This publication is a joint project with

Doing business in Contents

Executive summary 4 Disclaimer

Foreword 6 This document is issued by HSBC [HSBC entity in the jurisdiction to which the brochure relates] Introduction – Doing business in Panama 8 (’The ’) in Panama in partnership with PricewaterhouseCoopers (PwC). Conducting business in Panama 12 It is not intended as an offer or solicitation for business to anyone Taxation in Panama 16 in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions Audit and accountancy 24 which restrict the distribution of this document. It shall not be Human Resources and Employment Law 27 copied, reproduced, transmitted or further distributed by any recipient. Trade 30 The information contained in this document is of a general nature Banking in Panama 34 only. It is not meant to be comprehensive and does not HSBC in Panama 35 constitute financial, legal, tax or other professional advice. Country overview 36 You should not act upon the information contained in this publication without obtaining Contacts 38 specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (’PwC’).

Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/or PwC only and are subject to change without notice. This document is not a ’Financial Promotion’.

The materials contained in this publication were assembled in May 2012 and were based on the law enforceable and information available at that time. Executive summary

Panama’s unique geographical Panama offers a number • In addition, the government in position and its opportunities of competitive advantages Panama is actively addressing to participate in a number for investors to locate their opportunities to attract further of significant projects headquarters, business Foreign Direct Investment aimed to further improve its operations or simply offices. (FDI). The Government has infrastructure continue to These can be summarised designed a strategic plan to attract new investors and as follows: develop Panama through four visitors to the country key areas: logistics services, each year. • Panama is located in the centre banking services, tourism, of the American Continent, with and agriculture. Furthermore, there are easy access through land, sea plentiful opportunities and and air. Complementing the territorial advantages stemming from taxing regime, Panama is the expansion, • It has a modern infrastructure currently in the process of the construction of a metro and is deemed to be the signing treaties to avoid double system, the expansion of largest, well established taxation with several countries various ports and airports, banking centre in Latin America. around the world, using the and the enactment of laws widely accepted OECD Model. establishing special regimes for • The headline tax rate for most certain types of businesses companies is 25%, but there This document contains and industries. These make are a number of special tax references to some common Panama an attractive location incentives and fiscal regimes issues that investors should for companies to establish in Panama for certain types be aware of when operating their headquarters of companies, allowing them in Panama, although specific or subsidiaries. to operate with minimum advice on their particular tax exposure. circumstances should be sought. Panama’s economy is relatively stable and is based on the use • A company can be incorporated of the US dollar as its legal in Panama within one day. tender. Based on the World Bank ‘Doing Business’ survey, • For international businesses, Panama’s ranking increased Panama offers a developed from 77th to 72nd in 2011. Its telecommunication platform to 2010 GDP increased by 7.5%1 conduct their affairs efficiently. compared to the previous year, which is remarkable in • Because of the domestic the context of the global use of the United States economic crisis. dollar, Panama has no foreign exchange constraints. It is politically and socially stable.

1 Source: 2010 General 4 Comptrollership of the Republic Annual Report Foreword

Panama has a long history improvement in public finances Aimee Sentmat as a business crossroad and the economy’s resilience Head of CMB and a financial sector during difficult economic times (with 93 ). Panama's affecting the world. geographical position has a number of advantages; HSBC has been a key player such as the Panama Canal, in Panama since 1972 and is which is instrumental for the largest bank by assets international trade, Panama in the country and in Central being the largest free zone in America today. the Americas, with a modern infrastructure, and the US It is a privilege to sponsor dollar as its currency. It is this document, which aims without a doubt that Panama to contribute to a better is becoming a world-class understanding of the many destination for business. business advantages and possibilities that Panama has Important multinationals and to offer. cooperation agencies from all over the hemisphere have decided to move their Latin American regional headquarters to Panama. Furthermore, contrary to other countries in the region that experienced credit rating downgrades during the economic crisis, rating agencies (such as Fitch and Moody’s) have upgraded Panama to the investment grade reflecting the sustained

6 Introduction Doing business in Panama

Welcome to our guide to doing the construction of a housing hotel development and fruit business in Panama. In this complex for Curundu (an exportation as set out in the publication we hope to provide undeveloped neighbourhood 2009-2014 strategic plans. you with an insight into the in the centre of the city) key aspects of undertaking among others. • Highly skilled workforce business and investing in and abundance of bilingual Panama and answer many For foreign investors coming professionals speaking Spanish of the questions overseas to Panama, it offers the and English. businesses and entrepreneurs following benefits: have when making their first • Reputation of Panama as one venture into the Panamanian • Developed railway of the most developed financial market. infrastructure, including centres in the region. express highways, such as the Economic History Cinta Costera, Corredor Norte • Several free trade agreements and Corredor Sur (which can which have been enacted Panama’s economy basically take you from the International and which are currently in the relies on the provision of Airport to the centre of the City process of being negotiated. services and is primarily in less than 15 minutes). based on the Panama Canal Panama does have a suite of operations, tourism, banking, • Links to more than 50 regulatory practices that need to the Colon Free Zone (which destinations in 27 countries be considered when you arrive is the world’s second largest through direct flights from in the country. For this reason it Free Zone behind Hong Kong), Panama. is important to seek the advice insurance, and flagship registry, on specific rules which would medical and health among • Excellent port and harbour be applicable to certain types other businesses. Another facilities on both the Atlantic of businesses and industries in important, but shrinking and the Pacific Oceans. order to comply with current economic sector is agriculture legislations. with its main products being • International submarine cable bananas, rice, corn, coffee, lines linking Panama with the The economic environment sugar, vegetables, meat, and worldwide frame of submarine shrimp. lines guaranteeing high quality Panama has bravely overcome telecommunications facilities. the impact of the recent Current advantages for worldwide recession and new businesses • All kinds of processing reported a GDP growth in and manufacturing are 2009 of 2.4% and 7.5% in The Panama Canal Expansion permitted within the Free 20102. This was during the time project has helped Panama Zones, while administration when many countries in the to keep its steady economic can be performed from inside region were affected by the growth. Beside this major or outside the zone. global economic crisis and had project, the Government has reported negative GDP growth. announced other ventures • Focus on attracting further such as the construction foreign investments into of a Metro for , areas such as logistics,

