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Law 122 of December 31st, 2019
Law 80 of November 8th, 2012 which establishes incentive regulations for the promotion of tourism activity in Panama, amended in its article 9 by Law 122 of December 31st, 2019 and regulated by Executive Decree 364 of July 23rd, 2020, establishes that investors are allowed to obtain a 100% tax credit on income tax, for their investment in the acquisition of bonds, shares and other financial instruments issued by companies that are registered in the National Tourism Registry, including real estate investment corporations duly registered at the Superintendence of the Securities Market, in a stock exchange in the Republic of Panama and in the National Tourism Registry, this with the purpose of promoting investment and financing for the development of new tourism projects or new stages and extensions of already existing tourism projects, in both cases outside the District of Panama.
The investor may use his tax credit annually as of the second year of the investment, as well as the option of assigning it for its entirety or the unused portion, regardless of whether or not he has transferred the bonds, stocks or financial instruments.
The bonds, shares and other financial instruments must be registered with the Superintendence of the Securities Market, be listed in a stock exchange in the Republic of Panama and be issued by Tourist Companies or Real Estate Investment Companies. Those bonds or instruments issued by these companies or Real Estate Investment Companies must have a minimum validity period of five years, without being able to be paid in advance.
According to Law 122 of 2019, this incentive shall be granted until December 31st, 2025 to investors who are not directly or indirectly linked to the company that issues the financial instrument and who are not the product of the division of a company into several legal persons or affiliates or subsidiaries of the same issuing companies. For companies or hotels whose National Tourism Registration has expired between January 1st, 2014 and December 31st, 2019, the validity of these shall be enabled, so that these companies or hotels shall maintain the incentives established in their records until December 31st, 2025. Companies or hotels whose national tourism registration expires after December 31st, 2019, shall have their validity extended until December 31st, 2025.
Executive Decree 364 of July 23rd, 2020 which regulates the incentive to investors in tourism companies, established in Article 9 of Law 80 of 2012 as amended by Law 122 of 2019.
ITEM 1. Executive Decree 364 of 2020 defines the following terms as follows:
Tourist Company: Legal person that makes investments in tourism development and services, registered at the National Tourism Registry of the Tourism Authority of Panama.
Real Estate Investment Company: Any legal person, trust or contractual arrangement established under the laws of the Republic of Panama, which, through the issuance and sale of its participation quotas, engages in the business of raising money from investors, through one-time or periodic payments, with the purpose of investing and negotiating, either directly or through subsidiaries, in real estate properties, securities representing rights over real estate or in the business of real estate development and management, in the Republic of Panama.
Payment, Registration and Transfer Agent: Legal person that, on behalf of a Tourist Company (Issuer) or Real Estate Investment Company registered with the Superintendence of the Securities Market, is in charge of maintaining the registry of the holders of the bonds, shares and other financial instruments, to record their transfers, to calculate their interests and make their payments and other related activities, in accordance with their contract with the Tourist Company (Issuer) or Real Estate Investment Company; and that it must comply with the requirements or conditions established in the Securities Market Law to exercise these functions.
First Acquiring Investor: Natural or legal person who acquires in the first offering, bonds, shares and other financial instruments.
ITEM 2. RECOGNITION
For the recognition of the Tax credit established in article 9 of Law 80 of 2012 as amended by Law 122 of 2019, the following procedure must be carried out:
A. FIRST ACQUIRING INVESTOR DOCUMENTATION
The First Acquiring Investor must send the following documentation to the Payment, Registration and Transfer Agent of the Tourist Company or Real Estate Investment Company:
- Certification from your Broker Dealer House regarding your quality as First Acquiring Investor, which must include your general particulars and investment amount.
- Affidavit before a Notary Public which sets forth:
a. In the case of a natural person, the First Acquiring Investor must declare that, immediately before acquiring the bonds, shares and other financial instruments:
a.1 He was not a director, officer, shareholder or beneficial owner of the Tourist Company or the Real Estate Investment Company, nor of its subsidiaries or affiliates or of the tourist projects in which they invested;
a.2 He was not related up to the fourth degree of consanguinity or second degree of affinity with a director, officer, shareholder or beneficial owner of the Tourist Company or the Real Estate Investment Company, nor of its subsidiaries or affiliates, or of the tourist projects in which they invested; and,
a.3 He was not a supplier to the Tourist Company or the Real Estate Investment Company, nor to its subsidiaries or affiliates, or to the tourism projects in which they invested.
