Striking off: Panamanian Corporations

by
Striking off: Panamanian Corporations

Wednesday, October 4th, the Ministry of Economy & Finance (read: Tax Department) published in the Gazette 174-page list of companies which have been struck off the register.  This striking off is done in accordance with Article 318-A, subsections 2, 3 & 4 of the Tax Code.  Article 318-A of the Tax Code deals with the payment of annual renewal fees (franchise tax) for corporations, foundations & LLCs.

This is the third such list it has published this week. The first was published on Monday. A second on Tuesday, and a fourth list was published today, just before I published this article! I almost missed that list. It’s an amazing 40,000 companies that are not in good standing. It’s estimated that these companies owe some $36 Million in government fees alone.

Effects of striking off:

Subsection 2 of Article 318-A establishes that failure to pay this annual renewal fee for 3 years consecutively results in striking off. Subsection 3 establishes the following effects of being struck off:

  • blocked from initiating legal action, doing business transactions or transfering assets;
  • unable to make claims or exercise rights;
  • blocked from filing corporate changes of any type.

Nonetheless, if your corporation is struck off, you may do the following:

  • request reactivation (paying an additional $1,000.00 penalty fee for reactivation);
  • defend any legal process begun against the company;
  • continue with any legal processes which started before striking off.

Automatic dissolution after striking off:

It is important to note that you only have a 2-year period after it is struck off to reactivate it, otherwise striking off leads to automatic dissolution at the Public Registry.  Consequently, the company will be considered to be wound up.  This means that any company that is in arrears for 5 years or more, is automatically dissolved (previously this was a 10-year period).

The lists of companies can be found in the following gazettes:

What do you need to do?

If you a corporation that owns property or has assets of any kind, and you have not been paying the annual renewal fees, then you have 2 years to reactive the company if it is on these lists. You need to pay all outstanding government fees and the $1,000 reinstatement fee (and registered agents and directors fees, if applicable). Otherwise, in 2 years from now, the Public Registry will dissolve the company automatically.

This is the first time any such list has been published since the amendment was introduced in 2016. Therefore, it contains companies that have not paid for five or even seven years, and not just those who owe 3 years in fees. This is the moment to bring your Panamanian corporation back into good standing if you are actually using it or you need it.

 

Finally, if you have any questions regarding your Panama Corporation and striking off, please do not hesitate to contact our office.  Our staff would be happy to assist you.

Foreign professionals working in Panama

by
Foreign professionals working in Panama

It would seem that drafting and knowing how to write is everything. A better draft or ability to write clearly could have avoided many problems.  At the beginning of September, there was furor among Panamanian professionals. The Ministry of Commerce published a resolution authorizing Multinational companies to hire foreign professionals… or so they said. I read headlines such as: “Opening to foreign professionals will impact the middle class”. The negotiations regarding TiSA (Trade in Services Agreement, a proposed international trade treaty) caused this furor, particularly with Panama’s measures to qualify. Panama participates in the TiSA negotiations with 23 members of the WTO. These negotiations continue in December 2017, after being stalled by the US.

Multinational – requirements for headquarters in Panama

The licensing commission for Multinational Company Headquarters issued a resolution for Multinationals. This resolution indicated the new qualifying requirements. One of the requirements is to have 2,500 professionally qualified employees. However, this resolution indicated that said professionals needed to be qualified in their countries of origin, without needing to be verified by respective professional boards in Panama. Specifically, this resolution indicated that the foreigner would be considered qualified if they had a Bachelor’s Degree, a Master’s Degree or Doctorate, or were duly licensed to practice in their qualifying country.  The reactions from professional guilds were hat this would affect not only the working class, but also the middle class.

This discussion seemed to miss the purpose of the requirements entirely. Multinationals are not required to have 2,500 professionally qualified employees in Panama in order to qualify. They must have 2,500 professionals in their offices, worldwide, in order to qualify. It is therefore obvious that such professionals would be duly qualified in their respective nations, and not Panamanian nationals. The second major requirements is a capitalization of 200 million US dollars.  The new resolution sought to establish that for those multinationals that did not qualify with a consolidated capital of 200 million, they could qualify if they had the 2,500 professionals worldwide. After reviewing the wording of the resolution, Panaman’s Law Society (Colegio Nacional de Abogados) requested that it be redrafted.

