On January 1, 2019, Law No. 57 of October 24, 2018, reformed the Special Regime for the Establishment and Operation of Multinational Company Headquarters (SEM) in Panama, by which, in essence, additional technical, financial and/or administrative services are added or expanded in the law, new parameters are set to be met by the SEM Licensing Commission when granting a new SEM license and the overall tax regime applicable to the SEM has evolved.
New technical, financial and/or administrative assistance services have been added to the current management and treasury services permitted to include other type of support services to be provided to companies in the same business group, including, but not limited to, financial management services, risk analysis, credit analysis, due diligence, compliance, custody and filing of documentation, data processing center or documents and corporate treasury services, as well as intercompany loans between companies related to the same business group.
The SEM Licensing Commission must now set a minimum number of full-time employees as well as a minimum (or floor) annual operating expense amount for the multinational company in Panama as a new parameter for granting a SEM license. In both cases, they must be appropriate to the nature of the business that the company will carry out in Panama under the SEM license.
The SEM tax regime has evolved and among the main adaptations in this area are: income tax is set at a fixed rate 5% on the net taxable income derived from the services provided in Panama; expenses incurred in employment salaries are now deductible from income tax even if the employee is exempt from paying income tax; a SEM is exempt from the payment of dividend and complementary taxes without distinction if the source is local or foreign; capital gain tax on the transfer of securities is set at a fixed rate of 2%; transfer pricing rules are applicable between related parties regardless of location; and, the salaries of executives in Panama under a permanent staff visa are now exempt from income tax and social security and education duties.
A term is granted until June 30, 2021 for companies that hold a SEM license to comply with all the new rules and regulations established by this new law.
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