Executive Summary LAW No. 41 of 24th August 2007 SPECIAL ...

Executive Summary
LAW No. 41 of 24th August 2007
SPECIAL REGIME FOR THE ESTABLISHMENT AND THE OPERATION OF
REGIONAL OFFICES OF MULTINATIONAL CORPORATIONS
By: Juan Carlos Baquero Hevia
PATTON, MORENO & ASVAT
Attorneys at Law
According to this Law, Regional Offices of Multinational Companies ("ROMC") will be
those that, from Panama, conduct operations to offer services, specifically defined, to
their headquarters, or its subsidiaries or branches, or associate companies. These are
part of companies with international or high scale operations in their country of origin.
The basic characteristic of a ROMC is that the company, to which it serves, operates
outside the country offering its services to the enterprise group to which it belongs.
SERVICES OFFERED BY A ROMC:
1. Direction and/or administration of operations (strategic planning, developments
of businesses, handling and/or training of personnel, control of operations
and/or logistics) in a specific or global geographic area of a company from its
enterprise group.
2. Logistic and/or storage of components or parts, required for manufacturing or
assembling products it manufactures.
3. Technical assistance to companies of its enterprise group or to clients who have
acquired products or services from the company and, in regard to this sell the
company is forced to offer assistance.
4. Financial management, including treasury services to its enterprise group.
5. Accounting to its enterprise group.
6. Designs and/or constructions drawings, or part of them; they must related to the
business of its headquarters or any of its subsidiaries.
7. Electronic processing of any activity, including consolidations of its enterprise
group operations (it includes networks operations)
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8. Advice, coordination and pursuit of marketing trends; and merchandising of
assets and services produced by its enterprise group.
9. Operations and research support, and development of products and services of
its enterprise group.
10. Any other analogous service previously approved by the Council of Cabinet by
means of motivated resolution, whenever it fulfills the Law.
OBLIGATIONS OF THE ROMC:
1. To present to the Technical Secretariat of the Commission for Licenses of a
ROMC an annual report that contains the statistics concerning its operations
within the national territory.
2. To communicate immediately, to the Commission for Licenses of a ROMC, any
change related to the status of its operations in the country, as well as of their
personnel.
The companies in this regime of a ROMC will have to operate as a foreign company
enrolled in Panama or like a Panamanian company owned by a multinational company,
its subsidiaries or affiliates.
For purposes of the law, it will not be deemed as multinational company, nor as a
company included into this regime of ROMC, companies such as law firms that directly
offer services to clients or different companies or to others outside its enterprise group
from Panama, or through a subsidiary or branch abroad.
AUTHORITIES
Commission for Licenses of a ROMC
It is a counseling and advisory governmental branch in regards to the establishment of
regional offices. Among its powers the law provides for the establishment of
requirements for granting Licenses of a Regional Office of Multinational Company
(ROMC).
Technical Secretariat of the Commission
The law sets forth the following functions, among others:
1. To grant licenses of a ROMC to companies requesting it and fulfill its
requirements, previous recommendation of the Commission.
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2. To request visas for the personnel who will be working for the companies
included into this regime as well as for their dependants.
3. To issue certificates to the company with License of a ROMC or their personnel
under its personnel visa regime for administrative proceedings.
4. To enforce administrative and economic penalties to the Companies included
into this regime because of their infringement of the Law, its regulations and
rules.
5. To solve, in first instance, claims or petitions filed based on this Law.
6. To carry out administrative procedures for the handling of the benefits
companies have under this regime.
7. To issue an official registry containing all the companies included into this
regime, as for their personnel and dependants.
LICENSE FOR REGIONAL OFFICE OF MULTINATIONAL COMPANY
The requirements for granting a license for ROMC will be established by the
Commission for Licenses of a ROMC following these considerations among others:
1. assets of the multinational company
2. places or regional offices of operation
3. activities or commercial operations performed by the multinational company
4. local or international stock market of the multinational company
5. any other requirement that the Commission considers advisable to establish and
to evaluate.
