Law 126 of 2020 approved regulations regarding work from home.  These regulations allow the parties, within the possibilities of the operation of each business and the employee’s duties, to agree that the employee will provide his/her services from home.  For this, the parties must execute an amendment to the employment contract agreeing that the services may be provided from home, either permanently or temporarily.   The employer must provide the employee with all the necessary equipment for the provision of the services, and agree with the employee which expenses the employee will assume for the provision of the services from home, which will be covered by the employer.  The employer may decide, unilaterally, when it will require the employee to provide the services from the employer’s offices again.

As a result of the pandemic caused by COVID 19, the Ministry of Labor has regulated article 159 of the Labor Code, which allows for the reduction of the work schedule with the consequent reduction of the salary.  To apply this measure, the parties must execute a temporary amendment to the employment contract in which the following is agreed:

• The reduction of the work schedule
• The reduction of the salary in accordance with the reduction of the work schedule
• The methods by which the work schedule will be gradually restored
• The term during which the reduction of the work schedule will be in effect

Executive Decree No. 71 of March 13, 2020 establishes the approved text that the temporary amendment to the work schedule must have.

Executive Decree No. 101 of July 13, 2020 establishes that the maximum monthly reduction of the work schedule is 50%. This Executive Decree also establishes that the temporary amendments to the work schedule may only be applied until December 31, 2020.

The signed amendment must be sent electronically to the Ministry of Labor, through the Panama Digital platform, with a copy of the company’s Notice of Operation (Aviso de Operación) and a copy of the last payroll form submitted before the Social Security Office immediately before the reduction of the work schedule.

The employer is not obligated to grant its personnel vacation time; however, it is a measure encouraged by the labor authorities, which have authorized the employer to force its personnel to take vacation time.  Generally, vacations must be agreed to with the employees; however, through Executive Decree No. 78 of March 16, 2020, employers were authorized to instruct their personnel regarding the mandatory use of their vacation time.

This Executive Decree also granted employees 60 years or older, those with chronic diseases and pregnant employees the option to take vacation for a minimum of 15 calendar days.

As a result of the pandemic caused by COVID 19, the government of Panama declared the State of Nacional Emergency through Cabinet Decree No. 11 of March 13, 2020.  As a result of said declaration, Executive Decree No. 500 of March 19, 2020 was issued, which ordered the closure of business and offices for a period of 30 days as of March 21, 2020, with certain exceptions, which period may be extended.

The above gave rise to the application of Article 199 Section 8 of the Labor Code which allows for the suspension of the effect of employment contracts, which means that the employee has no obligation to provide services and the employer has no obligation to pay salaries.  Notwithstanding, the Ministry of Labor’s authorization is required for the suspension to take effect.

The Ministry of Labor has regulated Article 199 Section 8 mentioned above and has established the process that must be followed in order to obtain the required authorization for the suspension of the contract to come into effect.

The following information must be sent electronically to the Ministry of Labor:

• Written request explaining the justification for the suspension of the effects of the contracts and requesting the suspension of the contracts for a period of 30 days, which period may be extended, signed by the Legal Representative or an authorized attorney in fact;
• Copy of the Notice of Operation (Aviso de Operación) of the employer;
• Copy of the last payroll form submitted before the Social Security Office immediately prior to the closing of operations;
• Suitable proof of the economic loss suffered by the employer;
• List of the employees whose contracts are requested to be suspended, specifying each employee’s name, identification number, social security number, home address, occupation, gender, age, phone number and email address.

The Ministry of Labor will have three business days to respond to the suspension request.  If the Ministry does not respond during this period, then the suspension will be understood to have been granted for all legal effects. In that sense, Executive Decree No. 95 of April 21, 2020 has clarified that the suspension of the contracts will be effective as of the fourth business days following the filing of the authorization request.

For those businesses, whose closure was ordered by means of Executive Decree No. 500 of March 19, 2020, the extension of the suspension will be automatic.

