WORLD TRADE
ORGANIZATIONG/SCM/N/48/PAN
G/SCM/N/60/PANG/SCM/N/71/PAN
4 January 2002
(02-0029)
Committee on Subsidies and
Countervailing MeasuresOriginal:  Spanish
SUBSIDIES
New and Full and Updating Notifications Pursuant to Article XVI:1 of the
GATT 1994 and Article 25 of the SCM Agreement
PANAMA
The following communication, dated 12 December 2001, has been received from the
Permanent Mission of Panama.
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The Permanent Mission of Panama is submitting the attached notification pursuant to the
provisions on full notifications in Article XVI:1 of the GATT 1994 and Article 25 of the Agreement
on Subsidies and Countervailing Measures.
In accordance with Article 25.7 of the SCM Ag reement, it should be recognized that this
notification of measures does not prejudge either their legal status under the GATT 1994 and the
SCM Agreement, the effects under the SCM Agreement or the nature of the measures themselves.
CONTENTS
A. GRANTING OF TAX CREDIT CERTIFICATES (CAT)
B. EXEMPTIONS GRANTED TO ENTERPRISES LOCATED IN THE EXPORT PROCESSING ZONES
C. EXEMPTIONS GRANTED TO ENTERPRISES INCLUDED IN THE OFFICIAL INDUSTRY REGISTERG/SCM/N/48/PAN
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A. GRANTING OF TAX CREDIT CERTIFICATES (CAT)
1. Description of the subsidy
The Tax Credit Certificate (CAT) is a subsidy to which all enterprises exporting non-
traditional goods wholly or partially produced or processed in Panama.
The CAT is a tax credit consisting of a registered, transferable, non-interest bearing document
(bond) payable to the Ministry of the Economy and Finance, with a maturity period of nine months.  It
is issued in the national currency and used to pay income tax, dividend tax, supplementary tax,
property tax, import tax and the tax on the transfer of tangible personal property (ITBM).
In order to be eligible for the CAT, the enterprise exporting non-traditional goods must show
a minimum share of 20 per cent in national content and national value added.  As a rule, the higher the
national content, the higher the amount of the CAT.
2. Period of notification
1998 to 2000 and June 2001.
3. Objective of the programme
The basic objective of the programme is to promote non-traditional exports of goods wholly
or partly produced or processed in Panama with a view to contributing to the country's development.
4. Background and authority
The CAT was introduced and is granted on the basis of the following legal instruments:
- Law No. 108 of 30 December 1974 on export incentives;- Law No. 2 of 16 January 1991 repealing Cabinet Decree No. 64 of
23 February 1990 and bringing Law No. 108 of 30 December 1974 back into force, as
amended by Law No. 71 of 22 December 1976 and Law No. 27 of 23 August 1977,
and amending Article 8(d) thereof;
- Executive Decree No. 5 of 8 February 1991, adopting new Regulations for the
application of Law No. 108 of 30 December 1974 on export incentives;
- Law No. 4 of 19 January 1993 suspending, provisionally and for a transitional period,
the effects of Article 2(g) of Law No. 108 of 30 December 1994, brought back into
force by Law No. 2 of 16 January 1991, and introducing other provisions;
- Law No. 12 of 23 April 1993 amending Article 3 of Law No. 4 of 19 January 1993;- Executive Decree No. 80 of 29 July 1994 adopting certain measures for the
application of Law No. 108 of 30 December 1974;
- Law No. 28 of 20 June 1995 adopting measures for the universalization of tax
incentives to production and introducing other provisions;G/SCM/N/48/PAN
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- Executive Decree No. 274 of 29 December 1995 regulating Law No. 28 of
20 June 1995 on the universalization of tax incentives;
- Executive Decree No. 45 of 1 August 1996 amending Article 22 of Executive Decree
No. 5 of 8 February 1991 regulating Law No. 108 of 30 December 1974, brought
back into force by Law No. 2 of 16 January 1991 and amended by Law No. 28 of
20 June 1995;
- Executive Decree No. 101 of 1 September 1997 amending an article of Executive
Decree No. 5 of 8 February 1991;
- Law No. 53 of 21 July 1998 amending Cabinet Decree No. 225 of 1969, creating the
Interior Vice-Ministry, of Trade and Industr y and the Vice-Ministry of Foreign Trade,
and introducing other provisions (Article 8 of Law No. 108 of 30 December 1974 is
repealed).
