Panama, October 7, 2019. Maria Eugenia Brenes, associate in the Intellectual Property Department of Morgan & Morgan, contributed with the Panama Chapter of Patents 2020, a publication that covers common issues in patent laws and regulations, in 36 jurisdictions.
The complete publication can be found here.
For the past few decades, Panama has established public-private partnerships (“PPPs”) in projects as diverse as toll roads, water treatment plants, ports, telecommunications networks and the generation and distribution of electricity. These projects, however, have been created and managed under either a general (and, for current-day standards, insufficient) concessions law dating back to 1988; industry-specific (and, sometimes, project-specific) legislation enacted in the mid-to-late-90’s; or the general public procurement law enacted in 2006. In recent years, framework PPP legislation was discussed by the National Assembly, only to be voted down in 2011. It was then considered again at various points between 2014 and 2018, although never formally given any debate before the legislature. In the meantime, a 2017 study commissioned by the Inter-American Development Bank and conducted by The Economist Intelligence Unit, ranked Panama 18th (out of 19 countries listed, with only Venezuela lagging behind), in terms of PPP regulatory frameworks in the region.
In light of these circumstances, the Panamanian Government took a decisive step forward in developing an updated (and more comprehensive) PPP legislative framework, as a means to: a) provide an option for developing major infrastructure projects without compromising the Government’s indebtedness levels, b) encourage private investment and job creation, and c) strengthen Panama’s competitive position vis-à-vis other Latin American countries (many of which enacted successful PPP legislation long ago). On July 31, 2019, barely a month after taking office, the Administration of President Laurentino Cortizo submitted a framework PPP bill before the National Assembly. On September 11, 2019, the Assembly passed the bill, which is now only pending signature by the President and publication in the Official Gazette in order to be enacted into law.
The new law will provide a much-needed regulatory and institutional framework in order to allow for the development of major projects without requiring substantial short-term disbursements of public funds.
The new legislation seeks to attract capital from private investors who, at the same time, will bring forth their experience, know-how, equipment, technologies and technical and financial capabilities to the fore. These resources will be used in order to “create, develop, improve, operate and / or maintain public infrastructure for the provision of public services.” Thus, the PPP law both allows and requires the private sector to develop, finance, build, operate and maintain – for an amount of time specified in the corresponding contract – projects geared to provide public services (e.g., roads, bridges, subway lines, electric transmission lines, etc.). The law provides for a maximum contract length of 30 years (which can be extended for up to 10 additional years). Thus, the idea is for the State to enter into long-term partnerships with investors that have the requisite experience to not only build, but also operate and maintain these projects, meeting the service and quality standards established in the RFP documents as well as the PPP contract.
The institutional framework for PPPs is also an innovation of the new law since – unlike the existing public procurement and administrative concession laws – PPP contracts involve not only the contracting government entity and the PPP contractor, but also three new government entities:
- A Governing Body (the Ente Rector), comprised by the Minister of the Presidency (who will preside over it), the Minister of Public Works, the Minister of Economy and Finance, the Minister of Commerce and Industries and the Minister of Foreign Affairs. In addition, the Comptroller General of the Republic, although not granted voting rights within the Ente Rector, will nonetheless be a part of it and entitled to voice her/his opinion at meetings. Among other functions, the Ente Rector will authorize the drafting of technical reports on projects that may be subject to implementation as PPPs, the approval for projects to be designed as PPPs and of the RFP documents (including the draft PPP agreement), as well as approving any changes to the PPP contract once it is in force;
- A National PPP Secretariat, serving under the Ministry of the Presidency and whose functions include – among others – providing technical and operational support to the Ente Rector, as well as developing the criteria for selecting PPP projects, the guidelines for assigning risks and granting of guarantees, as well as the guidelines for the design of the RFP documents and model PPP contracts; and
- An Advisory Committee, made up of four members of the business sector, two members of the academic sector and two representatives of organized labor. The Advisory Committee can recommend potential PPP projects to the Ente Rector, through the National PPP Secretariat.
