This content is from: Local Insights

Panama: Manufacturing services for multinational companies

Since its inception, Panama has positioned itself as a world-leading logistic services provider. This has been in part due to its privileged geographical location and connectivity, as well as to a solid pro-market and dollarised economy. A robust banking system and a responsible territorial fiscal regime have qualified Panama as an investment-grade country since 2010 – and it has since been upgraded by Moody's, Fitch Ratings and Standard & Poor's.

Panama has focused on supplementing its natural advantages with a variety of attractive and competitive special economic regimes aimed at promoting investments, such as the Colon Free Zone, The Panama Pacifico Special Economic Zone, The City of Knowledge, Free Trade Zones and Multinational Companies Headquarters (SEM). What makes them especially competitive is that each regime is tailored to suit different economic activities and offer benefits that are adaptable to each sector. Some are ideal for research and development, others for logistics and distribution, and others for shared services' regional operations.

Recently the Panamanian government proposed a new regime focused on attracting multinational companies involved in manufacturing, assembly, maintenance, remanufacturing and conditioning of products, R&D and logistics services to companies from within the same business group. This regime, called Manufacturing Services for Multinational Companies (MSM), or Régimen Especial para el Establecimiento y la Operación de Empresas Multinacionales para la Prestación de Servicios Relacionados con la Manufactura (EMMA) in Spanish, seeks to emulate the Multinational Companies Headquarters (SEM) regime, which has been praised for its pro-business characteristics.

The MSM regime will provide an opportunity to qualifying companies to be a part of Panama's logistic services ecosystem and take advantage of a wide variety of incentives, such as:

  • During the first five years, full exemption on the income tax. Thereafter, a five percent income tax rate applies;
  • Exemption on dividend tax or complementary tax;
  • Exemption on ITBMS (equivalent to VAT) on services rendered to recipients outside of Panama;
  • Foreign executives holding an MSM visa will not count for the purposes of local limits on hiring of foreign and local employees;
  • The ability for MSMs to physically establish their operations in other special economic zones and take advantage of the control and infrastructure benefits they offer;
  • Automatic legal stability.

The MSM regime is still pending congressional approval but the government has expressed its confidence that such approval will be obtained soon. Once approved, the unique conceptualisation of this regime will boost Panama as a formidable competitor in the international trading and logistics playing field.

Alfredo Ramírez Pabón

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