For those businesses, whose closure was not ordered, but who because of economic loses requested the suspension of employment contracts, the extension of the suspension will have to be requested at least five business days prior to the expiration of the initial suspension, and must provide justification for the extension and indicate the period for which it is requested.

Through Law 157 of August 3, 2020 the extension of the suspension of employment contracts was approved until December 31, 2020. Companies must request the approval of the extension of the suspension every month.

The gradual reinstatement of employees, whose contracts have been suspended, cannot be used as a means of retaliation or discrimination measures for reasons of sex, race, religion, or disability, among other causes. Employers that discriminate or retaliate against employees while reactivating the suspended contracts once activities resume, will be fined between US$500 and US$1,000 for each employee subject to discrimination.

Nothing in the legislation or regulations that have been issued as a result of the declaration of a State of Emergency prohibits or restricts the power of the employer to terminate the employment relationship. Such terminations must be carried out subject to the usual restrictions and in compliance with the usual formalities established in the Labor Code.

Notwithstanding the above, the newly enacted Law 157 of August 3, 2020 requires employers to provide employees at least two business days to analyze the termination proposal prior to executing the mutual termination agreements, otherwise such mutual termination agreements will be considered null and void, in which case the employee may ask for their position to be reinstated.  This law also requires that the amounts due upon the termination of the employment relationship are paid immediately.

Law 157 is applicable to companies that were affected by the State of Emergency and who have suspended their employees employment agreements as a result.

The Panamanian government has established a moratorium period for certain credits granted by banks, thrift companies and cooperatives. Law 156 of 2020 orders, among other things, a moratorium on the debts owed by certain clients to local banks, cooperatives and financing companies (financieras). The moratorium applies retroactively from March 1, 2020 until December 31, 2020 (“Moratorium Period”), and applies to the following credits (“Included Credits”): (i) residential mortgages, (ii) personal loans, (iii) car loans, (iv) credit cards, (v) loans to small and medium-size companies, (vi) commercial loans, (vii) credit to the transportation sector, (viii) credit to the agricultural sector, and (ix) consumer loans. 

The clients which may benefit from the moratorium are only those “persons affected by the economic crisis caused by the Covid-19 pandemic, that is, persons whose employment contract has been suspended or terminated, independent workers and merchants whose activity has been affected by the health measures established by the Executive Branch”.  Such clients must be able to duly document that they have been affected, either by way of a sworn statement or by providing evidence of the termination, suspension or decrease in working hours, in their employment contract.

During the Moratorium Period, banks, cooperatives, and financing companies will not be able to collect, increase applied interest rates, surcharges, or any other interest in relation to Included Credits. Additionally, during the National State of Emergency and up to 60 days after it is lifted, credit histories will not be affected. Once the term of the moratorium expires, the banks and the beneficiaries should negotiate a refinancing or prorating of the debt, without charging any fees for late payment or any other administrative expense. 

Under Law No. 156 of 2020, banks may not charge any fees for late payment or any other administrative expense as a result of the non-payment and refinancing of applicable loans.

On April 2, Law No. 132 of 2020 was published in the Official Gazette, which, among other things, establishes that flexibility measures will be adopted by state-owned or run financial institutions.

In addition, the Panamanian government has established a moratorium period for certain credits granted by banks, thrift companies and cooperatives. Law 156 of 2020 orders, among other things, a moratorium on the debts owed by certain clients to local banks, cooperatives and financing companies (financieras). The moratorium applies retroactively from March 1, 2020 until December 31, 2020 (“Moratorium Period”), and applies to the following credits (“Included Credits”): (i) residential mortgages, (ii) personal loans, (iii) car loans, (iv) credit cards, (v) loans to small and medium-size companies, (vi) commercial loans, (vii) credit to the transportation sector, (viii) credit to the agricultural sector, and (ix) consumer loans. 

