Panama, June 5, 2020. We are glad to share the video “Reopening of businesses post-COVID-19 companies” presented by María Teresa Mendoza, partner at Morgan & Morgan, in alliance with The American Chamber of Commerce and Industries of Panama (AmCham).

Click here to view: Reopening of businesses post COVID-19 (in Spanish)

Updated on June 1, 2020

National Immigration Authority:

  • Residence Permits are valid until June 7, 2020. This measure is in place since from March 13.
  • The suspension of administrative processes and user service will be lifted from June 8.
  • In-person user servicewill be restored gradually and progressively:
  • Between June 8 and June 12, only attorneys will be allowed to visit, between the hours of 7:00 a.m. and 4:00 p.m.
  • As of June 15, the general public will be allowed into the premises, up to 25%of the location’s capacity.
  • An extension of up to three (3) monthsis granted to persons whose temporary residence permits, migratory regularization and tourist visas, have expired between March 13 and June 7, in order to file applications without incurring in fines or surcharges.
  • The validity of previously issued documents already that have expired between March 13 and June 7, is extended for a period of up to three (3) additional months, except for bank reference letters and good health certificates.

Ministry of Labor – Labor Immigration:

  • The validity of work permits for foreign workers is extended until June 15. This extension is in force since March 12.
  • Any procedure related to work permits, as well as judicial procedural terms remain suspended until June 15.

Morgan & Morgan will be coordinating all the necessary measures with our clients so that, from June 8, 2020 immigration procedures before the National Immigration Authority can resume and work permits before the Ministry of Labor can resume from June 16, 2020, if there are no additional extensions regarding procedural terms and in-person user service.

Panama, May 27, 2020.

The Innovation Center at the City of Knowledge held the Webinar “The ABC´s of labor and tax issues during the COVID-19 pandemic”. The conference was presented by Maria Teresa Mendoza, Labor Law expert and Partner at Morgan & Morgan, and Amanda Barraza de Wong, tax specialist and Senior Associate at Morgan & Morgan.

Click here to view: The ABC´s of labor and tax issues during the COVID-19 pandemic (in Spanish)

Panama, May 26, 2020.
The Mexico-Panama Chamber of Commerce (“Camexpa,” for its initials in Spanish), in alliance with Tecnologico de Monterrey and Morgan & Morgan, held the Webinar “Management in times of COVID-19: Strategic Plan to restart activities and Tax Management”.

Amanda Barraza de Wong, Tax Law expert and Senior Associate at Morgan & Morgan, participated as a speaker in this virtual conference.

Click here to view: Management in times of COVID-19: Strategic Plan to restart activities and Tax Management (in Spanish)

Panama, May 22, 2020.
The German-Panamanian Chamber of Commerce and Industry, in alliance with the Swiss-Panamanian Chamber of Commerce, the Franco-Panamanian Chamber of Commerce, and the Panamanian-Dutch Chamber of Commerce, held the Webinar “Main Banking Regulation in times of COVID-19” (Rule 4-2013 and Rule 2-2020). 

This Webinar was presented by Kharla Aizpurua Olmos, partner at Morgan & Morgan.

Click here to view:  Main Banking Regulation in times of COVID-19 (Rule 4-2013 and Rule 2-2020) (in Spanish)

Updated on May 21, 2020.Rule 2-2020, as amended by Rule 3-2020 of the Superintendency of Banks of Panama (hereinafter, “SBP,” for its initials in Spanish).

On March 16, 2020, the SBP issued Rule 2-2020, which was subsequently amended by Rule 3-2020 (here in after referred to as “Rule 2-2020″) and “establishes additional, exceptional and temporary measures for compliance with the provisions contained in Rule 4-2013 on credit risk”.”.

Rule 2-2020 creates a new category of credits named “modified credits” and it allows banks, in agreement with their debtors, to modify the conditions originally agreed without this being considered a “restructured credit.”

Relevant topics for the purposes of this agreement are:

  • These credits must: (i) meet financial viability criteria through their new terms and conditions, taking into account the debtor’s ability to pay and the bank’s credit policies; (ii) be subject to special monitoring by the bank; and (iii) be recognized as restructured, if debtors fail to comply with the modified terms and conditions;
  • loans classified as normal and special mention, as well as restructured credits that are not in arrears payment, may be modified;
  • contracts that are modified must be identified for special monitoring by the SBP;
  • during the duration of exceptional and temporary measures, for purposes of negotiating specific terms and interest rates, banks shall take into account the current situation facing the country;
  • the modification of the credits is exempt from charges and fees by the bank except for legal, notary and registration expenses paid to third parties;
  • modification of the loans shall be exempt from the requirement to update the appraisal;
  • the bank shall establish specific policies and procedures for the management and monitoring of requests to change the conditions of these credits;
  • the date of modification shall be the date on which the debtor has accepted the modifications by any means or modality (including electronic means, tacit acceptance, presumed acceptance by silence, etc.); and
  • As an exceptional and temporary measure, banks will be able to use up to 80% of the dynamic provision for the establishment of specific provisions. To use more than 80%, banks must obtain authorization from the SBP. Banks may only pay dividends once they have refunded the amount of the dynamic provision that corresponds to them according to their credit portfolio.