2 Source: 2010 General 8 Comptrollership of the Republic Annual Report Key Sectors and Trading According to the report issued Depending on the type of compensation they will receive. Current developments Partners by the Office for National activities, tax incentives could The SEM entities are reserved Statistics and Census, cover exemptions from tax on for the development of certain The government is currently in Panama has a services-based the largest import areas income, exemption from Value types of activities in Panama the process of negotiating and economy. The 2010 Annual in 2009 were vehicles and Added Taxes and Operations specifically described in the law. ratifying the terms of double Report issued by the General automobiles, iron, fuel and Notice Taxes, exemption taxation treaties with various Comptrollership of Panama prepared food for animals. from the withholding tax on • Free Zones: Entities established countries around the world. identified the main economic remittances from abroad as in free zones may enjoy the Currently, 14 treaties have activities with foreign investment The largest export areas well as a reduced rate of tax suspension of import duties been negotiated with the in 2010 as the following: in 2009 were seafood, on dividends. on goods, as well as exemption following countries: Mexico, fruits and cultivated pearls. from income tax, VAT, stamp Italy, Belgium, Barbados, • ports and harbours (26.5%); Set out below are just some tax, export tax and excise Netherlands, Qatar, Spain, • aerial transportation (15.6%); The largest markets for of the examples of the existing tax derived from royalties on France, Luxembourg, Portugal, • tourism (based on the hotel Panamanian exports were special regimes: exportation and South Korea, Singapore, Ireland activity – 9.7%); United States, Costa Rica, re-exportation activities. and Czech Republic. Out of • trade at the Colon Free Taiwan and Spain, while • Multiregional Headquarters these 14 treaties, 10 have Zone (7.5%); and most importations came from Regime (for ‘SEM’ entities): The regulatory environment been signed and the treaty with • banana (6.0%) and pineapple The United States, China, The Law 41 of 2007 encourages Mexico is now enforceable. production (11.5%). Costa Rica, South Korea multinational companies Panama is an open market. There and Brazil3. to establish back offices are no currency or exchange Panama also recently For the internal sector, or regional headquarters in controls or restrictions on announced the negotiation key areas of growth can Tax and grant incentives Panama providing them with foreign investment. and signature of the Agreement be summarised as follows: several migration, labour for Information Exchange with There are a number of tax and tax benefits, including Certain industries however, the United States of America, • livestock farming incentives and special fiscal exemption on payments are subject to regulations, which had been ratified by the industry (9.5%); regimes currently in force in of any taxes in Panama for such as financial services. National Assembly5. • farm birds (8.7%); Panama. These typically apply both the company and the Consequently we highly • mining ( 6.1%); to certain types of activities, foreign employees working recommend that you seek • construction (6.7%); mostly relating to the export exclusively for the SEM professional advice before • water, gas and energy of goods and services. Special entity. It also establishes starting a business in Panama supplies (6.5%); fiscal regimes include: no limits for the hiring of foreign to confirm whether your type • wholesale trade (16.3%); personnel regardless of the total of business is included among • hotels and restaurants (11.0%); • Multiregional Headquarters amount of employees or total those with special requirements • shipping transportation (5.3%); Regime (Law 41 of 2007); and to ensure compliance with • telecommunications (17.7%); • Panama Pacific Special these requirements. 3 Source: Foreign Trade Statistics • private schooling (6.5%); Economic Area Regime System, 2009, Office for National • private healthcare (4.5%); and (Law 41 of 2004); Statistics, General Comptrollership • other services (7.0%). • Film Industry (Law 36 of 2007); of Panama • Call Centres & Free Trade Zones (Law 32 of 2011); and 4 Source: Sedes de Empresas • Fuels Free Zones Multinacionales(SEM) or (Law 8 of 1987). Multinational Companies Headquarters (MHQ)

5 Source: https://www.dgi.gob.pa/ documentos/doble_tributacion/ 10 listado_convenios.pdf Conducting business in Panama Forms of business

The main ways for a foreign A subsidiary can be in the c. Corporation investor or company to carry form of the following entities: This entity is regulated in out business in Panama Panama by Law No. 32 of are through the following a. Limited Liability 1920 and the Commercial (categorised based on the Partnership (‘LLP’) Code for non-regulated relationship between the entity This type of entity is regulated matters. All corporations in Panama and the investor): in Panama by Law No. 4 of must add to their names the 2009 and the Commercial Code acronym S.A, Corp, or Inc. 1. Branch of the on non-regulated matters. All A board of directors comprising foreign company Limited Liability Companies a minimum of three directors From the legal point of view, must add to their names the must be appointed. There are the foreign company is not acronym S de R. L. or SRL. no restrictions regarding the considered as a separate minimum or maximum capital legal entity and is totally The new legislation on LLCs required. This is the most dependent on changes makes it very similar to the common type of entity. occurring to the foreign Panamanian Corporation as company. Nevertheless, described below. The main d. General Partnership for tax purposes the branch difference is that details of As other types of entities, conducting business in Panama the LLC ownership should be these should also be will be considered as a separate publically disclosed and must be incorporated through the taxpayer from the main foreign included in the social by-laws. public deed and registered at entity. Its presence and any Details of the ownership in the the Public Registry. General future changes to the foreign Corporation do not appear in partnerships can execute all company should be registered public records. commercial activities included in accordance with the in their social by-laws. The Corporate By-Laws. b. Limited Partnership partners have unlimited liability. It must be incorporated 2. Subsidiary through the public deed The subsidiary is represented and registered at the Public by a separate legal entity, and Registry. There must be two is consequently not affected types of partners – ones that by any changes to its foreign are jointly and fully liable parent company. It must be for the entity’s obligations registered in accordance with (comanditados) and others the Company’s By-Laws. which liabilities are limited to their contribution to the entity (comanditarios).