The clients which may benefit from the moratorium are only those “persons affected by the economic crisis caused by the Covid-19 pandemic, that is, persons whose employment contract has been suspended or terminated, independent workers and merchants whose activity has been affected by the health measures established by the Executive Branch”.  Such clients must be able to duly document that they have been affected, either by way of a sworn statement or by providing evidence of the termination, suspension or decrease in working hours, in their employment contract.

During the Moratorium Period, banks, cooperatives, and financing companies will not be able to collect, increase applied interest rates, surcharges, or any other interest in relation to Included Credits. Additionally, during the National State of Emergency and up to 60 days after it is lifted, credit histories will not be affected. Once the term of the moratorium expires, the banks and the beneficiaries should negotiate a refinancing or prorating of the debt, without charging any fees for late payment or any other administrative expense.

Although no mandatory measures have been implemented, the Ministry of Commerce and Industry, by means of Resolution No. 31, urged thrift companies to implement special and temporary mechanism to provide certain flexibility to consumers such as grace periods, reduction in the interest rate, extending lending term, among others.

To date, no measures have been taken to allow for banks to postpone or roll forward any payment obligations to customers´ savings or investments, and thus banks are required to comply with the payment of earnings of its customers.

By means of General Resolution SMV No. JD-3-20, the SMV adopted a special procedure for the notification of administrative acts before the SMV, allowing all administrative acts issued by the Board of Directors or Superintendent of the SMV to be notified by email with a digitized copy of the document containing the administrative act. Additionally, the resolution establishes the obligation of users and their representatives to include an email address in all requests, queries and other procedures that are presented before the SMV.

SMV Agreement No. 3 of 2020 (“Agreement No. 3-2020”) issued by the Superintendency of the Capital Market (“SMV”), approved certain special and temporary measures for the abbreviated registration of the modifications of certain terms and conditions of public offerings of securities registered with the SMV. In accordance with Agreement No. 3-2020, issuers of securities who are already registered with the SMV, and who have payment obligations to disburse to investors or financial conditions to fulfill between March 24, 2020 and 30 September 2020 are exempt from submitting the request established in Agreement No. 4-2003, article 2 when it comes to certain modifications. The issuer will have to file a public communication of significant event (“comunicado público de hecho de importancia”) with the SMV and the stock exchange indicating the requested modification and the negotiation of said securities will be suspended for three business days.

The modifications to the terms and conditions of registered securities that are exempt from the above-mentioned request under Agreement No. 3-2020, apply exclusively to: (i) maturity date of the securities, dates and form of payment of interest or principal; (ii) interest rates; (iii) reasons and / or financial conditions; (iv) redemption date of the securities, form or grounds for requesting redemption of the securities; and (v) term for the declaration of default or causes of early maturity, without said term being greater than thirty calendar days.

The Tax Authority issued Resolution No. 201-2419 of April 20, 2020, which enables the notification by email while the State of Emergency is in place. This notification will be made to the email that is registered in the taxpayer information in the e-Tax 2.0 system.

Once the email has been sent and for the following five (5) days, said notification will be understood to be valid. The information attached to the email will be the corresponding resolution or administrative act.

The period to initiate a reconsideration or appeal process is within a term of 15 business days after the formal notification of the Resolution issued by the Tax Authority.

All taxpayers who have submitted their annual tax return for the 2019 fiscal year without applying the reduction to the estimated tax for the 2020 fiscal year, may file an amended tax return without generating any costs or fines until July 17, 2020.

The deadline for submission of the 930 Tax Form on Transfer Pricing, in which transactions with related parties abroad are reported, has been extended until September 30, 2020.

Executive Decree No 251 of March 24, 2020 (“Executive Decree No 251”) approved certain tax measures for the deferral of income tax payments and the filing of income tax returns for the fiscal year 2019 for individuals and companies. 

In addition, Law 134 of March 20, 2020 (“Law 134 of 2020”) approved the extension of the Tax Amnesty previously granted through Law 99 of 2019.

