Free Trade Zone Legislation Changes

Since April 6th, 2011, the legislation about free zone areas was modified by means of Law 32 of 2011. The new regulation contemplates many changes in regards to the definition of free zone area as well as its fiscal benefits and requirements for getting established.

The new law unifies several concepts and legislations related to free trade zone areas, free zone operators and similar activities, including the requirements for creating new free trade zone areas. Nevertheless, previous and existent special free trade zones areas such as Colon Free zone; Panama-Pacifico, City of Knowledge (all regulated by special legislation) are valid and by no means this law has affected the institution created, which means that incentives and requirements and its special offices remains as their administrative entity.

Concepts and Definitions

1. Free Zone Operator: A foreign or Panamanian corporation that is in charge of the management of a free trade zone area. 
2. Free Zone Developer/Promoter: A foreign or Panamanian corporation that is in charge of promoting (search of investors, advertise and collection of funds) for the creation of a free trade zone area. 
3. Business Established in Free trade zone area: A foreign or Panamanian corporation established in a free trade zone and its business activities are focused on: trading, manufacturing, logistic services, scientific research, environmental activities, higher education, high tech industry and any other activity that the cabinet council may deem as valid.

The new free trade zone law is more structured in defining the activities and requirements allowed in a Free trade zone area. It also creates a special office named the “National Free Trade Zone Commission”

Fiscal Benefits

• Activities such as trading, process, transfer of goods or real estate, purchase of equipment and construction material, commodities, machinery, tools, accessories, consumables and any service required for a company registered in a free trade zone area will be exempted of any direct or indirect tax, rates o any government charges. 
• Exemption of any Business Operating License 
• Products manufactured with foreign consumables, which were imported to the national territory; will pay custom duties only for the value of the foreign commodities or components that were incorporated in the final product. This means that the custom duties will be based on the final product category. 
• Service companies; logistic companies; high tech companies; scientific research centers; higher education institutes; general services; specializes health services and environmental serves are 100% exempted of the income tax in regards of their foreign services and for the services provided between them. 
• There are no price control regulations

Fiscal Duties

• Income tax and VAT in regards to local operation of leasing and sub-leasing. Nevertheless Free Trade Zone operators are exempted of this tax. 
• 5% dividend tax no matter the source of the operation* 
• 2% of complementary tax in the event of no utility disbursement  
• Annual tax. 1% of business capital with a minimum rate of US$ 100.00 that cannot exceed US$ 50,000.00* 
• Selective tax will apply for certain goods and services 
• Loans: Will contribute to the special interest compensation fund, unless loans is guaranteed with a bank deposit
• The above mentioned fiscal duties will start as of January 1st 2016. Nevertheless, it is important to inform that the current law disregards the fact that the red marked bullets* are already charged based on Law No. 8 of 2010. 

•Fulfill labor compensations and social security’s premium and contributions

Immigration Benefits

• Any person that invests US$ 250,000.00 in Free trade zone investors as business owner or promoter is entitled to apply along with its dependants for a permanent residency before the National Immigration Service. 
• Foreign employees of a Free trade zone business (operator, business or promoter) are entitled to apply along with its dependants for a temporary residency before the National Immigration Service.

Labor Benefits

• A special labor office has been created for the purpose of mediating any conflict between business owner and an employee of a Free trade zone registered company 
• An employee could be transferred to different departments or production lines, based o the companies requirement 
• Employees could be laid off based on the market conditions (A formal and previous authorization from the Ministry of Labor is required to enforce this decision). 
• Production premium incentives, bonuses and gratifications are not considered salary. 
• The employer (free trade zone Business Company) is entitled to decide the season or period that an employee should enjoy its vacation. This benefit also allows the employer to grants vacation for the full or partial company staff as well as the year season to allocate this labor benefit. 
• The overtime surcharge is a fixed rate of 25% of the salary per hour. 
• Employer and employee may negotiate to set a fixed or movable day off. Any employee that works on it day off is entitle to a surcharge or 50% of its salary.

Call Centers

Call center activity had as a main regulation the previous free trade zone law (Law No. 25 of 1992). The new law No. 32 of 2011 becomes the new regulation making a few administrative changes without changing the main benefits and advantages.

The existent and any new call center are bind to present before the Secretary of the Free Trade Zone Commission a list documents in order to obtain the Free Trade Zone Official Registration. As soon as these processes are completed, call centers are subject to enjoy all its benefits.

Lic. Eduardo Achurra

Eachurrra@padela.com