Circular No. SBP-DR- 0118-2020 of April 8, 2020. 

The SBP issued the circular to:

  • Request banks to ensure that they do not charge interest on interest, moratorium interest, or interest capitalization on loans that have been modified under Rule 2-2020;
  • Reiterate that modified credits are exempt from the application of commissions and charges, except for legal, notary and registration expenses which are to be paid to third parties; and
  • Urge financial institutions to administer the interest rate applicable to modified credits so as not to impair, as far as possible, the financial situation of customers. 

Official Statement on the Moratorium Extension Agreement until December 2020 issued by the Panama Banking Association (hereinafter, “ABP”). 

On May 4, 2020, the ABP issued the official statement on the moratorium extension understanding (here in after referred to as the “Commitment Understanding”) until December 2020, in which the ABP announces the extension and incorporation of new financial relief measures to support their customers affected by COVID-19.

The Commitment Understanding establishes that:

  • The benefits granted under the Commitment Understanding are for “persons who have had their employment contract suspended or terminated, the self-employed and commercial workers, whose activity has been affected by the health measures established by the Executive Branch” and is mainly to extend the moratorium until December 2020;
  • The Commitment Understanding applies to residential mortgage loans, personal loans, car loans, credit cards, small and medium-sized enterprises loans, commercial loans, transport and agricultural loans, and
  • It is expressly established that during the remainder of 2020, banks’ commitment continues not to foreclose on existing residential mortgages.

For any additional information, please contact:

Kharla Aizpurúa O.MO
RGAN & MORGANTel:
265-7777 ext. 7652
Email: [email protected]

In the corporate world, there is a novel type of enterprise labeled “startup,” which is known for its rapid growth, partly, because of the fact that it is highly related to the general use of information and communications technologies (ICTs) and the latest business trends. Given the rapid growth and scale that characterizes a successful startup, one of the initial considerations when launching a business of this type, and one that will significantly impact the way the company is managed, and the relationships with and between shareholders and investors, is the law under which the company is organized.

With this in mind, and as an introduction to a series of articles we will be publishing focusing on startups, we briefly summarize the reasons why organizing a startup under Panamanian law could pose benefits for its creation, capitalization, hiring of personnel, operations, financing, and eventual sale or public offering.

Before elaborating on the benefits of submitting a business to Panamanian law, it should be noted that according to the World Bank’s Doing Business 2020[1] report, Panama obtained a score of 92 out of 100 regarding the ease of starting a business, and one of 80 out of 100 on the ease of obtaining credit. The average score for Latin America and the Caribbean was 79 and 52, respectively, which positions Panama as a leading country in the region. This, coupled with the fact that its legal currency is the United States of America dollar, and the interconnectivity that it offers to the region thanks to its geographical location, positions Panama amongst the best Latin American countries to start a business in.

Once an entrepreneur has a concrete idea that he or she wants to develop and commercialize, the first step he or she must take when entering the world of startups is to incorporate its business. The main advantage of starting a business by way of a corporation is the fact that the company will have its own legal personality, separate and distinct, for all its acts and contracts, from that of its founder and shareholders.[2] It would be ill-advised for a founder to carry out her commercial activities in a personal capacity due to the implicit risks of each business, so, having a corporate structure that limits the liability of the shareholders is paramount. Undoubtedly, the most common legal vehicle in Panama is the corporation, which is regulated by Law No. 32 of 26 February 1927 (the “Corporations Law”), and details the requirements for the constitution, shareholding structure and administrative bodies, among others, of the corporation. The Corporations Law dictates that to incorporate a company, two or more persons of any nationality and domicile must execute the Articles of Incorporation before a local Notary Public; once the Articles of Incorporation have been recorded as a Public Deed and registered in the Public Registry, the corporation effectively acquires legal personality.[3] This incorporation process is relatively simple and can take between 4 – 6 business days. However, it is important to engage legal counsel, who, in compliance with the Corporations Law and the regulations over resident agents, will act as resident agent and carry out the due diligence prerequisites needed for the resident agent to act as such, and will ensure that the Articles of Incorporation contain everything that the Corporations Law requires and that the process be carried out correctly so that the law will produce all the effects and meet all the practical needs of the respective business.

