Panama: New Rules For SEM Companies

Last Updated: 30 October 2018
Article by Morgan & Morgan

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.

ISR withholdings

  • 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.

Transfer Pricing

  • 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.

Dividends Tax

  • 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.

Tax Printers

  • 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.

Capital Gains

  • 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

  • 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).

Operations License

  • 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.

License Cancellation

  • 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.

Important Dates

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.

Variable date:

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions