Fanny Evans, associate at Morgan & Morgan
The Bahamas has passed legislation requiring that certain legal entities carrying on relevant activities have to demonstrate adequate economic substance in said jurisdiction. The beneficial owners of any company or limited partnership incorporated, registered or continued in The Bahamas should be aware of this legislation and consider how they may be affected.
The Commercial Entities (Substance Requirements) Act, 2018 (“CESRA”) came into force on December 31st, 2018. It addresses the concerns of the European Union’s (“EU”) Inter-governmental Code of Conduct Group (Business Taxation) guidance for determining substance when considering whether a tax measure is harmful or ‘fair’ and the Organization for Economic Cooperation and Development’s (OECD) Base Erosion Profit Shifting (BEPS) Project.
What is the effect?
CESRA imposes economic substance requirements on all legal entities carrying on “relevant activities”.
The relevant activities are:
1) banking business
2) insurance business
3) fund management business
4) finance and leasing business
5) headquarters business
6) shipping business
7) distribution and service centre business
8) intellectual property business
9) any holding company engaged or where one or more of its subsidiaries is engaged in one of the activities listed above (1) to (8).
A company engaged in a relevant activity is, henceforth, called an “included entity”.
How can an included entity demonstrate substantial economic presence?
It must carry on core income generating activities (CIGA) in The Bahamas and the entity must be directed and managed within The Bahamas.
Firstly, it is the primary responsibility of an included entity to demonstrate that it conducts CIGA in The Bahamas proportionate to its business activities. This can be proven by having, for example, the following:
- an adequate amount of annual operating expenditure;
- an adequate level of qualified full-time employees;
- an adequate number of physical offices.
An included entity is prohibited from outsourcing any of its core income generating activities to an entity or person outside of The Bahamas; but it may outsource such activities to a service provider within The Bahamas. The included entity shall be able to demonstrate adequate supervision of the outsourced activity.
Second, an included entity will be deemed to demonstrate management and control in The Bahamas if it satisfies the following criteria:
- an adequate number of meetings of the board of directors are conducted in The Bahamas given the level of decision making required;
- there is a quorum of the board of directors physically present within The Bahamas during the meetings of the board of directors;
- strategic decisions of the included entity made at the meetings of the board of directors must be recorded in the minutes of the meetings;
- all included entity records and minutes are be kept in The Bahamas; and
- the board of directors, as a whole, has the necessary knowledge and expertise to discharge its duties.
Here we must highlight some of the permissions granted by CESRA with respect to the directors and the employees that may be positive for an included entity. One is that despite the fact that employees must be residents in The Bahamas, there is no residency requirement for board members, who only need to be physically in The Bahamas whenever a board meeting is required. No number of board meetings that must be held in The Bahamas is prescribed in CESRA. Also, CESRA is not prescriptive in stipulating which employees should attend the board meetings, this will be at the determination of the company.
What is a non-included entity?
A non-included entity is one that is:
- a tax resident in another jurisdiction and centrally managed outside of The Bahamas, even if it conducts a relevant activity;
- not engaged in a relevant activity itself or by any of its subsidiaries;
- owned by residents and centrally managed in The Bahamas, even if it conducts a relevant activity.
What are the obligations for a non-included entity?
Companies which do not carry on a relevant activity are not subject to the economic substance requirements but are subject to annual reporting obligations and will be required to register as such. An example is a holding company that is not an included entity. This passive holding company is not required to have substantial economic presence in The Bahamas but will have to comply with the annual reporting obligations.
How an entity claims to be tax resident in another jurisdiction?
As per the Guidelines, the tax residency test may be satisfied by the entity providing the following documents to the Ministry of Finance of The Bahamas:
- tax identification number issued by a foreign jurisdiction;
- tax resident certificate issued by a foreign jurisdiction;
- official receipt or statement issued by a foreign tax authority;
- certification by the entity that the majority of meetings of the Board of Directors or controlling persons took place in a foreign jurisdiction;
- the ordinary residence of the majority of the Board of Directors or controlling persons.
This certification of foreign tax residence must be filed by the entity as part of its annual filing requirements.
What are the penalties?
An administrative penalty of $150,000 for failing to comply with the requirements of CESRA with a possible further administrative penalty of $300,000 and in certain circumstances the entity concerned being struck off of the Registrar of Companies.
What is next?
All companies will need to undertake an internal review to confirm whether they conduct a relevant activity. With our guidance, they can determine what measures, if any, they should take in order to achieve compliance. In most cases, we believe that compliance will not be a convoluted matter.
What is the time period for compliance with CESRA?
Included entities incorporated prior to the 31st December, 2018 have six (6) months from January 1st, 2019 to comply. Newly incorporated entities must comply immediately. Whilst this may be an alarmingly short period of time, we believe this period can be extended or will not be enforced immediately as many questions regarding the legislation still abound.
