What you should know about the EMMA Law

By Mariela I. de la Guardia Oteiza

More than ten years ago, the Republic of Panama enacted and developed the special regime for the establishment of Multinational Company Headquarters (SEM), through Law 41 of 2007 (SEM Law), which grants a license that allows carrying out administration, accounting, logistics, finance, operations support activities, among other activities, for the benefit of subsidiaries and/or other companies of the multinational group. Through this Law, Multinational Companies and their foreign workers can receive immigration, labor and tax benefits.

Currently, there are 160 multinational companies established with SEM licenses in Panama, which have generated more than 7,000 jobs and almost $1.2 billion dollars in investment.

In order to become a more competitive and attractive country for foreign direct investment, necessary for the economic and social development of the country, and given the success of the SEM regime as well as the need for multinational companies to carry out manufacturing activities, Law 159 of August 31, 2020 was enacted. Said Law creates the Special Regime for the Establishment and Operation of Multinational Companies related to manufacturing, better known as the EMMA Law.

Based on the benefits of the SEM Law, the EMMA Law will grant a license (EMMA license) that allows multinationals to provide the following services to their business group:

1. The manufacturing of products, machinery and equipment.
2. Assembly of products, machinery and equipment.
3. Maintenance and repair of products, machinery and equipment.
4. Remanufacturing of products, machinery and equipment.
5. Product conditioning.
6. Product development, research or innovation of existing products or processes.
7. Analysis, laboratory, testing or other related to manufacturing.
8. Logistics such as storage, deployment and distribution center of components or parts.
9. Any other similar service.

The Act even allows multinational companies established under the SEM licence to apply for the EMMA licence without the need to submit a new application. Documents and information would be reviewed to speed up the process.

The Law provides that the Panamanian workforce must be trained, so technical training centers will be created in order to have qualified personnel to fill the jobs required by multinational companies established under the EMMA regime.

EMMA-licensed companies will be subject to a special tax regime, under which (i) they will only have to pay the tax on net income taxable for the services provided at a rate of 5%; (ii) they will not incur Transfer Tax on Movable Goods and Services (ITBMS or VAT in other countries) as long as the services are provided to persons who do not generate taxable income in Panama; (iii) they will be exempt from dividend tax, complementary tax and branch tax; (iv) they will not be subject to the use of fiscal equipment and will not be required to obtain a Notice of Operations (equivalent to the commercial license in other countries).

They are also exempt from all taxes, levies, fees, or import duties on any type or class of merchandise, products, equipment, and other goods for the execution of the service.

The EMMA license grants immigration benefits, such as temporary and permanent visas to foreign personnel working for the multinational company and its dependents. After five (5) years from the approval of the first permanent personnel visa, foreign workers may opt for permanent residence in Panama.

Among the labor benefits, the company with an EMMA license will be able to hire workers to fill high and middle management positions. It also allows the dependents of its foreign workers with a temporary or permanent visa to work in Panama.

Furthermore, the EMMA Law grants legal stability to investments for companies that establish themselves under this regime, guaranteeing that for 10 years the company will enjoy the same tax and legal regime that it enjoyed at the time of obtaining the EMMA license. That is, in the event of new legal provisions being issued that may vary the rights acquired and tax obligations at the time of obtaining the license, these will not be affected.

If we consider the benefits granted by the EMMA Law, our country provides other intangible benefits as added value that make it a center to attract investments, such as our privileged geographic position, connectivity with the entire continent through the Hub of the Americas, logistic facilities, the proximity between both oceans and the Panama Canal. We cannot fail to mention the advantages in terms of telecommunications, since seven fiber optic cables converge through Panama and it has a first-class telematic infrastructure; as well as the convenient time zone for the most important commercial and financial centers of the continent. The use of the dollar creates economic stability with inflation rates much lower than those of other Latin American countries. In addition to the above, Panama is a politically stable country, which has enjoyed alternation in government for more than 30 years.

We are confident that the success of the SEM Law will be replicated in the new EMMA Law regime to develop manufacturing-related services in our country.