offices in any special economic area in the national territory.

Can my company obtain an EMMA licence?

A multinational company can apply for an EMMA licence if its business group assets are equal or greater than US$75m or if the multinational company provides services to at least three affiliates, subsidiaries or branch companies.

The multinational company can provide the following services to its business group:

• Services related to the manufacturing, machinery, equipment, assembly, maintenance, repair, remanufacturing and conditioning of products, machinery and equipment.
• Product development services, research or innovation of existing products or processes.
• Analysis, laboratory, testing or other services related to the provision of services related to manufacturing.
• Logistic services such as storage, deployment and distribution centre of components or parts, required for the provision of services related to manufacturing.

The EMMA company can also outsource its main activity or activities, as long as the outsourced activity is performed in Panama and the EMMA company has the mechanisms to control and supervise the activity in Panama.

Estudio Benedetti specialises in creating corporate possibilities for multinational companies, allowing them to lessen their expenses while enhancing their work structure by taking advantage of the incentives and benefits offered by the special investment regimes in the Republic of Panama. Our team of lawyers will be pleased to assist you in case you wish to evaluate the benefits your company could acquire when registering in a Panamanian special investment regime.