We will leave, in our opinion, the best news for the end because we assume that after having read the above, the most important question to answer is:
Are these efforts being welcomed by the EU?
The EU has confirmed that The Bahamas has not been included on the EU’s updated list of non-cooperative jurisdictions for tax purposes (known as the EU blacklist), which was published on 12th March, 2019.
The Bahamas presented the necessary structural changes that were required; another milestone in its tax transparency regime that sends a message to the international business community that The Bahamas is open for legitimate business. The Bahamas is a premier International Financial Centre conducting business with reputable jurisdictions and financial markets. Because they have demonstrated it consistently, it is safe to say that The Bahamas will continue doing what it takes to remain as a well-regulated compliant and competitive jurisdiction.
The information contained herein is not intended to be read, accepted or used and is not provided as legal or tax advice and should not be treated as a substitute for legal and tax consultations with a professional. It is merely a summary of the latest regulations in The Bahamas that, as well as in many other jurisdictions, are being modified regularly in agreement with the OECD and the EU.
One of the biggest challenges that micro, small and medium enterprises face when trying to settle in and achieve success as profitable businesses is to obtain capital and sources of financing. Sometimes, the most common sources of financial resources – such as bank loans, private equity and public offerings of securities – are beyond the reach of these companies and, consequently, many innovative ideas that could result in booming business for the national economy and for the creation of jobs are not developed.
Another crowdfunding format is the equity crowdfunding model whereby investors provide capital and receive shares or another capital instrument that gives them the right to receive a percentage of the income generated by the business they are financing. There is also the debt-based crowdfunding model, in which investors lend funds on a temporary basis, waiting for the repayment of their investment in a certain period. In these cases, investors usually require that they be paid an interest on the borrowed capital, but models have arisen in which the participants have not demanded any consideration except the return of the amounts given in loan.
Our securities legislation requires that those securities that are going to be publicly offered in the Republic of Panama be registered first with the Superintendence of the Securities Market (hereinafter the “SMV”). The process of registering securities before the SMV consumes time and resources that micro, small and medium enterprises usually do not have. The current regulations include offers of securities that are exempt from registration with the SMV but they only allow the offer of unregistered securities to a small number of people or institutional investors and, thus, these registration exemptions do not work for crowdfunding initiatives whose purpose is to collect small sums of money from a large number of people. In order for crowdfunding to be possible without having to comply with the registration formalities, a new exemption from the obligation to register securities would have to be adopted.
The second regulatory challenge faced by crowdfunding in the Republic of Panama is that, under the Securities Act and the agreements adopted by the SMV, the operator of the Internet site that serves as a platform to facilitate the collection of financial resources have the obligation to obtain an investment adviser license, broker-dealer firm license or stock exchange license. The management of requesting and obtaining these licenses, as well as their subsequent operation, also requires investment of a lot of time and resources that, given the objective of a crowdfunding site to serve as a mere intermediary between entrepreneurs and investors, may not have to be incurred for crowdfunding purposes.
Article 128 of the Securities Act establishes the following: “Public offer or sales of securities to be made by an issuer or an affiliate or by an offerer in the Republic of Panama shall be registered in the Superintendence, unless they are exempted from such registration in accordance with the provisions of this Decree Law and its regulations. An offer or sale made to persons domiciled in the Republic of Panama shall be deemed to be an offer made in the Republic of Panama, regardless of whether it is made from the Republic of Panama or from abroad, unless the Superintendence determines otherwise.”
Paragraph 2 of article 129 establishes that “there are exempted from registration with the SMV offers of securities made by an issuer or an affiliated thereof, or by an offerer of said issuer or affiliate to no more than twenty-five persons altogether, or any such number of persons which the Superintendence may determine and which, within a period of one year, do not have as a result the sale of such securities to more than 10 persons, or any other number of persons which the Superintendence may determine.”
Article 3 of Agreement 1-2001 establishes that the following legal persons qualify as “institutional investors”: (i) banks, insurance companies, reinsurance companies, investment companies registered with the SMV, investment trusts managed by companies with trust licenses, retirement and pensions funds regulated by Law 10 of April 16, 1993, and broker-dealer firms; (ii) legal persons domiciled in the Republic of Panama, with regular operations managing investments for at least two years before the date the offer and/or sale is, which own a patrimony consisting of no less than One Million Dollars (US$1,000,000.00), according to the last audited financial statements and whose principal officers, or in their absence, the majority of Directors and Officers must have at least two years of experience in regular investment management; and (iii) Sovereign States and public entities that by their nature are authorized to make investments.
