Author: Igra

New Requirements for Seychelles IBCs

 

The Beneficial Ownership Act, 2020 is a new piece of legislation that came into force on 28th August 2020 along with the Beneficial Ownership Regulations. The Act and Regulations impose new requirements on Seychelles IBCs, which should be complied with by 31st January 2021:

 

A.  A new format for the Register of Beneficial Owner (RBO)

Seychelles IBCs are required to maintain an RBO at the office of its Registered Agent in Seychelles. The Beneficial Ownership Regulations include a new format of RBO that replaces the previous format required under the IBC Act.

 

The RBO must contain the following information in respect of every beneficial owner of such legal person or legal arrangement:

1. The name, residential address, service address, date of birth and nationality of beneficial owner;
2. Details of each beneficial owner’s beneficial interest, as may be prescribed by regulations;
3. The date on which a person became a beneficial owner;
4. The date on which a person ceased to be a beneficial owner;
5. Where a nominee holds interest on behalf of the beneficial owner-
   • The name, residential address, service address, date of birth and nationality of each nominee holding the interest on behalf of the beneficial owner and the particulars and details of the interest held by the nominee; and
   • The identity of the nominator, and where the nominator is a legal person, the identity of the natural person who ultimately own or controls the nominator.

 

B.  The Register of Beneficial Owner to be filed with the Financial Intelligence Unit (FIU)

A copy of the Register of Beneficial Owner should be submitted to the FIU, and the information will be kept confidential and not publicly accessible. The persons entitled to inspect the RBO are the company’s director, member, or a person whose name is in the RBO (limited to the inspection of the person’s name in the RBO).

 

A company who fails to maintain a Register of Beneficial Owners under section 5(1) of the BO Act or to maintain accurate and up to date information under section 5(2) of the BO Act commits an offence and is liable to a penalty not exceeding SCR50,000 (USD2,500 approx.) for each such failure (section 5(3) of the BO Act). In case of contravention of section 5(1) or 5(2) of the BO Act, in addition to the penalty upon the company, every director commits an offence, and shall also be liable to a penalty not exceeding SCR50,000 (USD2,500 approx.) for each contravention (section 5(4) of the BO Act).

 

Should you have any questions about this law, please do not hesitate to contact us at seychelles@icazalaw.com.

Recent Transaction

 

Icaza, González-Ruiz & Alemán acted as local legal counsel to AES Panama S.R.L and AES Changuinola S.R.L. in the acquisition of UEP Penonome I, S.R.L. a Panamanian company that built and operated the first wind electrical generation facility (Wind Farm) and related assets located in Penonome, Cocle, Republic of Panama consisting of 22 Goldwind wind turbines providing a total of 55MW of renewable energy to the National Interconnected Grid.

 

As local legal counsel to the purchasers, the firm conducted legal due diligence on the corporate, regulatory and environmental structure and history of the company and the project; drafted complex local law documents; and provided legal advice and support during and after the closing. The transaction faced significant challenges since, in addition to the complexities of a transaction of this nature, it was completed during strict lockdown measures imposed due to COVID-19 and involved multiple jurisdictions in North America, Asia and Panama.

 

The team in charge of this transaction was composed by Gabriel González-Ruiz, Alfredo Fonseca and Magdalena Arias.

Icaza, González-Ruiz & Alemán is pleased to announce that our partner Gabriela Tejada de Britton was included in the World Trademark Review (WTR) Global Leaders 2020 edition, which identifies the best of the best in trademark practice.

 

Head of the IP Division of the firm, Gabriela handles and provides expert counseling for the trademark portfolio of local and multinational companies in a wide range of sectors which include, among others, beauty and personal care, pharmaceutical, automobile, retail, luxury goods, food and beverages, finance and entertainment.

 

Counseling includes trademark and copyright licensing, franchising, trademark enforcement, trademark and patent prosecution, opposition and cancellation proceedings.

 

About WTR Global Leaders

WTR Global Leaders is an important publication that gathers the world’s top law firm and corporate trademark experts drawing on research from the WTR 1000 and WTR 300.

To be included in WTR Global Leaders, individuals must be ranked in the gold tier of the WTR 1000, which is a research directory focused exclusively on trademark practices and practitioners, that identifies the leading players in 80 key jurisdictions globally.