12 13 Setting up business entities

1. Establishment of a Branch 2. Corporation (Subsidiary) 3. LLC in Panama A subsidiary is incorporated by An LLC is incorporated by filing Foreign entities can establish filing the following documents the following documents with branches or agencies in with the Panamanian Registrar the Panamanian Registrar of Panama whose main purpose of Companies: Companies: is to initiate operations in the country by providing • Articles of Association by • Public deed including details the following details to the means of a public deed duly of the LLC’s name, details of Registrar of Companies in legalised by Public Notary in partners and contribution to the Panama: Panama including the following capital, local registered agent, information: address of the LLC in Panama, • A public deed legalised by – The name of the company; officers and directors, legal Notary including the following – The local register agent in representative; and information: Panama (must be an attorney – The name of the company; or law firm duly authorised • Annual Franchise Tax of – The country of incorporation; to practice law in the US$250.00 (US$300.00 – The address of the branch Republic of Panama); for subsequent years). in Panama; – The address of the – Details of the officers corporation in Panama; and directors; – Details of the officers and – Legal Representative; and directors including name and – Capital; position (there is a minimum limit of three directors); • A certified copy and – Legal Representative; and translation of the company’s – Capital; constitutional documents and any amendments to the initial • Annual Franchise Tax of corporate by-laws; US$250.00 (US$300.00 for subsequent years). • A translated copy of the company’s latest balance or When all the administrative financial statement together requirements have been with an affidavit on the portion followed, the Registrar of of the capital that will be used Companies will issue a in the Republic of Panama; and certificate of incorporation which demonstrates that the • Good Standing Certificate from company is duly established the country of origin. and can start operating. The registration procedures should not exceed two days in total.

14 Taxation in Panama Corporation Income Tax

Scope subject to a 30% tax rate until From 2011, entities with gross Generally, expenditure and • provisions for bad debts, limited Panama follows the territoriality 31 December 2011, then 27.5% taxable income in excess of losses are deductible, providing to the lower of 1% of credits principle. This means that a from 1 January 2012 and then US$36,000.00 are liable to pay they are incurred in gaining or sales or 10% of the receivables company that is resident in 25% from 1 January 2014. income tax in advance in producing taxable income or at the end of tax year; Panama for tax purposes is preserving taxable income, liable to corporation tax on Tax rates (Progressive Deduction Rate) subject to certain limitations. • bad debts written off, providing revenues considered to be there is a direct charge against Panamanian source income. Year % Common allowable deductions the profit and loss account; and 1 January 2010 27.5 include the following: Panamanian source income is • donations, limited to 1% generally defined as income 1 January 2011 25 • intercompany charges and fees of the total taxable income. arising from capital, assets such as royalties, technical *Special rates or rights located, placed or and management service Non-deductible items include economically used within the fees, interest charges paid to those expenses not required country. It also includes income The tax base (amount to monthly instalments at a rate foreign affiliates for royalties, to produce or keep taxable obtained from commercial, which the tax rate will apply) of 1% of the tax calculated franchising and other services income or incurred to industrial, mining, and similar for Juridical entities whose on monthly invoicing or gross (there are no comprehensive increase the useful life of activities in Panama, as well taxable income in excess of taxable revenues less the transfer pricing rules in effect asset. Specifically, these as income from personal US$1,500,000.00 is the corresponding devolutions in Panama, however there is a would include entertainment services, professional or greater of: and discounts. These advance limitation of charges deductible, expenses, surcharges and trading activities in Panama. payments will be credited depending on remittances interest related to unpaid Additionally, it includes income 1. Net taxable income calculated against the income tax made from abroad); governmental obligations. from loans, leases and rentals, on the normal basis. assessed at the end of the regardless of the nationality, fiscal year. • exchange gains or losses; In addition, when the taxpayer domicile or residence of 2. The 4.67% of the gross taxable has both the taxable income the parties who develop the income (excludes exempted Taxable profits • expenses incurred for ordinary and the exempt or foreign activities or the place where and non-taxable income and Except for remittances from repairs and improvements to income, the percentage of the these are contracted or paid. foreign source income). abroad, businesses are basically the company assets as long as deductible costs and expenses taxed on income arising from they do not increase the useful can’t exceed the percentage A company is a Panamanian Administration Panamanian sources. life of the assets; that the taxable income resident if it is incorporated in Companies are required represents to the total income. Panama and is duly registered to submit an annual ‘self- Taxable income is defined as • depletion and depreciation in the Panamanian Companies assessment’ return within the gross assessable income of assets; Operating Permit tax Registrar. three months of the year end less foreign source income 2% tax is payable on the for the accounting period not and exempted income. Gross • investment credits difference between the 6 Source: Applies to the energy From 1 January 2010 exceeding 12 months. Income assessable income normally or allowances; market value of the total distribution and generation; companies are subject to pay tax and operations notice tax includes business income, rent, assets at the end of the fiscal telecommunication services; income tax at a fixed rate of is payable at the same time interests, royalties, salaries, • organisation expenses can be year and the total liabilities, insurances; re-insurances; financial 27.5%. From 2011, the tax rate in order to avoid interest pensions, and all other similar amortized over five years or excluding liabilities between institutions regulated by the Law 42 will be 25%. Some businesses6 charges for the late payment income. charged against the profits and related parties. The operating of 2001; cement manufacture; and their related parties will be and withholding tax surcharges losses from the first year; permit tax is capped at operation and management of at 10%. US$60,000.00 per year. Free gambling businesses; mining industry; • insurance premiums, as long Zone User´s tax rate is 1% and entities that develop banking as they are related to risks with a cap of US$50,000.00. activities in Panama. associated with the taxable activity; 16 Dividends tax Company branches are not Losses Th e corporation must withhold subject to tax on dividends. Losses incurred by common 10% on all dividends declared Instead, branches must pay taxpayers may be deducted from the Panamanian income. tax on profits at a 10% rate from the taxable profits within Dividend from foreign source after income tax. the following five fiscal periods, income or non-taxable income  on a maximum of 20% per is subject to a 5% withholding Loans to shareholders are year but limited to 50% of tax. 5% rate also applies for treated as dividend distributions taxable income each year. It entities established in Free and are subject to either a 10% is not possible to carry back Zones or Economic Areas with or 20% dividend tax. the losses. special tax exemption regimes, regardless of the source of Withholding tax Transfer pricing income. Dividends from bearer Ro yalties and interest payments Tr ansfer pricing rules in Panama shares are subject to a 20% made to foreign entities are were introduced in 2010 (Law withholding tax. subject to withholding tax at 33 of 2010) and follow the the effective rate of 12.5%. OECD guides. Transfer pricing Dividend tax is not payable if The same rate will apply for rules apply only to transactions the entity: interest payments. Dividends, with the related parties in as indicated in the previous countries with which Panama a. does not require an Operating section, are subject to has a Double Taxation Treaty Permit to develop activities in withholding tax of 5%, 10% in force. Panama; or 20%. b. does not require an operating Where transfer pricing rules permit to start operations in the The commissions and the apply, the taxpayer must Colon Free Zone; professional services in general conduct transfer pricing c. is not established in a Fuel Free are subject to withholding tax studies to reference their Zone; at 25% over 50% of remittance. transfer pricing rules. The Tax d. is not established in a free zone Administration can request or special zone; or these documents to verify the e. does not produce Panamanian transfer pricing arrangements. source income.