Therefore, in relation to the exemption of the obligation to register securities before the SMV, it is proposed that public offers of securities, whether of fixed or variable income (and the resale of such securities in the secondary market) that comply with characteristics similar to the following be considered exempt from registration: (i) the securities that are offered by the issuer through an Internet crowdfunding platform duly notified to the SMV (hereinafter, a “Crowdfunding Site”); (ii) the amount of capital that the issuer wishes to collect (the “Requested Capital”) shall be expressed on the Crowdfunding Site, as well as the amount of securities to be offered, its price and the proportion of total capital represented by each security; (iii) the issuer shall establish a period of time during which potential investors may express their willingness and commitment to purchase the securities (the “Commitment Period”); (iv) the securities shall be issued and the issuer shall receive the funds only when the target is met, that potential investors have expressed, within the Commitment Period, their commitment to purchase securities for an amount at least equivalent to the Requested Capital (the “Minimum Target”); (v) individuals or legal entities with an annual income of less than US$100,000.00 may invest no more than 10% of their income within a period of twelve (12) months; (vi) individuals or legal entities with an annual income of more than US$100,000.00 may invest no more than 15% of their income up to a maximum amount of US$100,000.00 within a period of twelve (12) months; (vii) any issuer that has placed securities on the basis of an exempt crowdfunding offer, by reason of having complied with all the requirements, may carry out additional crowdfunding offers; (viii) an offer of securities under the proposed exemption, if adopted, would not prohibit the issuer from making other offers, sales or transactions exempt from registration as established in Article 129 of the Securities Act (for example, the offers of securities that an issuer carries out under a crowdfunding exemption are excluded from the computation of the investors referred to in numeral 2 of Article 129 on private placements); and (ix) issuers that offer securities under a crowdfunding exception could, in any case, try to obtain financing through other sources of funding, such as bank loans and venture capital.
Notwithstanding the foregoing and with the interest of protecting the investing public, the issuers that offer securities based on a registration exemption such as the above, or similar, must be subject to compliance with the provisions of articles 246 and 248 of the Securities Act in relation to the prohibition of incurring, during the process of offering and placing the exempt securities, in fraudulent or misleading acts, in the making of false statements about a material fact or omitting to disclose a material fact.
In addition to an exemption from the obligation to register securities with the SMV, in order for crowdfunding to work as an accessible measure of financing, it is also required that operators of Crowdfunding Sites are exempt from obtaining an investment adviser license, broker-dealer firm license or stock exchange license. For the purposes of the foregoing, it is proposed that operators of Crowdfunding Sites that meet the following requirements be considered exempt from obtaining the above licenses: (i) notify the SMV of the operation of a Crowdfunding Site within five (5) business days following the launching of the Crowdfunding Site; (ii) not recommend, qualify or otherwise provide investment advisory services in relation to the securities offered through its platform; (iii) obtain the information required by Law 23 of 2015 and its regulations from potential issuers of securities; and (iv) adopt terms and conditions under which (a) the operator of the Crowdfunding Site is prohibited and, if it is a legal entity, its shareholders, directors, officers and employees, to purchase securities offered through the Crowdfunding Site, (b) the issuers of securities undertake to issue the securities in case the Minimum Target is met within the Commitment Period, and (c) the persons who wish to invest through the Crowdfunding Sites recognize that the expressions of willingness to purchase securities during a Commitment Period constitute promises to purchase the securities and pay their price in case the Minimum Target is met but granting those persons who have expressed interest in acquiring the securities the possibility of not having to purchase the securities if they communicate their wish to opt out in the financing within a set period of time before the Commitment Period expires.
The exemptions proposed in this document to encourage crowdfunding in the Republic of Panama are based on similar standards adopted in other jurisdictions. On April 5, 2012, the former president of the United States of America, Barack Obama, signed the so-called “Jumpstart Our Business Startups Act,” also known as the “JOBS Act,” which was a law promulgated with the intention of motivating the financing of small businesses in that country and resulted in the adoption of exemptions similar to those suggested here in the securities regulatory framework of the United States of America. This year, Argentina enacted Law 27,349, which, in its Title II, creates the figure of “crowdfunding systems”.
In other words, certain jurisdictions are adopting new rules so that crowdfunding is a real and accessible source for raising capital and financing for micro, small and medium enterprises. The Republic of Panama cannot be left behind in this aspect and the time is still favorable for us to take the necessary actions and measures in order to adopt rules that can help promote crowdfunding not only to our local entrepreneurs but also to attract those foreigners innovators that do not have this possibility of financing in their respective jurisdictions. Being short in this attempt may even cause our local talent to turn to other countries that have rules that encourage and facilitate crowdfunding in order to obtain funds to develop their ideas and, most likely, end up implementing them in the territory of those same jurisdictions who had the vision of accommodating this figure to help them launch their businesses in the beginning.