In the case of a natural person, the First Acquiring Investor must declare that, immediately before acquiring the bonds, shares and other financial instruments:
b.1 None of its directors, officers, shareholders or beneficial owners were directors, officers, shareholders or beneficial owners of the Tourist Company or the Real Estate Investment Company, nor of its subsidiaries or affiliates, or of the tourist projects in which they invested;
b.2 He was not related up to the fourth degree of consanguinity or second degree of affinity with a director, officer, shareholder or beneficial owner of the Tourist Company or the Real Estate Investment Company, nor of its subsidiaries or affiliates, or of the tourist projects in which they invested; and,
b.3 He was not a supplier to the Tourist Company or the Real Estate Investment Company, nor to its subsidiaries or affiliates, or to the tourism projects in which they invested.
b.4 It was not the product of the division of the Tourist Company or the Real Estate Investment Company into several legal entities, nor was it a subsidiary or affiliate of the Tourist Company or Real Estate Investment Company, nor of the tourist projects in which they invested.
B. DOCUMENTATION OF THE TOURIST COMPANY OR REAL ESTATE INVESTMENT COMPANY
Once the documentation from the First Acquiring Investor has been received by the Payment, Registration and Transfer Agent, and verified within a period of no more than fifteen (15) working days, the latter must send the following documentation through a lawyer to the General Directorate of Revenues:
1. Certification from the Superintendence of the Securities Market regarding the registration with this regulator of bonds, shares and other financial instruments issued by the Tourist Company or Real Estate Investment Company; which must set forth, as a minimum:
a. The resolution number that authorizes the issuance; and if it is an issuance that allows series;
b. The authorized amount of the issuance; and if it is an issuance that allows series, as detailed in Paragraph I of this Item 2, the amount of the series that has been used exclusively to finance the new tourism project or the new stage and expansion of the already existing tourism must be indicated, pursuant to article 9 of Law 80 of 2012 as amended by Law 122 of 2019; and,
c. The use of the funds, the investment objectives and other relevant aspects stated in the Informative Prospectus of the issuance; and if it is an issuance that allows series, as detailed in Paragraph I of Item 2, the use of the funds, the investment objectives and other relevant aspects stated in the Supplement to the Informative Prospectus of the series that has been used exclusively to finance the new tourism project or the new stage and expansion of the already existing tourism project, pursuant to Article 9 of Law 80 of 2012 as amended by Law 122 of 2019, must be indicated.
2. Certification of the Stock Exchange in the Republic of Panama, of the list of stock bonds and other instruments issued by the Tourist Company or Real Estate Investment Company. In the case of an issuance that allows series, the ones that are listed must be indicated.
3. Certification issued in favor of the Tourism Company by the Tourism Authority of Panama, after its registration in the National Tourism Registry; indicating that it is a new tourism project or the new stage and expansion of an already existing tourism project, pursuant to article 9 of Law 80 of 2012 as amended by Law 122 of 2019.
4. Certification from the Superintendence of the Securities Market regarding the Payment, Registration and Transfer Agent of the Tourist Company or the Real Estate Investment Company; which must be issued thirty (30) calendar days in advance of the presentation of this documentation before the General Directorate of Revenues, and must set forth, as a minimum:
a. Who acts as the Payment, Registration and Transfer Agent of the Tourist Company or the Real Estate Investment Company, as of the date of the certification; and,
b. That through the contract presented to the Superintendence, the Payment, Registration and Transfer Agent on behalf of the Tourist Company or the Real Estate Investment Company, has been authorized:
b.1 To receive and verify the documentation of the First Acquiring Investor (as set forth in Section A of Item 2); and,
b.2 to obtain and/or prepare the documentation of the Tourist Company or the Real Estate Investment Company (as set forth in Section B of Item 2), and send it to the General Directorate of Revenues.
Letter issued by the Payment, Registration and Transfer Agent setting forth:
a. General Particulars of First Acquiring Investors who have submitted the documentation in section A of Item 2; and that after verification, they meet the conditions established in article 9 of Law 80 of 2012 modified by Law 122 of 2019, regulated by Executive Decree 364; Y,
b. That the bonds, shares and other financial instruments issued by the Tourist Company or the Real Estate Investment Company, and acquired by the First Acquiring investors, meet the conditions established in article 9 of Law 80 of 2012 as amended by Law 122 of 2019, regulated by Executive Decree 364.
