Regulatory framework for foreign investment
The Panamanian Constitution reserves “retail activities” for Panamanian nationals. Various statutes have limited the application of the prohibition to activities that involve the sale of goods to consumers.
By statute, the private sector (national or foreign) may not participate in water and sewage services; in other words, these services are reserved to the State. Likewise, electricity transmission services (as distinguished from generation and distribution) is also by statute reserved to the State.
Certain activities in Panama are reserved totally or partially for Panamanian nationals, based on constitutional provisions and regulated by statute. For example, commercial fishing in national waters is reserved for Panamanian nationals. Similarly, broadcast radio and television is reserved for Panamanians, but foreign persons may own up to 35% of corporations holding concessions for those activities.
Another type of restriction in Panamanian statutes prohibits foreign governments from owning land and participating in certain industries. For example, foreign corporates and entities controlled by foreign governments may not hold a majority stake in public service of telecommunications corporations. Similar restrictions are found in mining.
Foreign persons may not own real estate within 10 kilometers of the border with other countries.
Exchange control or currency regulations
The monetary unit in Panama is the Balboa. However, the U.S. Dollar (US$) is the legal tender of Panama and the same nominal value as the Balboa. There are no capital controls or foreign currency controls in Panama. Forced currency is prohibited in Panama’s Constitution and the parties may enter into obligations and establish payments in the currency they freely agree upon.
Grants or incentives
Investments (national or foreign) may qualify for incentives provided they are made in certain areas designated by law.
Individual employment contracts / Termination regulation
- Termination of employment contracts is regulated by the Labor Code, which grants special protection to employees.
- There is a process that can be followed before the Ministry of Labor to reduce personnel based on “economic grounds”, but companies normally carry out reductions without pursuing that process.
Capital gains in the sale of shares are taxed at 10%. The buyer must withhold 5% of the price paid and the seller may accept the amount so withheld as its definitive tax or file a return to obtain a credit for the difference between the amount withheld and the taxed caused by the gain realized in the transaction. In an asset transaction, the tax treatment will depend on the asset being transferred. For example, real estate is levied with two taxes: transfer tax (2%) and capital gains tax (10%). The buyer must withhold 3% of the purchase price, leaving the seller to accept the amount so withheld as its definitive capital gains tax or file a return to obtain a credit for the difference between the amount withheld and the capital gains taxed caused by the gain realized in the transaction. There are stamp taxes that may apply to the documentation granted. The issuance of shares does not cause any taxes.
Antitrust jurisdiction triggering events/thresholds
Corporate concentrations that affect competition will be subject to antitrust review. The threshold at which concentration may affect competition is 25%. Parties to a transaction that affects competition may submit a petition to the antitrust authority to review and approve, which approval may be granted without or with conditions. A concentration that is approved by the antitrust authority may not be reviewed by the authority or subject to judicial review. Without such approval, within three (3) years after perfected both the authority or a court (upon petition by a third party) may review the transaction and impose sanctions (including divestment) if found detrimental for competition.
Signing/closing meeting documents
Closings are ordinarily carried out through the delivery of documents set forth in definitive agreements, including share certificates duly endorsed in the case of share transactions. Payment is usually made through wire transfers.
In the case of asset deals, special documentation, formalities and filings depend on the type of asset. For example, real estate is only transferable through a public deed (“escritura pública”) granted before a notary public, which deed must then be submitted for registration and actually registered in the Panama Public Registry Office.
Gap requirements between signing and closing
In the case of share transactions, there are no such gaps required by law, except for tender offers of publicly traded shares. In the case of asset transactions involving real estate, for example, such gaps arise because registration of the public deed takes at least 24 hours.
Proof of identity and authority to sign
Corporate resolutions in the case of legal entities, accompanied by a good standing certificate of the jurisdiction of incorporation, and passport or other identification document for the person signing. All documents granted or executed outside Panama must be authenticated by a Panamanian Consul or through the Apostille (Hague Convention (1961) on legalization of document).
- Simple contracts are executed by written signature. Public deeds are granted by a Notary Public upon personal appearance and execution by signatories before the Notary Public.
- In the case of simple contracts, written signature by the persons signing on behalf of corporate parties thereof will suffice – ie, the parties validate whether the persons are duly authorized to enter into an agreement on behalf of the corporate party.
- Individuals with legal capacity may enter into contracts and grant deeds by written signature.
- In the case of foreign companies, it is customary to require powers of attorney duly legalized by a Panamanian Consul or through the Apostille.