SPECIAL SYSTEM FOR THE ESTABLISHMENT AND OPERATION OF MULTINATIONAL COMPANIES FOR THE PROVISION OF SERVICES RELATED TO MANUFACTURING

(EMMA, FOR ITS ACRONYM IN SPANISH)

Law 159 of August 31st, 2020

The government of the Republic of Panama has enacted Law 159 of August 31^st, 2020 whereby the Special System for the Establishment and Operation of Multinational Companies for the Provision of Services Related to Manufacturing is created (hereinafter “EMMA” or “EMMA License”). This law was published in the Official Gazette No. 29103-A dated September 1^st, 2020, and the same was created with the purpose of attracting and promoting investments in production processes, generating jobs and the transfer of technology, as well as to position the Republic of Panama in a competitive market within the global economy.

 

What is EMMA?

It is a license issued by the Ministry of Commerce and Industries for Multinational Companies, whether foreign or national, that from Panama carry out operations aimed at offering the services defined in the law and that we mention below, to their parent company or their subsidiaries or their affiliates or to companies associated to such entities of the same group.

 

This law shall only be applicable in the Panamanian territory to operations of Multinational Companies for the provision of services related to manufacturing. The EMMA License shall be granted indefinitely.

 

Services that can be provided by Multinational Companies under EMMA License:

1. Services related to the manufacture of products, machinery, and equipment, rendered to companies of the business group.
2. Services related to the assembly of products, machinery, and equipment, rendered to companies of the business group.
3. Services related to the maintenance and repair of products, machinery, and equipment rendered to companies of the business group.
4. Services related to the remanufacture of products, machinery and equipment rendered to companies of the business group.
5. Services related to the refurbishment of products rendered to companies of the business group.
6. Services related to product development, research or innovation of existing products or processes rendered to the business group.
7. Services related to analysis, laboratory, testing, or other services associated with manufacturing, rendered to companies of the business group.
8. Services related to logistics such as storage, deployment and distribution center of components or parts, required for the rendering of services associated with manufacturing.
9. Any other similar service previously approved by the Cabinet Council by means of a grounded resolution, provided that it complies with the principles set forth in this law.

 

Requirements that companies must comply with in order to obtain an EMMA license:

1. The assets of the multinational company.
2. The places or the affiliated companies, parent company or operating subsidiaries of the multinational companies.
3. The commercial or industrial activities or operations carried out by the company.
4. The listing of shares on the stock exchange or internationally.
5. The minimum number of full-time employees and the annual operating expenses of the multinational company in the Republic of Panama. In both cases they must be appropriate to the nature of the business carried out by the companies.
6. Any other element or information that the Commission deems appropriate to establish and assess as a relevant and necessary requirement, to promote an adequate use of the system.

 

Obligations of companies with an EMMA license:

1. To submit to the Technical Secretariat of the Multinational Companies Licensing Commission an annual report containing the statistics concerning their operations within the national territory.
2. The obligation, if any, to immediately inform to the Technical Secretariat of the Multinational Companies Licensing Commission of any change in the status of their operations in the country and of its legal personality.
3. To render services related to manufacturing only to the Business Group to which it belongs, in accordance with the activities allowed by the law.
4. To operate in the Republic of Panama as a foreign company registered in Panama or as a Panamanian company owned by the multinational company, its subsidiaries, or its affiliates.

It is important to mention that a company that directly renders services to clients or to companies which are different or unrelated to its Business Group shall not be considered as a company with an EMMA license.

 

Additional activities of EMMA companies

If a company with an EMMA license wishes to carry out additional activities in the Republic of Panama under the Multinational Companies System (Law 41 of 2007), it may request an authorization from the Technical Secretariat. The Technical Secretariat must take into account all the documentation and information already in the files of the multinational companies for the rendering of services related to manufacturing, to ensure an expedited authorization process.

Since these are different systems, separate accounting must be kept, in addition to the material requirements applicable to them.

 

BENEFITS:

When applying under one of the above-mentioned services, the company with an EMMA license shall be able to enjoy a series of tax, immigration, and labor incentives.

 

I.            Tax:

Companies which obtain an EMMA license shall automatically enjoy the guarantees established in article 10 of Law 54 of 1998 on the Legal Stability of Investments. In other words, the duties and taxes established at the time of the issuance of their license are maintained for 10 years.

• Companies holding an EMMA License must pay income tax in the Republic of Panama on net taxable income derived from services rendered at a rate of 5%. They must liquidate and pay the income tax by means of the annual income tax return, and they may include within their deductible expenses the expenses incurred for labor remuneration of all their employees, which shall proceed even if the employee receiving the salary is exempted from income tax.