5. Form of subsidy
Tax credit in the form of a certificate used for the payment of national and import taxes.  This
credit amounts to 15 per cent of the national value added of the exported goods.
6. Beneficiaries and mechanism
All natural and legal persons exporting non-trad itional goods who, on request and following a
study are found to meet the national value added requirements laid down by law (a minimum of 20
per cent for persons established in the metropolitan region and a minimum of 10 per cent for persons
located outside the metropolitan region).  The percentage of national value added is calculated on thebasis of production or manufacturing costs of the e xported product.  The production cost is equivalent
to the sales cost minus profits, provided they do not exceed 12 per cent of the capital invested in the
production of the product to be exported.
It has further been established that enterprises enjoying full exemption from income tax on
the profits generated by export sales are not eligible for this incentive.  An exception is made for
persons engaged in agricultural and agro-industrial exports of non-traditional products.
The mechanism operates on the basis of non-traditional exports of goods produced or
processed wholly or partly in Panama.  The CAT has a value equivalent to 15 per cent of the national
value added of the goods exported based on production costs.  The national value added essentially
consists of the sum of domestic raw materials (agricultural, marine and non-metallic mineral) used inthe production process, direct labour (salary, soci al benefits, bonuses, etc.), national and municipal
taxes, public services, domestic packaging and packing, rents, interest on loans, depreciation of
equipment and profits.
7. Estimated amount of the subsidy
According to the information provided by the Directorate of Foreign Trade Services of the
Vice-Ministry of Foreign Trade based on resolutions issued during the past three years for which
information is available, the total value of CATs granted was US$25,294,199 in 1998, US$34,264,794
in 1999 and US$37,527,168 in 2000.G/SCM/N/48/PAN
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8. Duration of the subsidy
With the promulgation of Law No. 28 of 20 June 1995 adopting measures for the
universalization of tax incentives to producti on and introducing other provisions, the CAT was
established at 20 per cent of the national value added until 31 December 2000, to be reduced to 15 per
cent for the period from 2001 to December 2002.  The programme is scheduled to last until
31 December 2002.
9. Statistical data permitting an assessment of the trade effects of the subsidy
SECTORS 1998 1999 2000
CAT
(US$)F.O.B.
VALUE
(US$)CAT
(US$)F.O.B.
VALUE
(US$)CAT
(US$)F.O.B.
VALUE
(US$)
TOTAL 25,294,199 175,173,399 34,264,794 183,682,755 37,527,168 203,508,046
MARINE 5,976,351 40,870,946 9,397,619 48,922,775 12,663,283 63,241,544
AGRICULTURE/
LIVESTOCK4,084,945 22,058,886 5,584,514 31,575,063 4,667,692 24,899,462
AGRO-INDUSTRIAL 8,885,161 63,716,187 5,918 ,645 25,729,783 12,183,458 54,738,820
INDUSTRIAL 6,347,741 48,527,380 13,364,016 77,455,133 8,012,736 60,628,220
B. EXEMPTIONS GRANTED TO ENTERPRISES LOCATED IN THE EXPORT PROCESSING ZONES
1. Description of the programme
The Export Processing Zones (EPZs) are tax free areas – in other words, enterprises
established in the EPZs as well as any activity, operation, transaction, processing and transfer of
movable and immovable property, purchase and import of construction materials and equipment, raw
materials, equipment, machinery, tools, accessories, inputs and any goods or services required for the
operations of such enterprises within the EPZ, are 100 per cent free of national direct and indirect
taxes, contributions, duties and levies.
The capital of companies established in the EPZs is also free of direct or indirect national
taxes, including patent or licence taxes.
Moreover, a special migration regime has been established for foreigners whose companies
are located  within the EPZs, provided the amount invested exceeds US$250,000.  Foreign investors
(with spouses and minor children) are entitled to apply for a permanent residence visa as investors,
and foreigners (with spouses and minor children) hired by companies located within the EPZs as
managerial staff, executives, experts or technicians may apply for temporary residence visas valid for
the duration of their contract, subject to the laws  laid down in the Labour Code of the Republic of
Panama.  Foreigners (with spouses and minor children) wishing to carry out transactions with
companies established in the EPZs may apply for a resident business visa valid for one year.  Other
special labour provisions have been developed for enterprises covered by the special EPZ regime.