Foreign professionals in Panama

Panama is a small market: we have a population of only 3.9 million (depending on which day of the week you count). This means that the professional workforce also has its limitations when there is unexpected growth in some industries. Studies have shown that Panama does need foreign professionals to meet these labor needs. Official sources indicate that Panama lacks some 159,000 specialized professionals for the needs of the country. But there is also resistance to allowing foreign professionals to come work in Panama, with the fear that “they will steal all the good jobs”.

Of course, for the executives and employees of Multinationals who have qualified under the special licensing rules: there are special rules and exceptions. It is possible for a multinational company to hire a professional, duly qualified to do the job internationally, have them working in Panama, and they simply are not allowed to sign off on documents in Panama (i.e. a lawyer could work in-house for a multinational, but would need a Panamanian lawyer to sign off on any legal documents for Panama).

Salaries in Panama

It is important to understand the idiosyncrasies of the Panamanian labor market. Salaries for highly qualified jobs pay less than in North America or Europe. Executives of the multinationals are among the highest paid employees in Panama: these jobs are highly coveted. English and Spanish are essential: for working internationally and locally in Panama. One of the biggest constraints to foreign employment is the 10% and 15% limits established for work permits and immigration: a Panamanian company can only have 10% maximum of its workforce (averaged out over salaries, not just the number of employees) as foreigners. For highly technical staff or experts in a field, this increases to 15%. Additionally, some professions are exclusively reserved for Panamanians: for example, medicine, dentistry, nutrition, pharmacy, accounting, psychology, architecture, journalism, and law.

The minimum wage in Panama is between $500.00 to $700.00 (lower for some areas of the economy, such as domestic help). Normal working hours are 8-hour days (9 hours including lunch hour) and overtime for more than this. Additionally, there are special rules regarding shifts starting or ending before 6.00 a.m. or 6 p.m., and there are not rules regarding flexi-time (which basically ensures that employers avoid it, because the Labor Code specifies that the employee is always right). So, if you had an employee that worked 12 hours Monday and then 4 hours Tuesday and they alleged that 4 hours of the time worked on Monday was overtime, the employer could be liable to pay this. There are companies working with flexi-time, but it is outside of the archaic constructs of the Labor Code.

Real costs versus “salary”:

Additionally, Panama offers 30 days (calendar, not working) holiday pay each year and additionally pays the 13th month. When you calculate the cost of an employee (contingent liabilities plus Social Security costs), you should expect this to cost about 1.41 times the actual declared salary. So an employee earning $600.00 a month, with contingent liabilities calculated, costs about $850.00 a month. An employee earning $700.00 a month costs the company about $1,000.00 a month, with contingent liabilities.  These are rough estimates.

Average salaries:

According to figures released in August 2017, the following are average salaries:

  • $2,435.00 – Multinationals
  • $1,085.00 – Mining companies
  • $1,063.00 – Education (includes universities & private training)
  • $1,029.00 – Doctors, medicine & health
  • $985.00 – Finance (banking sector)
  • $681.00 – Average monthly salary

Of course, as mentioned, these are the averages.

New resolution:

On the 12th of September, the same MICI office that had issued the “problematic” resolution mentioning 2,500 foreign professionals, issued a new resolution. This resolution left the previous one without effect, and presented different requirements for Multinationals wishing to be established in Panama.

These requirements are:

  1. capital of 200 million USD or more
  2. presence in 40 countries or more

There is no mention in the new resolution of the number of foreign professionals working for the multinational.  The new resolution is Resolution No. 20-17 (Sept. 11, 2017).

For more information regarding the requirements to establish Multinational offices in Panama or for foreign professionals to work in Panama, please do not hesitate to contact our office.

 

 

Corporate bank account in Panama: opening and operating

by
Corporate bank account in Panama: opening and operating

Opening Corporate bank accounts in Panama

Last week, our post dealt with opening personal bank accounts in Panama. This week, we will look at how to open a corporate bank account. It is important to note that there is a difference between locally operating companies and offshore corporations, especially in the banking industry. Some banks in Panama will only open accounts for corporations with an “aviso de operación” – business license. That is a company that operates locally and is subject to local taxes. On the other hand, some banks will only open accounts for offshore companies. It is no longer easy to find banks that are working with both onshore and offshore business.