Prior to the PPP bidding process, preliminary studies must be carried out based on six eligibility elements established in the law (social benefits, economic cost-benefit analysis, risk allocation, service indicators, feasibility studies, as well as environmental and legal aspects). The Contracting Public Entity must then prepare a technical report, subject to the opinion and observations of the National PPP Secretariat, which must then be sent to the Ente Rector, so that it can decide whether the project will be bid out as a PPP project.
Projects with a value of less than fifteen million dollars cannot be tendered as PPP’s, except in the case of municipal projects, in which case the criteria for granting exceptions will be further developed in the regulations that will be issued after the law comes into effect. Furthermore, projects cannot be implemented as PPP’s in any of the following cases: a) if existing commitments under government contracts then in force exceed 30% of actual investments in the previous year, b) if existing commitments in the following five years – under contracts then in force – exceed 30% of the projected investment of the contracting public entity, pursuant to the Government’s Five-Year Investment Plan in the respective fiscal years, or c) the total cumulative present value of existing commitments of the Non-Financial Public Sector in PPP contracts exceeds 7% of gross domestic product.
The selection of PPP contractors will be carried out under objective criteria, since the contract will be awarded to the bidder that meets the mandatory requirements and submits the best economic offer. In addition, there are clear limits on the amounts and time periods for which PPP contracts can be modified. These provisions seek to eliminate subjective factors in awarding PPP projects, as well as avoiding overly expensive addenda to PPP contracts.
In order to facilitate financing structures – either through syndicated credit facilities or through capital markets – the law provides for the option (or, in case the project is partially funded through government subsidies or contributions, the obligation) for the assets involved in the project to be placed into a trust to be managed by a trustee that is licensed in Panama. This will further inoculate the projects and their related assets should the contractor face liabilities vis-à-vis third parties throughout the duration of the contract.
Finally, the grounds for disqualification currently included in the existing public procurement law are toughened, as these will disqualify bidders for a 10-year period, rather than the 5-year period established under the public procurement law.
It is important to bear in mind that the PPP law does exclude certain services and institutions from contracting under the PPP framework. Namely, the State-owned water company, the Panama Canal Authority, the Social Security Administration and the governmental financial entities and regulators, may not contract for any work or service under the PPP law. Furthermore, public health, education and public safety services cannot be contracted by any government entity under a PPP structure. Time will tell if – once PPPs begin to be implemented under the new law – the political climate will allow the excluded entities and/or services into the fold.
All in all, the new law is an important milestone in bringing Panama’s PPP regulatory framework in line with those of other Latin American countries, which will hopefully usher in a new era of success in major infrastructure investment.
Resolution No. 17405 of August 29th, 2019.
As of September 4TH, 2019, The National Immigration Authority (hereinafter “SNM” for its acronym in Spanish) established new requirements to request Rehabilitation of Permanent Residence Permits (hereinafter “Rehabilitation”) for foreigners, who have remained outside of Panama for more than two (2) years and up to six (6) years.
- Foreigners to whom SNM has canceled their permanent residence permit for been absent of Panama for more than two (2) years and up to six (6) years, can request the restitution of their permanent residence permit through the Rehabilitation process, with simplified requirements.
- Previously, to request Rehabilitation, the foreigner had to submit (i) all the requirements of the immigration category previously approved, duly updated; and (ii) an affidavit given before Public Notary stating the reason why the person was absent from Panama.
- Resolution No. 17405 of August 29th, 2019 provides that Rehabilitation can be requested with the following documents:
- Copy of the permanent residence permit resolution or copy of the permanent resident card issued by SNM.
- Copy of the passport’s data page and registration stamp.
- Copy of the permanent resident card issued by the Electoral Tribunal duly authenticated.
- Affidavit given before Public Notary, stating the reasons why the person was absent from Panama.
- Power of attorney.
- The following time limit are established (i) thirty (30) business days to request Rehabilitation, which will be counted from the date of entry to Panama; and (ii) up to six (6) years of absent from Panama. After these terms Rehabilitation cannot be requested.