• They may also apply as an income tax credit, the amount actually paid for this concept or similar abroad, with respect to the taxable income generated in the Republic of Panama derived from the rendering of services to non-residents, as well as the amounts withheld by taxpayers in the Republic of Panama. When applying this credit, the company must pay, as a minimum 2% of the net taxable income generated in the Republic of Panama.

• Legal or natural persons which carry out transactions with related parties that are EMMA companies shall be subject to the Transfer Pricing system in accordance with the provisions of the Tax Code.

• Since these are export services, they shall not cause Transfer of Movable Personal Property and the Rendering of Services Tax (ITBMS), as long as they are rendered to persons who do not generate taxable income within the Republic of Panama.

• Exemption from the payment of dividends, supplementary tax, and tax on branches, regardless of whether they are local, foreign, or exempted.

• They are not subject to the use of fiscal equipment; however, they are under the obligation to document their activities through invoices or equivalent documents which enable the due control, recording, accounting and auditing of the performed transactions by the General Directorate of Revenues.

• They shall not be required to obtain a Notice of Operation for the provision of the services set forth in the EMMA Law.

• They are exempted from all taxes, encumbrances, duties, or import fees on all types or classes of merchandise, products, equipment and other goods in general including, but not limited to, machinery, materials, packaging, raw materials, consumables, supplies and spare parts which are used or required for the performance of manufacturing-related services.

These may not be sold, leased, pledged, or auctioned off without payment of the corresponding taxes, fees, and duties.

• The products manufactured, processed, assembled or remanufactured by the company established in a special economic area in the national territory, free zone, duty-free zone or an area of control and customs surveillance may be entered into the national tax territory by a company of the Business Group paying the respective tariffs or customs taxes, only on the value of the raw materials, and foreign components incorporated in the product, based on the tariff corresponding to each raw material or component incorporated in the final product.

 

Tax incentives for Personnel holding a Permanent or Temporary Visa under EMMA:

• Exemption from income tax, social security and education insurance contributions, salaries, and other labor remunerations, to the extent that the salaries and remunerations are paid, assumed, and acknowledged as personnel expenses in the company’s accounting.

• Exemption from the payment of taxes that could be applied to household goods due to imports when the employee moves to the Republic of Panama for the first time. In addition, you may apply to the National Customs Authority for a total duty-free allowance once every two years for the import of a motor vehicle for personal or family use.

 

II.           Immigration:

The EMMA Law creates new visas specifically for foreign employees who are hired. The types of visas are as follows:

 

• Multinational Companies Temporary Personnel Visa for the Rendering of Services Related to Manufacturing:

These visas shall be granted to the foreigner who renders services, at an operational or training level, to the Multinational Company, for a two-year renewable period.

It is also granted to dependents and in no case may it exceed the validity granted to the Multinational Companies Temporary Operating Personnel Visa.

Once the Temporary Personnel Visa is granted, a work permit shall be issued in a single formality which grants the right to work in the Republic of Panama, whilst working in the Multinational Company with an EMMA License.

 

• Multinational Companies Permanent Personnel Visa:

These visas shall be granted to foreign personnel whilst working within the multinational company with an EMMA license. They shall be valid for up to 5 years, and may be extended for an equal period, except in those cases where the employment contract establishes a shorter period.

It is also granted to the dependents and in no case, it shall be longer than the validity granted to the Permanent Staff Visa that covers the application.

The holders of this visa shall not be required to carry out any additional formalities or to obtain any permit from any other state entity to work or live in the Republic of Panama.

 

• Permanent Residence for Multinational Companies Personnel:

Foreign personnel who have worked for any Multinational Company under the EMMA Law, may, after a period of 5 years had elapsed from the approval of the first EMMA Permanent Personnel Visa, opt for a Permanent Residence.

The foreigner who obtains Permanent Residence shall be subject to the payment of income tax and social security and educational insurance contributions, as applicable.

 

III.          Labor:

Labor aspects for the personnel hired with an EMMA license:

• The company covered by an EMMA License shall be able to hire foreign employees in a position of trust to hold managerial jobs at high and medium levels, as well as temporary personnel, required for its operation.

• Any foreign person who has the status of a dependent of a foreign employee under a Visa or a Residence Permit may work in the Republic of Panama, provided that he or she meets the necessary conditions to apply for a work permit.

• Dependents who obtain a work permit and work in the Republic of Panama shall be subject to income tax and social security and educational insurance contributions for the salaries and other remunerations received.

