Administrators Obligations related to documents of the administration of a Horizontal Property

Ricardo CeballosBy: Ricardo Ceballos

According to numeral 23 of Article 93 of Law 284 of February 14, 2022 on the Horizontal Property Regime, the administrator of the Horizontal Property (P.H.) shall have the obligation to handover to the Board of Directors, once the contractual relationship has ended, all documents pertaining to the administration and those that have been placed under his custody by the latter, which may include Books of Minutes of the Board of Directors and Minutes of the Assembly of Owners, account statements, correspondence, documentation related to bank accounts, keys of the administration office and the property.  Furthermore, all those under its responsibility, for which a Minutes of Handover shall be taken and signed by the administrator and a representative of the Board of Directors.

 

From the above-mentioned, correspondence is very important documentation that must be handled with security, protecting it from distortion.  It is for this reason that we recommend that the Boards of Directors make use of personalized e-mail accounts for the P.H., as well as that all the equipment used for administration purposes be for their exclusive use. Likewise, a technological equipment shall be used to store all the documentation and keep a backup of the same, which should always remain under the control and supervision of the Board of Directors.

 

The same would apply for the licenses of the different softwares that are used for the same purposes and that require to be used by the administrator due to his functions, we recommend that those be of exclusive use of the P.H., as, for example, the software for accounting, as well as for any other application, with the objective of having a healthy administration.

 

To adapt an office in the premises of the P.H. would be ideal, so that all the work or functions of the administrator are carried out within the P.H., in this way the service provided would be more productive and at the same time all the documentation mentioned in numeral 23 of Article 93 would be protected, said documentation should be kept in these offices under the custody of the Board of Directors and the Administrator.

 

Taking into account the aforementioned suggestions, the Minutes of Handover would be more expeditious and safe, which would end with a process of the contractual relationship to the satisfaction of the parties, even so the drafting of a Minutes of Handover signed by the administrator and the representative of the P.H., would be the most recommendable, in order to evidence that all the documentation that rests in the offices of the P.H. Administration is mentioned in the Minutes and in this way to perfect in a complete way the handover of the administration to another administrator or to the Board of Directors.

 

Keep in mind that an administrator can be a natural or juridical person, therefore, in case of being a formal company according to the law, that is to say a juridical person, it is important to check that the person who acts in representation of the juridical person or company, is the proper or designated person, since it may be necessary that she/he sign certain documentation, among these, the initial contract to hire the administration service.

For assistance regarding Real Estate in Panama, contact us at consultas@icazalaw.com.

Directors’ Liability in the Management of a Panamanian Corporation

Mariano Oteiza Jr

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.

Fidemicro Panama: a success story in boosting small and medium-sized enterprises

Luis Martinez

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)

  • Women
  • Men

Distribution of loans by province

(millions of dollars)

Disbursements by area

(percentages)

  • Rural areas
  • Urban areas

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.

New Accounting Records Requirements in Panama

Law No. 254 of November 11, 2021, established additional requirements regarding the accounting records to be kept by legal entities.

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The Republic of Panama, by means of Law No. 52 of 2016 (“Law No. 52”), established the requirement that all legal entities (corporations, limited liability companies and private interest foundations) are required to keep accounting records and maintain supporting documentation for a minimum period of five (5) years.

 

Recently, the referred Law No. 52 was amended by means of Law No. 254 of November 11, 2021 (“Law 254”), establishing additional requirements regarding the “accounting records” to be kept by legal entities.

 

Below are some questions to help us explain the amendments to Law N° 52:

 

What is the main amendment to Law N° 52 introduced by Law N° 254?

It establishes the obligation that the accounting records to be kept and maintained by legal entities must be provided to the resident agent, for its custody, at the latest within four (4) months following the expiration of each fiscal year, i.e., no later than April 30 of each year. In other words, the accounting records as of December 31, 2021, must be delivered to us no later than April 30, 2022, and likewise at the expiration of the subsequent fiscal years.

 

The accounting records may be provided to the resident agent in original or copy and shall be kept by the resident agent in a confidential manner, unless they are required by a competent authority of the Republic of Panama, according to the applicable laws.

