Regardless of our age or the size of our patrimony, it is important to properly organize the assets we own because unforeseen events arise in life.

By: Estefanía Alemán – General Manager of Icaza Trust Corporation

Regardless of our age or the size of our patrimony, it is important to properly organize the assets we own because unforeseen events arise in life. By properly organizing the assets that we own, I mean the following: i) make sure that the assets we acquire are duly transferred in our favor as individuals, or in favor of a legal person of which we are beneficiaries; ii) and plan the destination or succession of these assets once we die so that they are transferred to the people we wish without major legal complications.

We must make sure that the assets we acquire are duly transferred in our favor because on many occasions we think or assume that we have acquired an asset, and later we find out that we are not the owners of the asset because it was not transferred to us according to the legal formalities required for the transfer. Recently a family member told me that he had noticed that the apartment in which he has been living for more than ten (10) years, and for which he has paid a mortgage during this period, is still registered in the name of the developer. I have also come across many cases in which a client believes to be the owner of some shares, and then realizes that they were not endorsed correctly, and the transfer of shares was not recorded in his or her favor in the company’s share register. In my experience, cases in which people believe that they own assets when legally these assets have not been transferred in their favor are more common than we imagine. Therefore, we must review and confirm that the assets in which we have an interest or participation are correctly transferred in our favor personally, or in favor of a legal person of which we are beneficiaries.

The second important point is to plan the destination or succession of our assets once we die. Generally, we do not give importance to this matter because we do not see our death proximate, we let this issue pass by, or we think that an estate planning structure is expensive. However, for a person’s heirs dealing with the estate of their deceased family member is tedious, and painful, and may involve conflicts, time, and money before being able to transfer the deceased relative’s assets in their favor.

For example, when a person dies and has no will or estate-planning vehicle, he or she dies intestate. The intestate succession proceedings can take approximately one year if no conflicts or obstacles arise during the proceedings. If conflicts and obstacles arise within the process, years may pass by before the heirs are able to receive the deceased relative’s assets.

Generally, an intestate succession proceeding involves the following steps:

1. The interested parties must identify the last domicile of the deceased in order for the notaries of their notarial circuit to certify that the deceased did not leave a will.
2. The interested parties must present before a circuit court the notarial certifications and the request for opening the Intestate Succession Proceedings.
3. The circuit court accepts the request for opening the Intestate Succession Proceedings, and forwards it to the Public Ministry so that the civil courts may declare whether they have any objections to the opening of the proceedings.
4. After receiving the response from the Public Ministry, the corresponding circuit court issues a resolution declaring the opening of the Succession Proceedings.
5. The circuit court publishes the opening of the proceedings, which in several cases causes potential heirs of the deceased to come forward to claim an interest in the estate.
6. Subsequently, the circuit court carries out the inventory and appraisal of the estate of the deceased.
7. When the inventory and appraisal of the estate is completed, the court subtracts the liabilities from the estate, and declares the value of the estate.
8. The court publishes the value of the estate assets, and any interested party may file objections.
9. After assessing any objections, the court issues a ruling on the value of the estate assets.
10. Finally, the court issues a resolution awarding the inheritance assets to the appropriate heirs.

The intestate succession proceedings involve time, costs, and potential conflicts and obstacles. When a person dies and has a will, the testate succession proceedings are similar to intestate succession proceedings, except that they do not require steps (i) and (iii) above, and possibly involve fewer conflicts because the heirs have been identified. However, the testate succession proceedings also involve time, costs, and legal formalities. Thus, the transfer of the deceased’s assets does not occur automatically in favor of the heirs.

The most efficient, organized, and transparent way for a person to transfer assets in favor of his or her heirs is through a Private Interest Foundation or a Trust. Both vehicles have different legal characteristics, but a common objective, which is to distribute and transfer assets in favor of the Beneficiaries that apply in each case in an automatic and efficient manner. Depending on the idiosyncrasies of each patriarch, and the value and variety of the estate, the Private Interest Foundation or Trust can be simple or complex to fulfill the wishes of the person upon his or her incapacity or death.

For more information on Private Interest Foundations and Trusts, contact us at icazatrust@icazalaw.com.