Executive Decree No. 251 as modified by Executive Decree No. 298 of May 27, 2020, grants an extension for both individuals and legal entities until July 17, 2020 to file the 2019 annual income tax return.

It is not necessary to submit an application to qualify for this extension. For the time being, the one-month extension provided for in Article 710 of the Tax Code is null and void, and instead this new term established in relation to the State of National Emergency will be applied.

The deadline for payment of annual income tax for 2019 has been extended for a period of 120 calendar days from the enactment of Law 134 of March 20, 2020, that is, until July 17, 2020.

All national direct (income tax, supplementary tax, notice of operation tax) and indirect (VAT) taxes, rates, special contributions and other debts that must be paid to the General Tax Directorate ("DGI" or "Tax Authority") by natural or legal persons, as well as real estate taxes, are exempt. This extension covers the aforementioned taxes, fees, contributions that must be reported or paid on or after March 20, 2020 until the end of the extension period.

Taxes that are applied to natural or legal persons via withholding agents are not included within the payment extension,  with the exception of property tax withheld by banks for the first quarter of the 2020 fiscal year.

• Income tax withheld from employees.
• Income tax withheld from non-residents.
• ITBMS withheld from non-residents.
• ITBMS retained by the State.
• ITBMS held by local withholding agents.
• Dividend tax.

Given that companies are withholding agents for the payment of their employees’ income taxes, companies must continue to report and pay income tax to the Tax Authority.  As such, companies should continue to apply the respective withholdings to the salary and other compensation received by its employees.

Yes, it is possible to request that the Alternative Income Tax Method not be applied.  To do, the company should apply online, and it will not be necessary to present any physical document with the Tax Authority.

Yes, the estimated tax for the 2020 fiscal year must be calculated in the 2019 income tax return; however, this tax may be up to 30% lower than the annual tax for the 2019 period.  In other words, the estimated tax must be at least 70 % of the tax owed for 2019. This reduction of the estimated tax will not be subject to investigation or verification by the Tax Authority.

The payment of the estimated tax for the period 2020 must be made in two payments: the first on September 30, 2020 and the second on December 20, 2020.

Entities that operate as small businesses (AMPYME) pursuant to Law 33 of June 25, 2000, whose income tax exemption expired in 2019 or that expires in 2020, are granted an extension of one additional year to maintain the tax benefit.

Taxpayers who are being investigated for tax evasion or criminal tax fraud, will not be able to avail themselves of the benefits of deferral of payment of direct and indirect taxes, or the extension of presentation of the annual sworn income statement.

Through Resolution No. 201-2416 of April 9, 2020, the Tax Authority approved an extension for the presentation of the VAT Tax Forms corresponding to the months of March, April and May 2020. The extension had been granted until July 15, 2020.

In accordance with Law 134 of 2020, the period to take advance of the Tax Amnesty has been extended until June 30, 2020.

During the Tax Amnesty period, the tax authorities will recognize an 85% discount on surcharges, fines and interest. Additionally, Executive Decree 257 of April 3, 2020, which modifies Executive Decree 553 of November 19, 2019, which regulates the Tax Amnesty as established by Law 99 of October 11, 2019, was issued in order to modify some rules regarding the Tax Amnesty.

The General Tax Directorate ("DGI" or "Tax Authority") has been empowered to automatically apply the benefits of this Law automatically to all taxpayers who are delinquent and who have made some payment with a view to paying off their debt with the Tax Authority.

In the case of taxpayers who have a payment arrangement entered into previously, they have the following options:

• Maintain the payment agreement with an extension to comply with such agreement until December 31, 2020.
• Give up the pre-payment arrangement and enter into a new agreement. For this, 25% of the debt must be paid. New payment arrangements made after February 29, 2020, can only be made until December 31, 2020. Payment arrangements must be made online through the General Tax Directorate’s Etax 2.0 system, using form 752. The deadline to make payment arrangements is June 30, 2020, and full payment should be made by December 31, 2020. If the payment arrangement is paid in full by this date, the surcharges, interest and fines that have been applied to the balance owed will be eliminated.