The regulation of Transfer Pricing is one of the mechanisms through which the Directorate General of Revenue (DGI) seeks to avoid the erosion of the tax base.
In Panama, it is regulated in the Fiscal Code in its Chapter IX from Article 762-A to 762-Ñ. The obligation on the issue of Transfer Pricing and specifically with the study is generated since the 2011 period. At that time it was applicable only in cases in which Panamanian taxpayers developed transactions with companies that were located in countries with which Panama had signed a treaty to avoid double taxation.
However, in the 2012 period, by means of Law 52-2012 in its Article 7, the scope of the obligation is modified and the scope of application is extended, so, from that period, all Panamanians taxpayers who carry out transactions with related companies located abroad are subject, provided that said transactions result in income, costs or deductions in the determination of the tax base, for purposes of Income Tax, of the fiscal period in which the transaction is declared or carried out.
In 2018 it is included that the entities that hold a Multinational Company Headquarters License (SEM) must report in the Affidavit of Income Tax following the arm’s length principle, that is, they must prepare it and present it within the framework of a transfer pricing study resulting from transactions with other companies of the group worldwide.
All of the foregoing means that the taxpayers subject to the Transfer Pricing obligation must inform their transactions with related parties located abroad in the Affidavit of Income Tax, submit the Form 930 of Transfer Pricing and the elaboration of the report.
It is necessary to point out that only the Transfer Pricing Report must be submitted, at the moment that the DGI makes the request, within a period no longer than 45 days from the notification.
Part of the efforts made by the DGI to incorporate BEPS (Base Erosion and Profit Shifting) actions is reflected in Article 11 of Executive Decree 390 effective as of January 1, 2017, which allows the Tax Administration to request Information corresponding to:
- Consolidated financial statements of the economic group, as well as a list of intangibles.
- The organizational, legal and operational structure of the economic group of which the Panamanian taxpayer is a member.
- Description of the functions, assets and risks of the group companies.
- Also, as part of the required information, the group transfer pricing policies,
- A description of the value chain of the most important products and services, among others.
Given this situation, it is necessary for taxpayers to take into consideration the adoption of the local report (local file) and the master report in accordance with the BEPS standard.
On the other hand, we must bear in mind that Executive Decree No. 390 made an update on the Transfer Pricing regulations in force in Panama, where we can highlight the following points:
- It states that: the transactions of income, costs and deductions must be analyzed transaction by transaction, however, it is possible to perform an analysis in a grouped way given the nature of the transactions.
- Regarding the use of information from several periods, it will be possible to use it, provided that it adds value to the analysis.
- The comparability adjustments, which are made in the studies submitted by the taxpayers, may be applicable and accepted by the Tax Administration, provided that they comply with certain parameters.
- The taxpayer must include in the study, detailed information of the analyzed transactions, organization chart, its related companies and type of relationship, competitors’ detail, analysis of the sector in which it operates, among others.
- For the selection of comparable transactions, they must be justified by indicating the characteristics of the goods and services; as well as the functions, assets and risks; contractual terms; and economic circumstances, among other factors.
- On behalf of the DGI, emphasis is placed on their preference for internal comparables. Reason for which, the taxpayer must document any transaction potentially comparable to those made with related parties.
Currently, as part of the evolution of the issue of Transfer Pricing in our country, in April 2018, the DGI published Resolution No. 201-1937 which modifies form 930, (which must be presented through the eTax 2.0 system.)
Among the main changes in the declaration, the following points can be highlighted:
- The taxpayer must reveal if it is in a fiscal regime or special economic zone.
- Provide information about comparable transactions selected by the taxpayer.
- A section of questions related to the taxpayer and the economic group to which it belongs is added.
- An annex must be completed for intangible transactions such as: royalties, intellectual property, trademarks, among others.
- For cases in which a method based on profit margins has been used, it is necessary to reveal the name of the companies selected as comparable, the tax periods of the comparable companies used, as well as the country of residence.
Fines and other measures for non-compliance
An element to consider with the modification of the form is that, due to the level of details requested, it is very important to have the Transfer Pricing Report prior to the presentation of the declaration.
For cases in which the filing of Form 930 is not made, taxpayers could be sanctioned with 1% of the total gross amount of the transactions with related parties of the period, up to a maximum of $1,000,000.
On the other hand, if the Tax Administration makes the request for the Transfer Pricing Report and the taxpayer does not provide the documentation, it would result in a fine ranging from $1,000 to $5,000 in the first instance and, from $5,000 to $10,000 in case of being recidivist.
The DGI has the power to close the taxpayer’s premises for 2 days in the first instance; and if it is a recidivist it can be up to 10 days and if the breach continues it could reach up to 15 days.
With the described scenario and the actions taken by the DGI, it is vital that taxpayers advise each other correctly in order to comply with the requirements within the established deadlines and thus avoid any type of contingency that may arise in the issue of Transfer Pricing.