By: Mariano Oteiza Díaz

The Board of Directors of a Panamanian corporation, pursuant to Article 51 of the General Corporations Law of Panama (Law 32 of 1927, hereinafter “the Law”), may exercise all the powers of the corporation, except those that the Law, the Charter of Incorporation or the Bylaws confer or reserve to the shareholders. Therefore, the Board of Directors is competent to manage and direct the business of the corporation in a general manner and its powers or authorities, among others, include the following:

• To declare dividends of the corporation;
• To authorize the issuance and repurchase of shares;
• To adopt and amend the Bylaws;
• To borrow money and issue debt instruments;
• To appoint and remove the Officers of the corporation;
• To approve all types of agreements and contracts;
• To approve the sale and encumbrances on the assets of the corporation;
• To delegate its authority and issue powers of attorney.

Due to the broad management powers and authorities that directors generally hold, under Panamanian law it is understood that the relationship between them (the directors) and the shareholders and the corporation is that which defines the relationship between an Agent and a Principal. Directors of a corporation are deemed to have been given a “mandate” to manage the business of the corporation and, therefore, are liable to execute their mandate under the duty of care standards held by Agents and may be personally liable for negligence in the exercise of that duty and mandate.

Article 444 of the Panamanian Code of Commerce establishes that directors shall not be personally liable for the obligations of the corporation, but shall be personally or jointly and severally liable, as the case may be, to the corporation and to third parties in the following events:

1.  False capitalizations, i.e., of the effectiveness of the payments that appear to have been made by the shareholders;
2.  For the lack of funds for the payment of dividends declared by the Board of Directors;
3.  For the proper management of the corporation’s accounting;
4.  In general, for the execution or poor performance of its mandate;
5.  For the commission of acts that go against the provisions of the Charter of Incorporation, resolutions adopted by the shareholders, the bylaws of the corporation or the laws in general.

Nevertheless, the same Article adds that those directors who have protested in due time against the resolution of the majority or those who have not attended with just cause shall be exempted from liability. Liability may only be demanded by virtue of a resolution of the general shareholders’ meeting.

In addition to the provisions of the Code of Commerce, Article 64 of the Law additionally lists certain acts or events in which the directors who have given their consent and that thereby affect the capital stock of the corporation, may be jointly or severally liable to the creditors of the corporation for the resulting damages. Such acts are the following: (i) if any dividend or distribution of assets is declared or paid that reduces the value of the corporation’s assets to less than the amount of its liabilities, including in this the capital stock; (ii) if the amount of the capital stock is reduced; (iii) if any false statement is given or any false report is rendered on any material point.

As a final recommendation to our article, every director in the exercise of his/her functions must know and analyze in detail and prior to his/her appointment as such, which are his/her functions, powers, obligations and liabilities in the company’s management, since they may vary from company to company based on the provisions of its Charter of Incorporation, bylaws or resolutions of the Shareholders’ Assembly.

For assistance regarding Panamanian Corporations, contact us at igranet@icazalaw.com.

By: Luis Martínez – Icaza Trust Corporation

Given the current socioeconomic and financial circumstances, the increase in unemployment and informality, it is necessary for the economic reactivation to be swift and effective.

The Panamanian state has created various tools to influence economic growth in different areas and in this article we will address a current success story that is yielding visible results. This is the case of the Microcredit Trust Fund in Panama (Fidemicro-Panama).

The Fidemicro program, which was established by Law 72 of 2009, is a fund that functions as a second-tier bank. The State contributes funds to a trust and those funds in trust are managed independently by a trustee entity chosen through a public bidding process, in this case Icaza Trust Corporation (I.T.C.). The trustee, on behalf of the trust, grants loans in a transparent manner and with high administrative standards and risk analysis, to financial institutions throughout the country, so that they have liquidity to be able to place loans to the various micro, small and medium-sized enterprises (MSMEs) and entrepreneurs in the country.

This Trust Fund performs the function of second-tier banking by providing financial resources to first-tier operators, who with such resources and at their own risk, shall make placements and recoveries from their users and clients, expanding and consolidating their microfinance services at interest rates that must be competitive.

