Substance Requirements for Companies in Panama’s Special Tax Regimes
Panama has established strict regulations to ensure companies under special tax regimes—such as the Multinational Enterprise Headquarters Regime (SEM), the Manufacturing Services Special Regime (EMMA), and certain activities in the Panama-Pacific Area—operate with real substance in the country. These rules, aligned with OECD and EU standards, aim to eliminate shell structures and promote local job creation.
Key Definitions
Core Activities:
Essential tasks generating income eligible for tax benefits. Examples: strategic logistics under EMMA or operational management in SEM.
Must be performed within Panama, using in-house resources or local third parties.
Ancillary Activities:
Non-critical tasks, such as basic accounting or administrative support.
Can be fully or partially outsourced domestically or internationally.
Corporate Obligations
Qualified Workforce:
Hire sufficient full-time staff in Panama, skilled for core activities.
Example: A SEM company must employ managers and technicians dedicated to operational decision-making.
Local Operating Expenses:
Incur costs directly linked to core activities, including office rentals, salaries, or local professional services.
Limited Outsourcing:
Core activities may only be outsourced if the provider operates within Panama, with the company retaining oversight.
Outsourcing core activities abroad invalidates tax benefits.
Reporting and Compliance Process
Annual Affidavit Submission:
File a sworn statement with the General Directorate of Revenue (DGI) within 6 months after the fiscal year-end.
Disclose details on employees, operating expenses, and activity structure.
Authority Review:
The DGI issues a resolution within 3 months, assessing compliance.
Non-compliance results in loss of tax benefits, subjecting income to the standard 25% tax rate.