If no dividend distribution is made, the company must pay a 4% Prepaid Dividend Tax in advance. Once the dividend is distributed, the additional 6% would be payable.

19 Personal Income Tax

Rates: Non-residents are taxed on this 3% advance payment A percentage rate applies Individuals are assessed to gross income produced from as definitive or file for an to net gains on the sale of income tax on a calendar Panamanian sources at a rate assessment to tax the net movable goods or fixed assets. year basis. of 15%. 2.75% Educational capital gain at 10% to obtain In addition, VAT might apply. Insurance Tax is payable on the rebate. The following progressive salaries and wages receivable Payroll taxes and tax rates apply for 2011: by non-residents. The rate for ordinary Social Security: transactions will be as follows: All Panamanian employers must Taxable Income (USD) Payable taxes % on excess be properly registered at the • If at least 51% of the total Social Security Office. 11,000 0 income of a company involves 11,000 – 50,000 Rate up to 50,000 15 dealing in real estate or Once registered, each month investment in a newly the employer is required to 50,000 or more 5,850 (first 50,000) 25 constructed building, special report the amount of income progressive tax rate will apply tax, social security contribution Edu cational insurance tax and Taxes arising from Panamanian on sale of each such property. and education tax withheld for social security contribution salaries must be withheld The rate depends on the total each current employee. apply to the same income. by the employer. Providing value of the property sold, and the correct tax withholding is it will be calculated by reference Em ployers are required to keep Scope: operated by the employer, the to the sale proceeds and the the appropriate records and Income tax is levied on the individual is not required to file registered value, whichever complete the necessary filing individual’s net income derived an annual income tax return. is greater. for the monthly affiliation of from operations within Panama. new employees. Bo th non-residents as well as Th e following rates apply to the Tax rates depend on the tax-residents are subject to sale of securities: 12 % employers’ social security individual’s tax residency. Social Security Contributions contributions are on the total An individual will be a tax- on their earnings from • 5% withholding tax on the total remuneration and are borne resident of Panama if he or she employment at a rate consideration from the sale by the employer. In addition, is physically present in Panama of 9.0%. Social Security is payable by the buyer to the employer is required for over 183 days in a tax year. contributions will increase the National Treasury on the to withhold 9% employee to 9.75% from 2013. seller’s behalf. contributions on behalf of each Re sidents are taxed on their net employee and remit these to taxable income (gross income – Capital gains tax (CGT): • The seller can consider the the tax authorities. deductible allowances) earned Depending on the nature of 5% withholding as the definitive from Panamanian sources at seller’s activities, there are two income tax applicable to capital A public mandatory the progressive rates of up to types of taxes that can apply to gains or to file an income tax occupational insurance borne 25% as specified above. real estate transactions: return, calculating the tax by the employer is levied at the payable on the net gain at rate of 0.98 - 5.67%, depending In addition, 1.25% Educational • A 10% charge on capital gains the 10% rate, deducting tax on the risk associated with a Insurance Tax is payable on for sellers with occasional withheld already. The seller particular occupation. salaries and wages received by transactions. A 3% advance can then reclaim the difference, residents in Panama. This tax is payment must be made on the although details of the Em ployers must also pay a 1.5% payable by their employer. greater of the gross proceeds procedure required to obtain educational insurance tax on and the registered value of the the refund is in the process the remuneration. property in the Public Registry. of being finalised. The taxpayer may deem 20 21 Value Added Tax (VAT)