Our expert team is at your disposal to jointly achieve the due fulfillment of this obligation.
How can we work together?
Compliance in Transfer Pricing
A transfer pricing study that adequately and concisely complies with the transfer pricing information required by current regulations allows concentrating the management in this matter towards the optimization of resources.
At Morgan & Morgan, together with Grupo Camacho Internacional, we have the knowledge and experience to prepare the documents required by the DGI, validating the prices traded between companies of the same economic group and also serving as compliance support for cases of tax review.
Transfer pricing management
Transfer pricing management consists of the planning, design, implementation and active control of compliance with policies, strategies and actions related to the matter, in order to ensure compliance with current regulations in Panama and internationally.
Our ability to assess and understand the needs of each company allows us to guide your company through a highly personalized service, ensuring compliance and efficient tax management.
Questions from the DGI
When the DGI determines that the transactions carried out and analyzed by your company do not comply with the arm’s length principle, it will make an incremental adjustment in the income tax.
Our experience, both in the preparation of the documentation and in their respective defense, enables us to deal with the highest professional level in handling cases and the attention of particular consultations.
Giselle Moncada de Vasquez, senior associate, Morgan & Morgan
The loan agreement secured by mortgage is a legal and financial concept that has undoubtedly been a pillar of world economic progress. Hence, the Supreme Court of Justice of Panama in some of its judgments has given it its importance as part of the economic public order.
Certainly, this optimal progress is possible as long as the majority of the debtors pay off the loan punctually, and in cases when they are not able to comply with said payment to its creditor, by activating a mechanism to achieve the expedited collection of the real mortgage loan through a safe conversion system.
Mortgage loan or security trusts
It is important to mention that in recent years the lenders have increased the use of security trusts to guarantee their loans, instead of loans secured by mortgages. Despite of the benefits offered by security trusts to creditors and customers, there is another sector of the market that keeps using the loan agreement secured by mortgage.
Recovery process of mortgage debt
The success of the legal concept of mortgage loan requires the summary proceeding of the real estate guarantee, for cases in which the loan falls into arrears. In the Panamanian legal system, the judicial process generally used for the collection of this type of mortgage debt is the so-called “executory process with waiver of procedures”, thus we have a process that is very special and very summary at our disposal.
The reality is that the aforementioned process is not usually as expeditious as it faces delays both in the processing of the judicial process itself, in the procedure following the registration of the award (mainly in the physical taking of the auctioned property), until achieving the actual sale that is when the collection shall be satisfied.
This time we will list five lines of action that would reduce the harmful damages of a delayed and deficient conversion of the liquid asset through the aforementioned collection process:
- To apply to the Judicial Branch for an adaptation to the regulation of the way these processes are distributed in the Single Window System [known as Registro Único de Entrada (RUE)] so that judges who have links with credit entities, when the latter are executors, can be previously excluded from each distribution. In practice, the processing of a judicial impediment of this type can delay the admission of a process more than two months. The foregoing would even enhance the valuable time of our judicial officers.
- To insist on a procedural reform that empowers the Judge who is acquainted with the execution process, to order the eviction of occupants who do not hold an ownership title of the auctioned property. In comparison to the handling that was given by officials named Corregidores, the eviction proceeding to remove squatters, which is currently the responsibility of the Justices of the Peace, has not presented the improvements in response times expected by users. There are cases in which foreclosed properties are invaded by opportunists who then try dilatory actions in bad faith, postponing the proceeding indefinitely.
- To urge the corresponding authorities (Judicial and Executive Branch) to have the necessary funds for the implementation of Law 12 of May 19, 2016 (Insolvency Law), which creates the Insolvency Circuit Judges and the Fourth Court of the First Judicial District, which would have the power exclusively to hear the bankruptcy proceedings and all executory processes for major claims (that is, also the executory process with waiver of procedures). Despite the fact that the Law came into force on January 2, 2017, the aforementioned judicial offices have not yet been created nor have their personnel been hired.
- To benefit the real estate tax situation of the guarantees auctioned or granted as payment in kind. At the moment, the cadastral value of a property is raised considerably with interest, fees and legal expenses when auctioned or granted as payment in kind. The clearance of said property becomes even more difficult for its later sale if the debtor of the loan omitted to declare the improvements before the auction. This hinders its immediate sale while trying to resolve the tax situation.
- To promote in the population the culture of managing their budget properly and emphasize this teaching from school education. Although sometimes an unpaid debt can be due a health problem or loss of employment, the vast majority of cases seem to be resulting from consumerism.
Let us consider for a moment the economic repercussions that a high default rate in the payment of mortgage loans and the impossibility of making the real estate guarantee effective can have at the national level. It is imperative to take the corrective actions mentioned above.