Among the issues that banks consider are:

  • FATCA compliance
  • Cost of Know Your Client and Due Diligence
  • Profile of the account – will the bank make money?
  • Is this type of business in the normal line of business of the bank?
  • How much money will pass through the account versus how much money will stay in the account?

Requirements: opening a corporate bank account

Many of the requirements for a corporate bank account are similar to those requested for the personal bank account. But in the case of a corporate account, the bank will want all documentation taking it back to the controlling interest or ultimate beneficial owner.

Keep it simple:

Imagine, for a moment, the following structure:

UBO, corporate structure, ultimate beneficial owner, know your client, asset protection, shareholder, directors, officers, account signatory, beneficial owner, beneficiary, controlling interest, controlling person, decision makers

While this may look really “pretty” from the perspective of asset protection or estate planning, it is a nightmare for the compliance officer at the bank. Supposing that you are opening an account for the Panama corporation under the holding company, the bank needs to receive documentation for:

  1. Your Panama corporation – each one of the three directors, the account signatories, and the copies of the corporate documents;
  2. The share register that shows who “owns” the company – a holding company. Now they need the corporate documents for the holding company, with the due diligence and know your client details for each of the directors, shareholders, and officers of this company.
  3. The shareholder of the holding company: a foundation. They need the incorporation documents of the foundation, the details of each member of the Foundation Council, the Protector and possibly even the founder.  And they still haven’t arrived back at the Ultimate Beneficial Owner.
  4. The bank ultimately wants to know:
  • who has the controlling interest?
    • which person is calling the shots?
    • who is the decision, maker?

In conclusion, for the bank: simple is always better. Your asset protection or estate planning needs can be taken into account, but you should be able to explain the structure easily to the customer services representative at the bank.

In a corporate structure with multiple shareholders, you will need to provide know your client details for any shareholder or controlling person holding over 10%. Additionally, if the shareholder or holding company is a publicly traded entity, expect to provide proof of this. Make sure you have the proper authorization for establishing the subsidiary (resolutions) and authorized persons on the account.

Basic account opening requirements:

So, ignoring the complicated structure outlined above, what does the bank require?

  1. Corporate account opening forms (the bank will supply). There may be some 6-10 pages which need to be completed.
  2. Copies of your incorporation documents: articles of incorporation, resolutions.
  3. Copy of the share register
  4. Extract from the public registry – known by many as a Certificate of Good Standing
  5. Business plan – the banks are looking for something that shows what the company will be doing. Who will be the suppliers to the company? Similarly, what customers will the company have?
  6. If the company has been in existence for more than one year: financial statements and/or accounting records.
  7. Source of funds for the initial deposit and trade projections (usually provided in the actual account opening forms)
  8. Documentation (such as that provided for the personal account) for each person associated with the corporation:
    1. directors
    2. account signatories
    3. shareholders / beneficial owners / controlling interests
  9. FATCA forms – W8Ben, W8Ben-E, W9 – depending on the situation

The documents will vary depending on the bank that you choose to open the corporate bank account, but the above list and those indicated on the personal bank account page are pretty comprehensive of what is usually expected.

Factors to consider:

Once again, when choosing the bank there are a number of factors that you should consider:

  • Language(s):
    • at the bank – your customer service representatives
    • in the call center – is there a special number for English?
    • what about their online system?
  • Online banking platform
    • Is it easy to use?
    • Does it have a good security system?
    • Do you need an App on your mobile phone, a token or how are passcodes generated?
  • What are the minimum deposit / minimum balance requirements of the bank?
    • What are your cash flow requirements?

Our office is happy to assist you with your corporate bank account needs in Panama. We are also able to offer banking options in other jurisdictions. In some cases, banks in other jurisdictions are easier to work with and offer a wider range of currencies and opportunities.  Beth Gray is experienced with local and international business companies, especially the aspects of tax compliance and reporting. Betsy Moran is experienced with compliance issues, especially the AML guidelines. Joan Villanueva can assist with any relocation inquiries that you may have. Do not hesitate to contact us for more information regarding your corporate or business needs.