VAT is levied on expenditure Medical services and land Municipal Tax • The taxpayer can choose to • Entities established in the and is applied at all stages transportation among other All industrial, commercial or apply accelerated depreciation Panama free zones may enjoy in the sale of goods or the services others are tax profitable activities in Panama depending on the use of assets exemption from import duties provision of services within exempt, but do not produce are subject to municipal tax without any authorisation from on goods, income tax, sales Panama. Consequently, the VAT credit for the supplier. at the municipality where the Tax Authorities, however tax, exportation tax and excise final burden for paying VAT the business operates. Each this will be limited to the tax derived from royalties on rests with the consumer, The standard VAT reporting company conducting such minimum useful life period of exportation and re-exportation although businesses are requirement for a company activities registers its business at the assets described by Law. activities. However, these responsible for collecting the in Panama is to submit returns the corresponding municipality entities will be subject to the VAT due and complying with to the IRS Office on a monthly once it starts operating there. • The Incentive Law for Tourism dividend tax at 5% and the the appropriate regulations. basis. Panamanian tax law Development grants several Operations Notice Tax at 1% establishes penalties and The tax rate will be determined tax benefits, such as exemption of their equity (considered as From 1 July 2010, the standard fines on non-compliance by each municipality at its from import duties on certain total assets, minus liabilities, rate of VAT has increased from with monthly filing. sole discretion, depending on goods relating to tourism plus related parties liabilities), the historic rate of 5% to 7%,  the economic activity of the services and from property tax capped at US$50,000.00 except for specific products company and its annual gross for companies involved in the per annum. with higher rates, such as 10% Other taxes income in accordance with on tourism industry, although for alcoholic beverages and and incentives a table of rates established by this will only apply for those Another incentive will be the hotel services and 15% for each municipality. corporations with a special establishment of the company cigarettes. S tamp Duty signed tourism agreement under the Multinational All companies or individuals Municipal tax rates increase with the Government given Headquarter Law (MHQ, Sales of land and buildings, conducting VAT exempt by means of a new ruling, upon request. In special in Spanish known as SEM) as well as provision of services activities will be liable to pay consequently, new higher circumstances income tax which is a special regime by employees are not subject the stamp duty for invoices tax rates will apply for some exemptions can be available. created under Law 41 of to VAT. issued. The stamp duty is activities from June 2010. 2007. This type of incentive calculated at a rate of ten • Forestry proceeds are totally is directed specifically for Exportations are not taxed cents of a dollar (US$0.10) Tax Incentives exempted from income tax entities who offer services to and might produce refunds for per each one hundred dollars Panamanian tax law provides provided a special certification companies within the same the supplier. The sale of goods (US$100.00) of the value of certain tax incentives for some is requested and granted by corporate group; i.e. logistics, such as medicines, foods, and each invoice issued. industries and activities to be the Tax Administration. The planning and technological certain products for babies are performed in Panama, including, certification should confirm support. tax exempt, and may allow the Franchise Tax but not limited to, the following: the registration of the property supplier to recover the VAT as Companies duly registered at the Forestry Registry of This type of regime is exempted an exporter if certain criteria at the Panamanian Companies • Investments in the agricultural the Environmental National from VAT tax obligations. are met. Registrar must pay US$250.00 industry, manufacture, marine Authority. This exemption is at the moment of the resource transformation, available until 2018. registration and annual amount industries dedicated to the of US$300.00 for subsequent extraction and processing of years. Franchise tax is not raw agricultural and forestry applicable to non-profit materials may get industrial organisations, civil partnerships promotion certificates. These and cooperatives. will allow crediting of the investment against taxes such as income tax.

22 Audit and accountancy

Books and records A company doing business The accounting reference in Panama must keep its period determines a company’s The minimum corporate and legal accounting books, ‘financial year’, in respect of accounting books required for correspondence, and all other which the accounts must be a Panamanian company are supporting data in the country. prepared. The accounting as follows: It is possible to request to reference period generally can’t waive the requirement to exceed 12 months, starting • Stock certificate book. use the accounting books and from January until December. • Stock register. instead request the authorities However, special accounting • Minute book. to allow the use of magnetic periods can be requested in • General journal. systems. This permission case of multinational companies • General ledger. and the appropriate certificate based on the fiscal year of their confirming the arrangements headquarters. Any request for With the exception of the stock must be issued by a Panamanian a special fiscal period requires certificate book, all books must Authorised Public Accountant. approval from the local IRS office. be bound and duly registered by an Authorised Public Filing requirements – Audit requirements Accountant. It is advisable reports and accounts in accordance with the local Panama historically used practice to maintain all books A Panamanian company that accounting principles that and records in Spanish. does not operate in Panama is complied with the International not required to file any financial Account Standard Committee The minimum accountings reports or tax returns. It may and from 2009 it adopted books required for a foreign maintain its books of accounts International Financial Reporting company are a general journal, in any manner it desires in any Standards (IFRS). and a general ledger (which part of the world. must also be bound and Generally, only the following registered). Other records, Panamanian companies types of companies are such as sales and purchase operating in Panama required to file their audited journals and subsidiary ledgers, and foreign companies statements annually: are not mandatory. qualified and operating in the country are required to • Companies listed with It is possible to operate a file Panamanian income tax the National Securities completely separate set of returns. No other financial Commission; books designed in accordance reports, with the exception • Commercial banks and with a company’s needs and, of certain statistical reports savings institutions operating in addition, keep the legally which may be requested by in Panama; and required books as a formality as the Statistical Department of • Insurance and reinsurance summarised above, or combine the Comptrollers’ Office and companies. the legally required records with municipal tax declarations, those that might be required for are required. The statements have to be accounting purposes. examined by independent public accountants and duly filed with the relevant authorities.