In the framework of a globalized world and social networks that are established as a measure of possible interest of economic, social and political groups, data protection regulations become more relevant. In fact, the European Union through the General Data Protection Regulation 2016/679 of the European Parliament and of the Council of April 27, 2016, establishes mandatory requirements, as of May 25, 2018, on regard to data protection, and which also apply to individuals in charge of the processing of data who are outside the European Union but who handle personal data of interested parties residing in the European Union.
In the case of Panama, our greatest protection is directly established through our Constitution, mainly in articles 42 to 44. These articles establish the regulatory framework in which the criterion that must be met is the consent of the owner of the personal data to obtain, process and store them. Additionally, it allows them to have access to that information in order to update or delete it from the respective database. The habeas data action is established in these articles to guarantee the right of access to personal information.
How does this affect companies?
For labor purposes, our Labor Code establishes the obligation for the employer to keep a record with information of the workers; this record is subject to inspection by the Ministry of Labor and Workforce Development. The worker in accordance with the constitutional protection has the right to access, update and amend that information, as appropriate.
Based on the regulatory framework and principles established in the Constitution, in case of the local practice, personal data protection has been included in special laws that regulate them depending on the specialization of the matter or business. Special laws such as the following, all of which follow in general terms the constitutional principles:
- Law 51 of July 22, 2008, as amended, which defines and regulates electronic documents and electronic signatures and the provision of data storage services for documents and certification of electronic signatures and adopts other provisions for the development of electronic commerce;
- Law 51 of September 18, 2009, as amended, that dictates rules for the storage, protection and provision of data of telecommunications services users and adopts other provisions;
- Law 24 of May 22, 2002, as amended, which regulates the information service on the credit history of consumers or clients;
- Executive Decree 52 of April 30, 2008, which adopts the single text of Decree Law 9 of February 26, 1998, as amended, and which regulates the banking regime and the Superintendency of Banks;
- Law 68 of November 20, 2003, as amended, which regulates the rights and obligations of patients, in terms of information and free and informed decision;
- Law 81 of December 31, 2009, which protects the rights of users of credit cards and other financing cards; and
- Law 33 of April 25, 2013, as amended, which creates the National Authority of Transparency and Access to Information.
Remarkably, there is no express prohibition in Panama regarding the movement of personal data outside Panama. Existing laws have a more focused approach to the administration and processing of information and its storage. In this sense, there is the General Directorate of Electronic Commerce of the Ministry of Commerce and Industries, which regulates data storage service providers, an entity that regulates the protection of data that must be followed by businesses and imposes the obligation to maintain security measures and protection of information.
I would like to conclude by mentioning that to date, there is a Personal Data Protection Bill that has been submitted to the National Assembly, being the second attempt this year to pass a national law that compiles the regulation on this matter.
New Law establishes a legal framework for the comprehensive approach to Sexually Transmitted Infections (STIs) and the Human Immunodeficiency Virus (HIV)
Law 40 of August 14, 2018 has, among other, some provisions that affect the workplace, such as the following:
Obligations and prohibitions for employers:
- Any discrimination and stigmatizing or segregating act is prohibited to the detriment of those affected, as well as against their relatives and friends.
- Every employer is obliged to implement practical ILO recommendations on STI and HIV, and must take all necessary measures to effectively protect the life and health of its affected workers.
- The worker is not obliged to inform his employer or his co-workers about his condition as an affected person. If he does, the employer must keep strict confidentiality of the case and seek, if necessary, to make adjustments in their work environment according to medical criteria, for the best performance of their duties.
- No employer can deny affected workers the economic benefits to which they are entitled by law, such as deprive them of advancement in rank or promotion within the company.
- The health condition of the affected worker can not be a reason for exclusion in relation to bonuses, awards, training, work trips, recreational activities and any other benefit or activities in the company.
Work permits for appointments or treatments:
- Individuals affected will be granted work permits when required to take care of their health and medical treatments. Additionally, they will be granted up to a maximum of 144 hours, as long as their condition causes a disability.
- Workers affected with STIs or HIV can only be dismissed from their jobs for just cause, with prior authorization from the Ministry of Labor.
This Law repeals Law 3 of January 5, 2000.
The Executive Body, through the Ministry of Health, must regulate Law 40, in a period of 180 days as of August 14, 2018.
Partner Ramon Varela and associate Ana Carolina Castillo contributed with the Panama chapter of Chambers & Partners Alternative Energy & Power 2019.
The guide analyzes the most relevant aspects that affects the energy industry in twenty-nine jurisdictions, including Panama.
The complete guide is available here.
Morgan & Morgan´s Panama office, and fifteen attorneys of the firm were recognized in the Chambers Global 2018, guide of the best lawyers and law firms across 190 jurisdictions in the world.