 

Where can the original accounting records be kept?

The original accounting records may be kept in the possession of the legal entity anywhere in the world or in Panama under the custody of the resident agent. If the original accounting records are kept in a place other than the offices of the resident agent, the legal entity is required to inform, annually and in writing, the resident agent of the name and contact data of the person who keeps the original accounting records and supporting documentation in his/her custody, as well as the physical address where they are kept.

 

What are accounting records according to Law N° 52?

Accounting records are understood as those that clearly and precisely indicate the operations, both accounting and financial, of the legal entity, its assets, liabilities and equity, as well as those that serve to determine its financial situation with reasonable accuracy at all times and allow the preparation of financial statements.

 

What kind of accounting records must legal entities keep?

A. Legal entities engaged exclusively in being holding companies for assets, such as real estate, shares, participation quotas, bank accounts and/or investment accounts, among others, must provide, as accounting records, a document containing the following information:

  • Value of the assets;
  • The income generated by such assets; and
  • The liabilities relating to such assets.

The information may be provided with the annual delivery to the resident agent of a balance sheet containing the amount of the assets, liabilities and income of the legal entity for the previous fiscal period.

 

B. Legal entities engaged in the purchase and sale of negotiable instruments and public or private securities, in order to profit from their resale or by any other means of market speculation, must deliver the following:

  • Account statement of the Custodian; or
  • The balance sheet of the legal entity.

 

C. Legal entities that carry out commercial acts outside the Republic of Panama must deliver:

  • A journal and a ledger.

 

Which companies are exempted from providing accounting records or copies thereof to the resident agent?

The following legal entities are exempted from the obligation to provide the resident agent with the accounting records or a copy thereof on an annual basis:

  1. Legal entities listed on a recognized local or international stock exchange.
  2. Legal entities owned by an international or multilateral organization or by a State.
  3. Legal entities that are owners or charterers of vessels registered exclusively under the international service of the Merchant Marine of the Republic of Panama.
  4. Legal entities that carry out commercial operations within the Republic of Panama.

 

What is supporting documentation under Law N° 52?

Supporting documentation is defined as that which includes contracts, invoices, receipts and/or any other documentation necessary to support transactions carried out by a legal entity.

 

What are the consequences for a legal entity in case of failure to provide the original or copy of the accounting records to the resident agent in a timely manner?

The resident agent must report such fact to the regulatory body and such non-compliance could result in: (i) fines to the legal entity of US$5,000.00 to US$1,000,000.00; (ii) the suspension of the corporate rights of the legal entity; and (iii) the inability to register any type of document in the Public Registry and to obtain certificates issued by such Registry.  Furthermore, the resident agent is obliged to resign as such with respect to the legal entity who does not comply.

 

How long accounting records and supporting documentation must be maintained in the event of dissolution?

In case of dissolution, the accounting records and supporting documentation or their respective copies for the five (5) years prior to the registration of the dissolution must also be kept by the legal entity and be available for a minimum period of five (5) years from the registration of the dissolution. These documents must be provided to the Resident Agent in order to proceed with the dissolution procedures.

 

For any additional information or further assistance, you may require regarding accounting records requirements, please do not hesitate to contact us at the following e-mail address:  accountingservices@icazalaw.com.

Regulation: Manufacturing of Handcrafted Cosmetic Products in Panama

Executive Decree No. 875 of November 18th, 2021 regulates the production of handmade cosmetic products in Panama.

 

Handcrafted cosmetic products are defined as personal care products, such as creams, emulsions, lotions, balms, gels, skin oils, hydro and oil serums, make-up except for eye contour, soaps, bath products, perfumes, eau de toilette, eau de cologne, deodorants, which are included within the categories of cosmetic products prepared following on traditional formulas and techniques not involving technified industrial processes.

 

Under this regulation, the process to be classified and registered under this category and its requirements are defined. Get to know details about this regulation by downloading the document below.

 

Download the document for more information

For assistance regarding this matter, please contact us at consultas@icazalaw.com.