The recognition of the expiration of the statute of limitations of outstanding debts must be requested by the taxpayer using form 998, which must be submitted online through the General Tax Directorate’s Etax 2.0 system.

The expiration of the statute of limitation will be recognized if the taxpayer meets the following conditions:

• The amounts owed correspond to debts that appear in the taxpayer’s account statement as of June 30, 2019.
• That the taxpayer pays what is owed within the amnesty period. In the event that the taxpayer has a payment arrangement, the taxpayer must comply with the terms of such arrangement and pay all amounts due within the time indicated by the amnesty and the payment arrangement.
• That the statute of limitation of the debt has expired in accordance with the Law, and such statute of limitations has not been interrupted or extended in accordance with tax regulations.

The forms that were to be submitted by February 29, 2020 may be filed without penalty until June 30, 2020.

Through Resolution No. 201-2401 of March 30, 2020, published in the Official Gazette on March 31, 2020, and modified by Resolution No. 201-2722 of May 20, 2020, the deadline for submitting the reports and tax compliance forms for the reporting periods of February, March, April and May 2020, have also been extended until July 31, 2020. The following reports are included in this extension:

• Report for non-reporting taxpayers (“contribuyentes no declarantes”).
• Sales report for debit card payments.
• Report on Purchases and Importations of Goods and Services.

Additionally, an extension was granted until July 17, 2020 to present reports of donations received and payments to third parties for the 2019 fiscal year, which were to have been presented by March 31, 2020.

Yes, during the period of the Tax Amnesty and until December 31, 2020, no fines will be applied for the late declaration of property improvements.

New or additional improvements must follow the standard procedure of making a declaration before a notary or obtaining a certification from an certified public accountant, stating the date of construction and the amount or value of the improvements, as well as providing a property certification from the Public Registry. Once the registration is made in the Public Registry, it will be necessary to take the registered deed to the National Land Administration Authority to update the records with that institution. If the process is completed during the Amnesty period, no fines will be applied.

Yes, the Tax Authority issued Resolution No. 201-2418 of April 16, 2020, which establishes the process to document such donations, both cash and in kind, so that they can be claimed as deductible expenses from income tax in the fiscal period in which they were made.

Resolution No. 201-2406 of April 6, 2020, exempts commercial transactions from the use of fiscal printers for invoicing while the State of Emergency remains in place, if the business cannot access the commercial premises or site where the equipment is located. Those businesses that have been exempted from the closure of activities and continue operating, must continue to use fiscal printers or any other process authorized by the General Revenue Office in order to issue their invoices.

Nonetheless, all companies must continue to document the sale of goods and / or provision of services by other means, for as long as the fiscal printers cannot be used due to the State of Emergency.

The supplemental documentation used to document the operations, whether on manual or pre-printed invoices, should contain the minimum information required by law. Once the State of Emergency ends, any transaction that appears in the manual or pre-printed invoices, must be issued through the fiscal printers.

Through Municipal Agreement 67 of March 17, 2020 issued by the Municipality of Panama, an extension has been granted until April 30, 2020 for the presentation of the Annual Income Return related to the amount of sales or gross income that have been generated in the territory of the Municipality of Panama.

Yes, through Municipal Agreement 76 of March 24, 2020, a term is granted until June 30, 2020, to cancel the payment of the corresponding taxes, tributes, fees, fines, rights, before the Municipality of Panama for the months of March, April, May and June 2020.

Liquidation and reorganization proceedings are governed by Law No. 12 of 2016. To date, no special regulations or resolutions have been issued to provide temporary or special relief for these proceedings as a result of COVID-19.

The Civil and Commercial Courts were closed until May 31, 2020 and re-opened on June 1, 2020.

However, the filing deadlines are suspended until June 21, 2020, (i.e., the deadlines for filing answer to complaints, writ of appeals, evidence, etc.).