24 Human Resources and Employment Law

If a taxpayer’s capital exceeds Stock spot lists are not common Financial Accounting Standard All labour relationships in another day shall be given are substantially higher than US$100,000.00 or his annual and are only disclosed in notes Committee in 1978 to define Panama are governed by instead, providing the hours the minimum wages, especially sales volume or gross income to the financial statements. generally accepted accounting the Labour Code. It regulates worked on Sunday are paid in the metropolitan areas. exceeds $50,000.00, his Treasury stock is carried at principles in Panama. the relationship between the with a 50% surcharge. income tax return must be cost and is normally shown as employer and establishes several Social security prepared and countersigned a reduction from stockholder’s The International Financial rules that must be accomplished Employees shall not work in by a Panamanian certified equity. Rule Standards (IFRS) when hiring personnel. excess of 48 hours per week The Social Security Fund is public accountant. Financial represent the group of rules or 8 hours per day on daytime an autonomous governmental statements must be duly Companies operating in the most frequently used. According to the Panamanian shift. For night shifts, the agency, which provides audited by Authorised Public Colon Free Trade Zone and labour law, there are three number of working hours sickness and maternity leave, Accountants. other free trade zones located in However, currently the use different types of labour should not exceed 42 hours per old age and disability, widows Panama are require to maintain of IFRS is not mandatory. contracts, such as: week or 7 hours per day. If the and orphans, pensions, funeral The basic financial statements (but not file) audited financial For the banking activities and employee exceeds these hourly assistance and compensation include a balance sheet, the statements at their premises. for those entities reviewed • the indefinite contract; limits, he is entitled to receive for occupational death and related statements of income by the National Securities • the definite term labour a payment for the overtime injury. and retained earnings and Commission, IFRS or US contract; and worked. changes in financial position, Auditors and their duties GAAPs can be used, providing • the contract for specific services. Since the enactment of the together with the notes to the a notice is given to the Every employee is entitled Social Security Law 51 in 2005, financial statements. Where a company is required appropriate regulatory body. Companies that need to employ to thirty days paid holiday it is mandatory for the employer to have its accounts audited foreign workers must obtain after eleven months of to include all employees The income statement it must appoint an auditor. an authorisation from the continuous employment. (whether locally employed normally shows the following Generally, accounting practices Ministry of Labour and Social or foreign) on its payroll for information, although not follow those of the United Welfare. Work permits issued There is a special mandatory monthly reporting to the Social necessarily in this order: States. Virtually all the major to foreigners are valid for one bonus that the employer must Security Office. This obligation international accounting firms year and can be extended pay to its employees every applies for national or foreign • net sales; either have offices in Panama for a maximum of five years. year. It represents one month’s employees that render services • cost of goods sold; or are represented in Panama There are limitations on the salary, divided and paid in three within the Panamanian territory. • gross profit; in association with local firms. number of foreign employees equal instalments on 15 April, Currently, contribution for • sales, general and that can work for a company. 15 August and 15 December. employee is 9% and 12% for administrative expenses; There are three active Generally, the ratio of the the employer. According to law • other income and expenses; professional organisations: number of foreign employees This bonus is subject to social it will be increasing these rates • income tax; must not exceed 10% of the security contributions. progressively for the employee • net income; and • The Authorised Public total workforce employed by in the upcoming years up to a • capital. Accountants Association; the company (15% in the case Panama has a minimum total of 9.75% in 2013. • The Woman Accountants of technicians). wage system by district and Amounts in excess of the Association of Panama; and economic activity, which is item’s par or balance sheet • The Panamanian Authorised It is mandatory by law to periodically reviewed and value are shown immediately Public Accountant College. give the employees one day fixed based on hourly rates. after capital stock on the of holiday per week. This is The minimum wage system balance sheet. Stock dividends These three professional usually Sunday. However, if is usually applicable to non- are accounted for by a charge associations appointed a the type of job requires an skilled employees. The to retained earnings. employee to work on Sundays, effective average wages

26 27 Immigration Section of the National Migratory The work permit is not issued Service Office. Affiliation at the with a tourist visa, consequently A valid passport is necessary Social Security Office in case the foreigner should ask for for foreigners to enter into the of foreign employees is also the new appropriate migratory Republic of Panama. Panama required for most migratory status (technician on the 15% has signed agreements with permits (less few exceptions or employee within the 10% some countries eliminating such as the temporary resident of foreigners´ visa). Employees the need for entry visas for visa and the SEM visa). After should request the work permit passport holders from these the affiliation, relevant once they arrive to Panama. countries. documents must be submitted The permit is usually granted to the Migration authority to for a maximum term of one Foreigners who require a visa obtain a temporary resident year, but can be renewed to enter the Republic of permit. This permit is usually annually for up to six years. Panama are obliged to provide granted for one year, however it to the Panamanian Consulates it can be granted for shorter In order to obtain a work located all over the world. They periods at the discretion of permit, a formal request from must give details of their time the authorities. the employer and a of arrival, place and length of confirmation of the employer’s their stay in Panama. After the migratory permit existence must be submitted has expired, it can be renewed to the labour office. Foreigners with no visa for the same consecutive requirements are allowed to stay amount of time up to a The formal request, together for 180 days in the Panamanian maximum of six years, by with the appropriate supporting territory under a tourist visa, but means of a previous request on legal documents, must be if more time is required or if they behalf of the foreigner to the filed with the labour authorities are working in the Republic of Migration authority, together by both the employee and Panama, a special migration with all the other requirements the employer. permit depending on the activity established by the law for each and time to be spent in Panama type of migratory permit. In Panama at least 90% of the should be requested. workers, in every commercial Work Permit or industrial corporation Foreigners are allowed to obtain must be Panamanian or certain a residence permit in the country All foreigners who intend to specified foreigners (such for one or more years (depending work in Panama must obtain as foreigners married with on the type of the permit) if a work permit from the Ministry or foreigners they complete all requirements of Labour. This is a strict with ten years of residency from the Migration authority requirement, applicable even in Panama). 90% of the total in Panama. for short-term assignments to wages and salaries must be Panama, with the exception of paid to Panamanians and Once the foreigner, who requires two types of visa, SEM visa specified foreigners. In the a visa enters the country, he and a temporary resident visa. specific case of technicians, must register at the Foreigners the company is allowed to have up to 15% of its workforce comprised of foreign personnel.