The firm has been ranked in the first Bands within the areas of Corporate/Commercial, Banking & Finance, Dispute Resolution, Intellectual Property, Offshore, Shipping and Shipping Litigation.
Likewise, the guide noted in the first Bands partners Francisco Arias, Inocencio Galindo, Ramon Varela, Simon Tejeira, Luis Vallarino, Enrique Jimenez, Roberto Lewis, Luis Manzanares, Enrique De Alba, Jazmina Rovi, Juan David Morgan Jr. and Francisco Linares. Associates Roberto Vidal, Allen Candanedo and Maria Eugenia Brenes has been also ranked in the publication.
One of the clients interviewed stated that “the firm is client-focused, eager to assist and flexible when finding solutions”.
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. Learn more at www.morimor.com.
Important notice to our clients:
Whilst recent changes in data protection standards around the world have obliged us to update our Privacy Statement, our commitment to never use your personal data for commercial purposes is steadfast and so is our belief that you should have the ability to inquire as to how we collect your personal data, as well as your rights to control said data.
In the past and in the future, as a valued contact in our client database, we may periodically send you newsletters, legal updates, invitations and news (“communications”). If you are content receiving our communications, you need not take any action. If, however, you do not wish to receive any further communications in the future, you may opt-out at any time by informing us at firstname.lastname@example.org.
You may rest assured that Morgan & Morgan has in place a robust technological platform and a highly skilled team that has developed a strategy to enhance the safekeeping of our client´s personal data.
Albalira Montufar, Partner, Immigration Law
Panama has become a popular destination to immigrate in the region, due to its economic growth and socio-political stability, which contrasts with other neighboring countries´ intricate conditions. Within the last decade, multiple infrastructure projects, as well as incentives favorable to establish and operate multinational companies, have resulted in an increase of foreign nationals within the country, creating a multi-ethnic and multi-cultural society.
Nevertheless, Panama’s immigration law enacted in 2008 and article 17 of the Panamanian Labor Code dated 1972, both modified throughout the years, constitute a complex scenario to immigrants and employers willing to comply with the laws and changing policies. Separate processes to obtain (i) residency before the National Immigration Service and; (ii) a work permit before the Ministry of Labor, are one of the main aspects to be considered when immigrating and hiring foreign employees.
How to obtain legal residency in Panama?
In Panama, Law Decree No. 3 of 2008, which creates the National Immigration Service, and Executive Decree No. 320, which establishes the requirements and procedures applicable to obtaining temporary and permanent residency, are the core provisions regarding immigration.
As a general rule, foreigners enter as tourists for a period of 3 to 6 months, allowing them to do tourism, business or investment activities within the country. However, nationals from certain countries including China, India, and many other Asian and African countries, must request an entry visa which, when granted, is stamped at a Panamanian Consulate before traveling, and is valid for 1 month as a general rule. This entry visa applies unless the person has a valid multiple entry visa from the U.S., Canada, U.K. or Australia, and has used it at least once to enter the territory that issued said visa, in which case the person can enter Panama without a prior authorization.
During the above periods, the foreign national that wishes to apply for a residence permit must choose from a wide spectrum of options that were created to promote investment and to establish the rules to fill the need of skilled and non-skilled personnel. For purposes of this article, we will refer to the main available modalities.
Options related to the applicant’s nationality
- Residence Permit for Nationals from Countries with Professional and Economic Ties with the Republic of Panama
Foreign nationals from a list of approximately 50 countries, including the United States of America, France, Canada and Spain, can apply for a permanent residence permit in Panama if they prove to have a professional, economic or investment relationship in the country. This residence permit, also known as a Friendly Nations permit, can be obtained by setting up a Panamanian corporation or by being hired to work as an employee of a company duly established in Panama. The applicant must prove the existence of either an economic or professional activity, as well as economic solvency (the latter by means of filing a bank certificate from a local bank showing a balance of at least 4 average figures).
Once the permanent residency is granted, it is possible to apply for an indefinite term work permit that will allow the person to legally work in Panama. The challenge with this option is that if the foreigner applies for this category for work purposes, he or she must first obtain the permanent residency, and then file the work permit application. Therefore, there is a black out period in which the foreigner is not allowed to work. Anticipated coordination of this category is required to minimize risks.
- Residence Permit for Nationals from Italy
The Treaty of Friendship, Commerce and Navigation between the Republic of Panama and the Italian Republic, provides that the citizens of each of the contracting parties enjoy national treatment in the territory of the other, to carry out economic or professional activities. The main requirement is to prove the Italian nationality, as well as economic solvency (as described above).
Once the permanent residency is granted, if the foreigner intends to work, it is possible to apply for an indefinite term work permit that will allow the person to legally work in Panama. Note that Italian nationals will be exposed to the same black out period mentioned above regarding the Friendly Nation’s option.
