RESTRICTED
WORLD TRADE WT/ACC/PAN/16
22April 1996
ORGANIZATION(96-1469)
Original: Spanish
ACCESSION OFPANAMA
Communication from Panama
Thefollowing communication hasbeenreceived from thePermanent Mission ofPanama.
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TheGovernmentofPanamahassubmittedthefollowinginformationconcerningfiscalincentives
forindustry.
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Notification ofFiscal Incentives Granted byPanama toIndustry
Scope ofthenotification
TheGovernment oftheRepublic ofPanama submits fortheconsideration oftheWorking Party
thefollowing legislation regarding subsidies toindustry, inaccordance withthenotification requirement
oftheWTO Agreement onSubsidies andCountervailing Measures.
Panama 'sindustrial policy encourages industrial development bygranting taxexemptions
generally applicable toallenterprises wishing tocome under thisregime.
Direct assistance intheformofpayments toproducers, financial assistance tospecific sectors
andother similar measures arenotapplied.
Laws relating tothecurrent industrial development regime aredescribed below.
Production Incentives
Background andauthority: Law28isdesigned toinstitute general taxincentives forproduction
andenact other fiscal provisions. Inother words, itseeks tomake more readily accessible the
Government 'sincentives forpromoting production inthevarious sectors ofthecountry 'seconomy
andtomake itmuch easier fortheState tocollect income-tax revenue.
Description oftheincentives:
- Drawback regimes whereby producers areauthorized, atthetimeofexport oftheir
merchandise, torecover alltaxes paid, atthetimeofimportation, onmerchandise
employed intheproduction ofexports.WT/ACC/PAN/16
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- Theduty-free stockreplenishment regime authorizing duty-free imports ofmerchandise
equivalent -i.e.similar intype, quality andtechnical characteristics -tolawfully
imported merchandise, usedtoobtain products definitively exported atanearlier date.
- Theregimeoftemporaryexportforoutwardprocessingpermitstheexport,foraspecific
period,ofdomesticornationalizedmerchandisefortransformation,processingorrepair
abroad prior tobeing re-imported withfullorpartial exemption from import duties
andtaxes.
- Import dutyof3percentofthecost,insurance andfreight (c.i.f.) value, inaddition
totheTaxontheTransfer ofTangible Personal Property (ITBM), ofallinputs, raw
materials andintermediate andcapital goods, whether ornottheimporter isentered
intheOfficial Industry Register.
- Inputs andpacking andrawmaterials usedinthedomestic pharmaceutical industry
areexempt from import taxandITBM.
Duration oftheincentives regime: Theincentives forproduction areofindefinite duration.
Incentives formedium-sized enterprises
Background andauthority: LawNo.3of1986isdesigned toencourage small andmedium-sized
enterprises engaged inindustrial andassembly activities. Aregime oftaxexemptions exists for
enterprises thatproduce forthedomestic market orforexport. Enterprises must beentered inthe
Official Industry Register oftheMinistry ofTrade andIndustry before theycanbenefit from the
incentives provided forunder thisLaw.
Duration oftheincentives regime: Thisregime willlastfor10-15 years. Itisestimated that
approximately 75percentoftheregistrations ofenterprises willexpire intheyear2002. Alltheother
registrations willexpire in2010.
Notes
1. Before LawNo.28of1986 wasenacted, comprehensive taxexemptions forindustry were
provided under LawNo.3of1986andDecree 413of1970, bothofwhich havebeenrepealed.
2. Law No.3of1986 hasbeen repealed asaresult oftheenactment ofLawNo.28of
20June1995, "Adopting general production taxincentives andestablishing other provisions".
Under thisLaw, enterprises cannolonger beentered intheOfficial Industry Register inorder
toavail themselves oftheadvantages ofLawNo.3of1986 anditisstipulated thatthese
advantages willexpire when current registrations come toanend.Inaddition, theregistration
requirement toqualify forexemption fromincome taxonexports hasbeenabolished, andthis
exemption willendon31December 2002. Therequirement toqualify forpreferential treatment
toimport production inputs atonly3percentofthec.i.f. value oftheimported product has
alsobeenabolished.
Incentives forsmall andmicro-enterprises
Background andauthority: LawNo.9of19January 1989 provides fortaxincentives for
micro-enterprises andsmall enterprises ontheterritory oftheRepublic which areengaged in
manufacturing activities using mechanized equipment, cottage industry methods oracombination of
both.WT/ACC/PAN/16
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Forpurposes ofthisLaw, micro- andsmall manufacturing enterprises arethose engaged in
manufacturing, rebuilding ofgoods orprocessing ofrawmaterials andtheirsemi-finished products,
including those ofagricultural, livestock, forest, marine andmineral origin, provided that:
1. Their assets andcapital stock donotexceed US$100,000.00.
2. Thevalue oftheirannual salesdoesnotexceed US$100,000.00.
Description oftaxexemptions:
- Fullexemption fromincome taxforthefirstfiveyears, 75percentforthefollowing
fiveyears and25percentduring thelifeofthecompany;
- fullexemption from stamp duty;
- fullexemption fromimport taxonproduction andmaintenance equipment, partsand
rawmaterials;
- exemption from immovable property taxforthefirst10years;
- exemption from taxoncapitalized dividends.
