SERVICES THAT AN MHQ CAN PROVIDE
· Management and /or administration of operations of the group in a specific area or globally, including strategic planning, business development, managing and/or training personnel, operation control and/or logistics;
· Logistics and/or warehousing of components or parts required for the manufacturing or assembling of any product manufactured by the company;
· Technical assistance to companies of the group or customers having acquired products or services from the group;
· Financial, administrative, technical and other types of support to companies of the same economic or corporate group, including but not limited to data processing, risk analysis, compliance, treasury services, inter-company loans, among others;
· Accounting of an economic or corporate group;
· Preparation of plans being part of the designs and/or constructions, or any thereof;
· Consulting, coordination, and monitoring of marketing and advertising strategy for goods or services produced by the group;
· The electronic processing of any activity including the consolidation of operations of the group;
· Support of operations and research and development of products and services of the group;
· Any other analogous service previously approved by the Cabinet Council.
HOW TO OPERATE A MHQ IN PANAMA?
§ Corporate entity: Corporation, LLC or Branch.
§ Management issues: MHQ can only be an MHQ, it cannot engage in local activities.
§ Reporting Requirements: Annual Report to the MHQ Commission.
§ Tax Benefits for the MHQ:
1. Panama follows a territorial tax system, only taxable income generated from any source in Panama pays taxes.
2. No ITBMS / VAT on goods and services exported to companies or people abroad.
3. Income Tax: A tax rate of 5% on the net taxable income derived from the rendering of services.
4. Exempt from dividend tax, complementary tax, and branch tax, regardless of the source of the income.
5. Exempt from having operation notice and thus, paying the operation notice tax.
6. Exempt from the obligation of having a fiscal printer.
TAX BENEFITS OF THE MHQ REGIME
Tax Benefits for the MHQ:
• Panama follows a territorial tax system, only taxable income generated from any source in Panama pays taxes.
• As of January 1, 2019, payment of income tax at a reduced rate of 5% on the net taxable income derived from the rendering of services by the company.
• No ITBMS / VAT on goods and services exported to companies or people abroad.
• Exemption of payment of dividend tax, complementary tax, and branch tax, regardless of the source of the income.
• Exemption from having to obtain an “operation notice” and thus, paying the “operation notice tax”.
• Exemption from the obligation of having a fiscal printer.
• Payment of reduced capital gains tax at a rate of 2% (instead of the 10% established in the Fiscal code), which reduces the buyer’s withholding obligation to 1% (instead of the 5%) of the purchase price.
• BUT: Local operations must be separate.
• BUT: ITBMS / VAT applies for goods and services purchased in Panama.
Tax Benefits for the Foreign Employees:
• Employees with an MHQ Permanent Personnel Visa are exempt from payment of income tax, social security, and educational insurance as long as his/her wages and other contributions are registered in the MHQ ‘s accounting as a personnel expenseAllowed to import household items without payment of customs duties on their first arrival.
LABOR AND IMMIGRATION BENEFITS FOR FOREIGN PERSONNEL
· Single Window System for immigration matters.
· Labor Code mandated quotas of 10 to 1 local to foreign employees do not apply for MHQ foreign employees with MHQ visas whose salaries paid from abroad.
· Visa for Permanent Personnel of MHQs
– Issued for up to 5 years, renewable, with multiple entries and exits, and the option to obtain permanent residency after 5 years, however, if a permanent residency is obtained, the employee will be liable for payment of Panamanian income tax and both the employee and the MHQ must make Social Security contributions both for salary and salary in specie, such as housing and educational allowance.
– Holders do not require a work permit to work for the MHQ.
– Processing time for the visa is 1 to 3 months, and through appointments.
– Holders may bring spouse and children as dependents.
– All must have a health insurance policy.
STEPS FOR THE ESTABLISHMENT OF THE COMPANY AND OBTAINING AN MHQ LICENSE
Step 1: The first step is for the company to establish itself at the Public Registry by incorporating a corporate structure and obtain a tax registration number for the Company at the General Directorate of Income (“Registro Unico de Contribuyentes”).
Step 2: After the company is registered, the second step to operate as an MHQ, is to apply for an MHQ license before the Ministry of Commerce.
Documents must be in Spanish, notarized and affixed with the apostille if issued abroad, and include:
– Power of Attorney to a law firm.
– MHQ Application Petition.
– Articles of incorporation of the local entity.
– Public Registry Certificate.
– MHQ license form.
– Sworn Statement of a director of the company stating a desire to establish an MHQ.
– Certification of Treasurer or Secretary of the share participation of the company.
– Consolidated and Audited Financial Statements of the Group.
– Bank Reference Letter.
– Organization Chart of the Group.
Step 3: Review of application, approval by the MHQ Commission led by the Ministry of Commerce and issuance of MHQ license and Resolution.
Step 4: Register the company at the Municipality in which it will have its offices, and at the Social Security Administration (“Caja de Seguro Social”) as an employer in order to start hiring employees.
NEW PROVISIONS INCLUDED IN THE NEWLY APPROVED LAW NO. 57 OF 24 OCTOBER 2018.
The newly approved law provides that as of January 1, 2019, any company which obtains a MHQ license, will automatically be entitled to the guarantees provided by the Legal Stability for Investments Protection Law. Companies that already have been recognized with the legal stability for investment regime will maintain any fiscal advantages until said legal stability expires.
The law also establishes that the transactions carried out by companies with an MHQ license and its related parties domiciled in Panama, fiscal residents in other jurisdictions, or related parties established in the Colon Free Zone or in any other special economic area in Panama, are subject to transfer pricing rules applicable in Panama.
Finally, the law establishes a transition period until June 30, 2019, for the companies with a MHQ license to adapt their structures to comply with the new requirements provided in the law.