Panama as a Regional Headquarters for Multinationals

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Panama is number 8 within the 29 Latin-American economies evaluated, and the score slightly surpasses the regional. Its economy is 64.9% free and occupies position 59 of 179 countries on the level of world liberty. This is according to the Economic Liberty Index for 2010. This report was prepared jointly by The Heritage Foundation.

With the signature of the Free Trade Agreement between Panama and the United States, a new commercial phase after mid 2012, once the processes of signature and ratification by the congresses of United States. This commercial instrument has 23 chapters providing substantial legal security for business, trade and investments between both countries increasing opportunities to investors from the United States.
This treaty:

• Stimulates foreign investment between both countries
• Widens significantly the product market
• Increases the exportations from both countries
• Improves the free customs access of merchandises and services with few exceptions
• Provides higher levels of transparency, accountability, and legal security

The Panama-US FTA is expected to generate an increase in the exports of goods and services towards an efficient and demanding market, increasing the interest in Panama as a safe harbor for investments.

The world is becoming increasingly aware of the business opportunities in Panama and investments are rising as the potential is appreciated. Panama has always stood apart from Central and South America, with its dollar based economy and stable political situation, sustained by its Canal, Colon Free Trade Zone, and the international financial center. The economic growth for 2010 will be of 7.5% and the projections are positive by 2011 when is waiting that the country grow at 8.0%

For several decades, Panama has been chosen by numerous Fortune 500 companies dedicated to all kinds of commercial activities as a profit center and a real base to coordinate their multinational or regional operations.
Multinational companies of some countries have established their distribution base in Panama to commercialize their products and services towards Central, South America and the Caribbean. This commercial presence is represented by sectors such as those of electronic appliances, food, wines, shoes, jewelry and jewelry, cosmetics, eyewear, furniture, pharmaceutical products, cars, tools, banking, energy, perishable goods, kitchen, etc.

The Republic of Panama has a service based economy, for what becomes necessary to take advantage of the globalization and the worldwide structures for the creation of new alternatives that helps for the development of our country. Panama is located in the center of the American Continent, with access through land, sea and air. It has a tropical climate the whole year, free of natural disasters, and a modern capital city with the largest banking center in Latin America. Having qualified human resource, a stable economy based on the US Dollar currency; a world class communications platform, political and social stability, makes Panama a strategic country for any company looking to relocate or simply open a back office.
All of this makes of Panama the ideal place to establish a Regional or Headquarters of Multinational Company, while supporting the national economy by capital investment, local consumption of goods and services, creating employments and transferring technology and knowledge.  However, it was necessary to count with a regulation that specifies the conditions in order for our country to become a place of Multinational Headquarters. Together with the private sector, the Government of Panama approved a new Law that supports the development of this important sector, through the gathering of tax and immigration incentives under one legal framework and the creation of a Single Window Service to grant Licenses for Multinational Companies Headquarters.

In August 2007 Law 41 came into force promoting the opening of multinational corporation installations in the Republic of Panama. This area is the responsibility of the new "Licensing Commission on Multinational Enterprise Headquarters." This is chaired by the Deputy Minister of Foreign Trade. Some of its functions are establishing licensing requirements for these firms, ensuring that Panama becomes an attractive center for multinationals and creating mechanisms to facilitate monitoring. All licenses are processed by the Regional Headquarters Office at the Ministry of Industry and Commerce (MICI).

Law 41 also created a new secretariat to grant licenses to companies with the purpose of processing and granting visas to employees, in addition to imposing administrative sanctions and organizing an official record multinationals. It is a law inspired by the success achieved by Switzerland and Singapore in this sector of the economy.
The benefits granted by Law 41 to multinational companies establishing their headquarters in Panama are:

• CORPORATE TAX INCENTIVES

• Exemption on Income Taxes. Since Panama has a territorial tax system*, and since the MHQ will be operating off shore (providing services to its operations outside Panama), there is no taxable income. If the MHQ provides service to its local affiliate, the MHQ will have to retain the local income tax.

• Exemption from sales tax for services rendered to the Corporate Group abroad. MHQ invoicing to offshore operations are not subject to the sales tax. The Ministry of Economy and Finances, through the General Direction of Revenue, studies the possibility of negotiating a tax agreement with MHQs whose countries have celebrated bilateral tax agreements with Panama.

• Middle to General Management Personnel Incentives:

• Exemption will be exempted from income tax, and social security and education contributions, when salaries are paid from Headquarters abroad.

• Exemption from import tax from household items, upon arriving for the first time in the Republic of Panama.

• IMMIGRATION
  Law No. 41 created a One Stop Window Service through the Ministry of Commerce and Industry to speed up the process in order to obtain the MHQ License of Multinational Companies Headquarters and visas for the foreign personnel and their dependents.
   
• Visas for Permanent Personnel of MHQ.

These visas are issued to foreign personnel at a management or executive level, and to their dependants. The visas will be issued for 5 years, renewable for the same time frame.  Holders of these types of visas will not be required to obtain a labor permit.

• Visas for Dependants of MHQ Personnel

These apply for spouse, underage children or students under twenty five years old and for parents of the MHQ personnel that will remain in Panama under the responsibility of the MHQ executive.

• Special Visas for Temporary Personnel of MHQ.

These visas are issued to any personnel of a MHQ that has to come to Panama for activities related to the MHQ. It has a maximum duration of 3 months. This type of visa also eliminates the requirement of obtaining a working permit or any other permit from any governmental authority.

• Special visas permit for special events. These visas are to be issued to personnel of the MHQ that come to Panama to attend a specific event or short visits, such as meetings, planning, technical training, etc.

• LABOR
  
  MHQs can have as many upper management personnel needed for their back office operations in Panama.  Dependants, who wish to work in Panama, can change their immigration status through the One Stop Window Service in the Ministry of Commerce & Industry.

There are more than 100 Branches of Multinationals Enterprises in Panama

At present, the MHQ employing 1.766 people, of which 611 are Panamanians (35%), and has invested more than $ 333 million, not counting the salaries they pay their employees, according to the Ministry Trade and Industry (MICI).

Companies MHQ obtained their licenses in the last months to February 2011 were Sweden's Alfa Laval and Atlas Copco, China's ZTE, the German Bosch and Kuehne + Nagel, the Venezuelan SmartMatic the American Vanity Fair and Wrigley, Spanish Puig Beauty & Fashion Group and Denmark's Burmeister & Wain Scandinavian Contractor (BWSC)

Requirements to apply:

• The enterprise group assets must be equal to or more than $200 millions
• In the event that the applicant is establishing its head office, a capital no less than two million dollars (US$2,000,000.00) is required

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