Regional or Headquarters offices are corporations from Panama territory carry out operations or render services to their main offices or subsidiaries in other countries. “S.E.M.” corporations may operate as a foreign company registered in Panama or as a Panamanian company wholly owned by the “mother” multinational company.
Act No. 41, an S.E.M. Corporation, is defined as: “That multinational company that operates from Panama offering the services described in this Act to its Headquarters, subsidiaries, affiliates or associated companies, or set its headquarters in Panama, hereinafter Business Group. The Headquarters will always be part of a multinational company with international, regional, or important operations in their origin country”.
“S.E.M.” Corporation Benefits
Corporate tax incentives.
⦁ Income Taxes (I.S.R.): It is established that the S.E.M. Company must pay Income Tax in the Republic of Panama, on the net taxable income derived from the services rendered, at a rate of five percent (5%).
⦁ They may include within their deductible expenses those incurred in the concept of labor remuneration, which will proceed even when the worker receiving the salary is exempt from income tax.
⦁ Exoneration of Taxes on Goods and Services: (ITBMS): As exporters of services, insofar as those services are given to entities of the company group outside the Panamanian territory.
⦁ ITBMS will only be caused when the person or company that receives the service generates a taxable income in Panama.
⦁ ITBMS forms. The company S.E.M. must submit the ITBMS form on an occasional basis when it has received services from non-resident suppliers in Panama, and the service is provided in Panamanian territory. The way will be presented to declare the withholding of ITBMS carried out.
⦁ Dividend tax and surtax, and use of Fiscal equipment: S.E.M. companies will be exempted from the payment of dividend tax, additional tax, and branch tax, regardless of whether they are derived from local, foreign or exempt sources. Additionally, they will not be subject to the use of commercial equipment; however, they must document their activities through invoices or equivalent documents that allow the General Directorate of Revenue to register, account, and control the transactions carried out.
⦁ The operations that the S.E.M. companies carry out with related companies, whether they are established in Panama or are fiscal residents of other jurisdictions or are established in the Colon Free Zone or operate in the Petroleum Free Zone, the Special Economic Area, Panama Pacifico, Headquarters of Multinational Companies, City of Knowledge or in any other free zones or a particular economic area established or to be created in the future, will be subject to the transfer pricing regime, as determined in the Tax Code.
⦁ Concerning the capital gains, they will be taxably calculated on the profits obtained at a fixed rate of two percent (2%).
⦁ The taxpayer of Panama, natural or legal person, who benefits from a service or Act, documented or not, provided by an S.E.M., must apply the five percent (5%) rate on the amount to be issued to the company with S.E.M. license. The previous shall apply if said services or acts affect the production of income from a Panamanian source or the conservation thereof, and its value has been considered as a deductible expense by the person who received it.
⦁ Executives with an S.E.M. visa will be exempted from the payment of income tax, social security contributions, educational insurance for salaries, remuneration for work and salary in kind, when said salaries and remunerations are paid, assumed and recognized as personnel expense in the accounting of the S.E.M. Company.
Incentives to Executive Employees
⦁ Exemptions of Income Taxes (I.S.R.): There will be no income taxes when executive employees receive salaries, as long as they are holding a Personal Visa “S.E.M.”.
⦁ Exemptions of Taxes for import household goods: There will be no payment taxes to those executive employees that want to import their household goods on their first flight to Panama, as long as they are holding a Personal Visa. “S.E.M.”.
⦁ Exemptions to be an affiliate to the Panamanian Social Security: Executive employees, as long as they are holding a Personal Visa “S.E.M.”, they will not have to be affiliated to the Panamanian Social Security.
⦁ Permanent Personnel Visa: The Personal Visa S.E.M. may be granted at a maximum of 5 years and can be renewable indefinitely every five years. This special permit does not require a work permit to render labor services in Panama territory. Nevertheless, it is also established that the foreigner with a Personal Visa “S.E.M.” may apply for a permanent residence after the first five (5) years have passed. Once the permanent residence has been obtained, he/she will be subject to the payment of local taxes, such as Income Tax, Social Security charges, and educational insurance contributions.
⦁ Whenever the new resident chose to work for another company not having an S.E.M. License, he/she will be subject to the payment of the income tax and the social security and educational insurance contributions, on his / her salary and any other labor remuneration received, including the wages in species and in addition to the permanent resident, shall obtain a work permit.
⦁ Permanent Personnel Visa for dependents: This type of Visa will be granted for the same period as the “S.E.M.” personal.