The request for a license for ROMC will have to be made in writing presenting the form
elaborated by the Technical Secretariat, previous approval of the Commission. The
interested multinational company must present a letter requesting the license and a
sworn declaration expressing their desire to establish a ROMC in Panama and that they
fulfill all requirements needed to obtain this license, according to the established in this
Law, and that they have all the required backup documentation needed as well. The
Technical Secretariat will evaluate the request and the documentation and will forward
them to the Commission for its recommendation.
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The ROMC already operating in Panama and carry out services to related companies
outside Panama can be included into this regime by formal request to the Technical
Secretariat, in accordance with the established in this Law.
The license will be granted for an indefinite period to the applicants and will award a
unique registry number so they can make all necessary administrative proceedings to
develop their activities in the Republic of Panama. It will be arranged to have
expeditious proceedings.
If the ROMC, under this regime, wishes to carry out additional or different activities
from those for which it was authorized, will have to request for a license modification to
the Technical Secretariat by having an extension of the form presented. The new license
will have the same unique registry number previously granted.
If among the additional activities that the ROMC wishes to perform are non-protected
operations under this Law, it will have to incorporate a separated company. It may be
done by registering this new company like foreign company in the Public Registry or by
incorporating a new Panamanian company so to be able to perform these activities in
the national territory. This new company will not be protected by this Law and will
have their own personnel not belonging to the company whose activities are indeed
protected under this Law.
The License for a ROMC could be cancelled by the Technical Secretariat, by itself, by
request of interested party or by recommendation of the Commission, if the ROMC
incurs in any of the following:
1. To stop performing the activity by which the license was granted.
2. Do not initiate operations within the six months following to the concession of
the license; this time could be extended six additional months.
3. The ROMC is being inspected or is declared in bankruptcy by the authorities of
its country of origin.
4. Any violation to this Law.
5. Any violation to the laws of the Republic of Panama
6. Other cases contemplated in this Law.
The cancellation decision can be appealed before the Commission which can only be
able to confirm the cancellation by means of motivated resolution, by affirmative vote of
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the majority of the Commissioners. The decision of the Commission will terminate the
governmental process.
Previous verification of the causes for the cancellation of the license for a ROMC, the
Technical Secretariat, will personally notify the company the reasons or motives for
cancellation. The company will have 10 calendar days, counting as of the date of
notification, to expose its reasons for which the license should not be cancelled,
accompanied by any evidence it considers conducive. The Technical Secretariat will
have 30 day to resolve, by means of motivated resolution; this decision will not admit
any reconsideration.
Once executed the resolution of cancellation of the license for ROMC, the Commission,
through the Technical Secretariat, will proceed to cancel all visas, work permits and
other licenses and permissions, granted in compliance to this Law. In the case of visas
and work permits will be granted to the interested party a 90 days term so they can
legalize their migratory status or leave the country.
FISCAL REGIME
Companies with license of a ROMC will be exempt for the payment of tax for the net or
gross revenues generated within the Republic of Panama. This exemption is only for the
ROMC and not for its employees.
Because of its export of services, the services offered by a company under this Law will
not cause the Tax of Transference of Movable Corporal Goods and Services (ITBMS for
its name in Spanish) as long as they are offered to persons outside the national territory
and that they do not generate taxable rent within the Republic of Panama. Not
withstanding what is established in letter (e), Article 10 of the Executive Decree No. 84
as of 2005, hereby defined as export services those offered from an office established in
Panama, but with its effectiveness outside the country. These services do not give right
to obtain Certificates with Cancellation Power.
Companies with License of a ROMC are not exempted of the payment of the ITBMS for
the purchase of goods or services in the Republic of Panama neither for the imports.
They will not be exempted of the payment of the ITBMS for the services offered within
the national territory as well.
In regards to the exemption of the payment of income tax, it will be considered
produced within the national territory, the income received for services affecting the
rent production from Panamanian source or to preserve the same, and that its value has
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een considered as a deductible cost by the person who received them. In these cases,
the contributor who benefits from the service or fact hereby stated will apply the tariffs
settled down in Article 699 of the Fiscal Code over the 50% of the amount to be sent to
the Regional Office. In this case, it will be used as retention from source procedure. For
the end of the fiscal period, the Regional Office will present its rent declaration
asserting its rent as exempted and showing the paid tax, without any right to obtain
fiscal credit for the losses from costs and expenses assumed by its operation.
