PANAMA Law and Practice Contributed by: Rafael Rivera, Javier José Vallarino, Juan Vallarino, Karen Y. Tejeira and Carolina Lino, BDO Legal Panama
their subsidiaries, affiliates, or companies associated with entities of the same group. These companies must provide services related to: • manufacturing, assembly, maintenance and con - ditioning products, machinery and equipment, product development, research, or innovation; • analysis, laboratories, testing, or other services related to manufacturing; and • logistics such as storage, deployment, and distri - bution centres for components or parts. Any company interested in applying for the benefits granted by this special regime must apply for the rel - evant licence from the Technical Secretariat of the Multinational Enterprise Licensing Commission. By holding a licence under the special regime for the establishment and operation of multinational compa - nies for the provision of manufacturing-related servic - es, the company enjoys a series of immigration, labour and tax benefits. Moreover, the SEM regime grants a fixed income tax rate of 5%, services provided to business groups are exempt from VAT, and there is an exemption from paying withholding dividend tax and The City of Knowledge is an international community made up of academic organisations, technology com - panies, and non-governmental organisations. The City of Knowledge is a knowledge platform focused on enhancing the innovative and competitive capabilities of the conglomerate’s users. It also facilitates access to a series of benefits and services tailored to user needs. This regime grants tax benefits such as: • exemption from all taxes, contributions, rates, or import duties on machinery, equipment, furniture, vehicles, artifacts, and supplies necessary for the development of the project; • exemption from the Tax on the Transfer of Personal Property (local VAT) on machinery, equipment, vehicles, artifacts, and supplies acquired and nec - essary for the development of the project; complementary tax. City of Knowledge
• exemption from the Real Estate Tax on property of this nature owned by City of Knowledge; • exemption from any tax, fee, duty, or levy levied on the remittance of funds abroad, when such remit - tance or transfer of funds is carried out for the purposes of the project; and • innovative companies that produce, assemble, or process high-tech goods or provide similar ser - vices in technology parks that may be destined for sale in the local or international market will enjoy the following benefits: (a) their activities, operations, transactions, proce - dures, and transfer of movable and immovable property, the purchase and import of construc - tion equipment and materials, raw materials, equipment, machinery, tools, accessories, supplies, and all goods or services required for their operations, including capital, will be exempt from direct national taxes, including taxes on patents or licences. 5.4 Tax Consolidation In Panama, tax consolidation is not available or appli - cable, as it is in order jurisdictions. In Panama, each operative company is obliged to prepare and file the income tax return and pay the corresponding taxes. 5.5 Thin Capitalisation Rules and Other Limitations Currently, in Panama there are no capitalisation rules or exact equivalent rules. However, Panama has adopted Transfer Pricing rules, under the local legislation. There is also a restriction on the interest deductibility, ie, only interest related to the operation of the business is deductible. If the loan is used for investments outside of Panama, the interest will not be deductible. 5.6 Transfer Pricing Panama applies transfer pricing rules. Cross-border intercompany transactions conducted by Panamanian taxpayers are subject to transfer-pricing obligations if the transactions result in income, costs or expenses that are considered in the determination of taxable income. The transfer pricing rules are based in the arm’s length principle established in the Organization for Economic
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