With the enactment of Law 57 of October 24th, 2018 that modifies Law 41 of 2007, creating a Special Regime for the Establishment and Operation of Multinational Headquarters and the Commission of Multinational Headquarters, new rules applicable to SEM (for its acronym in Spanish) companies are established.
Income Tax (ISR)
- Companies with SEM license will pay ISR at a 5% rate on the net taxable income applicable to the services it renders.
- SEM companies, will file income tax return on an annual basis and may consider as deductible expenses: the remuneration of all employees including those exempted on their remuneration in accordance with Article 26 of the SEM Law.
- Companies with SEM License may apply as credit to its ISR:
- The amount paid for ISR or another analogous concept abroad (withheld) with respect to the net taxable income generated in Panama related with services rendered to non-residents.
- The amount withheld by taxpayers in Panama as ISR according to Article 23 of the SEM Law.
- When the tax credits are applied, the SEM entity must pay as a minimum of 2% of the net taxable income as ISR. Those credits may not be considered as accrued credits nor being subject to tax rebates.
- The taxpayer in Panama who benefits with a service from a SEM company must withhold 5% on the amount to be sent to the SEM company as long as the service is needed for the production or conservation of the source of income or is being considered as deductible expense for the beneficiary of the service.
- The SEM company who benefits with a service, copyright, loans, financing, rendered by an entity outside of Panama must withhold 5% on 50% of the amount to be sent. It Will be subject to ISR in Panama as long as the service has an impact in the Panamanian source of income of the SEM. If the SEM company is in loss when the remittance is performed, the withholding is applicable on payments outside of Panama.
- The remuneration of the SEM executive with Permanent Personnel SEM Visa will be exempted of ISR, social security contributions and education tax, only if such remuneration is paid, assumed and recognized as labour expense in the accounting records of the SEM company.
- As of 2019 tax period, persons who carry out operations with related parties that are SEM companies, will be subject to transfer pricing.
- Transfer pricing regime is applicable as well to the operation of the SEM company with related parties in Panama, or that are tax residents in other jurisdictions, or that are established in the Colon Free Zone, or that operate in an Oil Free Zone, in the Panamá Pacífico Economic-Area, City of Knowledge, or that are SEM, or in any other free zone or special economic areas.
- SEM companies are exempted from Dividend Tax, Complementary Tax and tax applicable to branches. Rules of Article 733-A of the Fiscal Code are not applicable to SEM companies.
- SEM companies are not subject to the use of fiscal printers, but must have support of their activities.
Operations License Tax
- SEM companies are not subject to the Operations License Tax as they do not have the obligation to obtain an Operations License.
- The earning or loss in the transference of stock issued by the SEM company will be subject to the capital gains regime, but at a fixed rate of 2% where the purchaser has the obligation to withhold 1% from the total value of the transference.
- Tax Agreements between SEM companies and the Ministry of Economy and Finances will no longer exist.
Services Provided by the SEM Company
- Financial assistance services that SEM companies can provide to their related companies were expanded, including expressly technical, financial and/or administrative assistance, as well as other support services including, without limitation, risk analysis, credit analysis, due diligence, compliance, custody of documents, data processing center and/or document and corporate treasury services, as well as inter-company loans.
- In case that the above services are provided to companies within the group that carry out banking, insurance, reinsurance and/or securities business in Panama or abroad, the SEM company must previously inform the respective regulator of its intention to obtain a license for the provision of these services to a regulated and related company.
- The financial assistance services included under Law 57 of 2018 do not include or authorize any activity that requires obtaining a special license issued by the Superintendency of Banks, the Superintendency of Insurance and Reinsurance, the Superintendency of the Securities Market, or any other similar regulator, as it may be required in order to provide financial services or conduct any other regulated activities in Panama.
Recipient of Services
- Law 57 of 2018 incorporates a change in form to Law 41 of 2007, for the purposes of clarifying that unless the expressly provided exceptions under the Law, SEM companies may only provide services to companies within their economic group.
SEM License Requirements
- Companies interested in obtaining a SEM License must comply with the requirements set forth by the Licensing Commission of the Multinational Company Headquarters, which requirements shall be set forth taking due regard of the parameters provided in Law 41 of 2007 (which include the assets of the company group, places where it operates, activities carried out, and stock exchange listing), as well as the minimum number of full-time employees and annual operating expenses for the company applying for a SEM License, which must be appropriate for the operations.
Legal Stability of Investments
- Companies obtaining a SEM License as of 1 January 2019, will automatically be subject to Legal Stability of Investments’ Regime, from the issuance of the SEM License, this is: tax stability on national taxes for 10 years, and in municipal taxes for 5 years, including indirect taxes (includes custom stability and labour stability).