Companies with the license of a ROMC are obliged to fulfill the information
requirements of payments made to third parties, natural or juridical.
Notwithstanding what it is established in this Law, companies with a license of a
ROMC shall be able to reach fiscal agreements with the Ministry from Economy and
Finance for the consolidation of their gains and the tax payments from the rents
obtained in other countries. If these fiscal agreements are obtained, thereby will be
established the effective date for the payment of those taxes. Company with a license of
a ROMC will have to present a copy of the Agreement before the Technical Secretariat.
IMMIGRATION REGIME
By means of this Law it is established a special visa for foreign personnel working in a
ROMC. The personnel granted with this type of visa will have the right to work within
the national territory as long as the personnel works in the multinational company with
license of a ROMC and fulfills what it is established in this Law.
The dependants of the foreign personnel granted with this visa will be able to request
the respective dependant visa. Pursuant to this Law, dependants of personnel of a
ROMC will be the spouse, the minor children or the children of less than twenty-five
(25) years who are actually studying and to the parents of the principal. They will
remain within the national territory under responsibility of the principal, previous
fulfillment of the established requirements.
This visa will be granted no more that the term agreed in the labor contract, as long as
he works in the company with a license of a ROMC. Nevertheless, the personal
identification card issued by means of the visa will be extended every five years and it
will include the right for multiples exits and entries valid for the term fixed in the
personal identification card. Once the visa is granted no other permits or authorizations
from a government entity will be necessary to work in the ROMC or to live in the
national territory.
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The company with license of a ROMC will be able to hire especial foreign employees to
occupy manager, high and medium level positions required for its operation, pursuant
to what is established in the Labor Code for companies whose transactions are
performed, consumed or have their desired effects outside the Republic of Panama, but
it will not apply for these employee’s dependants who will have to obtain the
corresponding permissions pursuant to the effective provisions.
The personnel of company with license of a ROMC granted with this type of visa will
not be able to do other lucrative activities different from the ones performed in the
ROMC.
Furthermore, the personnel of company with license of a ROMC will be in exempted for
a single time, at the moment of the movement to Panama, of payment of import tariffs
for personal domestic use objects or of its dependants. If the personnel decides to leave
the national territory before three years from the exempted import will have to show
proof of the re-exporting of these objects, unless he properly demonstrate to competent
State employees that the introduced object are unsuitable or have been sold previous
payment of established import taxes.
As long as the personnel of the ROMC is temporarily in Panama and does not request
his permanent residence will not be obliged to the obligatory affiliation to the Social
Security Authority. These foreign employees must have private medical insurance for
them and for its dependants. The multinational company will be responsible for this
coverage.
SANCTIONS
Any action or omission that transgresses or violates the provisions established in this
Law or the provisions issued in conformity with the same, or those resulting from the
respective licenses will be assumed as an infraction subject to be sanctioned by the
Technical Secretariat. Among these violations we can mention the following:
1. The multinational company granted with a license of a ROMC which carries out,
in the national territory, different activities from the authorized by its license,
without fulfillment of what it is established in this Law its license will be
cancelled and will have to pay a fine of an equivalent of three times the incomes
not perceived by the Nation because of the fiscal exonerations stated in this Law.
2. The employees who enter the national territory protected by this Law and
remain in Panama without certainly working in the company with a license of a
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ROMC will be sanctioned with a US$5,000.00 fine besides any sanctions
corresponding to the company in case of not communicating the issue in
compliance to this Law. The corresponding labor permission to this employee
will be automatically cancelled and he will be repatriated with these costs
assumed by the multinational company.
3. The company that does not perform the communications in compliance with this
Law can be sanction with a fine of up to US$100,000.00 by the Technical
Secretariat.
FINAL DISPOSITIONS
The State entities and its employees in charge to attend any request from a ROMC in
Panama shall improve their administrative efficiency and shall avoid any excessive
bureaucracy in order to assist the Regional Office and its employees in a fast and
efficient way.
For further information on this topic, please contact Juan Carlos Baquero at Patton, Moreno & Asvat,
telephone (+507 264-8044), fax (+507 263-7887) or email (jbaquero@pmalawyers.com).
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