In order to attract and promote investments in production processes, generate jobs and promote technology transfer, the Republic of Panama has a regulation (Law 159 of August 31, 2020) that created a special regime that grants great benefits to multinational companies dedicated to the provision of services related to manufacturing (known as EMMAs) that establish themselves and operate in the country.
Below, we present a brief questionnaire that summarizes the most important aspects and benefits of the regime applicable to EMMA:
. What is meant by Multinational Company for the Provision of Manufacturing Services (EMMA)?
Company, foreign or national, that carries out operations from Panama aimed at offering manufacturing services (packaging, manufacturing, remanufacturing) to its parent company, its subsidiaries, its affiliates or companies associated to the same business group.
. What services can an EMMA provide?
- Services related to the manufacture of products, machinery and equipment
- Assembly services for products, machinery and equipment
- Maintenance and repair services for products, machinery and equipment
- Services related to the remanufacturing of products, machinery and equipment
- Services related to the packaging of products
- Product development services, research or innovation of existing products or processes
- Analysis services, laboratories, tests or others related to the provision of services related to manufacturing
- Logistics services such as the storage, deployment and distribution center of components or parts, required for the provision of services related to manufacturing
- Any other similar service previously approved by the Council of Ministers through a motivated resolution, provided it complies with the precepts set forth in the law.
. What are the tax benefits granted to EMMAs?
Reduced income tax rate:
Five percent (5%) rate on the net taxable income derived from the services provided. In addition, they may include within their deductible expenses, the expenses incurred for labor remuneration of all their employees, in accordance with the provisions of the Tax Code.
Tax on the Transfer of Movable Corporal Assets and the Provision of Services:
EMMAs will not cause Transfer Tax, provided that their export services are provided to entities of their business group abroad, that do not generate taxable income within Panama. In addition, they will be exempt from the payment of the Transfer Tax on Movable Corporal Assets and the Provision of Services (VAT) for the purchase and importation of goods or services in the Republic of Panama.
Import tax exemption:
EMMAs will be exempt from all taxes, fees, charges or import duties on all types or classes of merchandise, products, equipment and other goods in general, including, but not limited to, machinery, materials, packaging, raw materials, inputs, supplies. and spare parts that are used or required for the execution of the provision of services related to manufacturing.
Establishment anywhere in the national territory:
EMMAs may establish themselves in a special economic area in the national territory, free zone, free zone or establish a customs control and surveillance area.
Dividend and complementary tax and branch tax:
EMMAs will be exempt from paying dividend tax, complementary tax and tax on branches, regardless of whether they are from local, foreign or exempt sources.
Companies holding a Multinational Company License for the Provision of Services Related to Manufacturing will not be subject to the use of fiscal equipment.
The gain or loss on the transfer of shares issued by an EMMA are subject to the capital gains regime, but at a fixed rate of 2%. The buyer will have the obligation to withhold from the seller a sum equivalent to 1% of the total value of the alienation.
EMMAs will not have the obligation to obtain an Operation Notice for the provision of their manufacturing services. Therefore, they will not be subject to the payment of the Operation Notice Tax.
. In terms of immigration, what are the benefits granted to the foreign staff of an EMMA?
EMMA Permanent Staff Visa:
This visa applies to administrative-executive level workers and covers their dependents. It will be granted for a term of five (5) years, extendable for the same term, except in those cases in which the employment contract establishes a shorter term. The holders of this visa will be able to extend it indefinitely and will not need work permits.
EMMA Temporary Staff Visa:
This visa applies to foreign personnel who provide services to the EMMA, at the operational or training level, and covers their dependents. It will be granted for a term of two years, renewable. Once the EMMA Temporary Staff Visa is granted, a work permit will be granted that grants the right to work in the Republic of Panama.
Applies to foreign personnel who work or have worked for any EMMA, once a term of five years has elapsed, counted from the approval of their Permanent Personnel Visa or Temporary Visa.
. What are the employment benefits granted to EMMAs?
EMMAs may hire the necessary number of trusted personnel and senior management executives to carry out their operations in Panama (no quota or maximum limit applies). Dependents who wish to work will be able to do so if they change their immigration status.
EMMAs may agree with their workers on the mandatory weekly rest day, which will not necessarily be Sunday. When Sunday is a regular work day, there will be no surcharge.Work on the agreed weekly rest day is remunerated with a 50% surcharge on salary.
Work carried out in an extraordinary hour or day will be paid with a single surcharge equivalent to 25% of the salary of the EMMA workers.
. What other benefits are granted to EMMAs?
Automatic legal stability. Furthermore, they can locally sell the waste generated by the manufacturing process for recycling and said transaction will not be subject to the payment of Income Tax.
With the approval and implementation of the law that created the special EMMA regime, the Republic of Panama intends to attract foreign investment and reactivate the country's economy, after the impact caused by the COVID-19 pandemic. We are confident that said task will be achieved because, every day, the interest of multinational manufacturing companies that wish to benefit from the aforementioned regime increases.