How to Hire & Fire: Panama Chapter

Icaza, González-Ruiz & Alemán contributes to Multilaw’s publication How to Hire & Fire: A Global Guide.

 

Our partners Javier José Vallarino and Alexis Herrera Jr. contributed to Multilaw’s labor publication How to Hire & Fire. This guide has been put together by experts from law firms worldwide that cover more than 60 countries.

The guide is intended to assist you in answering cross-border employment law quesitons that arise in your daily practice and help you advise clients recruiting in other countries or considering setting up new branches abroad.

To read the publication access the following link: How to Hire and Fire – Panama 

Panama introduce el Fuero de Paternidad

Ley 238 del 15 de septiembre de 2021, que amplía el alcance del fuero de maternidad hasta el padre y concede vacaciones en caso de fallecimiento de la madre

 

Por medio de la Ley 238 del 15 de septiembre de 2021, se amplía el alcance del fuero de maternidad hasta el padre y aplica a todo empleado público o privado en los siguientes casos:

  1. Por fallecimiento de la madre durante el parto o hasta dentro de los doce meses posteriores al parto.
  2. Cuando la mujer en estado de gravidez o dentro de los doce meses posteriores al parto no cuente con trabajo formal.

 

Cuando la mujer esté embarazada y no cuente con trabajo formal, el padre gozará del alcance del fuero de maternidad, y no podrá ser despedido de su empleo por los meses que dure la gestación y luego del parto, por el término de un año, salvo en casos especiales previstos en la ley.

 

Este alcance del fuero de maternidad se suspenderá si se comprueba que la mujer en gestación o posterior al parto, llega a contar con un trabajo formal. De igual forma, este alcance se suspenderá en caso de fallecimiento del niño.

 

En caso de fallecimiento de la madre durante el parto o en los días o meses siguientes, el padre del niño que cuente con un empleo, gozará del alcance del fuero de maternidad hasta cumplirse el término de un año a partir del parto. Además, tendrá derecho a quince días de vacaciones, siempre que tenga el derecho adquirido, las cuales no podrán ser negadas por su empleador. Las vacaciones a las que se hacen referencia, serán concedidas luego de cumplir el tiempo de duelo que establezca el reglamento interno de la institución o empresa donde labora.

 

Si el padre está laborando por contrato definido, el tiempo de vacaciones será proporcional al derecho según el tiempo del contrato.

 

Para cumplir con los fines establecidos en esta Ley, el trabajador o servidor público deberá aportar la documentación aquí establecida, de conformidad con cada caso en particular:

 

Requisitos para gozar del alcance del fuero de maternidad bajo el supuesto de que la madre no labore:

  1. Certificado de embarazo de la madre.
  2. Copia de cédula de la madre.
  3. Certificado de la Caja de Seguro Social en el que se evidencie que la madre no cuenta con un trabajo formal.
  4. Certificado de nacimiento del niño. El padre deberá presentar el certificado de nacimiento que lo acredita como padre del niño, una vez se reintegre a su labor.
  5. Cualquier otro que se establezca mediante reglamentación.

 

Requisitos para gozar del alcance del fuero de maternidad y vacaciones bajo el supuesto de que la madre fallezca:

  1. Certificado de nacimiento del niño.
  2. Certificado de defunción dela madre del niño.

 

Esta Ley comenzará a regir al día siguiente que se levante el estado de emergencia como consecuencia de los efectos generados por la pandemia de la COVID-19.

 

Para asesoría sobre este y otros temas laborales, contáctanos a consultas@icazalaw.com.

Panama Flag 3D Rendering on Blue Sky Building Background

New Entry Requirements for Panama (updated)

Updated entry requirements for Panama as of August 30, 2021

 

  1. Fully vaccinated travellers (14 days after the last dose) registered digitally or who show their vaccination card upon entry are exempt from getting a COVID-test on entry and from the 72-hour preventive quarantine.
  2. Non-fully vaccinated travellers from low-risk countries: Must present a negative COVID-19 test upon entry.
  3. Non-fully vaccinated travellers from high-risk countries: Must present a negative COVID-19 test and undergo a 72-hour preventive quarantine.

