Tax benefits of multinational companies (SEM) in Panama

SEM Companies

The excellent and privileged geographical position of Panama, its advantaged and well developed air connectivity, as well as its status as a dollarized market, among other attributes, have turned the Central American country in the perfect hub for more than a hundred multinational companies (SEM in Spanish) that have established their regional headquarters in it.

Covered by the tax benefits offered by the Law 41 for Headquarters of Multinational Enterprises, these multinational companies have decided to set up their regional headquarters in Panama also attracted by the efficient technological infrastructure, a good environment for foreign employees and an increasingly better trained Panamanian talent.

Law 41 of 2007 defines a Headquarter of Multinational Enterprises, as a multinational company that operates from Panama aimed at offering the services defined in this standard to its parent company, its subsidiaries, affiliates, associated companies, or set headquartered in Panama. Some of the benefits that this law provides include exemption from payment of income tax, the dividend tax exemption, and tax agreements, among many others.

Since the establishment of this law, our country has attracted foreign investment from top Fortune 500 companies, such as Dell, Procter & Gamble and Nestle, among others. The amended Law 45 of 2012 has also managed to create a positive environment for the development of new businesses, establishing various tax incentives for both companies licensed as Multinational Headquarters (SEM) and for foreign senior level executives working for them. These benefits include incentives for executives, migration incentives for foreign workers, and work incentives.

Other tax benefits received by SEMs are:

• Exemption from payment of income tax for services provided outside of the national territory to its business group, which does not generate taxable income within the Republic of Panama.
• Exemption from payment of income tax for executives whose salaries come from the parent company overseas.
• Import duty exemption for household goods when the worker moves for the first time to Panama.
• Facilitating the granting of visa for executives. Foreign executives working in Panama and their relatives are granted a five year visa, with the possibility of extension for another five years.
• To qualify for SEM benefits, the primary requirement is that the business group is established in several countries, in addition to more than $200 million in assets documented in its latest financial statements.

Individuals and companies who want to venture into the Panamanian market can take better advantage of the business opportunities provided by the SEM law with the proper legal advice. This advice also promotes agility in the processes, better utilization of the benefits covered under the law, and a centralized coordination of corporate and migration processes, among others.