MULTINATIONAL HEADQUARTER LAW

Panama wishes to make the best use of its physical infrastructure and international services through the optimal utilization of its geographic location, the vast international projection of the Colon Free Zone, its Banking System and the Multimodal Logistics Center (Airports, Railroad, Roads, Ports, etc.)

Law No. 41 of August 24 2007 was enacted for this purpose, in that it “creates a special regulation for the establishment and operation of multinational companies’ headquarters and the commission of licenses of multinational company headquarters and other dispositions.”

This law seeks to attract and promote investments, employment generation and technology transfer. It contemplates the following categories:

Multinational Company: Legal Entity that while having its headquarters in a specific country, develops important industrial, commercial, financial or service related activities in different countries.

Also considered as such are companies that while operating in a single country, have important operations in different regions of that country and decide to establish a branch, affiliate, subsidiary or associate company in Panama, to conduct commercial transactions in the region.

Headquarter of the Multinational Company (HMC): Is a multinational that conducts operations from Panama offering the services defined in this Law to its head office or subsidiaries or affiliates or associated companies, or that establishes its head office in Panama; henceforth Corporate Group. The headquarters must be part of the multinational companies with international or regional or important operations in their country of origin.

This Law pertains to the planning services, strategy, business development, administration and training of personnel, operations and/or logistics control, warehousing of components or parts required for fabrication or assemblage of products it manufactures, technical assistance to group companies or clients that purchase its products or services, financial management, accounting, and the electronic processing of any activity.

Also included are the corporate group operations, consulting services, coordination and follow through of market directives, and marketing/advertising of goods or services produced by the corporate group, the support of operations and research and development of products and services of the corporate group and any other analogous service that is approved by a Cabinet Meeting of the Executive Branch of the Republic of Panama.

In order to operate, multinational companies require a Multinational Company Headquarter License granted, with previous recommendation of the Multinational Company Headquarter License Commission, by the Technical Secretariat of the Commission.    

FISCAL INCENTIVE

Companies that possess a Multinational Company Headquarter License will be exempt from The Republic of Panama Income Tax, for services rendered to entities of any nature domiciled abroad, that do not generate taxable income within the Republic of Panama. This exemption will only apply to companies and not their employees.

Since these are export services, the services that a company with a Multinational Company Headquarter License offers will not be considered services rendered or incur in sales taxes (ITBM), as long as they are provided to persons domiciled abroad that do not generate taxable income in the Republic of Panama.

The exportation of services should be understood as those offered from an office established in Panama, but that are perfected, are consumed or have an effect abroad.

MIGRATORY AND LABOR REGULATIONS

Foreign personnel and their dependents will be able to obtain a Multinational Company Headquarter Permanent Personnel Visa or Multinational Company Headquarter Permanent Personnel Dependant Visa. This type of Visa will be issued for a period no larger than that established in the respective employment contract, while employed by the company; and cannot exceed five years.

All foreign personnel granted a Multinational Company Headquarter Permanent Personnel Visa will have the right to work in the Republic of Panama while he is employed by a multinational company with a Multinational Company Headquarter License.

The Multinational Company Headquarter, through the Technical Secretariat, may apply for a for a Multinational Company Headquarter Temporary Personnel Visa for foreign personnel that offers technical or training services to the Multinational Company Headquarter for a period not to exceed three months.

A company that holds a Multinational Company Headquarter License may hire foreign employees of trust to occupy high and mid level management positions required for their operations; in accordance with article 17 of the Labor Code of the Republic of Panama.