Panama as an added value to SEM companies: a reflection 10 years later
Ten years have elapsed since the enactment of Law 41 of 2007, whereby the Special System for the establishment and operation of Multinational Corporations Headquarters (SEM) was created in Panama. As of that date, 134 licenses have been issued for SEM companies in Panama, according to data from the Multinational Corporation Directorate of the Ministry of Commerce and Industries, allowing these companies to carry out activities of management, accounting, spare parts logistics, finance, operations support and other activities allowed to its subsidiaries anywhere in the world.
The appeal of Panama to the SEM companies has been widely discussed, especially in relation to the immigration, tax and labor benefits which the law grants; even more so because, until December 2016, the establishment of these companies represented more than US$820 million dollars in direct investment for Panama and the generation of more than 5,500 workplaces for foreign and domestic workers, according to the Multinational Corporation Headquarters Directorate.
Undoubtedly, Panama has become a magnet for multinational companies: in the past year alone 25 SEM licenses were granted, the highest annual increase in ten years. But, after one decade, how does the country prepare to remain an attractive focus for foreign investment? What challenges or opportunities does the country have regarding the development of this law?
Some peculiarities of the SEM Law which attracts these companies are that it allows them to hire foreign trustworthy personnel and executives without the need to comply with the maximum percentage of 10% -15% required for the companies established in and that operate in our country. Additionally, they shall be exempted from the payment of income tax when their wages stem from the parent company. Likewise, the multinational company itself is exempted from the payment of income tax for the services rendered under the SEM License, provided that the company provides its services abroad and does not generate taxable income in Panama. It shall also be exempted from Transfer Tax on Personal Property and Services, dividends tax and the supplementary tax payments.
If we consider the benefits granted by the SEM Law, our country provides other intangible benefits as added value which make it an investment attraction, such as our privileged geographic position, connectivity with the whole continent through the hub of the Americas, logistic facilities and the proximity between the two oceans. Furthermore, telecommunications are also an advantage, since seven fiber optic cables go through Panama, in addition to the facilities of the Panama Canal. We also benefit from the time zone, convenient to the main trading centers of the continent and a dollarized currency, which creates economic stability with inflation rates much lower compared to the currencies of other countries in Latin America.
Moreover, Panama is a politically stable country, which has enjoyed alternation in government over the past 27 years.
A decade after the enactment of the SEM Law and considering the social, political and economic events that have occurred worldwide and in our country, particularly its economic growth, it is necessary that Panama make some positive changes to this Law in order to progress towards attracting more multinational companies. Probably, the addition of more activities that the companies can perform; to provide trainings to the personnel to develop and discover new talents, as well as to attract and promote knowledge transfer.
Finally, the proposals and experiences from the multinational corporations with SEM license or from those who aim to have one, must be studied in order to assess the new challenges that the country is facing and make an analysis and balance of the actions, which may be taken in benefit of the Special System of Multinational Corporation Headquarters.
By: Mariela de la Guardia Oteiza, Associate Attorney.
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