- Exceptions: Rehabilitation cannot be requested for foreigners, who have obtained (i) a permanent residence permit by Panama-Italy Treaty; or (ii) a temporary resident permit by “Crisol de Raza” and Extraordinary Regularization Process.
Morgan & Morgan and 3 lawyers of the firm are nominated in the first edition of the Latin American Energy and Infrastructure Awards, an event organized by the Iberian Legal Group and its publication The Latin American Lawyer, with the aim to recognize the excellence and achievements of professionals in the energy and infrastructure sector in the region.
The nominations include the following categories:
Morgan & Morgan is characterized by its participation as legal advisors in the most important infrastructure projects in the country. The mining project Cobre Panama, the Panama Metro system, the hydroelectric power plant Changuinola I, the country’s first wind farm, among others; are just a few in which our team of lawyers has participated in all phases from its development to its financing.
The awards gala will take place on October 24 in Mexico City.
In order to comply with the international guidelines regarding corporate transparency, the government of Panama enacted Law 52 of October 27, 2016 in the Official Gazette, which establishes the obligation for Panamanian companies and other entities to maintain accounting records, financial records and supporting documentation of all transactions that took place during the last five (5) years, so that their financial status can be easily determined with reasonable accuracy.
The corresponding records and documentation should be sufficient to demonstrate and evidence the transactions executed by the company accurately.
To whom does this Law apply?
Law 52 was regulated by Executive Decree No. 258 of September 13, 2018 and is applicable to legal entities that do not carry out operations to be completed or that will not have effects within the Republic of Panama.
Legal Entities are any corporation, limited liability companies, any other legal entity for commercial purposes and private interest foundation, incorporated and in force in accordance with the laws of the Republic of Panama
Regulations established in the Law
Accounting records must be held by the Resident Agent; otherwise, the clients are obliged to provide to the Resident Agent the physical address where they are held and the name and contact information of the person in charge of keeping these documents in custody. Additionally, if there is a change of address for any reason, the client must inform the Resident Agent of the new address within the next fifteen (15) days.
If the information is not kept by the Resident Agent, it must be delivered to it within the next fifteen (15) days counted as of the date on which this information is requested.
Additionally, Resident Agents are required to keep a copy of the records of shares and shareholders of the companies under their administration.
The Resident Agent will be obliged to resign as such in the event that the legal entity fail to provide the accounting records within the aforementioned period of fifteen (15) days, a new Resident Agent may not be registered until the grounds that gave rise to the sanction are remedied.
Such information regarding where the accounting records are held are relevant to Article 5 of Law 52, as:
The physical address where the accounting records are held and the name of the person who keeps the accounting records and supporting documentation.
The records must be prepared and endorsed by a Certified Public Accountant of the Republic of Panama.
Legal entities that fail to comply with the obligations established in Law 52 will be subject by the competent authorities to a fine of $1,000.00 and a penalty of $100.00 for each day of noncompliance.
Karla Pinilla, CPA
Morgan & Morgan
Morgan & Morgan provided pro bono tax advice to Camara de Reciclaje de Panamá, Asociacion Marea Verde, Enseña por Panama y Fundación Banco de Alimentos
Panama, August 6, 2019. The Recycling Chamber of Panama, the Marea Verde Association, Enseña por Panama and the Food Bank Foundation, were authorized to obtain the Resolution of the General Directorate of Revenues (DGI for its initials in Spanish) that approves these organizations to receive donations deductible from income tax.
Angélica Ortiz, Taxation Department, Morgan & Morgan
Law 37 of June 5, 2018, adds line 9 to article 709 of the Fiscal Code, which is related to the annual income tax deductions to which natural persons are entitled, regarding school expenses incurred by the taxpayer with respect to their dependents. Additionally, Executive Decree 368 of December 26, 2018 and Resolution No. 201-1635 of May 13, 2019, establish the regulations applicable to the deduction of said expenses.
From the regulations indicated above, we highlight the following aspects:
- School expenses, including tuition and school fees, supplies, uniforms and school transportation, incurred by taxpayers with respect to their minor dependents, will be deductible from the taxable income.
