Posted on 2017/10/01 · Posted in Albalira Montúfar, Publications

By Albalira Montúfar

I. Introduction                                   

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[1] and article 17 of the Panamanian Labor Code dated 1972[2], 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.

 

II. Obtaining 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[3], in which case the person can enter Panama without a prior authorization[4].

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.

 

A. Options related to the applicant’s nationality. 

  1. Residence Permit for Nationals from Countries with Professional and Economic Ties with the Republic of Panama[5] 

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[6], 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.

  1. Residence Permit for Nationals from Italy 

The Treaty of Friendship, Commerce and Navigation between the Republic of Panama and the Italian Republic[7], 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.

 

B. Options based on the Company’s Quotas. 

  1. Ten or Fifteen Percent Quota[8] 

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[9].

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.

  1. Multinational Headquarters 

The multinational headquarters special regime established by means of Law 41 of 2007[10], 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[11]).  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.

 

C. 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.

III. Recent Modifications

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[12].

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 inlcudes (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.

IV. Conclusions

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.

[1] Law Decree No. 3 of February 22nd, 2008 regulated by Executive Decree No. 320 of August 8th, 2008.

[2] Cabinet Decree No. 252 of November 30th, 1971, published in 1972 established the Panamanian Labor Code.  Article 17 of the Code, regulated by Decree 17 of May 11th, 1999 sets forth the work permit options applicable to foreign employees.

[3] See Executive Decree No. 591 of December 28th, 2016.

[4] Chinese nationals have also another exception to the entry visa if they are holders of a valid public passport.

[5] See Executive Decree No. 416 of June 15th, 2012.

[6] It is important to highlight that according to the law, certain professions are restricted to Panamanian nationals including, medicine, law, architecture, accounting and engineering.

[7] See Law No. 15 of February 1st, 1966.

[8] Article 17 of the Panamanian Labor Code.

[9] See Executive Decree No. 229 of March 22nd, 2013.

[10] See Law No. 41 of August 24th, 2007.

[11] One of the main requirements to apply for a SEM License is that the company group must have at least US$200,000.00 in assets.

[12] Executive Decree 269 dated May 29th, 2017 provides for the reduction of the length of stay for citizens of these three countries due to the large number of foreigners who, after entering as tourists, work without requesting the change of immigration status.