- SEM companies are not required to obtain an Operations License for the purposes of providing services authorized by the SEM Law. This provision, however, is not new. By virtue of Law 49 of 2009 (which amended Law 5 of 2007 that regulates the Operations License), it was already provided that SEM companies do not require an Operations License.
- SEM companies that carry out activities other than those authorized by their License in accordance with the provisions of the SEM Law, will be sanctioned with the cancellation of their license and will also be liable for unpaid taxes, including fines, surcharges, interest and penalties, in accordance with the provisions of the Tax Code of the Republic of Panama.
Permanent Residency for SEM Employees
- Permanent Residency for SEM Employees is included as a new to those foreigners working for a SEM company, after a five (5) year-period, counted from the date of the approval of the Visa for Permanent Personnel.
- Foreigners that obtain this permanent residency, will be able to continue working for the SEM company.
- It is clarified that this option is subject to the payment of ISR, social security and educational tax applicable to the salary and other labor remunerations earned by the foreigner employee, including salary in kind.
- The employee that obtains permanent residency will not require to carry out any additional process to work in a SEM company, nor to reside in Panama.
1 January 2018:
Law 57 2018 will enter into force.
30 June 2021:
- Termination date of Tax Agreements of SEM companies having these types of agreements.
- Date when SEM companies must have implemented the modifications of article 12 of La 41 of 2007, this is: requirements for the license.
SEM companies that are registered under the Legal Stability of Investment’s regime, before 25 October 2018, will keep it until their respective expiration dates.
National Immigration Authority informs the implementation of new migratory regulations in order to facilitate the family reunion of Venezuelans and promote the shopping tourism from the nationals of Cuba
Executive Decree No. 612 of October 22, 2018
As of October 23, 2018, the National Immigration Authority creates the Humanitarian Matters for the Venezuelans Residents in Panama Office, to facilitate the applications for family reunion.
Through this office, the Venezuelan resident in Panama will be able to submit the petitions for the stamped visas of their family members in the fourth degree of consanguinity and second degree of affinity, so they can travel to Panama.
The Panamanian Consulate abroad, will proceed to stamp the correspondent visa with the reference number that the Humanitarian Office in Panama will provide.
- The Venezuelan resident in Panama will be able to request the stamped visa on behalf of their family members in the fourth degree of consanguinity and second degree of affinity.
- The executive decree became effective as of October 23, 2018.
Executive Decree No. 613 of October 22, 2018
As of October 23, 2018, the nationals from the Republic of Cuba, that are interested in coming to Panama to visit and shopping will be able to obtain in the Panama Consulate in La Havana, a tourist card.
This tourist card will be granted to the nationals of Cuba that demonstrate they possess a self-account card or demonstrate that have travel to Panama or to a third country before. This tourist card is valid for one use, for a term of 30 days and it will cost $ 20.00.
If the person possesses a stamped visa to enter Panama, it will not need to obtain this tourist card. The stamped visa will still be issued.
- The tourist card will be issued to the nationals from Cuba that plan to come to Panama to visit or shopping.
- The nationals from Cuba that already possess the stamp visa to enter Panama, will not need to obtain this tourist card.
- The Tourist Card is valid for one entry and for a maximum stay of 30 days.
The executive decree became effective as of October 23, 2018.
Panama, October 12, 2018. Morgan & Morgan was the only Panamanian law firm ranked in the first version of the “Top Companies with the Best Corporate Reputation in Panama”. Likewise, Juan David Morgan G., CEO of the company, and Carlos Ernesto González Ramírez, partner of the firm, were selected within the “Top Corporate Leaders”, as part of the 100 businessmen and executives with the best professional reputation in the country.
The study was prepared by Merco, the most important corporate monitor in Latin America and Spain, presented by Summa Magazine and verified by KPMG. The drafting process used a multi-stakeholder approach in which 1,098 surveys were conducted to different sources of information, addressing aspects of the companies such as: commercial proposal, current and potential customers, ability to attract talent, support for the development of society, among others.
“We are very proud to be recognized as one of the companies with the best reputation in Panama. This confirms our commitment to offer an excellent service to our clients and the great work that our organization carries out through its sustainability programs”, said Juan David Morgan G.
The ranking is available here.
Panama, October 15, 2018. Morgan & Morgan represented Engie Solar in the sale of its ownership in PanamaSolar2, S.A., to Latin Renewables Infrastructure Funds managed by Real Infrastructure Capital Partners.