• Whoever holds a Permanent Personnel Visa or a Temporary Personnel Visa under EMMA may not engage in work activities other than those performed in the multinational company.

• Any employee who has a permanent or temporary EMMA company personnel visa shall be subject to the rules of the Labor Code, except for those exceptions provided for in this law.

• Companies may sign labor contracts in any manner established by the Labor Code with foreign employees under the terms of this law.
• Companies covered by an EMMA License must ensure the exchange of knowledge and training of Panamanians who wish to apply for jobs in these multinational companies.

 

License Cancellation and Tax Effects:

The company which carries out in the national territory activities different from those authorized by law shall have its license cancelled and shall be responsible for the unpaid taxes, with the fines, surcharges, interests, and penalties according to the Fiscal Code.

Employees who enter Panama under the protection of the law without actually working in the multinational company shall be sanctioned with a fine of up to five thousand dollars (US$5,000.00).

The company that does not make the communications which are established as obligations of the law or that do not comply with the other provisions may be sanctioned with a fine of up to one hundred thousand balboas ($100,000.00).

 

Establishment and Legal Stability:

The companies shall automatically enjoy, as of the time of their registration, the guarantees in matters of legal stability of the investments. That is to say, from the granting of the License they shall enjoy for 10 years the fiscal, labor, immigration, and legal benefits.

 

Law 159 of August 31^st, 2020 shall enter into force on December 1^st, 2020

Mariela de la Guardia Oteiza

marielag@icazalaw.com

Adolfo González-Ruiz

adolfog@icazalaw.com

Tender for new water management system at the Panama Canal

The Panama Canal Administration published on September 7, 2020, a Request for Qualifications (RFQ) for the engineering, procurement, and construction of a water management system that will guarantee an adequate water supply for Canal operations and local consumption the next 50 years.

The Administration of the Panama Canal (ACP) said that with the publication of RFQ, the process for the development of the “optimized water resource management system begins, which considers a portfolio of projects to strengthen and modernize the current system and guarantee the water supply. “

Interested parties must submit, no later than November 12, financial and technical information, along with the history of successful project execution, which will be evaluated by the Panama Canal to choose the prequalified firms before the end of this year.

While investment figures for the water management project were not provided, a report from Moody’s released last July indicated that the investments required to “address the scarcity” of the water resources “are estimated to be between US$1 and US$1.5 billion.”

Alexis Herrera Jr.

alexishjr@icazalaw.com

Adolfo González-Ruiz

adolfog@icazalaw.com

The Chambers High Net Worth 2020 guide has recognized our partner Roberto Alemán as a leading High Net Worth professional in Panama, while highlighting Icaza, González-Ruiz & Alemán as a Band 1 firm in Private Wealth Law. 

 

Chambers’ comments on the firm and Mr. Alemán were the following:

Icaza, González-Ruiz & Alemán has a respected private client department. The team assists high net worth individuals and families on matters including succession planning and corporate organisation of family businesses.

Roberto Alemán is a “seasoned lawyer” who regularly advises clients on estate planning matters. He has particular expertise on offshore matters.

 

We congratulate Mr. Aleman and his team for this recognition.

 

About Chambers High Net Worth

Chambers High Net Worth analyzes and ranks the performance of the top lawyers and law firms for international private wealth. The guide, which is used by family offices and professional advisers to wealthy individuals, also recommends leading accountancy firms, private banks, wealth managers, trust companies, and other professional advisers to HNW and UHNW clients around the world.

The Chambers Latin America 2021 guide has, once again, highlighted Icaza, González-Ruiz & Alemán by ranking the firm in five practice areas for the Panama chapter and recommending our attorneys as leaders in their fields. The areas of practice in which the firm was ranked are:

• Banking and Finance
• Corporate/M&A
• Dispute Resolution
• Intellectual Property
• Projects & Energy

Our lawyers ranked in the guide are:

• Gabriel González-Ruiz – Banking and Finance – Capital Markets – Corporate / M&A and Projects & Energy
• Marisol Ellis – Dispute Resolution 
• Gabriela Tejada de Britton – Intellectual Property
• Alexis V. Herrera Jr. – Shipping: Litigation

Chambers and Partners is a prestigious legal service guide, that identifies and ranks the most prominent law firms and lawyers in more than 180 jurisdictions around the world.

