1. Introduction

It was the quest for gold which brought the first men to the Isthmus of Panama. Columbus, during his 4th voyage, personally visited the Cocuyo District on the Atlantic side of the Isthmus. Some 9 tons of gold were produced in Cocuyo by slave labor between 1559 and 1589. The same "sed d'oro" was the motive power of Balboa and Pizarro. Gold built old Panama City. The bullion records of the Spanish archives show that the old 'Tisangel" mine was one of the richest they discovered in the Americas. Another famous gold mine was the "Espiritu Santo de la Cana", located in the Province of Darien near the border with Colombia. The Cana mine continuously produced gold until 1727. This mine was later reopened by the Darien Gold Mining Company and operated until 1907, producing about 4 tons of gold. During the early l9th century, new gold mining areas were discovered in Remance, Lajillas, Rio Torio, Santa Fe and Cañazas, all in the Province of Veraguas.

On September, 1990, the Department of Mineral Resources of Panama together with the Swedish Geological International Company (SGAB), after three (3) years of evaluations and grassroots explorations, completed and formally presented a "Mineral Inventory Report' which identifies three (3) large numeralized areas with considerable gold and silver potential. One of the main aims was to locate areas of commercial interest to mining companies.

Panama is part of the Circurn-Pacific ring of gold and its geology offers optimal conditions for gold-rich deposits.

2. Advantages Of Investing In Mining

The new democratic government of the Republic of Panama has undertaken as its main priority the country's economic recovery through the promotion of foreign investments in specific areas, such as Mining.

Panama now offers political stability and a unique business climate to foreign investors in mining. Major advantages to be taken into account are:

• The US Dollar is legal tender and, thus, there is a total absence of metals and exchange controls.
• No restrictions on 100% foreign owned investments and no controls on capital repatriations.
• One of the most flexible Corporation ‘s Laws in the world.
• Panama has areas of evident mining potential.
• Panama has certain skilled labor for mining.

Panama has a new mining legislation stating, inter alia, the following:

• A clear system to obtain a concession.
• Total guarantee that the foreign investor in exploration has the exclusive right to extraction.
• A new classification of minerals following modem mining principles.
• Exploration concessions are granted for a period of four (4) years, renewable for two (2) additional periods of two (2) years.
• Extraction concessions are granted for twenty (20) to twenty five (25) years, depending on the class of mineral, renewable for three (3) periods of ten (10), five (5) and five (5) years, respectively.
• Multiple tax incentives

3. Setting Up Operations

Panamanian law recognizes different forms of juridical persons, including:

• General partnerships.
• Limited partnerships.
• Stock issuing limited partnerships.
• Cooperative companies.
• Corporations (including joint venture corporations)

Notwithstanding the above, the two (2) most advisable forms to structure a foreign mining investment are either a Corporation (or subsidiary) or a Branch of a Foreign Corporation.

3.1 Corporation

 

Usually, Panama corporations are formed as wholly-owned subsidiaries of a foreign corporation or as a joint venture corporation for a specific project. It is worth noting that mere joint ventures do not have a legal identity separate from the joint venturers under Panamanian law.

 

Main Advantages

• Two (2) or more persons of any nationality, even though not domiciled in Panama, may organize a corporation for any lawful purpose. The articles of incorporation may be executed inside or outside Panama, and in any language.
• Ownership of a Panama corporation may reside in a single individual or corporation and ¡t is not required that any part of the-capital he held by Panamanians,
• There is no minimum authorized capital. A Panama corporation may issue one or more classes of shares, with or without par value, and with the preferences and voting rights stated in the articles of incorporation.
• There are no nationality or residence requirements for shareholders, directors or officers of a Panama corporation.
• Neither the directors nor the officers are required to be shareholders.
• The board of directors must be composed of at least three (3) directors, but one person may hold more than one position as officer. It is recommended that the Mining Corporation should have a Panamanian director or attorney-in-fact duly empowered to act as its legal representative before the Panamanian authorities.
• Meetings of shareholders of directors may he held outside Panama. Proxies may he used by shareholders, or directors.

Incorporation Procedure

The usual procedure is that our firm, acting according to the information furnished by the client, either by telephone, telex or fax, will. organize the corporation as soon as possible, depending on the complexities of the proposed articles of incorporation. Once the corporation has been formed and duly notarized, we will inform the client and immediately we will proceed to register the deed of incorporation at the Corporation's Registry of Panama. Within three (3) to five (5) business days thereafter, all pertinent documents will be delivered to the client.

 

3.2 Branch of a Foreign Corporation

A foreign corporation enjoys most of the aforementioned main advantages, may have branches or offices and engage in business within Panama, after filing the following documents for its registration at the Corporation's Registry.

Notarial instrument of protocolization of its, articles of incorporation. This document must be a certified copy of its original and shall be issued by the corresponding Corporation's Registry of the country of incorporation, and then, legalized by the Consulate of Panama.

Copy of its last financial statement together with a declaration of the corporate capital to be utilized or intended to be utilized in the operations in Panama. This document must be issued by the Corporate Secretary or an authorized officer, and then, authenticated by a Notary Public and legalized by the Panamanian Consulate.

A certification that the foreign corporation is organized in accordance with the laws of its country of incorporation. This certification must be issued by the Corporation’s Registry or other competent authority of the country of incorporation, and thereafter, the respective Consulate of Panama, based upon said certification, shall certify that the foreign corporation is duly organized and in existence pursuant to the laws. of its country.