It should be noted that lending money to MSMEs is an essential pillar for the development of the Panamanian economy. However, in general, traditional banks do not cover them, for reasons such as profitability, lack of resources, or low risk tolerance or appetite. After analyzing some statistics, we have realized that the appetite for credit in this sector is important and promising.

Likewise, in order to achieve sustained and less unequal growth, Panama needs to encourage its population to create companies and businesses that generate value and jobs. This objective can be achieved more productively with financing focused on the small business ecosystem.

Since its inception, the Fidemicro-Panama trust has placed resources to more than sixteen (16) financial companies, one (1) bank, one (1) rural savings bank and six (6) cooperatives.

Beneficiaries 

(percentages)

Distribution of loans by province

(millions of dollars)

Disbursements by area

(percentages)

In turn, these financial entities have been able to place these resources to more than eleven thousand one hundred and seventy-seven (11,177) final recipients, of which approximately forty-one percent (41%) are women and fifty-eight percent (58%) are men.

If we break down the loan totals by province, we find that the Province of Panama has received disbursements of close to fifteen million dollars (US$15,000,000.00) and the Province of Chiriqui has received approximately twelve million dollars (US$12,000,000.00). The area of Los Santos and Herrera has received an amount close to four and a half million dollars (US$4,500,000.00), and Veraguas has received an approximate amount of three million seven hundred thousand dollars (US$3,700,000.00). The remaining of the country’s provinces have received an average of five hundred thousand dollars (US$500,000.00).

Of the total disbursements made, forty-three percent (43%) of the funds placed have been destined for rural areas, while fifty-seven percent (57%) of the funds have been placed in urban areas.

This fund, whose origin is public, but which is managed under the tutelage of a credit regulation and administered by an independent trust company, with total transparency and specific rules and adhering to the highest standards of financial and credit risk management applicable in national banking, has managed to be self-sufficient, generate profits and reapply those profits to new loans, being able to achieve a turnover greater than 2.71 times the initial balance contributed by the State. This data reflects the program’s ability to maximize public resources and ensure that they reach as many beneficiaries as possible.

The program has been developed by the Micro, Small and Medium Enterprise Authority (Ampyme, for its acronym), with an initial capital of approximately fifteen million eight hundred two thousand six hundred sixty-four dollars (US$ 15,802,664.00).

Promotion of the FIDEMICRO program in cooperatives in Coclé, Herrera and Los Santos.

At the end of 2021, the fund has a portfolio of loans placed of more than twelve million US dollars (US$12,000,000.00), and total assets of approximately twenty million US dollars (US$20,000,000.00), which represents an increase of approximately forty-two percent (42%) in the fund’s total assets since its creation.

In order to classify this program as a success story, apart from analyzing the aforementioned numbers, we must take into account that the impact of these placements multiplies the benefits throughout the country.

In the last six months of the year, at least three tours have been made to different parts of the interior of the country to promote the Program, and important placements have been made in financial entities whose epicenter of operations allows them to reach rural and hard-to-reach areas. The clients of the financing entities participating in the Fidemicro Program are entrepreneurs, natural and legal persons, who use these funds to create or maximize a business that generates value, jobs and growth opportunities in the areas where they operate. This tendency contributes to include these entrepreneurs in the economic formality bringing as a consequence a long-term benefit of great magnitude for the country.

Another key point of this program is the financial soundness with which it is managed, and the adherence to risk and credit policies, which has allowed that at the end of 2021, in the midst of the coronavirus pandemic, the total delinquency of the portfolio does not exceed one percent (1%). As a country, we should be proud of this fact.

The main activities for which financing entities’ clients have requested financing are: Retail trade, transportation, handicrafts, services, and the agricultural sector.

One of the latest financial institutions to access the program is the Milk Producers Cooperative (COOLECHE, for its acronym in Spanish), one of the largest agricultural cooperatives in the country, which was approved for a total loan of one million US dollars (US$1,000,000.00), in order to provide its clients with a soft loan opportunity and resources to improve the productivity of their businesses. Most of COOLECHE’s associates are in the agricultural sector in rural areas.

Loan certification to Microserfin and Banco Delta.

The fund also has banking entities such as Banco Delta, CENTRAL EMPRESARIAL SOLIDARIA, S. A. and MICROSERFIN, which are leading microfinance institutions. Another strong entity participating in the program is Suma Financiera, S.A. Also within the broad spectrum of participating financial entities are other more regional ones such as COOPERATIVA SM CHARCO AZUL and Financiera Volcán in the province of Chiriqui, and COOPERATIVA DE SERVICIOS MÚLTIPLES NUEVA UNIÓN R.L. in the area of Azuero.

Icaza Trust Corporation (I.T.C.) as trustee of the Fidemicro Panama program has as its main goal to responsibly place all the available assets of the fund in the shortest time possible, trying to meet the social goal of the project which is to place a very considerable amount of the funds to entities that reach rural areas. One of the pillars of the program is to bring a light of hope and development to areas that are not usually served by traditional banking, and that by receiving financing for the development of their businesses achieve a direct impact on the Panamanian economy, helping to reduce the socio-economic gap in the country.

Law 122 of December 31st, 2019

By Ricardo Alberto Ceballos

Law 80 of November 8^th, 2012 which establishes incentive regulations for the promotion of tourism activity in Panama, amended in its article 9 by Law 122 of December 31^st, 2019 and regulated by Executive Decree 364 of July 23^rd, 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 31^st, 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 1^st, 2014 and December 31^st, 2019, the validity of these shall be enabled, so that these companies or hotels shall maintain the incentives established in their records until December 31^st, 2025. Companies or hotels whose national tourism registration expires after December 31^st, 2019, shall have their validity extended until December 31^st, 2025.

Executive Decree 364 of July 23^rd, 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:

1. Certification from your Broker Dealer House regarding your quality as First Acquiring Investor, which must include your general particulars and investment amount.
2. 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:

1. 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;
2. Up to a maximum amount equivalent to fifty percent (50%) of your income tax caused;
3. Provided that the previous amount does not exceed fifteen percent (15%) of the initial amount of the tax credit; and,
4. 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.

Responsibilities of the Boards of Directors of Horizontal Properties according to Executive Decree 142 of July 9, 2021

By Ricardo Alberto Ceballos

Executive Decree 142 was issued on July 9, 2021, as regulatory of Law 226 of June 8, 2021, which regulates the design and building standards in Panama.

This legislation establishes and defines the responsibility of the Boards of Directors of Horizontal Properties, as well as their owners and/or inhabitants of the property, to perform the appropriate periodic maintenance work of their buildings once the Permit or Certificate of Occupancy have been issued. This maintenance must include the condition of the structure (slabs, columns, masonry), windows and roofs, coatings, as well as access ramps, evacuation routes, stairs and handrails, among others.

It is also established in said regulation, that the Boards of Directors of the Horizontal Properties, as well as their owners and/or inhabitants of the property, shall also be responsible for the periodic maintenance of the electrical and mechanical systems and equipment, such as elevators or escalators, electrical generators, pool equipment, fire detection systems and fire alarms, firefighting systems (including the maintenance of fire extinguishers and sprinklers), lightning and gas systems, as well as air conditioning and extraction equipment and any other equipment in use within the building, with their certifications updated by the Fire Department of the Republic of Panama, if required.

It is important to note that according to Article 62 of Law 31 of June 18, 2010, which governs Horizontal Property in Panama, the Board of Directors shall be responsible for complying with and enforcing the decisions of the Assembly of Owners regarding the administration and conservation of the common property and shall also have the functions and powers established in said article, which are not as specific as the responsibilities established in Executive Decree 142 of July 9, 2021 mentioned above.

However, and according to numbers 2 and 9 of article 72 of Law 31 of June 18, 2010, the administrator of the Horizontal Property has the obligation to: 

1. To perform the ordinary and regular duties of administration and conservation, carry out those that were of urgency for the integrity of the horizontal property and undertake those ordered by the Assembly of Owners and,
2. To order the urgent repairs in the common areas of the horizontal property and in the private areas that affect other real estate unit.

Although it is true that according to Article 62 the Board of Directors is responsible for complying and enforcing the decisions of the Owners’ Assembly, it is important to emphasize that it is the administrators who during the performance of their duties become responsible for verifying that everything is in order within the Horizontal Property so as to immediately inform the Board of Directors of what is happening, not only for the service they render, which is paid with the share of common expenses contributed by all the owners, but also for the duty they have of watching over the integrity of the co-owners and inhabitants of the Residential or Building, the latter with the sole purpose of ensuring that each owner has peace of mind in his daily life.

It is worth to remind the owners of a Horizontal Property, how important it is to attend the meetings of Co-owners’ Assembly of their Building or Residential, so that they can express their opinions and assert their rights, as well as to comply with their duty and take the opportunity to qualify the work of the administrators, who should be hired not only for the amount of services they propose or for what they charge, but for the experience they have, so that in the case of a specific situation they act with due diligence.

In September 2019, the Republic of Panama approved Law 93 (“Law 93”) through which Public-Private Partnerships (“PPP”) are regulated. Recently, in December 2020, Executive Decree No. 840 was approved, through which Law 93 (“DE 840”) is implemented.

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Concept

PPP are a long-term public contractual modality (up to 30 years, renewable for up to 10 more years and up to 5 years if delays attributable to the Contracting Public Entity occur) (“PPP Contract”), whereby the Central Government, one or more autonomous and semi-autonomous entities of the Non-Financial Public Sector, municipalities or companies in which the State owns at least 51% (“Contracting Public Entity”), after a public bidding process, it may agree with private sector entities (“PPP Contractor”) the use of its knowledge, experience, equipment, technologies and financial capacity, as well as the sharing of risks and resources, for the design, construction, expansion, financing, exploitation, operation, maintenance, administration and/or supply of infrastructure, associated equipment or public services (“PPP Project”), included in the Five-Year Investment Plan or listed from time to time by the Cabinet Council, the amount of which may not be less than B/.15 million, except in the case of municipalities.

Modalities or Classes

PPPs may be Self-financed (if the costs are recovered by the PPP Contractor with the income received from the PPP Project) or Co-financed (if the PPP Project requires financial resources from the State so that it entails Firm or Contingent Commitments from the Contracting Public Entity).

The transfer of assets other than money or credits, the expenses and costs of acquisition or appropriation, payments made by users to the PPP Contractor are not considered State Financial Resources.

State Banks (i.e. BNP, Caja de Ahorros, and BDA) may only finance up to 15% of the PPP Project.

In Co-financed PPPs, the resources must be administered through a specific purpose trust in Panama, which must be created prior to the signing of the PPP Contract, with a duration equal to that of the PPP Contract and its renewals plus 1 additional year, in which the Contracting Public Entity may be a Settlor and/or Beneficiary, and the Trustee must (i) have a trust license granted by the SBP, (ii) be approved by the Regulatory Entity, through the PPP National Secretariat, and (iii) have a minimum experience of 5 years in infrastructure projects with a value of no less than B/. 15 million.

Projects included and excluded

Executive Decree 840 authorizes the use of PPPs for the development of transportation, logistics, energy, communications, irrigation, urban infrastructure, public buildings, social housing, infrastructure for recreational services, garbage collection and/or treatment, agricultural development, and administration and management of state-owned assets.

Government institutions such as IDAAN, ACP, CSS, BNP, Caja de Ahorros, ISA, SMV, SBP, public security services, medical health, public education, and extraction of metallic minerals are expressly excluded. Nevertheless, Executive Decree 840 provides that the provision of infrastructure and equipment, as well as the replacement, upkeep, and maintenance in such areas, may be subject to PPPs.

The Contracting Public Entity interested in developing a PPP Project must submit to the Regulatory Entity (made up of 5 State ministers and the Comptroller General), through the PPP National Secretariat, which shall be at the Ministry of the Presidency, for the approval of its application, the Technical Report, the Risk Allocation Matrix, Financial Scheme, Fiscal Impact, Financial Guarantees, the bidding list of charges and the draft PPP Contract.

The PPP National Secretariat must create a PPP Register in which the following must be viewed: all PPP Projects approved by the Regulatory Entity, the Technical Reports, the Bidding List of Charges for public bids, the members of the Assessment Commissions, the arbitration awards issued, the charters of incorporation of the SPVs which are PPP Contractors, the specific purpose trust contracts, the resolutions of the Contracting Public Entity establishing the rates and charges.

PPP Contractor Selection Process

Once a PPP Project has been approved by the Regulatory Entity, the Contracting Public Entity shall carry out its public bidding process for the selection of the PPP Contractor.

Both nationals and foreigners who have the legal capacity to contract with the State may participate in public bids, provided that they are not disqualified, that they comply with the principle of integrity (i.e. have not incurred in acts of corruption), and that they comply with that which is set forth in the corresponding bidding list of charges and the applicable legal provisions. The following are disqualified from participating in public bids for PPP Projects: (i) those who are in arrears in the payment of fines for breach of contracts with the State, (ii) those who participated in any way in the contractor selection process, (iii) those convicted in Panama, by means of final and binding judgment, to be disqualified to perform public offices or to contract with the State, (iv) those declared in a state of liquidation, (v) those who have incurred in falsehood in relation to the required information, (vi) those who are not legally organized, (vii) those who have had a contract administratively terminated for tortious or fraudulent breach of contract, (viii) natural persons who have been convicted in Panama by means of final and binding judgment, in the past 10 years, for crimes against the public administration, money laundering, against the economic order, against the public safety, against the economic patrimony and against the public faith, with sentences of 1 year or more.

Calls for public bidding shall be made through the electronic portal of the Regulatory Entity no less than 30 working days in advance. The information regarding the reference value and the technical assessment criteria shall be made public. The Bid Bond shall be established by the Contracting Public Entity together with the General Comptroller’s Office and shall not be determined according to the value of the economic offer; in any case, the amount shall appear in the respective bidding list of charges.

There may be instances prior to the bidding process itself, such as requests for expression of interest, pre-qualification processes, and access to data rooms.

In any case, on the day, time, and place set forth in the Bidding List of Charges, the bidders must submit their Proposals (which must contain their technical and economic proposal and the bid bond). Only those proposals which are not accompanied by the bid bond or which have submitted a bid bond for less than the required amount or validity shall be rejected outright. The remaining documents may be corrected within a period of 5 working days. The Technical and Economic Proposals (with the exception of the envelope containing the proposal on the variable of award offered) shall be opened and listed in Minutes, in order of presentation and with an indication of the values proposed. The assessment process shall comprise two stages: (i) one for compliance assessment of technical requirements; and (ii) another for assessment of economic proposals. The Technical Proposals, which have not been disqualified for not submitting all the requested information, shall be assessed on a compliant/non-compliant basis. The Economic Proposals, which have not been disqualified for not complying with the terms and conditions of the Bidding List of Charges, shall be assessed independently from the Technical Proposal, according to the objective criteria established in the Bidding Document (e.g., higher revenue for the Contracting Public Entity, shorter term for the PPP Contract, lower payment by the Contracting Public Entity), in both cases by majority decision of an Evaluation Committee formed prior to the receipt of proposals, by no less than 3 members who shall be professionals of recognized experience, who may be advised by other experts. The Evaluation Committee shall have 30 working days to submit its assessment report to the Contracting Public Entity. Correctable errors may be remedied within 5 working days. The Proposals may be rejected as onerous or risky if they exceed a percentage of the reference value established in the Bidding List of Charges. The Assessment Report shall be published in the electronic portal of the Regulatory Entity and the participants shall have 10 working days to make remarks, after which and within a period not exceeding 10 working days, the Contracting Public Entity shall proceed to make the award by means of a grounded resolution.

The Contracting Public Entity shall award the PPP Contract by means of a grounded resolution. In case of disqualification or if a proposal is deemed risky or onerous, the award may be made to the bidder with the next highest score. In the event that no bidder remains, the bidding process shall be declared vacant.

Those who consider themselves affected by the decisions may file the remedies provided for in the Public Procurement Law.

PPP Contracts, amendments, and termination

The PPP Contracts shall contain, without prejudice to the clauses that the parties may wish to include, the following:

1. Rights and obligations of the parties.
2. Risk allocation of the PPP Project.
3. Obligations assumed by the PPP Contractor in terms of infrastructure, equipment, and/or services.
4. Quality standards.
5. Advancement clause which allows the incorporation of new technologies.
6. Terms of payment of remuneration to the PPP Contractor.
7. Contingent Commitments, if any.
8. Contributions of the PPP Contractor to the Contracting Public Entity.
9. Contractual amendments procedure.
10. Conditions of a unilateral amendment or administrative redemption by the Contracting Public Entity.
11. Liquidation regime in case of early termination.
12. Requirements, information, and inspection of the PPP Project.
13. Compliance control mechanisms and applicable penalties.
14. Grounds for noncompliance and remedy periods.
15. Validity period.
16. Dispute resolution mechanism (e.g. direct negotiation, technical panel, arbitration).

The PPP Contract may also establish penalties for non-compliance, which could range from a written warning, monetary fines, up to termination of the contract, depending on the severity of the offense.

Since it is a public contract, it requires the countersignature of the General Comptroller’s Office and publication in the Official Gazette. In order to sign the PPP Contract, the PPP Contractor is required to provide the corresponding Performance Bond.

PPP Contracts may be amended by the Contracting Public Entity, prior consultation with the PPP National Secretariat and approval of the Regulatory Entity, for reasons of public interest, in which case the PPP Contractor must be financially compensated, either through payments by the Contracting Public Entity, payment by third parties, adjustment of the PPP Contract period, modification of tariffs or modification of the present value of the PPP Contract revenues. Amendments may also be made at the request of the PPP Contractor, at any time before ¾ of the duration of the PPP Contract has been fulfilled and provided that the Risk Allocation Matrix is not altered. In any case, the amendments may not require new investments in excess of 20%, nor may they in the aggregate exceed 40% of the estimated value of the investment. Any addendum to the PPP Contract must be assessed by the PPP National Secretariat, approved by the Regulatory Entity, countersigned by the General Comptroller’s Office, and published on the Regulatory Entity’s electronic portal.

PPP Contracts shall be terminated, prior declaration of the Contracting Public Entity by means of a grounded resolution, with the authorization of the Regulatory Entity, due to (i) force majeure or acts of God which permanently prevent its execution, (ii) expiration of the agreed term, (iii) mutual agreement, (iv) Gross Breach, (v) administrative redemption, (vi) any other provided for by law or in the PPP Contract. PPP Contractors whose PPP Contract is terminated for any Breach may not bid again for a PPP Project for a period of 10 years.

The following may not be subject to alternative dispute resolution methods: (i) non-contractual matters, (ii) administrative resolutions issued in relation to the PPP Contractor, (iii) those provided for in the PPP Contract.

Conditions Precedent to the execution of the PPP Contract

In order for the PPP Contractor to enter into the PPP Contract, which was awarded to it, it must have complied with the following minimum conditions: (i) to have constituted the SPV, (ii) to have constituted the trust, in case of Co-financed PPP, (iii) to have constituted the Performance Bond, (iv) to submit the templates of the required policy contracts, (v) to submit the affidavits and other documents required in the bidding list of charges.

PPP Contracting Party

The PPP Contract must be executed with a special purpose vehicle (“SPV”) incorporated under Panamanian law. The corporate purpose of this corporation must be limited to the activities foreseen in the PPP Contract, including related or ancillary activities; its validity must exceed the validity of the PPP Contract by 3 years and its corporate domicile must be in Panama. Modifications to the charter of incorporation require the authorization of the Contracting Public Entity.

The minimum capital required in the Bidding List of Charges must be paid at the time of its incorporation and maintained during the entire validity of the PPP Contract. At least 51% of such capital must be contributed by the successful bidder. In case there are other contributors (shareholders), the SPV must have two types of shares: (i) Controlling Shares Package (PAC), and (ii) Free Disposal Shares Package (PALD).

