On 31 August 2020, Mr. Laurentino Cortizo, the president of Panama signed Law No. 159, introducing a new tax regime designed to encourage multinationals to establish and operate manufacturing services in Panama.

The new law (EMMA) looking to promote investment in manufacturing processes, job creation, and technology transfer that make Panama more competitive in the global economy. Only multinational companies can apply to the EMMA tax regime through a foreign company registered in Panama or a Panamanian subsidiary.

Income Tax

Companies under the EMMA regime would be exempt from CIT for the first 5 years. After the end of 5 years, they would be subject to 5% corporate income tax on the taxable income derived from the services rendered. Entities would have to pay a minimum CIT equal to 2% of the net taxable income generated in Panama. CIT credits would apply up to a maximum of 3% of net taxable income and credits exceeding that 3% maximum would not be carried forward or refunded.

Withholding tax (WHT)

After the five-year CIT exemption, local taxpayers would be required to apply a 5% WHT on payments for services rendered by entities under the EMMA regime.

Entities under the EMMA regime would be required to apply a 5% WHT on 50% of the amount to be remitted to a nonresident abroad as fees, royalties, know-how, brands, patents, technological knowledge, or industrial or commercial secrets. Interest, commissions or any other payments to nonresidents for loans or financing grant would be subject to the 5% WHT rate.

Dividend and complementary tax

Companies under the EMMA regime would be exempt from the payment of dividend, complementary or branch tax, regardless of the income’s source.

Capital gains tax

Under the EMMA regime, a 2% capital gains tax applies to gains from eligible transactions and the buyer would be required to withhold 1% of the sales price as an advance payment of capital gains tax.

Transfer pricing

Companies under the EMMA regime would have to apply the transfer pricing principle established in the Panamanian Fiscal Code to all transactions carried out with related parties in Panama.