Residents and nationals can quarantine at home, while tourists must quarantine at authorized hotels.

Passengers under 12 years old are exempt from taking the COVID-19 test and preventive quarantine if their parents, tutors or caretakers comply with the requirements established according to the risk level of their country of origin.

Former update – New entry requirements for Panama as of July 26, 2021

 

For Fully Vaccinated passengers as of Monday, July 26, 2021:

  1. Passengers must present a COVID-19 vaccination card that indicates the record of the last dose at least 14 days prior to arrival in Panama. Passengers must upload the COVID-19 vaccination card in the health declaration form before traveling. In addition, upon arrival, the traveler must physically present the vaccination card or the Digital Certificate issued by the competent authority.
  2. Passengers must upload a negative COVID-19 test (PCR or antigen) in the health declaration form up to 72 hours before entering Panama. Additionally, the passenger must present the negative test upon arrival.
  3. Passengers who meet requirements 1 and 2 ( vaccination and negative test) from Non-High-Risk countries will not need to carry out a second COVID-19 test at entry or to quarantine.
  4. For passengers who meet requirements 1 and 2 (vaccination and negative test) from countries that the Ministry of Health of Panama (MINSA) identifies as *High Risk, a second COVID-19 test must be performed at the country’s entry points, at the passenger’s expense, and if negative, they will not need to quarantine.
  5. If the traveler does not have a negative COVID-19 test performed a maximum of 72 hours before traveling, it will be mandatory to undergo testing at the country’s entry points. The passenger must cover the cost of this test. If the test is positive, the passenger must comply, at their own expense, with the quarantine established by the MINSA.

 

For Unvaccinated Travelers:

  1. The passenger must upload a negative COVID-19 test (PCR or antigen) in the health declaration form up to 72 hours before entering Panama.
  2. Passengers traveling from Non-High-Risk countries must present a negative COVID-19 test (PCR or antigen) performed up to 72 hours prior to arrival. If they do not present the test, they will have to carry out a test at the country’s entry points upon arrival, at the traveler’s expense. If the test result is negative, they will not have to quarantine.
  3. Passengers traveling from High-Risk countries must undergo a second COVID-19 test at the points of entry to the country, and if negative, they will have to comply with three (3) days of quarantine at the cost of the passenger as of Monday, August 9, 2021.

 

Surveillance Hotels authorized by the government to carry out the 3-day quarantine:

  1. Westin Panama
  2. Westin Playa Bonita
  3. The Bristol Panama
  4. Wyndham Panama Albrook Mall
  5. Sortis Hotel
  6. The Santa Maria Hotel

 

* To date, Panama considers India, the United Kingdom, South Africa, and countries in South America as high-risk countries.  

Icaza González-Ruiz & Alemán authors Panama’s chapter of Lexology Getting the Deal Through: Labour & Employment

Javier José Vallarino and Karen Tejeira co-author Lexology Getting the Deal Through: Labour & Employment 2021.

 

Lexology Getting The Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. 

 

In its sixteenth edition, the Labour & Employment guide addresses key questions on all matters of concern regarding labour law in multiple countries worldwide. 

 

Javier and Karen’s contributions to Panama’s chapter of the guide provides local insights on a wide range of topics, including legislation, protected employee categories and enforcement agencies; worker representation; checks on applicants; terms of employment; rules on foreign workers; post-employment restrictive covenants; liability for acts of employees; taxation of employees; employee-created IP; data protection; business transfers; termination of employment; dispute resolution; and recent trends.

 

Javier José Vallarino is the partner in charge of the Labour Department at Icaza, González-Ruiz & Alemán and Karen Tejeira is an associate specialized in Labour Law. Their combined experience of over 25 years in their field allows them to provide comprehensive labour and social security advice to local and international companies operating in Panama.

 

To read Panama’s chapter on Lexology Getting The Deal Through Labour & Employment 2021, click here.

Incentives for the Promotion of Tourism in Panama

Law 122 of December 31st, 2019

 

Ricardo Alberto Ceballos G.

By Ricardo Alberto Ceballos

 

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:

  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.