- School expenses related to the payment of tuition and credit hours incurred by taxpayers with respect to their dependents of legal age who are still under their tutelage, attending third-level or higher education.
- The deduction may be up to a maximum annual amount of B/.3,600.00, for each dependent; and may also be applied to taxpayers who pay for their own studies, as long as they submit their tax return declaration.
- Employees who pay Income Tax, in order to make the deduction, must: i) submit an affidavit of the fiscal period in which they incurred those expenses and ii) submit a petition requesting the deduction, duly accompanied by the detail of school expenses and supporting documentation (invoices).
- Invoices or equivalent documents supporting the school expenses to be deductible must be issued in the name of the father, mother or the person who has legal tutelage of the student. They may also be issued in the name of the dependent.
- The deduction of school expenses will be recognized only for payments made in the Panamanian territory.
- The financial obligation of parents with their children of legal age will be until they reach 25 years-old.
- Taxpayers whose dependants have a level of disability but that does not prevent them from attending an educational or university center will be entitled to the deduction of all school expenses.
- School expenses will be deductible in the tax return declaration of the year 2019, and be settled in the year 2020.
Panama, July 3, 2019. For the sixth consecutive year, Morgan & Morgan has received the “Leading Lights” recognition in Latin America for the Pro Bono program that the firm executes.
This distinction was granted by the publication Latin Lawyer, who together with the Cyrus R. Vance Center for International Justice conducted an annual survey with regards to institutionalization of the practice, high standards in this area and active participation of the lawyers. Only two Panamanian firms managed to achieve this recognition, sharing honors with others of very high caliber across the region.
“There are more than 20 NGOs who the firm assists on legal matters related to: corporate services, labor and tax procedures, among other areas of law. This allows these organizations to focus on the development of their own activities and at the same time receive training in areas where they are not experts”, said Camila De Vengoechea, coordinator of the program within the firm.
More on the Pro Bono program
Among the achievements of Morgan & Morgan in the execution of the Pro Bono program, are the support in the drafting of bills such as: Law regulating the activities of volunteer work in the Republic of Panama, Law creating the Food Bank of Panama, Law that creates the Central Blood Bank, Law that creates the Recycling Chamber of Panama, Law that creates the Board of Trustees of the National Theater of Panama and the Law that creates the Board of Trustees of the Reina Torre de Araúz Museum.
Executive Decree No. 238 of June 10, 2019
REQUIREMENTS TO APPLY FOR PERMANENT RESIDENCY FOR EXECUTIVES OF MULTINATIONAL HEADQUARTERS OFFICES (“SEM” for its acronym in Spanish).
As of June 11th, 2019, the requirements to apply for the Permanent Resident Permit for Executives of SEM companies who i) continue working at a SEM company, and ii) no longer work for a SEM company.Read more
Executive Decree No. 249 of June 10, 2019
PROCEDURE AND REQUIREMENTS TO APPLY FOR PERMANENT RESIDENCY FOR FOREIGNERS WHO HAVE OBTAINED RENEWAL OF THEIR PROVISIONAL RESIDENCE PERMITS OF 10 YEARS AND 6 YEARS ARE ESTABLISHED.
As of June 13th 2019, the date on which this Executive Decree became effective, the procedure and requirements for applying to the Permanent Residency for foreigners who have obtained their 10 or 6-year Provisional Residence Permits are established.Read more
Executive Decree No. 237 of June 10, 2019
EXECUTIVE DECREE NO. 182 OF MAY 28th 2019, THROUGH WHICH THE TEMPORARY RESIDENCE PERMIT AS EMPLOYEE OF AVIATION COMPANIES WAS CREATED, IS MODIFIED.
As of June 11th 2019, the current Executive Decree for the Subcategory of Temporary Resident as Employee of Aviation Companies located in the Republic of Panama, is modified.Read more
In this edition of Chambers & Partners, the securities team of Morgan & Morgan summarized the key aspects and developments in Panama, where the activity in the securities sector has been performed in recent years as an alternative form of financing.
The guide is available here