Corporate Tax News Issue 58 - April 2021

New preferential regime for manufacturing-related services

By means of Law 159 of August 2020, the Government of Panama created the special multinational headquarters regime for the establishment and operation of manufacturing-related services (EMMA), to boost the national economy through foreign direct investment. The regulation of this regime was also recently enacted through Executive Decree No. 33 of February 2021.

This regime is a replica of the Multinational Headquarters regime, better known as SEM, providing the same benefits, and requesting the same requirements. However, the EMMA regime, as its name indicates, is focused on manufacturing services.

Benefits of the EMMA regime

The EMMA regime has tax, immigration, and labour benefits, in addition to the legal stability of investments already known under Law 54 of 1998.

Regarding the tax benefits, the EMMA regime provides lower rates on the following taxes:

  • Income tax: 5% on the net taxable income derived from the services rendered, and 2% minimum, if a tax credit is requested for income tax paid abroad.
  • Capital gain:   2% on capital gains obtained, 1% on the total value of the sale (advance payment and/or definitive tax).
  • Withholding taxes on income: 5% if the beneficiary is a taxpayer in Panama, and 2.5% if the beneficiary is a non-resident.

The EMMA regime provides exemptions on dividends and complementary tax, ITBMS (local VAT) on services rendered to non-residents, import taxes when the good is used for the execution of the activity, the use of fiscal equipment, and issuing a notice of operation.

As for immigration and labour benefits, the EMMA regime provides two types of permits for foreign workers: temporary personnel visa, and permanent temporary visa. If the foreign worker is interested in a permanent residence permit, it may request so after five years have elapsed since the approval of their initial visa. The dependants of foreigners working for an EMMA entity also have immigration and labour benefits and the customs regime for household goods and automobiles. 

Services to be provided

EMMA-licensed entities may only provide services to their related companies, i.e. companies that are part of the same corporate group. These entities may provide services such as manufacturing, assembly, maintenance, repair, and remanufacturing of products, machinery, and equipment; packaging of products; product development, research or innovation of existing products or processes; analysis, laboratories, testing or other related matters; logistics, such as warehousing, deployment and distribution centres for components or parties; and any other similar services approved in advance.

Third-party services

Entities with an EMMA licence may delegate to third parties the execution of services or activities for which they have been granted the licence, provided that the third party supplier may perform all or part of the service or activity within the Republic of Panama.

The EMMA-licensed entity must have mechanisms in place to control and supervise the outsourced activity, and may only count for itself the time incurred by the employees assigned by the supplier to perform the activity or activities corresponding to its company.

Requirements for the EMMA licence

Entities interested in being part of this regime must apply through a company registered in the Panamanian Public Registry (foreign or Panamanian) that will engage solely and exclusively in the activities permitted under Law 159, be part of a solid multinational company with a minimum[1] of assets and highlight its relationship with the corporate group.

Once an EMMA licence is granted, the entity must comply with substance and reporting requirements to avoid violations and fines, additional tax assessments, or the loss of the EMMA licence.


The substance requirements that EMMA licence entities must comply with to keep the EMMA licence are:

  • Execute within Panamanian territory the activities for which the company was licensed.
  • Maintain an adequate[2] number of qualified full-time employees dedicated to the execution of the authorised activity(ies).
  • Incur an adequate amount of operating expenses in Panama which should be directly related to the authorised activities.

The EMMA-licensed entity may consider all resources used (i.e. number of employees, expenses incurred) by its suppliers for the purposes of determining compliance with the substance requirements, provided that the requirements for valid outsourcing of the activity(ies) are met, and it maintains records, books, and documentation to demonstrate the appropriate level of qualified employees and operating expenses directly related to the performance of the authorised activity(ies).


The EMMA-licensed entity must within six months after the close of its fiscal period submit an annual report that involves a sworn statement of its activities and how it has complied with the requirements of substance. The accounting or financial information presented in the report must be countersigned by a certified public accountant (CPA) in Panama.

EMMA-licensed entities are also required to report within 30 calendar days any changes in the information  required for registration through the Public Registry, or information that was provided in the licence application form. These changes include change of address, telephone numbers, names and personal data of managers or proxies.

Final Comments

The adoption of a new preferential regime points towards the objectives of the current government to boost the Panamanian economy through foreign direct investment, using a model that has been very successful in our country. The enthusiasm for this new regime is perceived with the inclusion of the principle of administrative efficiency in both the law and regulations that will allow an expeditious process for multinational entities that as a result of the pandemic are implementing new operational strategies.

Simone Mitil

Lilia Isabel Lee

[1] The minimum amount of assets that a multinational entity must comply with will be determined by the Technical Secretariat of the multinational entities Commission.

[2] To avoid subjective amounts or terms, Law 159 and its regulation refer to the term "adequate" which is defined in the regulations as "that which is suitable, appropriate and sufficient for the execution of the activity or activities according to the characteristics of each entity and the nature of its business".