Once the information has been received and verified by the General Directorate of Revenues, this authority shall issue, within a maximum period of thirty (30) working days, a resolution in favor of each First Acquiring investor recognizing the tax credit, and indicating the maximum amount that may accredit the income tax return of each fiscal period in accordance with the conditions established in Item 3.
The documentation of the First Acquiring Investor, indicated in Section A of Item 2, shall be kept at the offices of the Payment, Registration and Transfer Agent at the disposal of the General Directorate of Revenues, for a period of three (3) years as of the recognition of the tax credit.
Paragraph I: In the case of Tourist Companies that operate, administer or develop several tourist projects, or of Real Estate Investment Companies that maintain several allowed Investments; they must make an issuance or a series within an issuance, differentiated and separated from other issuances or series, that is used exclusively to finance the new tourism project or the new stage and expansion of an already existing tourism project, pursuant to article 9 of the Law 80 of 2012 as amended by Law 122 of 2019 and duly certified by the Tourism Authority of Panama. Consequently, the tax credit shall be credited by the General Directorate of Revenues to First Acquiring Investors of the issuance or series that has been used exclusively to finance the new tourism project or the new stage and expansion of the already existing tourism project, pursuant to article 9 of Law 80 of 2012 as amended by Law 122 of 2019 and duly certified by the Tourism Authority of Panama.
Paragraph II: In the event that the issuance or series is not placed in its entirety simultaneously, the letter indicated in numeral 5 of section B of Item 2 may be sent in parts, until one hundred percent (100%) of the issuance or series is placed.
Paragraph III: In the case of Real Estate Investment Companies, it shall be admissible, in order to comply with the certification of numeral 3 of section B of Item 2, the presentation of the certification of the Tourist Company in which the Real Estate Investment Company invests.
Paragraph IV: The Payment, Registration and Transfer agent may submit to the General Directorate of Revenues the documentation indicated in numerals 1, 2, 3 and 4 of Section B of Item 2 (the documentation of numeral 5 remains pending), before that the Tourist Company or the Real Estate Investment Company place the bonds, shares and other financial instruments to the First Acquiring Investors; in order to receive from the General Directorate of Revenues a certification stating that said bonds, shares and other financial instruments are enabled so that their First Acquiring Investors can receive the tax credits referred to in article 9 of Law 80 of 2012 as amended by Law 122 of 2019.
ITEM 3. ACCREDITATION
The First Acquiring Investor may use the tax credit annually, provided that each of the following conditions are met:
- From the second year of the investment: that is, to accredit it to the income tax return for the fiscal period following the fiscal period in which the investment was made;
- Up to a maximum amount equivalent to fifty percent (50%) of your income tax caused;
- Provided that the previous amount does not exceed fifteen percent (15%) of the initial amount of the tax credit; and,
- Until one hundred percent (100%) of the tax credit is used for a maximum period of ten (10) years, counted from as of the date the tax credit was granted.
The tax credit will be applied from the second year of the investment in the income tax return as a tax credit after the tax caused in accordance with the parameters indicated in the numerals previously described in this Item 3; for which the General Directorate of Revenues must make a modification in the income tax return form, which allows entering the amount to be credited in a box called “Tax Credit for Tourism Investment”.
ITEM 4. ASSIGNMENT
These tax credits are independent of the bonds, stocks and other financial instruments that originated them. Additionally, these tax credits represent a valid, independent, enforceable, unconditional and irreversible obligation of the State; and, therefore, they may be assigned, traded or transferred in its entirety or unused part, or their fractions, subject to the same conditions and restrictions established in article 9 of Law 80 of 2012 as amended by Law 122 of 2019, regulated by Executive Decree 364 for the First Acquiring Investor.
In the case of divisions, the total or partial assignment, with a deferred date, of the part of the tax credit that the First Acquiring Investor would be entitled to credit for a specific fiscal period shall be allowed.
The assignments of these tax credits must comply with the regulations that are applicable to them in tax matters; and such assignments shall not imply an ownership transfer of the bonds, shares and other financial instruments that originated these credits.
ITEM 5. FOLLOW-UP
In order for these tax credits to be validated, a database of their assignments, divisions and use shall be created, which for purposes will be managed and updated by the General Directorate of Revenues, with the information initially provided by the Payment, Registration and Transfer Agent, and then with the information of the assignments.
