New incentive regime for MNEs providing manufacturing services
31 Aug 2020
The new regime targets multinational companies carrying out operations from Panama and providing manufacturing services (e.g. quality control, quality assurance and stability testing, packaging, labeling and related services) to other entities within their own corporate group. Among the key features of the new regime:
- Income derived from the provision of relevant services is taxed at a 5%;
- Salaries may be deducted from taxable income, even when the employee receiving the salary is exempt from income tax;
- The income tax paid abroad on taxable income generated in Panama for the provision of services to non-residents, as well as the income tax withheld by taxpayers in Panama can be claimed as tax credit (specific conditions apply);
- Beneficiary companies are exempt from paying the tax on dividends, the complementary tax and the business licence tax, and are exempt from customs duties and VAT on purchases and imports of goods and services in Panama; and
- Wages earned by individuals who possess a visa for permanent or temporal staff of a beneficiary company are exempt from income tax, social security contributions and educational tax.
The regime was introduced by Law 159, published in the Official Gazette No. 29104 on 31 August 2020. Law 159 enters into force within 3 months following its publication in the Official Gazette.
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Type:
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Promotion and facilitation (Investment incentives)
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Industry:
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Services (Other professional, scientific and technical activities, Administrative and support service activities, Other service activities)
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Sources:
