Panama: Modification to regime for multinational headquarters eligible for 5% income tax rate

Panama: Program for multinational companies

Executive decree No. 241 modifies the legislative rules regarding a program for multinational companies with a headquarters license in Panama.


Companies with a multinational company headquarters (SEM) license may be eligible for a tax incentive of a reduced rate of income tax—a 5% income tax rate. Law No. 57 of October 2018 established the “substance requirements” with regard to activities conducted by companies with an SEM license.

The executive decree addresses these substance requirements. To maintain eligibility for the tax incentive rate of 5%, the company must:

  • Have executed its main activity in Panama
  • Have maintained in Panama an adequate number of qualified full-time workers dedicated to the execution of the main activity (or activities)
  • Have incurred an adequate amount of operational expenses in Panama directly related to the conducted main activities
  • Timely comply in filing certain information reports

The substance requirements apply as of 1 July 2021 for companies that obtained their SEM license prior to 17 October 2020. Regarding fiscal year 2019, the substance requirements apply for companies that obtained their SEM license after 17 October 2017.

Companies registered before 17 October 2017 and that, after obtaining their SEM license, added activities subject to a substance requirement to their registry, will be subject to complying with these requirements as of the 2019 fiscal period.

The executive decree also addresses certain terms such as what is determined to be “adequate” and what will be “suitable, appropriate and sufficient” with regard to the main activities.

Within the substance requirements, companies must have an adequate number of full-time qualified workers and an adequate amount of operational expenses. In both instances, the regulation does not establish an exact amount that must be taken into account to comply with these requirements. In that sense, this leaves these factors subject to the nature of the operation of each company.

A provision of the SEM regulation states that entities holding an SEM license must submit an information report with such items as an affidavit signed by the legal representative, a copy of the audited financial statements, and certain other records (as required) within six months of the close of the fiscal period. For the fiscal year 2019, the deadline is 31 December 2020. If the information report has been presented prior to the effective date of the new rules, companies will have until 31 December 2020 to file an updated report.

If the company complies with the requirements, a certification will be provided to the tax authority. If the requirements are not satisfied, and the SEM license is denied, there are certain steps and time frames for appealing the determination.

Read an October 2020 report (Spanish) prepared by the KPMG member firm in Panama

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