Duration oftheincentives regime: Enterprises willcease tobemicro- orsmall enterprises
inthesubsequent fiscal yearwhen, afterfiveyears ofoperation, theyhaveincreased byatleast25per
centthevalue oftheirassets andcapital, or,forthree consecutive years orfivealternating years, they
exceed bymore than20percentthevalue ofannual salesof$100,000. Theregime willbeinoperation
for15years.
Export promotion
Background andauthority: LawNo.108of30December 1974 establishes anincentive
mechanism fornon-traditional exports wholly orpartly produced orprocessed inPanama bygranting
acertificate withwhich direct taxes canbepaidtotheState.
Description oftheincentive: Persons engaged innon-traditional exports mayapply fora
certificate forthepayment ofdirect taxes, termed aTaxCredit Certificate (CAT), foranamount
equivalent to20percentofthenational added value oftheexported goods. Such certificates, made
outintheperson 'sname, aretransferable byendorsement, exempt fromanykindoftaxandnon-interest
bearing.
Duration oftheincentives regime: Under LawNo.28of20June1995, "Adopting measures
forgeneral production taxincentives andestablishing other provisions", CATs willamount to20per
centofthenational added value until31December 2000. From 2001toDecember 2002, CATs will
fallto15percentofthenational added value. Theincentive willbeabolished asof2003. Inaddition,
itisstipulated thatthisincentive doesnotapply toenterprises inreceipt ofother taxexemptions.
Export promotion zones
Background andauthority: Law No.25of30November 1992 establishes aspecial,
comprehensive andsimplified regime forthecreation andoperation ofexport processing zones.
Enterprises mayengage inmanufacturing, assembly, production offinished orsemi-finished goodsWT/ACC/PAN/16
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andservices. Thepurpose ofthezones istopromote investment, thereby fostering Panama 'sscientific,
technological, cultural, educational, economic andsocial development.
Description oftheincentive: Export Processing Zones aretax-free zones. Accordingly,
enterprises operating inthemandtheiractivities willbe100percentfreeofdirect andindirect taxes.
Thecapital oftheprocessing zones andoftheenterprises inthem willbefreeofdirect orindirect
national taxes, including patent orlicence taxes. Earnings intheformofdividends andinterest derived
fromshares, bonds andother securities issued bytheenterprises andplaced ontheinternational market
willbefreeofnational direct orindirect taxes andduties.
Duration oftheincentives regime: Theduration ofthetaxincentives isindefinite.
Incentives under lawcontracts
Background andauthority: Inaddition totheabove regimes, theRepublic ofPanama hassigned
contracts withspecific enterprises owing tothesheer sizeoftheinvestment andthefactthatitcalls
fortheuseoflargeareasoflandwhich theStatehas,inmostcases, granted under aconcession system.
Existing law-contracts include themineral resources exploration andexploitation contracts regulated
byDecree LawNo.23of22August 1963, theContract between theStateandtheRefinery ofPanama
under LawNo.31ofDecember 1992 toregulate therefining ofcrude oilandtheContract between
theStateandVidrios Panameños S.A.under LawNo.43of17November 1977, forthemanufacture
ofglass containers.
Description oftheincentive: Law-contracts grant exemptions from direct andindirect taxes
andestablish therights andduties oftheenterprises inconnection withtheiractivities.
Duration oftheincentives regime: Contracts formineral resources exploration andexploitation
lastforvarying periods, depending onthesizeoftheproject. Thelaw-contract fortheproduction
ofglass containers willexpire in1998, whereas therefinery contract isoperative for20years from
30September 1992.
Note: Weattach atableoftaxexemptions granted under thetaxregimes described inthisdocument.
Itshould benoted thattheinformation isconfined todatathesources were abletoprovide.
TaxExemptions Granted toIndustry
(Inthousands ofdollars)
TypeYear
1991 1992 1993
Exemption from import tax 68,392.8 87,080.5 76,584.5
Exemption from ITBM onexports 405.7 869.1 1,081.9
Exemption from income tax 3,307.2 8,692.4 9,861.6
TaxCredit Certificates (CATs) 3,298.9 2,738.3 3,315.6
Source: General Comptroller 'sOffice, Ministry oftheTreasury, Hydraulic Resources andElectricity Institute.