Engie Solar through its subsidiaries Solairedirect Global Operations and Solairedirect Panama designed, procured, developed and built a photovoltaic power plant “Pocri” with an installed capacity of 16MW located in the Province of Cocle, Republic of Panama, owned and operated by PanamaSolar2, S.A.
PanamaSolar2, S.A., won a public bid for the sale of photovoltaic energy to all three distribution companies operating in Panama, for the supply of electricity to the national market. Even though the power plant is still undergoing operational tests, it is already generating and supplying renewable energy through the national grid.
Stamped Visas for nationals from Cuba, China, India, Dominican Republic and Venezuela will have a term for up to 5 years
Executive Decree No. 611 of October 11, 2018.
As of October 12, 2018, the Stamped Visa of Multiple Entries will be issued for up to five (5) years for the nationals of the Republic of Cuba, People’s Republic of China, Republic of India, Dominican Republic and Republic of Venezuela.
- The National Immigration Authority has confirmed that the maximum time of stay allowed is 30 days.
- Previously, this visa was granted for up to three (3) years, according to the verified criteria of the officials from the National Immigration Authority and the National Security Council.
This Executive Decree became effective as of October 12th, 2018.
Panama, September 25, 2018. Morgan & Morgan and sixteen attorneys of the firm were recognized in the Chambers Latin America 2019, guide of the best lawyers and law firms across 20 countries of Central America, the Caribbean, South America and Mexico.
The firm has been ranked in the first Bands within the areas of Banking & Finance, Capital Markets, Corporate/M&A, Dispute Resolution, Energy & Natural Resources, Intellectual Property, Offshore, Projects, Real Estate, Shipping and Shipping Litigation.
Likewise, the publication noted as leaders in their areas attorneys Inocencio Galindo, Francisco Arias, Ramon Varela, Roberto Vidal, Simon Tejeira, Jose Carrizo, Luis Vallarino, Ana Carolina Castillo, Allen Candanedo, Maria Eugenia Brenes, Roberto Lewis, Luis Manzanares, Enrique De Alba, Jazmina Rovi, Juan David Morgan Jr. and Francisco Linares.
One of the clients interviewed stated that “Judging by the results that the firm achieves, I can say that their advice is effective and arrives in a timely manner. I would highlight their availability and technical competence”.
About Morgan & Morgan
With over 80 lawyers and 20 practice areas, Morgan & Morgan is a full service Panamanian law firm, regularly assisting local and foreign corporations from different industries, as well as recognized financial institutions, government agencies and individual clients. Of particular note is our continuous advice for clients involved in all stages of the development of important projects related to energy, water supply, construction, oil, mining, public infrastructure, retail, ports, transportation, among others. Learn more at www.morimor.com.
Panama, September 19, 2018. Jose Carrizo, partner and head of the Litigation and Dispute Resolution practice group of the firm, contributed with the Panama chapter of The Arbitration Review of the Americas 2019, a publication that summarizes relevant issues that help general counsel, arbitrators and private practitioners to avoid the pitfalls and seize the opportunities of international arbitration.
Mr. Carrizo provided a comprehensive analysis of the arbitration system in Panama, its legislation and every aspect that confirms the country as an international and regional center for the resolution of arbitral disputes.
Jose Carrizo is an experienced attorney with ample knowledge in both domestic and international arbitration processes. He has served as arbitrator in the National Arbitration and Mediation (NAM), based in New York. Mr. Carrizo is also a member of the Panama Chapter of the International Arbitration Court of the International Chamber of Commerce.
The guide is available here.
BVI, September 11, 2018. One year ago to date, the city of Tortola in the British Virgin Islands (BVI) was hit by hurricane Irma. The winds of said hurricane flattened the infrastructure and public services of the city, including Morgan & Morgan’s offices in this Island. Sadly, some of coworkers and teammates lost their homes.
Despite that, our organization never stopped providing services to our internal and external clients. Creativity, willingness, the organization and commitment of our people in the BVI took a central role at such difficult times. Our group contributed with a donation of US$15,000, through the International Lawyer’s Association for restoration of electricity; we also contributed with direct donations to our coworkers to help reestablish normalcy in their lives. Our offices were rebuilt almost completely and while the works were ongoing, work was carried on from the house of some of our coworkers and other offices temporarily established. The leadership of Jorge Yu, Kaylinda Richardson and Fanny Evans was invaluable.
Today, our CEO, Dr. Juan David Morgan G., together with other partners and lawyers of Morgan & Morgan, visited them to tell all, “Thank you for the exemplary commitment, solidarity and teamwork!”