28 Trade

Trade and Competition The following figures show In 2008 Panama concluded Money Laundering These affidavits shall be the foreign trade and balance negotiations on the Trade submitted to the corresponding Panama attaches great of assets in Panama regarding Promotion Agreement with In 2000 Panama enacted Law surveillance departments, importance to free competition import and export for the past the US. This agreement is No. 42 which introduced the which in the case of banks and measures to encourage two years:7 legal framework for measures and fiduciary companies will direct foreign investment into designed to prevent money be the Banks Superintendence. trading activities in Panama. 2009 2010 laundering practices in bank As a result: and fiduciary institutions. • To examine any operation, Exports 820.9 725.1 regardless of its amount, • there are no price control In accordance with the Law, all that may be related to Imports 7,082.5 8,274.8 mechanisms in place; banks and fiduciary institutions money laundering activities. Balance -6,261.6 -7,549.7 are required to introduce • there is an authority in charge measures and procedures • To inform the UAF of any of the surveillance against unfair Values in millions of US$ designed to prevent money transaction or operation that trade practices; laundering practices, including: is presumably to money It is recommended that you aimed to promote investment laundering activities. • there are no exchange controls take professional advice in opportunities in Panama by • All banks and fiduciary in Panama as it does not issue order to comply with all the eliminating certain import tariffs institutions shall swear • To establish internal control paper currency, using US appropriate regulations and and by introducing measures an affidavit to the Financial mechanisms and procedures dollars in the circulation instead. administrative procedures to promote the import and Analysis Unit (UAF) or request in order to prevent money Consequently, there is no when investing in a particular export of particular goods and an affidavit from their clients laundering activities. need for any exchange control sector. It should be noted services. To enter into force, or its representatives in the authorities; that certain industry sectors, the agreement needs to be following cases: • To keep information to reveal such as Financial Services approved by the congresses to the UAF as confidential. • there are no requirements for the and some utilities sectors (e.g. of both nations. – Money withdrawal or deposit registration of capital and there is energy and telecommunications), for amounts that exceed • To keep the specified no tax on the transfer of funds are subject to additional The agreement negotiated US$10,000.00 or successive documentation for a period into the country. There are no regulations. under Bush´s Administration transactions in a short- of five years. controls over the repatriation is still pending on approval by term period exceeding of capital or retained earnings; Free Trade Agreements the new U.S. Congress and the US$10,000.00. Money laundering is classified Panamanian National Assembly. as a criminal offence through • there are no restrictions Panama has bilateral free trade – Money exchange or cheques Law No. 41 of 2000. The regarding mergers and agreements with Honduras, exchange for amounts that punishment for any attempt to acquisitions and no special Costa Rica, El Salvador, Taiwan, exceed US$10,000.00. launder money in a Panamanian restrictions on foreign Singapore, Nicaragua, Guatemala bank is imprisonment for 5 to investment in this respect; and and Chile, as well as the – Change of cheque to bearer 12 years or pecuniary fine for commercial agreements with notes with blank endorsement 100 to 200 days. • in general, no restrictions are The Dominican Republic, for amounts exceeding imposed on foreign ownership Mexico and Colombia. US$10,000.00. or investment.

7 Source: National Institute of Statistics and Census, www.contraloria.gob.pa/ 30 inec/comercioexterior 31 Banking in Panama

Financial Services Customs and Law Decree 1, 2008 amended Depending on the type of bank International Trade the previous banking law of licence, different requirements The Financial Services industry 1998 which created the Bank apply in relation to their capital in Panama comprises the If your business involves the Superintendence, entity attached and reserves. Additional insurance, securities and importation of goods into to the Ministry of Finance conditions might be imposed banking sector. Panama from abroad, the and Treasury. According to for certain licences. goods will have to be declared Panamanian banking laws there Each sector has its own set for customs purposes and may are three different kinds of In Panama, there are two national of rules as well as its own be subject to customs duties banking licences, these are: banks, Banco Nacional de regulatory authority. and import VAT. Panama and Caja de Ahorros. • General: For banks organised The corresponding regulatory One of the incentives provided under the laws of Panama Commercial banks and body for each of the activities in the industrial development and branches of foreign banks local financing described above are the laws is protection from foreign conducting business in Panama Insurances Superintendence, competition by the and abroad. The Banks Superintendence the National Securities establishment of import is the governmental entity in Commission and the Banks quotas or protective tariffs • International: For banks charge of granting all licences Superintendence respectively. to some sensitive goods. organised under the laws to different banks that want Duties are levied on all articles of Panama and branches to operate in the Panamanian Most of the activities related of foreign origin entering the of foreign banks that only territory. to the provision of financial country, except for those do business abroad. services in Panama are exempted by specific laws or Currently, Panama has one regulated activities and contracts. Duties are levied • Representation: For foreign of the biggest banking and consequently require an either ad valorem or based on banks maintaining offices of financial centres in the region authorisation from one of the quantity, weight, measure or representation in Panama but including banking institutions aforementioned authorities volume. Rates vary from not engaging in the banking from all around the world. depending on the type of low to significant or clearly business for their own account. service to be provided. protective (low 0% – protective 33%). Import duties on many It is important, therefore, items are significant. It is to establish at an early stage advisable to obtain information whether your proposed on duty rates prior to business requires you to apply importation of specific items. for authorisation to carry on regulated activities. A 7% value added tax (VAT) is payable on all imports, except Examples of the types of for food, medicine and some business that are likely to other products. Cigarettes and require authorisation include: alcoholic beverages are subject • banks; to a higher VAT at 15% and • investment firms; 10% respectively. • insurance companies and insurance intermediaries; and Documents relating to the • money lenders and payment of import duties and intermediaries. the re-exportation of imported goods must be prepared and 32 signed by a local customs broker. 33 HSBC in Panama Overview