Restriction on Change of Control and Assignment of Rights under the PPP Contract

The transfer of PAC shares of the SPV, as well as the assignment of the rights of the PPP Contract shall require the prior approval of the Contracting Public Entity, the authorization of the Regulatory Entity, and, if any, of the pledgee. The PALD shares are freely transferable, provided that the Contracting Public Entity verifies that the new shareholders comply with the conditions set forth in the Bidding List of Charges.

Limitations on Ownership and Special Pledge of the assets and rights of the PPP Contracting Party

The assets and rights acquired by the SPV PPP Contractor for the purposes of the PPP Project may not be disposed of, mortgaged, or encumbered without the prior consent of the Contracting Public Entity, except to be transferred to a trust in the case of a Cofinanced PPP; and in any case, such assets and rights shall become public property upon termination of the PPP Contract.

The rights derived from the PPP Contract, including the revenues to be received by the PPP Contractor, may be subject to a Special Pledge (non-possessory), with the prior express authorization of the Contracting Public Entity, and the Regulatory Entity must approve the transfer to the pledgee or a qualified operator. The constitution of the Special Pledge shall prevent the PPP Contractor from assigning the PPP Contract, assigning the PAC Shares, making amendments to the PPP Contract, and/or early termination of the PPP Contract. The foreclosure of the Special Pledge shall entail the substitution of the PPP Contractor or the transfer of the PAC and the PALD shares, this last only if they were pledged.

Suspension of the PPP Contract for reasons of Force Majeure and Acts of God

The regulation establishes more detailed definitions than those offered by the Civil legislation as to what constitutes Acts of God and Force Majeure and allows in such cases to suspend the effects of the PPP Contract, prior declaration of the Contracting Public Entity with the opinion of the PPP National Secretariat.

Grounds for Termination of the PPP Contract

The regulations distinguish between causes attributable to the PPP Contractor (e.g. gross breach of obligations, insolvency, liquidation), grounds attributable to the Contracting Public Entity (e.g. gross breach, administrative redemption), and non-attributable grounds (e.g. expiration of the term, mutual agreement, impossibility of execution). The distinction between the grounds for termination is relevant for the purpose of establishing whether or not there are applicable economic effects (e.g. indemnities).

The PPP Contractor’s liability, in relation to the assets and rights transferred to the Contracting Public Entity upon termination of the PPP Contract, is extended to 1 year in relation to real property and 6 months in relation to personal property.

Administrative Intervention

PPP Contractors are subject to intervention by the Contracting Public Entity, with the prior authorization of the Regulatory Entity, in cases of Gross Breaches (as detailed in the PPP Contract, or in the Bidding List of Charges), after the expiration of the remedying periods and provided that the creditors have not opted to exercise the right of substitution and termination of the PPP Contract. Gross Breaches are defined as (i) gross and unjustified interruption in the provision of the service or abandonment of the works, (ii) gross breach by the PPP Contractor.

The appointed Receiver (who must be an economist, financier, accountant, engineer or other similar, with more than 10 years of experience), shall temporarily displace all the management bodies of the PPP Contractor, shall report to the Contracting Public Entity within 90 calendar days of his appointment, and in any case, the intervention shall last up to the maximum foreseen in the PPP Contract. Once the intervention has been completed, the Receiver may return the management and operation to the PPP Contractor, hand them over to a new contractor, or continue with the management and operation of the PPP Project.

Queries

For any additional questions please contact our Government Affairs Department attorneys:

Gabriel González-Ruiz

gabrielg@icazalaw.com

Luis Chalhoub

luisch@icazalaw.com

Alfredo Fonseca

alfredof@icazalaw.com

Adolfo González-Ruiz

adolfog@icazalaw.com

Resolution No. 636 of January 27, 2021

Through Resolution 636 of January 27, 2021, Panama’s National Immigration Service extends the validity of residence permits issued to foreigners, which expired on March 13, 2020, to June 30, 2021. Any expired permit or stay during this period will not generate fines due to expiration.

The processes include:

• Provisional permit cards
• Non-resident visas
• Judicial Stay Cards
• Immigration Regularization Cards
• Tourist stays

Birth and marriage certificates previously issued until June 30, 2021, and that have expired during the period from March 13, 2020, to January 31, 2021, will be recognized as valid.

For more information or assistance on immigration matters

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.