It is also important to mention that there are other types of commercial entities in Panama, such as limited liability companies (“LLCs), for example. However, for purposes of a startup, corporations are the preferred legal entity because of their flexibility in the offering of shares to the public, among other reasons. One of the most common ways in which a startup raises capital to finance its operations is through the sale of shares to investors (generally “angel investors” or “venture capital investors” will request shares in exchange for their investment). If the startup is organized as an LLC, the company’s articles of incorporation, which is a document that is recorded in the Public Registry, must be modified every time participating quotas are sold to an investor, therefore, each of these sales will need to be recorded in the Public Registry.[4] Furthermore, the members that have paid for an LLC’s participation quotas in full will have the right to vote in the deliberations of said LLC, [5] which means that LLCs may not issue participation quotas that consist, exclusively, of economic rights. Conversely, a corporation may issue or transfer its shares through private documents, and such shares may be of different classes and grant different economic and voting rights (for example, special voting rights for the class of shares issued to the startup’s founders). The latter is relevant when it comes to public offerings of shares, or even private placements targeting sophisticated investors.

Regarding taxation, Panama’s fiscal regime is governed in accordance to the Territoriality Principle which establishes that a natural or legal person is subject to the payment of income taxes only on income that is generated within Panama, that is, through operations or activities carried out within the territory.[6] Our Tax Code establishes that activities such as directing operations that are being carried outside the territory, from an office in Panama, and distributing dividends that come from income not produced within the territory, for example, do not give rise to taxable income in Panama. This means that a startup organized under Panamanian law would only pay taxes on the income that is generated by its Panamanian operations, which can represent significant savings for a company in its seed stage.

Additionally, Panama provides for series of tax incentives that could be applicable to a startup depending on its business. There are laws that exempt from paying certain taxes and grant tax credits, among other incentives, to industrial manufacturing, agro-industrial and marine resource re-purposing companies[7]; companies located within the Fundación Ciudad del Saber complex that are dedicated to research and innovation in scientific, technological, humanistic and cultural fields; [8] companies established within the Panamá-Pacifico Area;[9] companies established within Free Zones;[10] tourism companies and investors in such tourism companies;[11] multinational companies’ headquarters;[12] and micro, small and medium-sized enterprises,[13] among others. Our second article will address these in detail, so stay posted for future articles of this series.

For those startups that need to import talent from abroad, there are also immigration incentives in place, such as temporary resident permits for trusted personnel, executives, experts and / or technicians, among others. This could be advantageous for startups interested in having advisors or mentors in key positions of their startups to guide the founder in financing rounds, for example.

Having said all this, it is important that each business idea be evaluated considering the provisions of the law so that decisions are made based on the particulars of each case and the advantages that may be offered by Panamanian legislation are harnessed at their highest level. We are at your service for any questions you may have on these issues.

For more information on these matters, please contact:

Kharla Aizpurúa O.
MORGAN & MORGAN
Tel: 265-7777 ext. 7652
E-mail: [email protected]
Miguel Arias M.
MORGAN & MORGAN
Tel: 507-265-7777 ext. 7687
E-mail: [email protected]

[1] https://www.doingbusiness.org/content/dam/doingBusiness/country/p/panama/PAN.pdf
[2] Article 251, Commercial Code of the Republic of Panama.
[3] Article 1, Corporations Law
[4] See Law 4 of 9 January 2009.
[5] Article 3, Law 4 of 9 January 2009.
[6] Article 694, Tax Code of the Republic of Panama.
[7] Law No. 76 of 23 November 2009, as modified to this date.
[8] Law Decree No. 6 of 10 February 1998.
[9] Law 41 of 20 June 2004, as modified to this date.
[10] Law 32 of 5 April 2011.
[11] Law 80 of 8 November 2012.
[12] Law 47 of 24 August 2007, as modified to this date.
[13] Law 8 of 29 May 2000, as modified to this date.

Panama, May 19, 2020.  Partner Inocencio Galindo, senior associate Amanda Barraza, and associate Angelica Ortiz contributed with Chambers & Partners Corporate Tax Guide 2020. This edition highlights the key features of tax regimes, taxation of inbound investments, taxation of non-local corporations, anti-avoidance and BEPS.The online Panama chapter is available here.

Or a PDF version is available to download here.

Updated on May 18, 2020 

In this guide, Employment Law Alliance (ELA) members from the Latin American region have provided answers to some of the most important questions that companies need to address during the COVID-19 pandemic.

María Teresa Mendoza, partner at Morgan & Morgan, covered the Panama chapter of the guide.
Click here to read: Latin American Guide for Employers 2nd Edition (ELA)

Updated on May 18, 2020. 

National Immigration Authority:

  • The validity of residence permits is extended up to May 31. This extension is in force since March 13.
  • All administrative and procedural terms are suspended until May 31. In-person service to users is also suspended until the same date. 

Civil Aviation Authority:

  • The suspension of all international flights is extended for an additional thirty (30) calendar day-period, until June 22. 

Comments:

  • Only humanitarian flights and those that transport cargo and products, medical-hospital equipment, medications, vaccines and any other necessary supplies to face the COVID-19 pandemic are allowed to enter the National Territory.
  • These measures can be further extended due to the State of National Emergency.
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