Notary impact on transaction timetable
Authentication of signatures by notaries is viable and may be obtained during the execution ceremony, provided that signatories are physically present at such ceremony. Post execution authentication is viable, provided the signatory is in Panama and customary identification documents (eg, passport) is produced to the notary.
Changing of stockholders, officers and directors
Changes of stockholders in the books of the corporation may be regulated in its articles of incorporation and/or by-laws. In the absence of such regulation, it is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement in order to make annotations in the share register.
Changes of directors and officers requires corporate resolutions to be submitted to a Notary Public for issuance of a public deed, which deed must then be filed and registered with the Panama Public Registry Office.
Private limited company
Transfer of title of shares is usually accomplished through the Secretary of the corporation, who customarily requires the share certificate and its endorsement.
Execute document in counterpart
It is customary to avoid counterparts in order to minimize stamp taxes, which are caused and payable with respect to each counterpart. Signature pages of contracts may be executed in different jurisdictions to be consolidated in a single counterpart, with each signature being authenticated in compliance with the law in the jurisdiction of execution, including legalization by “apostille”.
Strictly enforced undertakings
Strict enforcement of undertakings will be available soon, upon signing and promulgation (ie, publication in the Official Gazette) of recently adopted legislation that reinstated provisions of the Judicial Code that were repealed a few years ago.
Damages are available.
Required due executions legal opinions
None required by statute, but in cross border transactions (particularly for indebtedness) it is customary for legal opinions (debtor’s and creditors’ counsel) to be issued.
The Morgan & Morgan brand was featured as one of the most important in the Central American region in the report “Companies of Regional Impact” prepared by Forbes Central America. The study, which was conducted through surveys of 400 Central American professionals, highlights the companies that have made a positive impact in the region through their corporate social responsibility, commercial presence, continuous improvement of processes and corporate identity.
Morgan & Morgan appears in the list of Panama along with other recognized Panamanian brands such as Copa, Panama Canal, ASSA, Cable & Wireless, Grupo Melo and Cervecería Nacional, among others.
This new recognition is added to others that our organization has already received in this area, a fact that reaffirms a reputation of excellence both locally and internationally.
Resolution of the Ministry of Labor establishes the requirements for the affiliation of foreigners in the Department of Labor Immigration
- Pursuant to Executive Decree No. 76 of December 26, 2017 and Resolution No. DM-064-2018 of February 8, 2018, published on February 20th in the Official Gazette, the Ministry of Labor will require the affiliation of foreigners in the Department of Labor Immigration.
- This affiliation will consist of (i) a scan of the fingerprints through a biometrics system; (ii) passport registration; and, (iii) a photograph.
- The following documents will be required:
- Original passport.
- Copy of Immigration Status.
- Original Immigration ID card.
- Power of Attorney and Work Permit Petition.
- According to a Statement of the Ministry of Labor, this affiliation will begin to apply as of March 6th.
To whom does it apply?
- Applicants of a work permit – first time or renewal. These applicants must personally assist to the Labor Immigration Department of the Ministry of Labor to carry out the affiliation, prior to filing their petition.
- Applicants of a work permit that is in process. These applicants must carry out the affiliation at the time the photograph of the work permit ID card is taken, for which they will have to carry their original valid passport.
El 6 de abril de 2017, se llevó a cabo en la ciudad de Panamá la jornada jurídica “Pasado, presente y futuro del sector eléctrico”, organizada por el Colegio Nacional de Abogados, en conmemoración de los 20 años de la Ley de Electricidad.
Morgan & Morgan participó como patrocinador de este evento, que reunió a abogados, financiadores, desarrolladores y autoridades gubernamentales que participan activamente en el sector eléctrico.
Además, el Dr. Ramón Varela, socio de Morgan & Morgan a cargo de la práctica de Energía, fue expositor en la jornada con el tema “Proyectos de Ley radicados en la Asamblea Nacional que inciden en el sector eléctrico”. Por su parte, la Lic. Ana Carolina Castillo Solís, asociada de la firma, formó parte del comité organizador del evento y participó como moderadora del panel de “Financiamiento de Proyectos de Energía: Retos, Oportunidades y Tendencias”, con la participación de Gustavo Pimenta, CFO de AES para México, Centroamérica y el Caribe; Brian Blakely, Oficial Líder de Inversiones de la Corporación Interamericana de Inversiones; Héctor Cotes, Director Financiero y Administrativo de Electron Investment; Roxana Cárdenas, Directora de Banca de Inversión de Banistmo; y Estif Aparicio, Socio de Arias, Fábrega & Fábrega.