⦁ Temporal Personnel Visa: for three months renewable for the same time frame. Too technical or training personnel. Holders of this type of Visa do not require a Work Permit.
⦁ Creation of a Central office within the Commerce Ministry to improve their administrative efficiency and avoid bureaucratization of procedures relating to S.E.M. License acquisition and visas for their foreign personnel and their dependents.
⦁ The validity period of S.E.M. licenses is indefinite, as long as no infraction is incurred. The Commission could set penalties, even the cancellation of the License.
Activities Permitted to be a candidate for “S.E.M.” Corporation.
The main function of a Multinational Company Headquarter shall be providing services to the business group to which it belongs.
The following activities are exclusively permitted to be a S.E.M. Corporation:
⦁ The Government and/or Administration of business operations in a specific or global geographical area of a company of the business group. The following are examples of these services: strategic planning, business development, personnel management or training, operations, and/ or logistic planning.
⦁ Logistics and storage of components or parts, required for the manufacturing or assembly of manufactured products.
⦁ Technical assistance to companies of the business group or to clients that have acquired any products or services on behalf of other companies of the same economic group.
⦁ The financial assistance service aimed at companies of the same group is included, counting with services of business management, risk analysis, credit analysis, due diligence, custody and documentation file, center for processing data and/or documents and treasury services to the business group, as well as loans granted among companies related to the business group.
⦁ Company accounting.
⦁ Elaboration of designs and/or construction plans that constitute part of the business activities of the economic group.
⦁ Electronic processing of any activity included in the consolidation of operations of the business group, including network operations.
⦁ Counseling, coordination, and follow-up of marketing and advertising guidelines of goods and services produced by the economic group.
⦁ Operations and research support and development of products and services for the business group.
⦁ Any other type of similar services previously approved by the Cabinet Council through motivated resolution.
About the Assets of the Business Group.
The candidate company must prove one of the following two options to apply for the License:
⦁ The assets of the Business Group must be equal to or greater than two hundred million U.S. dollars (the U.S. $ 200,000,000.00); or
⦁ The applicant company must provide services to at least seven (7) subsidiaries or associated companies.
Requirements to apply for an “S.E.M.” License.
The following requirements are necessary to be granted an S.E.M. License:
Solicitation FORM (will be provided by our office when the decision of filing for the License is reached) with the following documents attached:
⦁ Social Pact of the Corporation, must indicate as one of its objectives the interests of establishing as a S.E.M. corporation;
⦁ Power of Attorney (text will be provided by our office when the decision of filing for the License is reached);
⦁ A sworn declaration stating the intention of establishing as a S.E.M. in Panama and that the corporation complies with all the requirements to obtain the License. This should be signed by the Legal Representative of the Corporation. (Will be provided by our office when the decision of filing for the License is reached);
⦁ Consolidated Financial Statements of the Business Group, duly certified by Certified Public Accountants. In case these Statements are written in a foreign language or in a currency different from US$, notes and annexes should be presented duly translated to Spanish and converted to US$;
⦁ Banking Reference Letter.
⦁ Certification issued by the Treasurer or the Secretary of the Corporation, indicating shares of the Business Group within the Corporation, in order to proved the ownership of the corporation. This Certification should be duly authenticated by Public Notary.
All Documents coming from abroad should be:
⦁ Duly legalized or apostilled (in case of public documents).
⦁ Translated into Spanish (in case of a different language).
⦁ Converted to US$ (in case of a different currency).
Some Corporations registered as S.E.M. are the following:
Procter & Gamble (U.S.A.)
L.G. Consulting (South Korea)
Alico Services (U.S.A.)
Hyundai (South Korea)
Western Union (U.S.A.)
Pan American Life (U.S.A.)
Moffatt & Nichol (U.S.A.)
J.Safra Asset (U.S.A.)
S.A.B. Miller (Africa/U.K.)
Sanofi Aventis (France)
Alfa Laval (Sweden)
Puig B&F Group (Spain)
V.F. Sourcing (U.S.A.)
Wrigley Latin America (U.S.A.)
Atlas Copco Panama (Sweden)
ISUZU MOTORS INTERNATIONAL OPERATIONS (PANAMA).
Duration Process to obtain a “S.E.M.” License
Once all information has been completed, the Firm on behalf of the Corporation, will submitted all the required documentation before the Commission of Multinational Corporation Headquarter (Sede de Empresa Multinacional – S.E.M.).
Once the Commission receives the documentation, they will review it and take approximately within 30 to 35 to respond.
José Agustin Preciado