Morgan & Morgan opened its first offices in The Bahamas since 1991. We created MMG (Bahamas) Ltd. as a corporate service and later on, in 1996, founded MMG Bank & Trust Ltd., which started our financial unit´s successful path into the financial service industry.
Our board of directors decide in the mid-90s that The Bahamas was going to be one of our prominent jurisdictions because this sovereign country has become a well-recognized and reputable international financial center, with a modern and robust legislation, governmental supervision oriented towards facilitating business ventures and has an enviable workforce of seasoned and educated professionals.
We have seen its democratically elected governments navigate successfully through the tough times the smaller international financial centers have had to deal with given the shame and blame attitude of certain multinational organizations and communities. The Bahamas has been wise and steadfast in their positions and negotiations fully aware of the negative impact on the financial services industry as a whole a wrong decision might have. We value that at Morgan & Morgan. Also, the fact that we can fly directly several times a week to Nassau, from our headquarters located in Panama City, is also a big reason we feel comfortable with his jurisdiction.
But, what and why do we offer services and products to our clients from The Bahamas?
For myriad of good reasons apart from the gorgeous weather and waters. The Bahamian governments has always been investor friendly and have created a series of incentives that make the island a good venue for a variety of industries such as tourism, financial services, corporate services, insurance, marinas, real estate, among others. The friendly tax environment includes no income tax, no capital gains tax, no estate tax, no withholding tax, no dividend tax and no payroll tax to those who work in the Bahamas. But for a Value Added Tax of 7.5% on some goods and services, tax benefits abound.
We have also seen the creativity and the also the want to fill the markets needs attitude of the regulators. What better example of this is the creation of the SMART Fund legislation. In these times of fiscal compliancy and an international effort to exchange of information, clients must be happy to mitigate their tax burden. Therefore, cost efficient vehicles, that protect assets, help with estate planning and reduce the effective tax rate will be well viewed by clients.
The Bahamas SMART Fund
We´ve recently activated our SMART (Specific Mandate Alternative Regulatory Test) fund license provider MMG Fund Services Ltd. For wealth and tax planning in Brazil, SMART Funds have become a very useful and efficient tool. This vehicle has been promoted with certain success in Brazil by the Bahamian authorities. Brazilian residents are taxed globally, that is on their income anywhere in the world. Most of the financial income obtained outside Brazil is taxed at a rate of 15% except for dividends, which may be taxed at up to 27.5%. For a Brazilian client with a portfolio of ordinary or preferred shares paying dividends frequently, current taxes would reduce investment return dramatically. SMART Funds are an alternative that, on one hand, differ payment of taxes over dividends by capitalizing them and, on the other, upon redemption of the shares from the SMART fund, said income would be taxable at 15% only, producing a 12.5% savings.
There are seven “models” of the SMART fund that investors can choose, but for a private individual or family, the most common model is the SMART fund 4 Model. The features of this SMART fund are:
- No offering memorandum is required – a term sheet is optional, but not mandatory.
- No more than five individual investors.
- Operates as a private investment company.
- Subject to an annual certification to the Securities Commission or Unrestricted Fund Administrator.
- Investors can waive requirement for an annual audit.
- Can have an ISIN Number and Bloomberg Ticker.
As you can see, we at Morgan & Morgan are very comfortable offering products and services and we have a range of seasoned professionals that can help you choose the correct fund structure for your family. Finally, let us congratulate the Bahamas Financial Services Board on their 20th anniversary and thank them for making our job a little bit easier
Panama, August 25, 2018. With the topic “Panamanian Fiscal Regulatory Framework in International Securitization”, Mr. Francisco Arias G., partner in charge of the Securities and Capital Markets practice group of Morgan & Morgan, participated as a speaker in the conference Latest Trends in Asset Securitization: Applications to the Panamanian Market. The event was organized by Flex Funds, a firm specializing in vehicles for worldwide investment.
The seminar was held at the Hilton Hotel in Panama City, and was attended by representatives of financial institutions, investment advisors, asset managers, family businesses, among other local and international professionals.
Other topics were discussed in the activity, such as Perspectives and triggering factors in the mergers and acquisitions sector in Central America, the securitization of assets and their applications and the experiences in the securitization of assets in securities firms in Panama.
About Morgan & Morgan
In the sector of capital markets in Panama, Morgan & Morgan focuses on public and private offerings, some with cross border components. The Securities and Capital Markets team of the firm has been involved in numerous transactions involving several billions of dollars. The firm also have assisted many clients in obtaining various licenses from the Superintendence of Securities Markets, including securities brokerage and investment fund administration.