With the enactment of Law 57 of October 24th, 2018 that modifies Law 41 of 2007, creating a Special Regime for the Establishment and Operation of Multinational Headquarters and the Commission of Multinational Headquarters, new rules applicable to SEM (for its acronym in Spanish) companies are established.
Income Tax (ISR)
Companies with SEM license will pay ISR at a 5% rate on the net taxable income applicable to the services it renders. SEM companies, will file income tax return on an annual basis and may consider as deductible expenses: the remuneration of all employees including those exempted on their remuneration in accordance with Article 26 of the SEM Law. Companies with SEM License may apply as credit to its ISR: The amount paid for ISR or another analogous concept abroad (withheld) with respect to the net taxable income generated in Panama related with services rendered to non-residents. The amount withheld by taxpayers in Panama as ISR according to Article 23 of the SEM Law. When the tax credits are applied, the SEM entity must pay as a minimum of 2% of the net taxable income as ISR. Those credits may not be considered as accrued credits nor being subject to tax rebates. ISR withholdings
The taxpayer in Panama who benefits with a service from a SEM company must withhold 5% on the amount to be sent to the SEM company as long as the service is needed for the production or conservation of the source of income or is being considered as deductible expense for the beneficiary of the service. The SEM company who benefits with a service, copyright, loans, financing, rendered by an entity outside of Panama must withhold 5% on 50% of the amount to be sent. It Will be subject to ISR in Panama as long as the service has an impact in the Panamanian source of income of the SEM. If the SEM company is in loss when the remittance is performed, the withholding is applicable on payments outside of Panama. The remuneration of the SEM executive with Permanent Personnel SEM Visa will be exempted of ISR, social security contributions and education tax, only if such remuneration is paid, assumed and recognized as labour expense in the accounting records of the SEM company. Transfer Pricing
As of 2019 tax period, persons who carry out operations with related parties that are SEM companies, will be subject to transfer pricing. Transfer pricing regime is applicable as well to the operation of the SEM company with related parties in...