Bill 246.

Summary.

The bill creates a special regional regime for internal administrative support offices, or BackOffice operations, to generate formal employment and encourage investment. It would cover companies that create administrative service and support centers or relocate such centers to the District of San Miguelito in the Province of Panama. Within the Republic of Panama, the regime would apply specifically to that district. The text defines internal support offices, administrative service centers, administrative support centers, and the business operations covered by the regime.

It also defines an effective resident of the District of San Miguelito as a person who lives there at least from Monday through Friday each week. Residence could be established through ownership of a home registered in the etax 2.0 system of the Directorate General of Revenue (Dirección General de Ingresos) of the Ministry of Economy and Finance (Ministerio de Economía y Finanzas) as a family tax property or principal dwelling; a lease identifying a residential address in the district; or a sworn declaration certified by a Justice of the Peace concerning the person’s domicile.

Covered services include digitization, data verification, document processing and custody, temporary records management, traditional and electronic invoicing, marketing, information technology, accounting, transfer pricing, human resources, remote customer contact, technical support for electronic invoice authorization providers, internal legal services, and debt collection. The list also includes supervision of banks’ compliance with FATCA and the Common Reporting Standard, or CRS. In that connection, it mentions Law 47 of October 24, 2016, agreements with the United States, and Law 51 of October 27, 2016. For electronic invoicing, it describes software integration, issuance using XML files, and invoice validation or authorization on behalf of the Directorate General of Revenue, also referred to as DGI.

Companies subject to the regime would submit an annual report to the Directorate General of Revenue containing statistics on their operations in the district. An internal support office would provide the permitted services only to the corporate group to which it belongs. The bill thus ties the scope of those services to an internal relationship with that group.

For income tax purposes, companies establishing administrative service and support centers in the district, or relocating their principal office there, could deduct the fees and expenses associated with establishment or relocation, plus a multiplier of thirty-five (35%) percent, subject to a limit of 50% of net taxable income. Articles 8 and 9 also provide that companies establishing or relocating an office and hiring, respectively, a minimum of ten or five district residents would exclude assets acquired to install the office from the capital used as the tax base for the Notice of Operations tax.

The bill would exempt, for 10 years from its entry into force, the real estate transfer tax provided for in Law 106 of 1974 on the first transfer by a property promoter or developer of new commercial premises in the district intended for these offices. It provides for a minimum tax at a rate of 15% on multinational companies headquartered in the country and links that tax to recovery of the fiscal cost of the proposed benefits. Finally, the State would grant the San Miguelito Mayor’s Office (Alcaldía de San Miguelito) free use and enjoyment of land to promote the regime. The proposed law would take effect upon promulgation. Its provisions concern the named tax and municipal authorities, administrative service companies, banks, electronic invoicing providers, employers, resident workers, and property developers.