Posted on 2016/09/06 · Posted in Enrique De Alba, Publications

By Enrique de Alba Arango, Partner of Morgan & Morgan Law Firm

On June 27 of the present year, a historic event for the Canal and the International Merchant Marine Registry of the Republic of Panama occurs.

One day after the new locks of the Panama Canal were inaugurated with the transit of the container vessel “Cosco Shipping Panama, the first vessel registered under the Panamanian flag transits, which coincides with being the first transit of a liquid petroleum gas vessel named “Lycaste Peace” in its commercial traffic from Houston, Texas to the Port of Hitachi, Japan, owned by the Japanese shipping Line Nippon Yusen Kaisha (NYK Line) and represented in Japan by Mitsubishi Logistics Corporation. The Resident Agent of this first transit of the vessel registered in Panama is Morgan & Morgan Law Firm.

Since the inauguration of the Expanded Panama Canal, the vessel that has paid the highest toll so far and also set a new record due to the Expanded Canal was the vessel “Mol Beyond” which paid the sum of $837,203.00.

Several precedents are well marked on the Panama Canal and its International Merchant Marine Registry, whose origin is given with the enactment of Law 63 of December 15, 1917 which amends and supplements the Fiscal Code, giving the power to grant the national flag to a vessel that so requests it and which will celebrate its 100th anniversary next year 2017. It is understood according to records that the first vessel registered under the national flag was the carrier Belén Quezada.

By Law 8 of January 12, 1925, procedures for the nationalization of merchant vessels are created and this law formally establishes the Merchant Marine Registry of the Republic of Panama.

Nowadays, the Maritime Registry of Panama is proud and honored to be the world’s largest register with approximately 8,831 registered vessels to June 14 of this year representing 235,295,719.26 gross tons. The registration of vessel and other activities under the umbrella of the Panama Maritime Authority, as of December 2015 contributed to the treasury the sum of $162,089,501.00.

Among the legal instruments that have brought success to the merchant marine of the Republic of Panama, we can mention in addition to those already mentioned:

  • Law 2 of January 17, 1980, which creates the Directorate General of Consular and Maritime Affairs.
  • Law 14 of May 27, 1980, whereby the preliminary registration of ownership titles and mortgages through proprietary merchant marine consulates and directly with the Public Registry of the Republic of Panama is regulated.
  • Decree-Law 7 of February 10, 1998 creating the Panama Maritime Authority, grouping into a single entity all activities related to the maritime sector.

Subsequently, from 2008 it was decided to update all our legislation related to the maritime activity and four new legal instruments are enacted:

  • Law 57 of August 8, 2008, whereby the Directorate General of Merchant Marine is created (grouping into a single law, everything related to this activity);
  • Law 55 of August 8, 2008, which replace the Book II of the Commercial Code of the Republic of Panama to create the Maritime Trade Act, as amended by Law No.27 of 28 October 2014;
  • Law 12 of January 23, 2009 amending Law 8 of March 30, 1982 and Law 11 of May 23, 1986, which in turn was amended by Law 58 of October 6, 2010 and Law 16 of March 21, 2013, whereby standard maritime procedures are enacted,
  • And Law 56 of August 6, 2008, whereby the General Ports Act and its regulations is created.

I mention these legal instruments, because without them, the development of our merchant marine, international forum of maritime litigation and port activity would had been set aside by the competition provided by countries that develop these same type of activities associated with the maritime industry.

The momentum that our lawyers have given to the development of maritime activity in the Republic of Panama to the challenges of trade, should never stop because the success of Panama in this important industry is due to the constant renewal of its legal instruments, seeking new and better ways for the development of the maritime sector.

The foregoing leads us to mention an important bill that is planned to be submitted to the National Assembly this month of July on maritime financing. This bill creates a special legal regime for financing operations of the local and international maritime industry, where tax, labor and immigration incentives are granted to companies that carry out these operations from Panama.

The entities that could benefit from these incentives are the general license, international or representative banks duly authorized by the Superintendence of Banks, companies carrying out operations to design, structure and develop the financial conditions of maritime credit and its guarantees, regulated financial companies and maritime financing entities and joint ventures (Joint Venture) of the Panamanian State with individuals.

Among the tax incentives will be the exemption from paying income tax from such funding for the construction and purchase of vessels. In order to benefit from this tax incentive, these entities must establish a separate accounting which states the recording of the date of execution of each loan.

Those companies whose maritime financing operations are carried out in the Republic of Panama or shipyards engaged in the construction and repair of commercial vessels, yachts and others will not cause the payment of income tax.

There are also exempted from paying income tax, interest and fees earned by banks for maritime financing activities that are duly accredited for such activities, as well as income from insurance and reinsurance that secure credits from certified maritime financing institutions and/or Bankable Maritime Projects.

The bill in question establishes a low import tax on machinery and equipment needed for the development of the maritime industry, no greater than 3%.

As for immigration and special labor regime, it is aimed to create the necessary conditions to help develop the relevant maritime activities with the maximum efficiency required by a maritime center of this nature.

A Certifier and Supervisory Board of Maritime Financing Entities is created, which would consist of the following members:

  1. A member appointed by the Panama Maritime Authority.
  2. A member appointed by the Ministry of Economy and Finance.
  3. A member appointed by the Ministry of Commerce and Industry.
  4. A member appointed by the Ministry of Labor and Workforce Development.
  5. A member appointed by the National Immigration Service.
  6. A member appointed by the Council of Financial Regulations.
  7. A member appointed by the Panama Canal Authority.

Before I conclude and the reason for this article is partly to draw attention to a provision that has been introduced at the last minute to the maritime financing bill mentioned herein, where it is imposed a term of 20 years to the tax exemptions, incentives and other benefits that this new project aims to create in the Republic of Panama.

It is advisable to study this condition or term carefully, because such a sophisticated and specialized activity as the maritime financing activity, should not be set a peremptory period, given than this period would undermine completely the intention to create a new activity that could pay off to the economy of the Republic of Panama, which in other international financial centers produce optimal results.

Let us hope that all the good spirit that every Panamanian has had in recent days with the opening of the newly expanded locks of the Panama Canal and its role as a facilitator of international maritime trade, help to understand how important it is to maintain our competitiveness in this important industry.

It is a true and lawful translation into English of the original document written in Spanish  – Michelle Williams – Authorized Public Translator – Resolution No. 5775 of November 12, 2014 – Republic of Panama.