Options based on the Company’s Quotas
- Ten or Fifteen Percent Quota
The Panamanian Labor Code sets forth the general rules applicable to hiring foreign personnel. The code provides that 90 percent of employees must be Panamanian citizens, or foreign nationals married to a Panamanian, or foreign nationals that have resided in Panama for 10 or more years. The 10% quota is a result of this rule, and applies to both the headcount and salaries of the workforce. Additionally, the Labor Code provides that companies can hire skilled staff, managerial or technical positions not exceeding a 15% limit of the total salaries and headcount.
Consequently, foreigners hired to work for a company registered in Panama, can obtain residence permits within a 10% limit for positions that are not skilled, managerial or technical, and a 15% limited for skilled, managerial or technical positions. These options grant provisional residency for two years and allows to subsequently apply for permanent residency in the country, provided that the foreigner receives a minimum wage of at least US$850.00 monthly.
In this case, once the provisional residency is filed before the National Immigration Service, it is possible to apply for a temporary work permit valid for 1 year, renewable for equal terms which, once approved, allows the person to legally work in Panama.
The challenge with this option is that the high number of foreigners in Panamanian payrolls makes it difficult to comply with the quotas. Additionally, labor policies determining how other immigration categories and work permits count in payroll have had constant changes impacting the filing and approval of these work permits.
- Multinational Headquarters
The multinational headquarters special regime established by means of Law 41 of 2007, applies to regional or headquarters offices of companies which carry out operations or services from Panama to their main offices or subsidiaries in other countries. These companies must be granted with a Multinational Headquarters’ License or “SEM” License (for its acronym in Spanish). The main advantage of this option, in regard to the hiring of foreign managerial personnel, is that these companies are not subject to the quotas established in the Labor Code, therefore making possible to hire an unlimited number of foreign workforce.
Foreign employees working for a SEM company can apply for a residence permit for Permanent Personnel valid for 5 years, renewable for equal terms. With this residence permit, there is no need to request a work permit before the Ministry of Labor, since Law 41 provides that holders of this residence permit do not require further authorization to legally work in Panama. This category also has the advantage that there is no income tax in the foreign employee’s salary in Panama, when receiving the salary from a foreign source.
Options based on the applicants’ investment
Panama’s immigration law provides the option to obtain permanent residency when investing in the country a minimum of US$300,000.00. There are 3 options to meet this requirement: (i) a deposit in a bank account maintained at least 3 years in a Panamanian bank, on the name of the applicant; (ii) investing in a US$300,000.00 (or more) real estate property located in Panama, free of liens. The real estate property can either be in the personal name of the applicant, in the name of a Panamanian Private Interest Foundation or a corporation (as long as the main applicant is both the Founder and main Beneficiary in the foundation’s case and that the shares are on the applicant’s name in the corporation’s case); and (iii) a combination of real estate property and deposits on a deposit bank account, for an aggregate of US$300,000.00 or more.
In this case, the provisional residency is granted for two years, and allows to later apply for permanent residency in the country.
The National Immigration Service and the Ministry of Labor have been tightening their policies due to the considerable influx of foreigners, in order to verify and control that foreigners stay legally in the country and that companies comply with applicable regulations.
The Government of Panama recently announced certain measures to reduce the stay as tourists for nationals of certain Latin American countries, in order to force a prompt legalization of those that decide to have a residency in the country. In this regard, the government established that nationals from Venezuela, Colombia, and Nicaragua, previously granted with a 6-month period stay as tourists, are now allowed a 3-month period only.
Moreover, Law 59 of September 12th, 2017 increases fines and sanctions to companies that hire foreign employees without a valid work authorization issued by said Ministry. Fines, that are were established in US$50.00 to US$500.00, have increased significantly due to this law, which includes (i) a US$500.00 sanction per foreign employee without a valid work permit, the first time is inspected by the authorities; (ii) a US$1,000.00 fine for each foreign employee without a work permit, the second time is inspected; (iii) a US$10,000.00 fine without considering the number of foreign employees plus the suspension of the company’s commercial license, the third time is inspected; and (iv) the cancellation of the commercial license for the fourth time.
Furthermore, said law provides that fines to companies having 10 or more foreign employees without a valid work permit, will be doubled. The names of the sanctioned companies will be listed in the Ministry of Labor’s website.
Panama’s immigration and work permit laws and policies provide a wide range of options to immigrate and work in the country. The large number of foreigners that have arrived within the last years has resulted in stricter policies and regulations. However, certain options still remain flexible. By understanding and keeping up to date with the modifications in regulations and policies, foreigners and companies can duly coordinate an anticipate applicable options and requirements, therefore reducing labor and immigration risks.