Aviation & Shipping – October 2017

Panama approves Law 50 of 2017 granting Incentives for Maritime Activities

The registration of titles and mortgages of ships in the Republic of Panama has its origins with Law 63 of 1917, which reformed the Tax Code.

As of 1993, the Panama ship registry crossed the threshold as the largest naval registry in the world and since that date the Panamanian merchant fleet has been growing, taking as reference from January to November 2015, the Panamanian registry increased in 136 ships. Similarly, Panama keep the highest ship tonnage registered in the world with a fleet of 81 million tons that make up almost 22% of the total tonnage worldwide and a total of more than 8,100 ships registered under Panamanian flag.

Since 1970, Panama have had an efficient and reliable international banking center, however, in reference to maritime financing, the picture is not so flattering since most of the maritime financing and naval mortgages registered in the country are in favor of banks which are not based in Panama and operate from Singapore, Hong Kong, London, Dubai, Shanghai, Copenhagen, Rotterdam and Houston mainly. As a reference, we can mention that by the year 2015, 114 ship mortgages were registered in Panama, of which only 2 loans were provided by banks located in Panama.

General Provisions

In 2017, Panama approved Law No. 50 which creates a special legal regime for financing operations of the local and international maritime sector and provides fiscal, labor and migration incentives for companies that carry out such operations from the Republic of Panama and other provisions are issued.

The following institutions are authorized to provide financing from Panama –

1. General License, International License or Representation License Banks;
2. Companies that carry out operations designed to design, structure and develop the financial conditions of the maritime credit and its guarantees.
3. Financial companies regulated by Law 42 of 2001 and the financial lessors regulated by Law 7 of 1990, duly authorized for the exercise of such activities;
4. The maritime financing entities.
5. Panamanian Joint Ventures with private individuals.

 To obtain the benefits established by Law 50, persons or entities wishing to engage in the maritime financing business must obtain certification as a maritime financing entity.
 Similarly, maritime projects wishing to benefit from the benefits established in Law 50 must obtain certification as a marine project
 The import tax is set at 3% for the introduction of machinery, equipment, tools and other elements necessary for the construction of ships or the exclusive use of shipyards.

Amendments to the Fiscal Code

 Article 708 (e) is amended to provide that, in addition to revenues from the international maritime trade of vessels registered in Panama which are exempted, tax will not be levied on income from financing for the construction and purchase of ships which are part of the National Merchant Marine and are duly registered in Panama.
 In order to benefit from this fiscal incentive, the bank or the financial institution must establish a separate accounting that includes the registration of the date of granting of the loan and that clearly and in a detailed way reflects the operation.
 Likewise, a paragraph is added to article 708 which state that the following will exempted from Income Tax:
 The revenues of companies that establish their operations in Panama in order to set up shipyards for construction of commercial ships, yachts, military ships and other types of ships for the transport of merchandise or passengers and / or companies engaged in maritime projects.
 Income from interest and commissions earned by banks and/or maritime financing entities for the granting of a ship mortgage.
 Income from insurance and reinsurance income that secures credits from duly certified maritime financing entities and/or fundable maritime projects.

Other Provisions

 Article 23 of Law 7 of 1990 regulating the leasing of goods is regulated, establishing that lease agreements arising from leasing companies or leasing of ships engaged in international maritime trade will be exempted from income tax.
 The exemptions and tax incentives granted by Law 50, and established in letter e) and the final paragraph of article 708 of the Fiscal Code and article 23 of Law 7 of 1990, will have a period of duration of 20 years from the entry into force of said Law.

Shipping registries such as Singapore have been favored by the commercial development of Asia and the Middle East, coupled with the maritime business platforms in those areas have reached enviable levels. For countries such as Panama, which has all the potential to become a mirror of these developed countries, together with the indisputable asset that constitutes the Panama Canal, plus the growth in the port sector and container traffic as demonstrated in the annual ranking that positioned the ports of Balboa in the Pacific as leader of container movement in the region with 3,468,286 TEU followed in the second place by the ports located in Colón with a movement of 3,286,736 TEU in 2015, this is a natural direction.
As a frame of reference, a broad consideration has been made regarding the activities that can be carried out under the aforementioned financing, such as insurance and reinsurance, investment products, securities, ship owner clubs, maritime business managers, shipping managers, P&I clubs, training schools for seafarers and other seafarers, and the installation of shipbuilding yards, among others, throughout the country.