A list of the current directors and officers, of the foreign corporation. This document may consist of a Certificate of Election containing an extract of the directors or shareholders meeting in which the current directors and officers were elected. This certificate must be issued by the Corporate Secretary, authenticated by a Notary Public and legalized by the Consulate of Panama.
A power of attorney in favor of our firm to represent the foreign corporation in Panama. This power must be granted by its Corporate Secretary or legal representative, authenticated by a Notary Public and legalized by the Consulate of Panama.

 

3.3 Other Requirements

 

Upon incorporation, either the Corporation or the Branch, will be required to prepare and file applications for concessions, liaise with government institutions, prepare and negotiate agreements, hire accountants, etc. and Pardini, de la Guardia & Partners will be there to assist you.

4. Investment and tax incentives

Besides all the advantages mentioned before, new mining legislation introduced in 1988, substantially amended the existing regulations and placed Panama in an outstanding position to attract foreign investments in mining through the following incentives:

• A reasonable rental fee per hectare per year of approximately US$ 1.00 during exploration and of US$ 2.00 during extraction. Exploration rental fees can be set-off against exploration expenses up to 75% of the total rental fees payable within a fiscal year.
• A reasonable production royalty of 2% for all minerals and of 4% for precious minerals in placers, both calculated over the gross production.
• Loss carryforward for three (3) years after the fiscal period in which they were originated.
• A depletion allowance deduction may be applied annually based on the mineral reserves and the units extracted.
• Accelerated depreciation of assets.
• Total exemption from import taxes and custom duties for all equipment, spare parts and materials required for the development of mining operations.
• Total exemption from export taxes.
• A substantial incentive is created by granting a 30% discount from income tax to those mining operations starting production by February 1993, and a 20% discount from income tax to those mining operations beginning production by February 1998.

5. Labor considerations

• The Labor Code and the applicable provisions of the Mining Code, and their amendments, are the main regulatory bodies concerning labor and employment matters. Under the Mining Code, Panamanian employees shall enjoy preference to he hired in all phases of mining operations. Nevertheless, concessionary and operating companies engaged in mining operations may employ executives, scientists, technicians and experts of foreign nationalities, provided it proves necessary for the development of mining operations and subject to the following conditions:
• The foreign personnel shall not exceed 25% of all employees and the salaries shall not exceed 25% of all salaries paid by a concessionary involved in extraction, refining or transport of minerals.
• The foreign personnel shall not exceed 25% of all employees and the salaries shall not exceed 25% of all salaries paid by an operating corporation engaged in mining operations.
• The Mineral Resources Department, from time to time, may establish additional rules for the employment of foreign personnel.

6. Immigration aspects

In general, Panama follows a liberal policy toward granting immigration visas. Normally, foreign personnel of mining companies coming to work for a period of time in Panama fall within the category of Temporary Visitor's Visa as Executives or Technicians. The required documentation is fairly simple and we will be pleased to assist

7. Taxation

Most tax advantages, incentives and exemptions have been mentioned before in this booklet.

The income tax of Panama is levied only upon net derived from operations within the territory of the Republic of Panama.

Persons who live in Panama more than 180 days on any fiscal year are considered residents for such year. However, the nationality or residence of an individual does not affect the income tax liability. Anyone who receives income from a source within Panama is liable to pay tax.

7.1 Taxable Income

 

The Tax Reform Law of 1991 simplifies the corporate income tax, reducing each year the applicable brackets until reaching a simple system in 1994.

 

Net Taxable Income

 

a) For the fiscal year 1991the rate will be:
Up to us$100,000	25%
More than US$100,000	US$25,000 PIUS 42% above
up to US$500,000	the excess of US$100,000 up to US$500,000
More than US$500,000	US$193,000 plus 47.5% above the excess of US$500,000
b) For the fiscal year 1992 the rate will be:
Up to Us$100,000	27.5%
More than US$100,000	US$27,500 Plus 40% above
up to US$500.000	the excess of US$100.000 UP to US$500,000
More than US$500,000	US$187,500 plus 45% above the excess of US$500,000
c) For the fiscal year 1993 the rate will be:
Up to US$100,000	30%
More than US$100,000	US$30,000 plus 37.5%
Up to US$500,000	above the excess Of US$100,000 up to US$500,000
Up to US$500,000	US$180,000 plus 42% above the excess of US$500,000
d) For the fiscal year 1994 and following years,the rate will be:
Up to US$500,000	30%
More than US$500,000	US$150,000 plus 34% above the excess of US$500,000

 

7.2 Dividends and Retained Earnings

Panamanian laws contain no provisions regarding taxation of undistributed earnings, with the exception that 40% of net taxable income, less applicable income taxes, is subject to a 10% tax, even if no dividend was declared. If a dividend of less of 40% of net taxable income after tax was declared, the 10% tax is payable on the difference. Consequently, the minimum dividend tax is payable each year. Branches of foreign corporations are required to pay the full 10% dividend tax when filing their tax return.

7.3 Withholding Tax

Further to the withholding on dividends and income aforementioned, every corporation which remits payments abroad or credits the account of persons abroad for taxable income in Panama must withhold the tax payable at the time of payment or credit A clear example is the case of foreign experts or technicians hired to perform a special work or evaluation in the mining operations in Panama.

7.4 Remittance Tax

In addition to the applicable withholding. tax, there is no remittance tax in Panama, as it exists in other countries.

7.5 Sales Tax

There is a sales tax imposed on the transfer of goods and personal property. However, sales of minerals, are expressly exempted.
We hope that the preceding information provided you a perspective of Mining Investments in Panama and we remain at your entire service for any questions.