2. Period of notification
1998 to 2000 and June 2001.G/SCM/N/48/PAN
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3. Objective of the programme
(a) To create a special, integrated and simplified regime for the establishment and operation of
EPZs with a view to contributing to the coun try's development by generating employment and
foreign exchange.
(b) To enable Panama to be incorporated in the global economy by promoting exports of goods
and services, encouraging investment creation and stimulating scientific, technological,
economic, cultural, educational and social development in the country.
4. Background and authority
The EPZ regime was established on the basis of the following legal instruments:
- Law 25 of 30 November 1992 establishing a special, integrated and simplified regime
for the establishment and operation of export processing zones;
- Executive Decree No. 28 of 19 May 1993 regulating Law No. 25 of
30 November 1992;
- Executive Decree No. 1-D of 28 January 1994 regulating Law No. 25 of
30 November 1992 with respect to the turnover of companies under the export
processing zones regime;
- Law No. 28 of 1 February 1996 cancelling special passports issued on the basis of
Law No. 25 of 1992 and introducing other provisions;
- Decree Law No. 3 of 7 January 1997 adding an Article to Law No. 25 of
30 November 1992 establishing a special, integrated and simplified regime for the
establishment and operation of export processing zones;
- Law No. 53 of 21 July 1998 amending Cabine t Decree No. 225 of 1969, creating the
Interior, Vice-Ministry of Trade and Industr y and the Vice-Ministry of Foreign Trade,
and introducing other provisions (Articles 5 and 6 of Law No. 25 of
30 November 1992 are repealed).
5. Form of subsidy
The subsidy granted under this programme is based on complete exemption from national
direct and indirect taxes, contributions, duties and levies for the enterprises established in the EPZs as
well as for any activity operation, transaction, processing and transfer of movable and immovableproperty, purchase and import of construction materials and equipment, raw materials, equipment,
machinery, tools, accessories, inputs and any goods or services required for the operations of such
companies within the EPZ.
6. Beneficiaries and mechanism
All natural and legal persons, whether nationals or foreigners, engaged in the production of
goods and services either as manufacturing, assembly and processing enterprises for finished andG/SCM/N/48/PAN
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semi-finished goods or as services export or general service enterprises, may obtain a licence to set up
their operations in an export processing zone.
Sales of raw materials, semi-finished goods and packaging supplied by domestic companies to
the industries located within the export processing zones are considered to be exports, but are not
eligible for the Tax Credit Certificate (CAT).  Nor may enterprises or industries established in the
export processing zones opt for or benefit from CATs.
To obtain the mentioned licence, the enterprise must submit a formal application to the
Technical Secretariat of the National Commission on Export Processing Zones together with acertificate of authorization for the processing zone, certification of the capital invested, a project study
for the planned project and documents certifying the applicant's standing.  Once these requirements
have been met, the National Commission on Export Processing Zones grants the licence and registers
it in the official register of the export processing zones.
7. Estimated amount of the subsidy
No estimate available.
8. Duration of the subsidy
Indefinite
9. Statistical data permitting an assessment of the trade effects of the subsidy
Exports from the Processing Zones of Panama
1996-2000
Year No. of Enterprises Exports
Net Weight (Kg.)F.o.b. Value
(Thousands of US$)
1996 9 252.4 3,540.2
1997 19 1,886.4 19,258. 2
1998 22 3,606.4 25,661.5
1999 39 2,968.8 20,495.7
2000 48 10,322.9 25,973.7
Source: Comptroller General of the Republic
C. EXEMPTIONS GRANTED TO ENTERPRISES INCLUDED IN THE OFFICIAL INDUSTRY REGISTER
1. Description of the subsidy
The programme establishes three categories of registers on the basis of which enterprises may
avail themselves of the different incentives and benefits.  Each enterprise must register in one of these
categories.  The categories relating to exports are the following:
(a) Enterprises wholly engaged in export production
These companies enjoy the following tax incentives:G/SCM/N/48/PAN
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(i) Full exemption from taxes on introduction, contributions, levies and customs duties
and fees, along with the tax on the transfer of tangible property applied to imports of
machinery, equipment and spare parts used in the production process, excludingconstruction materials, vehicles, furniture, office supplies and any other imputs not
used in the production process;
(ii) full exemption from income tax on profits, with the exception of mining industries or
those using the country's natural resources;
(iii) full exemption from export taxes;(iv) full exemption from sales tax;(v) full exemption from production taxes;
(vi) full exemption from taxes on the enterprises' capital or assets, except licence and
immovable property taxes;
(vii) creation of special funding programmes on a preferential basis compared to what is
normally available on the market.