Francisco González-Ruiz receives Eduardo Morgan Medal

Last Thursday, August 27th, 2020, our partner of counsel Francisco González-Ruiz received the Eduardo Morgan medal, awarded by Panama’s Bar Association, in recognition of the outstanding and notorious execution of work that he carries out as a legal professional.

Mr. González-Ruiz, who was accompanied by his family members during the ceremony, expressed his gratitude for this recognition.

The National Bar Association highlighted the effort that Mr. González-Ruiz has been making for 45 years for the benefit of the union and the nation.

We congratulate our partner of counsel for receiving this significant accolade.

Let’s review why Economic Substance requirements were implemented, and how to keep your companies compliant with jurisdictional regulations.

 

In response to the European Union and the OECD’s efforts to enhance tax transparency, Economic Substance legislation has been introduced in major offshore jurisdictions such as the British Virgin Islands, Bahamas, the Cayman Islands, among others. Once these laws were in force, many aspects of compliance were not clear, nor were there final guidance notes available for agents managing entities to adequately explain the effects of these regulations on their client’s companies. This caused a high level of uncertainty, raising questions whether these companies were appropriate for their structures.

 

In the following months, final guidance documents were issued, and after analyzing these regulations, a considerable percentage of entities resulted to be out of the scope of these laws, and for those who are, complying with the law is more straightforward than initially thought. Below we describe the necessary steps to take to ensure compliance:

 

1. Classify the activity of your company: Take into consideration the relevant core income-generating activities that fall within the scope of Economic Substance Laws. For this case, we will use the British Virgin Islands (BVI) jurisdiction as an example:

 

 

Relevant activities:

–        Banking

–        Distribution and Service center

–        Financing and leasing

–        Fund Management

–        Headquarters

–        Holding company

–        Insurance

–        Intellectual Property

–        Shipping

 

Ask yourself the following questions:

1. Does my entity perform any of the above-mentioned relevant activities?
2. Do I receive income from one of these activities?

If the answer to these questions is yes, your entity is within the scope of the law.

 

2. Verify if your company is under any of the exceptions to the law:

 

• Companies that are tax resident in a jurisdiction other than the BVI (that is not in the EU non-cooperative list), and can provide evidence to prove their tax residence, are outside the scope of the law.

• Companies that do not conduct relevant activities, such as property investment business, property holding, property trading, investment funds, among others, are not within the scope of the law.

• Companies that do not generate income during the reporting period are not within the scope of the law.

 

3. Determine the substance requirements applicable to your company:

A. For holding companies: Pure equity holding entities which carry on no relevant activity other than holding equity participations in other entities and earning dividends and capital gains have reduced economic substance requirements, namely:

 

• Complying with its statutory obligations under the BVI Business Companies Act, 2004, or the Limited Partnership Act, 2017, meaning the standard yearly requirements for all entities. For example: Maintaining all company records updated, such as the register of directors, beneficial owners’ information, etc.

• Adequate employees and premises for holding equitable interests: The premises and the employees must be maintained locally, and outsourcing these services is allowed. This requirement can be fulfilled by retaining the services of the registered agent which is currently providing registered office services for the company.

 

B. For other activities: Substance requirements include:

• Physical premises: in the jurisdiction,
• Adequate employees: in the jurisdiction, proportionate to the activity,
• Managed and directed (board) locally: board meetings in the jurisdiction, adequate number of meetings held, the quorum of the board to be physically present in the jurisdiction, drafting minutes of the strategic decisions of the company, and keeping minutes of the meetings in the jurisdiction.
• Core income-generating activities: conducted locally,
• Operating expenditure: must be proportionate to the relevant business activity taking place.

 

4. Report required information to the registered agent: As details on your BVI entity will need to be added to the Beneficial Ownership Secured Search (BOSS) system, you must provide your agent with the necessary information in a timely manner so your company will remain compliant and to avoid penalties.

 

5. Conduct a review of the company’s structure annually, and determine what works best for your situation: As economic substance requirements must be complied with on an annual basis, changes in your structure, activities, or business model may affect your company’s status; therefore, it is necessary to conduct a yearly review to build substance and report information accordingly.

 

For Economic Substance requirements in other jurisdictions, view our Economic Substance – Comparison chart.

 

What can we do to help?

To assist you in complying with this legislation, we can classify your entity, confirm the applicable substance requirements, and provide outsourced services to build substance. Further, we can assist you in the review of your company’s structure and advise you on the best route forward.

 

If you have any questions or if you would like to learn more about our services, contact us at bd@icazalaw.com.