An International Brand HSBC Group has more than environmental and social Zippy’s Friends HSC Water Programme is our 6,900 offices in 84 countries dimensions to produce an Zippy’s Friends is a regional global programme focused on The origin of HSBC Bank and territories, serving around acceptable return for HSBC, programme of social and the delivery of water, sanitation Panama began in 1972, with a 60 million customers worldwide. with special emphasis on emotional education. The and the management of water representative office. In 1973, climate change. programme helps children resources in communities. the Panamanian government Corporate Sustainability learn strategies to cope with granted a general banking • community investments, difficulties, find useful solutions In Panama we have developed licence to practice in Panama Corporate Sustainability at engaging in partnerships and for themselves, take the a joint programme with the City and later in 1983 to HSBC Panama philanthropic activities focusing initiative and understand the Smithsonian Tropical Research operate within the Free Zone of on education, environment consequences of their actions. Institute called ’CHISPA’. It is Colon. In 2000, HSBC bought HSBC is committed to and contribution to our society, a two-year science mentoring the Chase Manhattan Bank the principles of corporate ensuring that these activities In 2012, we attended 18 public and environmental leadership operations in Panama. sustainability, sustainable result in greater employee schools in risk areas, we had programme that will engage 220 growth in profitability, building involvement, public perception outstanding results, covering underserved youths in hands- In November 2006, HSBC long-term relationships with our and brand value. more than 3,000 students and on science learning led by Panama bought 100% of a clients and managing the social integrating teachers, parents a volunteer staff of young local Bank, Banistmo, the and environmental performance Community Investment and mothers. scientists and professionals leading financial services of our operations. Corporate social responsibility of the Smithsonian Tropical provider in Central America. is part of our history and HSBC More Than Money™ Research Institute (STRI) and By May 2009, the full transition Our corporate sustainability is aware of its importance in More Than Money is our HSBC volunteers. to HSBC was completed. strategy is based on: the community, and supports comprehensive programme projects both financially and for financial education. In this Corporate Volunteering HSBC Panama is also made • direct impacts, setting operationally with social, programme our volunteers Programme up by HSBC Seguros objectives in order to reduce environmental and educational teach elementary school Our projects in education, and Financomer. our environmental footprint programmes in the countries and students about healthy money environment and social derived from facilities and territories where we operate. management in terms of investments are made possible Today, HSBC Bank Panama has business travels. This includes managing earnings, expenses by our highly committed team a network of 50 branches and energy, waste, water, and Our programme’s focus is and savings. of volunteers consisting of 263 ATMs. The headquarters of carbon dioxide emissions, on children’s education and the Bank’s staff and their HSBC Bank Panama is located in in addition to incorporating environment. We dedicate 75% In 2012, our volunteers families. In 2012, more than Marbella, Aquilino De La Guardia sustainability in our purchasing on education and environment; participated implementing the 800 employees participate Avenue, Panama City, and decisions. whilst the remaining 25% goes programme in public schools, as volunteers. employs approximately 2,400 to projects in local communities. benefiting more than 1,600 throughout Panama in total. • the management of social and students. environmental risks related Education Programmes We offer a range of banking to sustainability impacts. We Environmental Programmes services from Personal consider business reputational Education is key to prosperity. HSBC promotes environmental Banking, Commercial Banking, risk, alongside with credit risks, At HSBC, we open doors of initiatives that are directly Global Banking and Markets to ensure that funding is not opportunity for children and relevant to our national and Private Banking. We look allocated in sensitive sectors or young Panamanians through economy and our communities. after over 400,000 individual activities that could pose a risk our educational programmes. active accounts and our to sustainable development. Our projects provide access Internet Banking service has to opportunities for success, 65,000 active users. • sustainable business positive attitude and hope for development, identifying a better future. opportunities from 34 35 Country overview

Capital city Panama

Area and population8 75,517 km2; 3,405,813 million

Language Spanish

Currency Balboa (at par value with the US Dollar)

International dialling code +507

National Holidays for 2013 New Year’s Day 1 January Day of the Martyrs 9 January Carnival 21-22 February Good Friday 29 March Labour Day 1 May Separation from Colombia 3 November Flag Day 4 November Colón Day 5 November First Cry for Independence 10 November Independence from Spain 28 November Mother’s Day 8 December Christmas Eve 24 December Christmas Day 25 December New Year’s Eve 31 December

Business and banking hours Generally 9am to 5pm, Monday to Friday but many banks and businesses now operate extended opening hours

Stock exchange Bolsa de Valores de Panamá

Political structure Democratic government with a multi-party structure. There is a national Assembly. The State is divided into three branches: executive, judicial and legislative.

8Source – 2010 census, Office of National Statistics and Census.

36 Contacts

Mike Curran

Tel: +44 207 213 8190

Email: [email protected]

http://www.pwc.com/gx/en/ worldwide-tax-summaries

Website: www.hsbc.com.pa

Phone: +(507) 263 5855

1st Edition: December 2012

Copyright

Copyright 2012. All rights reserved.

’PwC’ and ’PricewaterhouseCoopers’ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

38 141TP_Panama_300412_1