(b) Enterprises partially engaged in export production
These companies enjoy the following tax incentives:
(i) Full exemption from income tax on profits obtained from production for export, with
the exception of mining industries or those using the country's natural resources;
(ii) full exemption from export taxes;(iii) full exemption from export sales tax;
(iv) full exemption from export production tax;
(v) creation of special funding programmes on a preferential basis compared to what is
normally available on the market;
(vi) deduction from the taxable income of fixed costs such as interests, depreciation and
maintenance, provided total export sales do not exceed 20 per cent of the total value
of sales.
2. Period of notification
1998 to 2000 and June 2001.
3. Objective of the programme
The basic objective of the programme is to provide the stimulation needed to promote
industrial activity and exports, which are important to the achievement of progress and the
development of the country's economy.G/SCM/N/48/PAN
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4. Background and authority
The Official Industry Register is regulated by the following legal instruments:
- Law No. 3 of 20 March 1986 adopting a regime of incentives for the promotion and
development of the national industry and exports;
- Law No. 28 of 20 June 1995 adopting measures for the universalization of tax
incentives to production and introducing other provisions;
- Executive Decree No. 274 of 29 December 1995 regulating Law No. 28 of
20 June 1995 on the universalization of tax incentives to production and introducing
other provisions;
- Law No. 26 of 4 June 2001 amending Articles 23 and 25 of Law No. 28 of 1995 on
the universalization of tax incentives to production.
5. Form of subsidy
Tax exemptions according to the category in which each particular enterprise is registered, as
described in part 1 above (description of the subsidy).
6. Beneficiaries and mechanism
All companies engaged in industrial manufacturing or assembly activities in the territory of
Panama are eligible for this programme.  Manufacturing industries are those engaged in processing
raw materials and semi-finished goods and producing goods, including agricultural, livestock, forestry
and marine products.  Assembly industries are those engaged in the production of finished goods by
putting together inputs and semi-finished parts.  They include small and medium industrial enterprises
which meet the above requirements.
The enterprises concerned by the programme must be registered in the Official Industry
Register.  Registration is subject to a decision by the Ministry of Trade and Industry, and entitles the
enterprise to the benefits and incentives provided for under the programme from the date on which the
decision is issued and for the period of validity of the registration.
Enterprises benefiting from total exemption from income tax on profits generated by export
activities are not eligible for the Tax Credit Certificate (CAT) incentive, although an exception is
made for persons engaged in agricultural and agro-industrial exports of non-traditional products.G/SCM/N/48/PAN
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7. Estimated amount of the subsidy
Value of Tax Exemptions for Enterprises Included in the
Official Industry Register
1999Type of enterpriseAmount of the exemption (US$)1
Total 14.39
Total Export 2.67
Partial Export 11.72
1Includes, inter alia , the full exempted income tax, the import tax, and the tax on the transfer
of tangible personal property.
Source:  Ministry of the Economy and Finance/Directorate-General of Revenue.
8. Duration of the subsidy
The duration is dependant on the expiry date of the official registration of an enterprise in a
particular branch of economic activity under the Uniform Industrial Classification (CIIU), subject tothe exceptions below:
(a) For companies engaged entirely in export production, the following subsidies are to
be eliminated by 31 December 2002 at the latest:
(i) Full exemption from income tax on profits;
(ii) full exemption from taxes on the enterprises' capital or assets;
(iii) creation of special funding programmes on a preferential basis compared to
what is normally available on the market.
(b) For companies partially engaged in expo rt production, the following subsidies are to
be eliminated no later than 31 December 2002:
(i) Full exemption from income tax on profits for export;
(ii) creation of special funding programmes on a preferential basis compared to
what is normally available on the market;
(iii) deduction from the taxable income of taxable fixed costs (such as interests,
depreciation, maintenance, etc.) for enterprises partially engaged in exportproduction.
8. Statistical data permitting an assessment of the trade effects of the subsidy
No statistical information available to assess the trade effects of the programme.
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